by | BLOG, ECONOMY, NEW YORK, POLITICS
That’s me!
Senator Kirsten Gillibrand’s website proudly proclaims “as the mother of two young children, Senator Gillibrand knows that working families are struggling in this difficult economy.” But Sen. Gillibrand’s positions regarding the economy don’t support such a statement.
When Gillibrand appeared on Meet The Press on April 21, she stated that she refuses to support even the trivial chain “CPI” adjustment of Social Security benefits “because it is not significantly affecting the current deficit”. This reform (backed even by President Obama in his April 7 budget) changes the formula for calculating cost-of-living increases in Social Security, thereby reducing future raises slightly. Gillibrand’s extreme position, on the other hand, flatly spurns any changes that will reduce the looming catastrophe of Social Security.
Gillibrand is well aware that the reason that the current deficit is not being significantly affected is that her children’s future retirement payments are being confiscated, being used to pay for current retirees (whose retirement payments were similarly confiscated). This is the well known Ponzi method of entitlements – taking money from current workers who think — and are being told by Ms. Gillibrand – that they are paying for their own retirement, when in fact the money is being stolen to pay for others whose money was similarly taken under false pretenses.
The current total Social Security liabilities, per the Annual Trustees Report, has ballooned to $20.5 trillion. The liabilities are the promised future payments to workers currently paying into the system. Gillibrand is aware that each year that goes by significantly increases the burden to her own children – and ours, which weakens the economy. For her staunch advocacy of this position, she should be granted the well-earned title of PONZI MOM.
by | BLOG, BUSINESS, POLITICS, TAXES
We need more of your money!
The Senate passed the online sales tax bill, formally known as the “Marketplace Fairness Act”. There is nothing fair about this act. It is a back-door way for states to add additional levies on their citizens under the guise of leveling the playing field . From an accountant’s perspective, here’s how:
Most proponents of the bill suggest that there is somehow a dearth of tax revenue from which states are suffering. This sentiment was echoed in the pages of the WSJ by Arthur Laffer. He wrote that “the exemption of Internet and out-of-state retailers from collecting state sales taxes reduced state revenues by $23.3 billion in 2012 alone, according to an estimate by the National Conference of State Legislatures. The absence of these revenues has not served to put a lid on state-government spending. Instead, it has led to higher marginal rates in the 43 states that levy income taxes”.
This is simply untrue. State legislatures have always set their tax rates with the full understanding that they would not collect that supposed $23.3 billion of internet “slippage”. It’s not like there is a line item in state budgets that lists “uncollected online tax” or “tax cheats” with a number attached. Sales tax is one of many levies whose revenues positively fund government spending. This online tax, if passed by the House next and signed into law, will just be yet another tax (and therefore revenue) for the coffers. Higher marginal rates exists because state-government spending levels are higher, not because of some “absence of tax” that forces states to raise rates.
In our states’ budgets, current taxes rates (income + sales, if applicable) are set at levels appropriate to cover the calculations of state spending. 49 out of 50 states require a balanced budget. These states are fully aware that taxes are “avoided” (internet and out-of-state) and therefore don’t count them in their budget calculations. Thus, by passing this new internet tax, you are merely giving the states a free reign to add a tax without taking the political heat for it, under the guise of “fairness”.
Looked at it another way, it is unconscionable for Congress to pass this legislation without requiring that states lower their marginal rates so that the new tax makes everything revenue neutral. Higher marginal rates as they are already burden taxpayers. This internet tax doesn’t fix anything — because there is nothing in their budgets to be “fixed”. True tax reform (a true “fix”) always means broadening the base and thereby reducing the overall burden of taxes. Instead of that, what we have with this bill is a revenue grab.
Another fallacy for supporters is that including the internet tax in transactions is simply a matter of adding a quick, little tax line where there was none before. But it is highly irrational for legislators to believe that compliance with multiple tax jurisdictions for vendors will be an easy and unburdensome process. The recordkeeping will be excruciating.
This tax nightmare is similar to the 1099 fiasco originally included in Obamacare a couple of years ago, which expanded the reporting requirements to include all payments from businesses aggregating $600 or more in a calendar year to a single payee. Because of the insurmountable amount of reporting and paperwork that would have been associated with it, that provision was swiftly and subsequently repealed.
The effect of distressing our businesses to comply with this online tax collection will be a drag on the economy. Can you imagine vendors needing to figure such things as whether marshmallows are a taxable food/candy in some jurisdictions while it might be a non-taxable food in others? To think that software can seamlessly make this distinction is ludicrous, especially software run by the government. When has the government ever actually streamlined anything? And implementing such a convoluted tax while businesses are already having to deal with sorting out the egregious complexities of Obamacare compliance will certainly hurt businesses even more.
