by | ECONOMY, SOCIAL SECURITY, TAXES
Though I applaud the refreshing boldness that Mr. Cain had shown by proposing to America an actual plan for tax reform, there are two serious drawbacks to his solution that show his fiscal naivete. Most critics would point to the unsavory proposal of having both a sales and income tax in force at the same time, making it possible for future Congresses to increase rates and turn us into Europe. But it is actually the plan’s impact on Social Security that is most devastating.
Cain’s plan would eliminate the Social Security tax and related withholding, and cover retirement pensions as a true “entitlement” (welfare) system out of general tax revenues. This is not what Social Security was intended to be as established by FDR; that is, a system in which people paid for their own retirement. Once liberal politicians started promising individuals far in excess of what their contributions paid for, with no actuarial consideration nor funding whatsoever, Social Security’s demise became assured.
In order to overcome its crippling insolvency, Social Security must go back to its original intent — a self-funded retirement plan. This could be achieved by taking any of many possible forms, but must include the concept that individuals themselves are paying for their own retirement; ie, they are putting money into a plan which will become their invested retirement fund.
By contributing more deeply to the entitlement problem and making Americans further wedded to the government, Cain’s tax plan is a failure. Such a solution ultimately departs from his avowed conservativism.
by | ECONOMY, TAXES
Senator James Clyburn’s (D-SC) appearance on Fox News Sunday on November 13 regarding the Super Committee was a disgrace. If he is representative of the Democrats on the committeee, there really is no hope that any meaningful conclusion can be reached by November 23rd. His analysis of tax loopholes and deficit reduction was utterly inaccurate.
In the first instance, Clyburn disagreed with the premise that cutting loopholes results in a tax increase. He clearly doesn’t understand that the loopholes to which he is referring are really the tax deductions that taxpayers take. Such deductions are reasonable to a lot of people because they do have some incentives, but, financially speaking, they are revenue losers and detrimental to growth. Cutting the loopholes (deductions) will increases taxes because people will not be able to reduce their taxable income as much, thereby likely ending up in a higher tax bracket.
Additionally, when confronted by the moderator over his analysis, Clyburn declared that he wants to look for the loopholes for those wealthy taxpayers “that allow you to go down to zero in taxes” .Of course, the truth is that there is no way to do that. For Clyburn to assert such a ridiculous idea on national television shows he has no fiscal acumen.
In perhaps the most egregious comment of the interview, Clyburn insisted with a straight face that the Super Committee can and should consider the $917 billion worth of money that won’t be spent on Iraq and Afghanastan to be a tax cut. When confronted with this absurity, Clyburn justified his remarks by arguing that the money should be counted because it can be “plowed back” into the economy.
How could we ever have expected a serious and substantive meeting of the minds when legislators as oblivious as Clyburn are members of the Super Committee?
by | BUSINESS, ECONOMY, TAXES
There are rumors circulating around the country that the Congressional Super Committee may take action that would immediately repeal the $5 million gift tax exemption by Thanksgiving. This is sending countless tax lawyers and accountants scurrying to complete gift planning that the law tells them they have until December 31, 2012 to complete. The lifetime gift level tax exemption was temporarily increased to $5 million under the 2010 Tax Relief Act for 2011 and 2012. Neither the Obama administration nor Congress have commented on these rumors, causing great concern and uncertainty. An about-face reversal with little notice would be extremely disruptive, unfair, and inequitable.
Regardless of how many or few people this change would affect, the fact that this Congressional committee would have the ability to alter the law midstream on the taxpayers who have been working on their long-term plans is outrageous. Any taxpayer – wealthy or not – should be entitled to be able to rely on their current tax law when making tax decisions, and, if a law might be modified, have ample time to implement necessary changes. The real possibility that the aforementioned law might be changed as of the super committee deadline is unconscionable.
This disruption, just by the speculation that is not being refuted or confirmed, is causing great stress. Most of the taxpayers to be impacted by such a change are the very people who create the jobs in this country. With business people dropping everything to deal with these rumors which could have major effects on their business transition plans, it could also impede job growth.
If there were to be such action taken by the Super Committee, it is likely to do serious harm to the United States economy. But more importantly, it reveals the shallowness of any real commitment to tax equity and transparency. The country seems to be rallying around the concepts contained within the Simpson-Bowles and the Rivlin-Domenici reports, both pushing for greater transparency and comprehensive and reliable tax reform. It would be abhorrent if this ‘new direction’ had, as its first implementation, a huge gotcha moment.
by | HYPOCRISY, TAXES
The concept of an American President going after people making a lot of money and paying a relatively low tax rate on it is particularly naïve; it displays an absolute lack of familiarity with how people get wealthy. As a CPA, I can attest to the fact that the most common way people accumulate massive wealth is either by a huge amount of hard work (creating a successful business) or selling an asset (an invention, real estate, etc).
Many people who file tax returns with large amounts of income, such as selling a business for $10 million, will have a multi-million capital gains amount. It’s not that the higher income earners have some sort of capital gains loophole, but it’s really that the wealthy have done something well to attain the American Dream. And when they do strike it rich through their effort, part of their wealth is treated as a capital gain and it gives those earners a chance to keep a part of it. Knowing that there is a low capital gains rate is an extra incentive to work hard and be successful.
Many of my clients are wealthy, and I have experienced time and again that they will come to me and ask the question: if they are successful, can they keep the majority of their money?”. This is because they know that government wants to take more from the highest income earners who have proven their success, while at the same time, the government is quite happy to let them lose on their own on their particular endeavor.
Most in the top echelon get there from a one-time income-producing significant event. To punish such success by raising the capital gains tax only serves to drive a deeper wedge between the have- and have-nots in an attempt to level the economic playing field.
by | ECONOMY, TAXES
The most irksome thing about the Occupy Wall Street (OWS) movement is the phony crony capitalist fever going on. The truth of the matter is that, if OWS individuals were honestly seeking to engage and change, and really understood how capitalism works, they’d be for capitalism and against Obama.
The very act of bailouts is anti-free market. It is the opposite of capitalism.
Those companies who received bailouts abused their free market capitalist competitors by cozying up to the government and getting politically motivated handouts. These bailouts were substantially shared by the very unions that were substantially responsible for the companies going bankrupt in the first place. The only thing to enable the cronyism was Obama, who decided to not allow capitalism to work by letting the losers lose — which would have been more beneficial for everyone, except those cronyists.
Those Occupiers who are against capitalism and the bailouts simultaneously clearly don’t understand the difference; it shows naivete on the part of the OWS movement. Their fiscal ignorance undermines their cause and promote a crony socialist agenda.
