by | ARTICLES, ECONOMY, FREEDOM, GOVERNMENT, POLITICS, TAXES, TRUMP
The clearest example yet of Media abuse of Donald Trump has surfaced in connection with the recently released excerpts from Pres. Trump’s 2005 federal income tax return. The return shows clearly and unambiguously that he paid an effective federal tax rate of 78.2%. Yet the press twisted the truth- outright lied – in reporting a tax rate of 25%, or even less.
It is outrageous that the media is distorting the true tax rate that Donald Trump paid for the 2005 tax year. His 1040 that was released last week showed that he paid an effective tax rate of 78.2% — not the 25% that some outlets are reporting (or the 5.3% figure that even other uninformed pundits have tried to peddle).
Let’s break this down: Trump’s Adjusted Gross Income (AGI) was reported to be $48.6 million. The AGI is an important number for all taxpayers, because it is derived from a taxpayer’s gross income net of allowable, rational, and legal adjustments to it. Every taxpayer reports an AGI and is the base figure from which taxable income amounts are calculated. Trump’s tax was $38million. Trump’s tax rate was effectively 78.2%: 38 million in federal taxes/48.6 million AGI = 78.2% tax rate.
In a clear attempt to avoid admitting that Trump paid such a high rate of tax, the pundits began manipulating and distorting the data. AGI was raised from $48.6 million to $152 million by arbitrarily – and inappropriately – adding back what appeared to be a $103 million perfectly legal carryover loss. Carryover loss provisions are necessary in that prevent people from paying taxes on profits that just restore losses that were actually incurred in a prior year.
Because Trump is a high income earner, he must calculate his taxes both by the regular tax rate and the Alternative Minimum Tax (AMT). The AMT is a parallel tax rate used by the IRS that disallows some or all legal deductions and credits that other taxpayers enjoy to ensure that such taxpayers pay “at least their fair share.” The AMT has been used for decades to collect more taxes by denying or minimizing income-reducing tax benefits that lower income-earners use. In Trump’s case, most of his deductions, including the carryover loss, were disallowed or reduced, resulting in his federal tax liability ultimately rising to $38 million.
That means on Trump’s AGI of $48.6 million, he paid $38 million in federal taxes.
It is always standard procedure to calculate one’s tax rate using the AGI as the starting point — not the gross income amount. No other politician (Romney, Obama, Clinton, etc.) has had tax rates calculated and published with other than their adjusted gross income as the base. Applying the standard used by the media for all other important figures, Trump’s tax rate was effectively 78.2%: 38 million in federal taxes/48.6 million AGI = 78.2% tax rate.
Continuing to focus on the $153 million as the starting point serves the media two purposes: 1) it makes Trump sound like a greedy capitalist who earned gobs of money and is out-of-touch with the average American; and 2) they want to highlight his $103 carryover loss as something that is unethical or wrong or a “sneaky loophole” that Trump should not have been allowed to do — even though virtually every business and investor makes uses of such tax provisions. Carryover losses are a necessary tax tool that is used as a means to continue to encourage investors who put up capital for long-term investments in the economy and deal with the ebb and flow of the market.
The real story here is this glaring example of the AMT creating yet another unfair and irrational burden on a taxpayer by siphoning extra tax revenue through the elimination and reduction of basic tax law provisions that other taxpayers enjoy. A 78.2% tax rate is extremely outrageous — about as outrageous as the media who ignores basic tax calculations in an effort to sensationalize and demonize Trump.