Internet tax collection for 9,600 local tax jurisdictions or even just 50 states is too much. If such a tax is to be passed, it should be either a tax in which every state accepts one set of rules OR a tax payable to the state-of-sale only — which would ultimately be better for tax competition overall.
The economy is suffering enough. Adding yet another tax for citizens, which also requires burdensome compliance for businesses, is not the way to do it. Laffer was correct when he observed that “the principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce—which are necessary to reinvigorate the American economy and cope with the nation’s fiscal problems”. This proposed tax doesn’t do that. In its current form, it is just another revenue stream for our bloated, overspending government.
This is no “Marketplace Fairness Act”. It is an atrocity.
by | ARTICLES, ECONOMY, NEW YORK, POLITICS
In a twist of irony, “Big Government” Bloomberg has admitted that NYC is at the edge of a fiscal precipice.
“There is no practical ways to pay our workforce given the current environment, current tax structure, current other obligations we have more than what we have been doing, with the possible exception of dramatically raising taxes”.
Bloomberg points to public service unions as being among the biggest roadblocks to any meaningful fiscal health in the city.
Currently in NYC, most of the unions are refusing to negotiate contracts right now. This is completely legal. If the contract is not re-negotiated, the current terms continue. The unions are trying to hold out for more money until a new mayor is elected, in the hopes that a new mayor will cave to their demands. One thing Bloomberg wants — which is met with hostility — is to “force union workers to pay part of the health care costs”. Imagine that! “Unless we do something those expenses will bankrupt us,” Bloomberg said.
Additionally, when Bloomberg mentions “obligations”, he’s talking largely about the pension system.
Living in NYC, I am no fan of Bloomberg’s at all. I do want to give him a little (tiny) credit — he’s been sounding the alarm about this for the past few years. Even back in 2010, Bloomberg told CrainsNY that
“city pension funds have set unrealistically high assumed rates of return on investments, at 8%, which may require spending more than has been budgeted for retirement benefits…The pension system itself provides defined benefits that can’t be reduced under guarantees the Legislature has placed in the state constitution. While it permits new, less-expensive benefit tiers for future employees, savings wouldn’t be realized for 10 or 15 years”
The New York pension system is out of control. In addition to the extravagant, irresponsible and under-reported negotiated levels of benefits, there is an additional characteristic of the system that is never talked about. There is a huge break that goes to New York retirees; anyone who gets a retirement pension from New York State, or any locality or agency (teacher, firefighter, etc) pays no city or state income tax on that pension money. This hearkens back to the days when New York workers were so underpaid that this benefit was warranted.
It should be noted that nearly a decade ago, that provision of New York state law was declared federally unconstitutional. It was determined that New York state could not exclude federal retirees from the tax exemption. The courts gave New York two options: make New York government pensions taxable, or add federal workers to the list of non-taxable agencies. Of course, New York chose the latter, thereby adding to the state budget deficits.
Even though historically, public sector employees earned less than what those skills would command in the private sector, that is clearly not the case today. Study after study has shown that public sector compensation – which includes retirement pensions – has steadily outpaced its private sector counterparts in recent years. New York is among the worst offenders.
This state of affairs must be reversed. Allowing the exempted retiree pensions to be taxed the same way other retiree pensions would accomplish two goals: 1) lessen the compensation disparity with private sector employees, and 2) severely reduce the New York budget deficit by providing additional revenue to the state.
But it won’t happen. Too many people are entangled in the system as it is and don’t want to give up their tax-free benefit. And with the unions unwilling to budge on anything with Bloomberg, the likelihood that any real reform will take place — be it pension reform, benefit reform, or anything where the public service union employee might have to pay a little more — is very remote.
How is NYC going to afford all the tsunami it has created? Bloomberg warns that taxes could go up 50% if the unions are given what they want once a new Democrat mayor is elected. For high income earners, federal/state/local taxes combined already total 54%! More than half of your income going to the government. This is legal plunder.
Frederic Bastiat characterized “legal plunder” as a “fatal idea” in “The Law”. He wrote, “Imagine that this fatal principle has been introduced: Under the pretense of organization, regulation, protection, or encouragement, the law takes property from one person and gives it to another; the law takes the wealth of all and gives it to a few”
and also this:
“Now, legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole — with their common aim of legal plunder — constitute socialism”.
Sounds a lot like NYC. It is running out of other people’s money. Of course, Bloomberg never mentions cutting govenment spending and waste as a dent in the abyss, but that’s a whole other matter. The current fiscal trajectory is unsustainable. Higher taxes are unsustainable too. What happens when a Democrat once again gets elected as mayor, and what happens when the union negotiations begin in earnest again? The people of New York City have no idea about the financial mess that will inevitably hit them.
by | BLOG, OBAMA, OBAMACARE, POLITICS, TAXES
Shhh! Don’t tell anyone your taxes are going up!
