The IRS recently proposed major changes to the way not-for-profit 501c4 organizations operate, which would effectively and severely limit their ability to engage in advocacy. These are your social welfare organizations, for which advocacy for “the common good and general welfare” is their primary purpose. They differ from 501c3, which are your charitable organizations; 501c5s, your labor unions; and 501c6s, your trade organizations. The one thing all of these organizations do have in common is that they are all tax-exempt organizations.
501c4s are not tax-deductible precisely because they are not political organizations. They serve to educate by being issue-based. This is protected under free speech; so long as the 501c4 sticks to an issue and not advocate for a particular candidate, it is not considered political speech and therefore it cannot be curbed. They can talk about policies and positions, not people.
These social welfare groups can therefore participate in the political arena as long as they maintain education as their primary purpose. Some examples of 501c4s would be the National Rifle Association (NRA), American Association of Retired Persons (AARP), Americans for Tax Reform (ATR), and the Sierra Club. 501(c)4s have been around for nearly 100 years, and the regulations that currently govern them have been in place since 1959.
So why has the Obama administration and the IRS taken a sudden interest in clarifying the rules for social welfare organizations that have been in place for more than 50 years? And why only the social welfare organizations, not the unions or trade organizations?
It is well known that on issue-based advocacy, the Republicans have made much better use of 501c4s than the Democrats. So of course, the Democrats want to find a way to disrupt this. You can find a flood of recent articles documenting how this conservative group and that conservative group spent money on political ads, more than the liberal groups–as if that is somehow unfair. It’s perfectly fair and perfectly legal — except when the Democrats are on the losing/receiving end.
This situation is reminiscent of the attempt to implement the “Fairness Doctrine” for talk radio, pushing to give conservative and liberal talk radio shows “equal air time” — because the conservatives dominate that market as well.
The 2014 Democrats are vulnerable, and they know it. What better way to stifle the ability for conservatives to message (foremost on the fledgling Obamacare law) than by attacking the methodology? The Obama Administration is retaliating by using the IRS to propose changes to the way social welfare organizations function and introducing very specific and onerous rules. These rules that have not been necessary at all for the entirety of the time (nearly a century) 501c4s have been in existence — until suddenly now.
What the new policy does is make definitions of political activity, specifically creating a huge number of things to now be considered “political”. The regs “would explicitly define which kind of activities are political and fall outside of the social welfare category, forcing such groups to be more careful about how they spend their funds. Under the proposed regulation, “candidate-related political activities” would include running ads that mention candidates close to Election Day, preparing voter guides or holding voter registration drives”.
By defining such activities as “political” instead of advocacy, they would be opened to being limited or even banned — activities which serve to provide education for the common good, as they always have.
Critics of the way 501c4s operate, which allow their donors to remain protected, suggest that the 501c4s are somehow gaming the system — using phrases like “secret donors” and “secret activity” to inflame the public against 501c4s. But this is patently untrue.
Political donors are required to be disclosed under campaign finance, but since 501c4s are specifically not political organizations, the donor names do not need to be made public. Their anonymity is protected under the Right of Free Association. Those who are on the receiving end of 501c4 activities to educate the populace during the election cycle, however, are now pushing for this to change in order to reveal citizens identities.
Therefore turning a simple and known definition of a 501c4 into a new and incomprehensible one, has the effect of stifling speech. Even the mere presence of such a proposal has had detrimental repercussions.
The regulation triggered more public commentary– tens of thousands of responses — during the open comment timeframe that recently ended, than any other regulation in history. Because of the outcry, there is a strong likelihood that it the proposed changes will be rescinded. How it even was allowed to come to fruition is mind-boggling.
It is possible that the persons who drafted the legislation didn’t even care about its clarity or effects. Every day that the proposal is even out there is another day that these 501c4s either a) can’t get started or b) can’t engage in advocacy. Why? The possibility of these regulations becoming permanent rules has 501c4s worried about potential infractions. After the recent revelations about the IRS targeting last year, it is not unlikely to think that the IRS purposely crafted muddled regulations.
From the vantage point of the 2014 midterm elections, the effect of curbing or scaring the activity of 501c4s during this election cycle undoubtedly benefits the Democrats.
What organization would risk the potential for increased scrutiny and possible violation from the IRS, knowing that the IRS has been operating in an unjust and partisan matter? They wouldn’t of course. So the 501c4s are currently holding back.
The IRS continues to act in an incompetent manner. That they are targeting 501c4s, and not c5s and c6s, show that there is an inherent bias internally within the IRS. No one can look at the situation and not think that this wasn’t done to have an affect on the current political cycle. This is not how the IRS is supposed to function in our country.