by | ARTICLES, BLOG, ELECTIONS, GOVERNMENT, POLITICS, TRUMP
Newt Gingrich warned that Trump’s “Drain the Swamp” verbiage was really a lot of bluster. His presidential appointments seems to be reflecting that — but is it really Trump’s fault? Or are his hands tied? Or a mix of both? Jay Cost over at The Weekly Standard, gives some insight into the history of presidential appointments and how the system works. It’s definitely worth a read in its entirety:
As a candidate, Donald Trump promised sweeping change in the way Washington functions. He would tell voters that the system is rigged, it’s broken, it’s run by losers, and only he could fix it. And yet, for all this rhetoric, it is striking how typical his presidential appointments have been: Jeff Sessions, Mike Pompeo, John Kelly, Rick Perry, Elaine Chao, Steve Mnuchin, Wilbur Ross, Andrew Puzder, Nikki Haley, Seema Verma. Most of these appointees are conservative, of course, but they are conventionally conservative. It is striking, indeed, that the most controversial appointment so far is Rex Tillerson to the State Department. He is an outsider to the ways of Washington but he is still the CEO of a company with $380 billion in total assets and 75,000 employees. A populist barbarian storming the establishment gate, Tillerson is not!
Little wonder that Politico reported last week, “Donald Trump’s White House-in-waiting is already being roiled by divisions, with the conservative outsiders who helped power his historic victory colliding with a Republican Party establishment muscling its way in.”
Something similar happened eight years ago. Barack Obama promised a major break with the previous practices of both parties. Still, his appointments were conventionally liberal: Hillary Clinton, Tim Geithner, Robert Gates (who was actually a holdover from the George W. Bush administration), Eric Holder, Ken Salazar, Tom Vilsack, Gary Locke, Kathleen Sebelius, and so on. Obama largely sampled from the upper echelon of Democratic politicians and policymakers in forming his cabinet—certainly an ideological change from the Bush era but not a fundamental break from past practices.
The system, as it turns out, is much more resilient than presidential candidates on the trail want voters to believe. Electing a new president certainly changes the course of public policy in Washington, but presidents are nevertheless constrained actors. Presidential candidates want us to think they have free rein to make over the government, but the truth is that the occupant of the Oval Office is boxed in from all sides, including in the appointment process.
Trump faces several challenges in using the appointment power to reshape the government. The first is Congress. The Senate possesses the constitutional authority to review certain appointments and reject those nominees it thinks are unfit. This could be why Trump passed over Rudy Giuliani for a cabinet appointment; he may have judged that the confirmation process would be a difficult one for the former mayor of New York City. This might also explain Trump’s decision to make Michael Flynn his national security adviser: The Senate does not review or confirm West Wing appointments.
Congress imposes broader constraints as well. The cabinet departments are, after all, legislative creations, and Congress has the power to write legislation regulating which employees are and are not subject to the appointment process. Starting with the passage of the Pendleton Civil Service Reform Act in 1883, Congress sharply curtailed the presidential nominating power, setting the overwhelming majority of executive department employees outside the discretion of the commander in chief. By and large, the same civil servants who worked under George W. Bush and Barack Obama will continue to work under Donald Trump, without worry that the president can dismiss them.
John F. Kennedy summarized the limits the president faces better than anybody:
The fact is that I think the Congress looks more powerful sitting here than it did when I was there in the Congress. . . . When you are in Congress, you are one of a hundred in the Senate or one of 435 in the House . . . but from here I look at . . . the collective power of the Congress . . . and it is a substantial power.
Executive appointments are just the tip of the iceberg. When Trump enters office, he will find Congress to be a potentially implacable foe on any matter where his will runs contrary to its own.
And Trump—or for that matter any outsider president looking to effect sweeping change—must confront the problem of asymmetric information. The federal government is so complicated that one must possess a great deal of technical, specialized information to manage it properly. The president typically does not possess that information, at least not outside a few policy domains (for instance, as Dwight Eisenhower did with the military). He must appoint officials who possess such knowledge. But where do people acquire this? They usually gain it from participating in the affairs of state—the very same affairs that the president has promised to alter.
There are, of course, experts who are nonetheless looking for big changes—for instance, Rep. Tom Price, whom Trump nominated to head the Department of Health and Human Services, and who came to Congress after a successful career as an orthopedic surgeon, is intent on rolling back Obamacare—but the president still faces a substantial challenge. Oftentimes, those whom he taps to change the system have been longtime participants in sustaining it. This problem is compounded when one considers the large number of lower-level appointments the president is authorized to make, where he can only afford to spend a small amount of face time with his nominees. Quite often, he is forced to trust that the people he has delegated responsibility to will, in turn, make good appointments.