A couple of weeks ago, I spoke at a gathering of higher-income earners. The bulk of the discussion was a comparison of what this bracket of folks just paid in 2012 vs what they will pay in higher taxes in 2013. Some of those taxes had to do with the implementation of Obamacare and the new taxes associated with it.
However, many do not realize that Obamacare taxes, (levies created to help pay for the legislation) do not only affect high income earners. With the report out yesterday that 42% of Americans don’t realize that Obamacare is the law of the land, it is certain that many also don’t know that there are taxes — besides the “penalty” — that will affect many average Americans.
Say what you will about ATR; however, they have been one of the few organizations who have chronicled continuously since Obamacare was written, the various taxes that will be/have been imposed at various stages in the game during this Obamacare roll-out. From the perspective of a CPA like myself, having a list compiled together is very useful. Now that tax season is over, it is never to early to think about next year.
Below is a summary of new Obamacare taxes just for 2013,. These will affect (and probably shock) many Americans when they file their taxes next year.
“Obamacare Surtax on Investment Income: A new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single). This tax hike results in the following top tax rates on investment income:
Capital Gains: 23.8%
Dividends: 43.4%
Other* 43.4%
*Other unearned income includes (for surtax purposes) gross income from interest, annuities, royalties, net rents, and passive income in partnerships and Subchapter-S corporations. It does not include municipal bond interest or life insurance proceeds, since those do not add to gross income. It does not include active trade or business income, fair market value sales of ownership in pass-through entities, or distributions from retirement plans. (Bill: Reconciliation Act; Page: 87-93)
Obamacare Medicare Payroll Tax Increase:
Pre-Obamacare:
First $200,000, ($250,000 Married) Employer/Employee: 1.45%/1.45%; 2.9% self-employed
All Remaining Wages Employer/Employee: 1.45%/1.45%; 2.9% self employed
Obamacare:
First $200,000, ($250,000 Married) Employer/Employee: 1.45%/1.45%; 2.9% self-employed
All Remaining Wages Employer/Employee: 1.45%/2.35%; 3.8% self-employed
(Bill: PPACA, Reconciliation Act; Page: 2,000-2,003; 87-93)
Obamacare Medical Device Tax:
Medical device manufacturers employ 409,000 people in 12,000 plants across the country. Obamacare imposes a new 2.3 percent excise tax on gross sales – even if the company does not earn a profit in a given year. In addition to killing small business jobs and impacting research and development budgets, this will make everything from pacemakers to artificial hips more expensive. (Bill: PPACA; Page: 1,980-1,986)
Obamacare High Medical Bills Tax:
Before Obamacare, Americans facing high medical expenses were allowed a deduction to the extent that those expenses exceeded 7.5 percent of adjusted gross income (AGI). Obamacare now imposes a threshold of 10 percent of AGI. Therefore, Obamacare not only makes it more difficult to claim this deduction, it widens the net of taxable income. According to the IRS, 10 million families took advantage of this tax deduction in 2009, the latest year of available data. Almost all are middle class. The average taxpayer claiming this deduction earned just over $53,000 annually. ATR estimates that the average income tax increase for the average family claiming this tax benefit will be $200 – $400 per year. To learn more about this tax, click here. (Bill: PPACA; Page: 1,994-1,995)
Obamacare Flexible Spending Account Tax:
The 30 – 35 million Americans who use a pre-tax Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs face a new Obamacare cap of $2,500. This will squeeze $13 billion of tax money from Americans over the next ten years. (Before Obamacare, the accounts were unlimited under federal law, though employers were allowed to set a cap.) Now, a parent looking to sock away extra money to pay for braces will find themselves quickly hitting this new cap, meaning they would have to pony up some or all of the cost with after-tax dollars.
Needless to say, this tax will especially impact middle class families.
There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. Nationwide there are several million families with special needs children and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obamacare tax provision will limit the options available to these families. (Bill: PPACA; Page: 2,388-2,389)”
So, while Obama claims he wants the wealthy to “pay their fair share”, he doesn’t tell you that he also expects millions of average-income Americans to do so — in order to pay for Obamacare. Unfortunately for all of us, as I wrote about earlier, Obamacare levies (many of which are still to come after 2014) still won’t pay for all of Obamacare in through 2023.
In that regard, we are certain to expect more taxes in the coming decade. Taxes are the government’s never-ending solution to raise more revenue (though we are on track to raise record revenue this year). How else are we expected to finance this brilliant, sinking ship?