The Washington Times reports that the IRS will not be able to finish their investigation regarding the targeting of Tea Party and other groups, until far after the 2014 elections:
“John Koskinen, the man President Obama tapped to clean up the embattled agency, also said it will take years to respond to all of the document requests from Congress. He told Congress that even complying with a subpoena for emails from just a handful of key employees couldn’t be done before the end of this year because it takes time to have attorneys delete protected taxpayer information”.
It is quite convenient that there will be no resolution to the IRS scandal before the midterm elections, especially on top of the new proposed IRS regulations regarding 501(c)4s.
The IRS is an agency that needs to clean house from top to bottom.
So, the tax that was supposed to hit high income earners now also can affect children under certain conditions involving investment. Taxpayers — take note!
“Last Friday, the IRS published a tip on its website entitled “Tax Rules for Children with Investment Income.” Included is this note regarding the Net Investment Tax [emphasis added]:
Starting in 2013, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax. NIIT is a 3.8% tax on the lesser of either net investment income or the excess of the child’s modified adjusted gross income that is over a threshold amount”
When a taxpayer nears an income limit to qualify for a tax credit, there is a gradual reduction of that tax credit. This is known as a phase out. Higher income earners need to be aware that phase outs will come into play as they file their taxes this year.
It is noted that “The last time we saw a phase-out rule for itemized deductions was back in 2009. Unfortunately, this phase-out provision has also been resurrected for 2013 and beyond.
As a result, you can potentially lose up to 80% of your 2013 write-offs for home mortgage interest, state and local income and property taxes, charitable contributions, and miscellaneous itemized deduction items (such as investment expenses and fees for tax advice and preparation).
Phase-out starts as the following AGI thresholds: $250,000 for singles, $300,000 for married joint-filing couples, $275,000 for heads of households, and $150,000 for married individuals who file separate returns.
More specifically, the total amount of your affected itemized deductions is reduced by 3% of the amount by which your AGI exceeds the threshold. However, the reduction cannot exceed 80% of the total affected deductions that you started off with.”
Democrat politicians and “economists” have found a wonderful populist issue for the the current election cycle – raising the minimum wage. The economists (including Krugman, Goolsbee, etc) make the argument that the most obvious, serious problem — loss of entry level jobs and non-hiring at new entry level positions — is not a significant factor, and they have even been able to marshal some studies to support this.
They then argue that the higher minimum wage puts more money into needy families and therefore strengthens the economy. This argument just happens to have a wonderful political effect for these Democrats: it makes them seem sensitive to the plight of the needy, while making Republicans look like shills for those greedy Republican businessmen who are only trying to squeeze every last dollar out of their poor employees.
Just one problem — the Democratic position is baloney, and the economists know it, because it is simple economics 101. No businessman would be willing to pay an employee more than the economic value of the employee.
Let’s assume that the rise in the minimum wage puts the cost of employee in excess of the value of that employee. The employer may then 1) terminate the employee (saving the excess of cost over productivity) or 2) buy equipment which, at that price, becomes cheaper than the employee.
But let’s say the employer keeps the employee, just paying him more for the same work he did before. The employer will then either a) earn a smaller return on his investment, reducing the amount he will be able to invest in the business in the future; b) he will raise his prices, which will maintain his profit margin, but will reduce his sales volume, or c) some combination of a) and b). In either case, economic growth of the economy will be hurt.
By citing narrow studies where short-term noise could easily hide the effects of small changes in the minimum wage, these political “faux-economists” are abusing economic appearances to serve a political end.
Furthermore having a national minimum wage when price and wage levels vary so markedly across the country is truly nonsensical.
The country will be better off when economists remain true to their profession.
What is Wall Street, anyway? I would be willing to bet that 90% of the protesters from Occupy Wall Street and of self-styled liberals have absolutely no idea what Wall Street is, what it does, and how important it is.
If not for Wall Street, there wouldn’t be any Main Street, certainly not as we know it today.
In order for any business to be successful, it must run on capital. Capital can be funded by an owner’s personal investment or through funds from outside investors. The ability to grow from the Mom and Pop store to the bigger corporation model is dependent upon the business owner’s ability to get risk capital.
This risk capital is necessary to rent the space, hire the employees, grow the inventory,and buy the equipment to get the business going. There is no guarantee that this money could ever be paid back. But the investors are willing to risk their hard-earned money in the hope that the venture is successful enough to 1) repay the money borrowed and 2) to give back a reasonable profit for the risk taken.