Expertise, in other words, can create a subtle bias for the status quo, which was on full display in the aftermath of the 2008 financial crisis. As Ron Suskind reports in Confidence Men, President Obama wanted to reorganize Citigroup in 2009 and instructed Treasury Secretary Geithner to put together a plan. But, per Suskind, Geithner never followed through. As one high-level banking executive explained to Suskind: “The president had us at a moment of real vulnerability. At that point, he could have ordered us to do just about anything and we would have rolled over. But he didn’t—he mostly wanted to help us out, to quell the mob. And the guy we figured we had to thank for that was Tim. He was our man in Washington.”
The irony is that the president, in many respects, is less able today to fulfill his constitutional duty to “take care that the laws be faithfully executed” than he was in George Washington’s time. The Senate constrains him, via its advisory role, as always. But now the vast bulk of the executive branch is outside his aegis, easily able to resist his political or ideological agenda. Moreover, the technical expertise required to manage the government means that the relative handful of appointments he does get to make is often from the “establishment” he ran against.
All of this runs contrary to the image of the presidency that candidates wish to cultivate on the campaign trail. They want voters to think of the president as a kind of superman—able to work his will on any policy issue that confronts him. But this is just not the case. The president, in truth, is a restricted government agent, just as all officials are in our system of checks and balances. In this nomination process, we are witnessing an early glimpse of how our system of government will constrain and frustrate Trump, just as it has his predecessors.
by | ARTICLES, ECONOMY, OBAMA, OBAMACARE, POLITICS, TAXES, TRUMP
After telling the American electorate that he wants to repeal and replace Obamacare, Trump has now stated that he may not do this entirely. The way he worded his remarks indicates that he is willing to keep “ObamaCare’s preexisting condition and the 26 year old provision to stay on their parent’s plan” to remain.
These two provisions are not “Obamacare” provisions – they are provisions that could – and maybe should – be part of a new health care law. The new replacement for Obamacare could have provisions for people with preexisting conditions to get insurance and even keeping 26 year olds on the plan — but it should be funded in a new healthcare plan that is able to charge competitively using a Health Saving Account structure, with tort reform, interstate competition, no mandated coverage that people don’t want – and government subsidies for the needy – and not by mandates and intentional overcharges.
The fact that some provisions of ObamaCare are also in the new plan does NOT mean that part of ObamaCare remains. Socialism and Capitalism are not the same just because they both have a police force.
ObamaCare must go in its entirety.
by | ARTICLES, BLOG, ECONOMY, ELECTIONS, GOVERNMENT, OBAMA, OBAMACARE, POLITICS, TAXES, TRUMP
I’m sick and tired of reading over and over again in places, both liberal and conservative, that the Trump and GOP-proposed tax reforms are going to give the lion’s share of the cuts to the top 1%. The entire concept is utterly distorted, especially in light of the fact that nobody talked about the litany of tax increases that occurred when Obama and his Democrat cronies passed the Obama and Obamacare increases.
Obama raised the Bush tax rates on only the wealthiest earners from 36% – 39.6 % and then again raised the tax rates on only the same wealthiest by adding a Net Investment Income Tax (NIIT) of 3.8%, — otherwise known as the “Obamacare Tax” — which covered all investment income of individuals, estates, and trusts. What’s more, Obama also raised capital gains on the wealthiest earners from 15% – 20%, but when the NIIT 3.8% tax was added to it, it actually raised the capital gains rates on the highest earners from 15 – 23.8% — an effective increase of nearly 59%!