So where does that money typically come, that risk capital? Wall Street. Look around the house at what you have. Your lights? From the utility company. Where did that capital come from to build the utility plants, to lay the distribution networks, to expand them? Risk capital. Wall Street. Where did Macy’s get its start? Or Google, or IBM? Or any of the energy, pharmaceutical, or chemical companies? Or virtually any large corporation you can think of today — where did it get its funds to really get going and continue to grow? Wall Street.
And the people on Wall Street, people sometimes described (invariably by clueless politicians and populists who know nothing about what it takes to run a business or create jobs) as paper-pushers who make unconscionable amounts of money, what do they do?
They must be able to analyze how businesses (Main Street) work, and which ones (out of the many thousands out there all claiming to be worthy) are likely to be successful. They must develop the confidence of potential investors, and convince them to invest in these projects. They must bring the companies and investors together to agree on how much of the company the investors would get for the amount of capital that is being invested. Should the money invested be equity (ownership in the company) or bonds (loans to the company), and if bonds, what interest rate? Most importantly, more than in any other business, pay day never comes to Wall Street unless the capital is successfully raised. And if Main Street is not successful with its new capital, good luck for that Wall Street company in trying to raise money for its next project.
There have been abuses on Wall street, certainly. But there is absolutely no reason to believe that there are any more abuses than in any other business. And those abuses almost always are paid for with serious financial pain to those companies.
But none of these abuses can compare with the financial abuses and mismanagement that we endure daily from our government. Our government has us at the brink of bankruptcy, with a $17 trillion dollar debt (more than 100% of our GDP) which balloons to more than $100 trillion if our entitlement obligations are included.
We have President Obama and the Democratic leaders of the Senate (Harry Reid) and the House (Nancy Pelosi) saying that this is not a current problem (clearly not the truth) and spending money they don’t have to get votes for the next election. A short trip through YouTube (circa 2004-2005) clearly show that Barney Frank (Democratic House…), Chris Dodd (Democratic Senate ….) and Maxine Waters (Democratic House ….), among other Democrats, were principally responsible for the recent economic meltdown. The videos of Congressional Hearings demonstrate unquestionably that Fannie Mae and Freddie Mac were cooking their own books and lending to dangerously unqualified borrowers, but the Democrats prevented any remedial action to be taken.
And taxpayers and Main Street have borne the heavy burden of their negligence during this sluggish, anemic economic recovery.
Wall Street is an invisible backbone of our economy — providing the money and investments that are necessary to continue America’s upward mobility in all facets of our lives. Focusing only on trumped up Wall Street problems or buying into the class warfare hatred of the rich is misguided — especially while giving our government a free pass to use and abuse our taxpayer money each day.
Today marks the fifth anniversary of the Santinelli Rant on the floor of the Chicago Mercantile Exchange, which spawned the infamous Tea Party (Taxed Enough Already?). Even if you heard it then, it’s definitely worthwhile listening to once more:
The first Tea Party protests subsequently followed on February 27th to protest the American Recovery and Reinvestment Act (ARRA) stimulus bill signed by President Barack Obama on February 17th, 2009.
There is raging debate about whether or not the Tea Party still holds the influence it did during the 2010 Congressional elections as well as whether or not ARRA helped our economy recovery.
“Five years later, the U.S. economy is undoubtedly in a stronger position, thanks to the grit and determination of our nation’s workers and businesses. The economy has now grown for 11 straight quarters, and businesses have added 8.5 million jobs since early 2010. While far more work remains to ensure that the economy provides opportunity for every American, there can be no question that President Obama’s actions to date have laid the groundwork for stronger, more sustainable economic growth in the years ahead.”
At the same time, Obama has more than doubled the public debt. CNS News reported that “the marketable debt of the U.S. government has more than doubled–climbing by 106 percent–while President Barack Obama has been in office, increasing from $5,749,916,000,000 at the end of January 2009 to $11,825,322,000,000 at the end of January 2014”
This $956 billion bill will set the course of U.S. food policy for the next half-decade. The old farm bill expired in 2012, and its replacement is 959 pages long, costing some $956.4 billion over 10 years.
The chart below is courtesy of the WaPo.
This bill includes such goodies as:
— $3 million plan for Christmas tree taxes (15 cent levy per tree)
–$100 million will go to study how to get Americans to buy more maple syrup
–$1 million will buy weather radios for rural Americans
–$15 million ‘wool trust fund’
–$170 million program to protect catfish growers from overseas competition
But most of that money goes to food-stamp and nutrition programs, which are administered by the U.S. Department of Agriculture. The 10-year spending total for those entitlements will hit $756 billion under the new law.
Do you make above $250,000 (married joint filer) or $200,000 (individual filer)? For 2013 filers, you get to pay an additional tax starting this year.
Prior to tax year 2013, the Medicare Payroll tax was 2.9%. Self-employed taxpaxers pay the entire 2.9% themselves. Non self-employed taxpayers pay this tax split evenly between employer and employee, each paying 1.45%
The new surtax that starts this year was implemented as part of paying for Obamacare. It tacks on an additional 0.9% tax for filers above the aforementioned thresholds. Additionally, if you are married filing separately, the threshold is $125,000. See below:
Previous Law:
Employer/Employee 1.45%/1.45%
Self-employed 2.9%
Obamacare Tax Hike, 0.9% Surtax
Individual: First $200,000 (same as old law)
Married/Joint: First $250,000 (same as old law)
Married/Separately: First $125,000 (same as old law)
It seems like the White House and media these days are spending a lot of their energy discussing disparity between the haves- and have-nots. The phrase “income inequality” is especially being used more frequently as a means to continue the class warfare rhetoric and is absolutely certain to be a major theme of Obama’s State of the Union Address this month.
Many explanations are bandied about in an attempt to show that “devious policies” are causing the wide gulf between higher and lower income earners. They include the vague and general terms such as “special tax benefits for the wealthy”, “corporate welfare”, and a “tax system that favors those with higher incomes”. Though these targets are great for talking points, they fail solidly on substance.
There are no virtually no special benefits for the wealthy — only higher tax rates, phased out tax deductions, and added surtaxes that lower income earners do not have to contend with. As for corporate welfare, though it does exist, it only affects a few crony capitalist-type industries and companies out of the millions of small businesses which form the backbone of our economy (think: GE, green energy, electric cars). What’s more, the tax system clearly favors those with lower incomes, not higher, with lesser rates and more deductions and tax credits available. It has been shown clearly and indisputably that the US has – by a large margin – the most progressive taxes in the world (yes, far more progressive than even Europe and the Scandinavian countries). Though there is income inequality in America, why it exists is not what you think.
The simple reason is this: unlike people in the fastest growing countries, and unlike our own citizens in prior generations, the current middle and lower income classes in America have lost their inclination to personally invest in their future. I would argue that much of this is because the growing government welfare system is stripping individuals of their need to prepare and plan ahead, and a wide safety net also exists. For the most part, it is only the upper middle and higher income individuals — those who are not the beneficiaries of government welfare and those with more entrepreneurial orientation — that are forcing themselves to save and put this money at risk into investments for their future.
Much of China’s current economic success can be directly attributed to the financial attitude of their citizens with regard to investing. Almost all earners, including and especially the middle and lower income ones, keep a certain amount of income each month and invest it in both entrepreneurial endeavors and the existing equity markets. It is common for even the minimum wage earners to save at least 10% of their income! Large or small sum, they regard investment as a priority and a path to prosperity.
I have a close relative who is an owner and executive of a substantial manufacturing operation that he started in Shenzhen, China because of its business friendly environment. I’ve heard from him many times that he went into business, not to comply with government regulations, but to make things. And part of that business friendly environment is the people. He has been pleasantly surprised by the careful frugality of the owners and their passion to invest and grow– a sentiment extends to, and is practiced by, even their lowest paid workers.
Contrast this to the present state of affairs in our country. We have not been saving– we have been borrowing for more than a generation now. Citizens have mortgaged their future by consuming continuously — while investing nothing — and passing on that example to the next generation. We are turning into a country where people will begin to wonder why they should invest, if it’s just going to be taken away from them in the long run by those who do not, or go into a market that is wholly unstable.
People are encouraged to spend as if consumption is a good thing , but truly, it is investing that is far better for individuals and for the economy as a whole. When our government pushes measures such as extending unemployment benefits, food stamps and other welfare programs, it reinforces prolonged financial dependency. It is government policy aimed in the wrong direction as recipients have harder, not easier, obstacles to overcome.
The biggest problem that this country has to deal with regard to moving people away from a culture of dependency is that it continues to be demagogued by the Left for the precise reason that it easily mischaracterizes those who might being against such policies as “insensitive” and as being against the “less well off”. But many who are opposed to such policies merely recognize that success of investment, independence, and upward mobility are making other countries greater while we persist our slide into wider dependencies and economic decline.
In order to get the middle class back on track, we must focus our efforts and rhetoric on reminding ourselves that this country was built upon those who were willing to invest their time and money to become great. It is the true source of upward mobility – and those that do not do their fair share will be left behind by those who do. This is what truly drives at the heart of income inequality in our country.
Investment is what made our country thrive and it is the only thing that will properly sustain our country’s financial future.
_________________________ Now What?
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