Those ludicrous tax increases that no one talks about were principally responsible — along with the hemorrhage of regulations coming out of the Obama administration — for the horrific economic performance we’ve experienced since Obama took office. The first step the new Trump administration should take would be to reverse those very tax increases that Obama inflicted, which went 100% to the higher income individuals, and 0% to the middle class and lower income earners. The reversal of those insane tax increases should in no way be considered a tax cut as part of any tax reform package. Such a change would be a mere restoration of more reasonable rates from what was in fact an insane toxin on our entire economy.
by | ARTICLES, BLOG, ECONOMY, GOVERNMENT, OBAMA, POLITICS, TAXES, TRUMP
Nick Timiraos’ recent article in the Wall Street Journal ( Donald Trump’s Spending Push Rankles Fiscal Conservatives, 11/28/16) , is rather disingenuous with his so-called analysis of Trump’s fiscal roadmap. He clearly aims to torpedo Trump’s plan to cut taxes by tying the discussion to deficits — though correlation, of course, does not necessarily mean causation. Timiraos’ analysis is full of half-truths, but it is not entirely certain if that is willfully written or just plain economic ignorance.
First, Timiraos suggests that budget deficits “fell from 2010” but “are on track to climb in the next decade,” yet doesn’t even give any hard data to back that up — because their really isn’t any. A deficit is still a deficit. Going from a $1.4 trillion budget deficit, as Obama had in 2009, down to a $600 billion deficit in 2016, is still a massive deficit. And of course, Timiraos also doesn’t even mention that the “the total national debt nearly doubled to $19.3 trillion from $10.6 trillion when Obama took office.” Those two data points indicate an enormous spending problem on the part of Obama, something Timiraos totally ignores.
Timiraos then has the audacity to try to link rising deficits to tax cuts by Republicans. Timiraos writes, “the last two times Republicans reclaimed the White House from Democrats—in 1981 and 2001—they also successfully pushed for large tax cuts. Deficits nonetheless rose during their administrations.” Again, another instance of Timiraos telling only part of the story. Both tax cuts resulted in huge revenue increases, but it was even greater spending that created larger deficits. The tax cuts were not the problem; the deficits were not caused by a lack of revenue. Even Republicans can overspend.
Once more, near the end of the article, Timiraos tries again to make Obama’s economics to be the pinnacle of fiscal responsibility, when he writes, “Concerns about deficits over the past few years have faded because economic growth remains disappointing and because Washington took several steps to cut spending and increase taxes after deficits jumped in 2009. Deficits have also fallen below projections in recent years due to a surprising decline in the growth rate of health care spending and because interest rates have been lower than projected.” Only the Democrats are unconcerned about deficits — because their deficit spending is so astronomical, it’s better not to talk about it at all! Suggesting that Obama “cut spending and increased taxes” and that “Deficits have also fallen below projections in recent years” again ignores Obama still spent $600 billion – $1.4 trillion more than his revenue receipts were. When deficits are projected to be $1 trillion, and the actual deficit comes in a bit lower than that (but still in the hundreds of billions), you still have a deficit problem! Timiraos also ignores the fact that Obama regularly had record tax receipts each month (noted on this blog numerous times), and yet Obama still could not control his overspending.
To ignore this economic reality of the past eight years, and the simultaneously try to suggest that a tax plan with tax cuts will alarmingly increase the deficit is reckless. Timiraos ought to be ashamed at such blatant hypocrisy.
by | ARTICLES, ELECTIONS, FREEDOM, OBAMA, POLITICS, TAXES, TRUMP
On Election Day, many people were willing to overlook Donald Trump’s personal weaknesses because they realized that the biggest factor in this election was the economy — it affected their day-to-day lives more than anything else.
Many people – uniformly partisan Democrats – have accused Trump’s supporters of being bigots; but facts dispute this. A simple look at the voting changes between 2008/2012 and 2016 shows that fully one-third of counties that went for Obama in both 2008 and 2012 went for Trump in 2016. Clearly these Obama supporters were not bigots, and show that the move to Trump was based on real issues. You can hardly play the race card with such data. The electorate understood and believed that Trump’s economic policies were superior to Hillary’s, and they would be better off economically going forward with a President Trump instead of President Clinton.
Every single policy that Clinton advocated would have made the standard of living worse for the poor and the lower middle class – her major constituency. And this would have substantially increased inequality, the opposite of what she had promised. Her policies included:
- raising taxes on the upper middle class and the wealthy (who are already at an obscenely high tax rate). This stifles new growth by reducing the capital that would otherwise have gone into new or expanding businesses, and the jobs they would have created.
- increasing regulations, including overtime, sick pay, child care, union rules, environmental restrictions, etc. This places huge additional costs and burdens on job providers and creators, reducing the likelihood that they could provide new jobs.
- raising the minimum wage. This makes it too expensive for businesses to keep the least productive people on their payroll, as well as incentivizing business use of technology instead of people to grow.
Those that voted for Trump have been left behind or worse by Obama’s economic strategies. A vote for Hillary meant a vote for more of the same. So much of America is tired of that status quo, and wants to be able to not just try to survive — but thrive once again. For those who want to cast aspersions and heap cries of racism and other -isms upon the Americans who voted for our next President, they would be wise to remember the famous slogan of the other Clinton Era: “It’s the economy, stupid!”
by | ARTICLES, ECONOMY, FREEDOM, GOVERNMENT, POLITICS, TAXES, TRUMP
Over the next week or two, I’ll do a more thorough analysis of portions of Trump’s tax plan. Here it is in full, so that you don’t have to go searching for it:
DONALD J. TRUMP’S VISION
- Reduce taxes across-the-board, especially for working and middle-income Americans who will receive a massive tax reduction.
- Ensure the rich will pay their fair share, but no one will pay so much that it destroys jobs or undermines our ability to compete.
- Eliminate special interest loopholes, make our business tax rate more competitive to keep jobs in America, create new opportunities and revitalize our economy.
- Reduce the cost of childcare by allowing families to fully deduct the average cost of childcare from their taxes, including stay-at-home parents.
TAX LAW CHANGES
The Trump Plan will revise and update both the individual and corporate tax codes:
Individual Income Tax
Tax rates
The Trump Plan will collapse the current seven tax brackets to three brackets. The rates and breakpoints are as shown below. Low-income Americans will have an effective income tax rate of 0. The tax brackets are similar to those in the House GOP tax blueprint.
Brackets & Rates for Married-Joint filers:
Less than $75,000: 12%
More than $75,000 but less than $225,000: 25%
More than $225,000: 33%
*Brackets for single filers are ½ of these amounts
The Trump Plan will retain the existing capital gains rate structure (maximum rate of 20 percent) with tax brackets shown above. Carried interest will be taxed as ordinary income.
The 3.8 percent Obamacare tax on investment income will be repealed, as will the alternative minimum tax.
Deductions
The Trump Plan will increase the standard deduction for joint filers to $30,000, from $12,600, and the standard deduction for single filers will be $15,000. The personal exemptions will be eliminated as will the head-of-household filing status.
In addition, the Trump Plan will cap itemized deductions at $200,000 for Married-Joint filers or $100,000 for Single filers.
Death Tax
The Trump Plan will repeal the death tax, but capital gains held until death and valued over $10 million will be subject to tax to exempt small businesses and family farms. To prevent abuse, contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives will be disallowed.
Childcare
Americans will be able to take an above-the-line deduction for children under age 13 that will be capped at state average for age of child, and for eldercare for a dependent. The exclusion will not be available to taxpayers with total income over $500,000 Married-Joint /$250,000 Single, and because of the cap on the size of the benefit, working and middle class families will see the largest percentage reduction in their taxable income.
The childcare exclusion would be provided to families who use stay-at-home parents or grandparents as well as those who use paid caregivers, and would be limited to 4 children per taxpayer. The eldercare exclusion would be capped at $5,000 per year. The cap would increase each year at the rate of inflation.
The Trump Plan would offer spending rebates for childcare expenses to certain low-income taxpayers through the Earned Income Tax Credit (EITC). The rebate would be equal to 7.65 percent of remaining eligible childcare expenses, subject to a cap of half of the payroll taxes paid by the taxpayer (based on the lower-earning parent in a two-earner household).
This rebate would be available to married joint filers earning $62,400 ($31,200 for single taxpayers) or less. Limitations on costs eligible for exclusion and the number of beneficiaries would be the same as for the basic exclusion. The ceiling would increase with inflation each year.
All taxpayers would be able to establish Dependent Care Savings Accounts (DCSAs) for the benefit of specific individuals, including unborn children. Total annual contributions to a DCSA are limited to $2,000 per year from all sources, which include the account owner (parent in the case of a minor or the person establishing elder care account), immediate family members of the account owner, and the employer of the account owner. When established for children, the funds remaining in the account when the child reaches 18 can be used for education expenses, but additional contributions could not be made.
To encourage lower-income families to establish DCSAs for their children, the government will provide a 50 percent match on parental contributions of up to $1,000 per year for these households. When parents fill out their taxes they can check a box to directly deposit any portion of their EITC into their Dependent Care Savings Account. All deposits and earnings thereon will be free from taxation, and unused balances can rollover from year to year.
Business Tax
The Trump Plan will lower the business tax rate from 35 percent to 15 percent, and eliminate the corporate alternative minimum tax. This rate is available to all businesses, both small and large, that want to retain the profits within the business.
It will provide a deemed repatriation of corporate profits held offshore at a one-time tax rate of 10 percent.
It eliminates most corporate tax expenditures except for the Research and Development credit.
Firms engaged in manufacturing in the US may elect to expense capital investment and lose the deductibility of corporate interest expense. An election once made can only be revoked within the first 3 years of election; if revoked, returns for prior years would need to be amended to show revised status. After 3 years, election is irrevocable.
The annual cap for the business tax credit for on-site childcare authorized by Sec. 205 of the Economic Growth and Tax Relief Reconciliation Act of 2001 would be increased to $500,000 per year (up from $150,000) and recapture period would be reduced to 5 years (down from 10 years).
Businesses that pay a portion of an employee’s childcare expenses can exclude those contributions from income. Employees who are recipients of direct employer subsidies would not be able to exclude those costs from the individual income tax and the costs of direct subsidies to employees could not be used as a cost eligible for the credit.
by | ARTICLES, ECONOMY, OBAMA, TAXES, TRUMP
As a financial guy, I find that there are certain things that Trump is suggesting in his tax plan that are just flat out ridiculous. For instance, his childcare plans are ludicrous — because we simply cannot have things that add huge complexity to the code anymore. The idea is worth exploring, but his suggested implementation is atrocious. We can’t keep doing this. The tax code is already Byzantine enough for taxpayer and tax preparer.
A potential problem with his plan is in regard to his proposed 15% tax rate for corporate and individual businesses — again, it’s hugely complex. Furthermore, I think the 15% rate for business rate is too low, especially coming from the perspective of the current corporate tax rate; the change is rather drastic, and probably a little too low from a revenue perspective. 20% is a better rate and keeps us competitive in a global market.
There are some main things that his plan does that simplifies the code: for instance, he kicks out the Obamacare tax, kicks out Alternative Minimum Tax (AMT). These are both monstrously complex tax issues, and removing them is beneficial to the code.
Finally, as all the non-Trump supporters are talking about Trump’s plan and how it will bankrupt everything — they are assuming he’ll get everything! It’s really a non starter — you can modify his plan somewhat all over, here and there, and the growth it will give the economy will pay for itself. Couple it with cutting spending, and you really can have a much stronger economy, which will be good for both the debt and deficit.
by | BLOG, OBAMA, POLITICS, TRUMP
After the embarrassing Democratic National Committee (DNC) Wikileaks dump, Debbie Wasserman Schultz resigned earlier today from her position as Chair of the Democratic National Committee. Wasting no time, Hillary Clinton immediately brought Debbie onto her campaign in several key capacities. You can read the text of the press release below. It’s also available on Hillary Clinton’s campaign website.
