USA TODAY

February 27, 2009 Friday

Budget tries for helping hand;
Middle and working class get 'good news'

BYLINE: Laura Petrecca and Christine Dugas

SECTION: MONEY; Pg. 3B

LENGTH: 646 words

President Obama's sweeping budget outline, released Thursday, would raise taxes on the wealthy as it offers a range of cash-saving initiatives for the middle and lower classes. It touches broadly on the typical household budget -- from retirement savings and health care costs to college tuition.

The plan "means a lot of good news for both middle-class families who have been struggling to keep their heads above water and now are in danger of sinking, as well as working-class and lower-class Americans whose heads haven't been above water for some time," says William Galston, senior fellow at the Brookings Institution, a research and public policy institute. The plan's goals:

*Provide tax relief. Millions of taxpayers would receive a permanent break of up to $400 for individuals and up to $800 for couples. "For an American that makes about $200 per paycheck, assuming a few other variables, that's an extra $13," says Mark Steber, vice president of tax resources for Jackson Hewitt. "It's additional money in their pocket."

*Expand earned income tax credit. This tax credit is among the "bigger tax credits both in size and scope," Steber says. In the past, there has been a limit based on "how much money you make and how many children you have," he says. Obama's plan calls for making the credit permanent, as well as expanding the financial benefits for those who qualify.

*Make college more affordable. The plan not only has provisions for reduced interest rates for student loans, it also calls for a permanent tax credit -- up to $2,500 annually, based on education expenditures -- for those who qualify. This could help families with their college cost budgeting, Galston says.

*Bulk enrollment in retirement plans. The plan calls for employer assistance so they can "set up the systems they need to directly deposit worker contributions to IRA accounts if they don't offer workplace retirement plans," Galston says. Employers that offer 401(k) retirement plans would also have to provide mandatory automatic enrollment. "This would require them to do it, and then employees would be able to opt out," says Dallas Salisbury, CEO of the Employee Benefit Research Institute. This mandatory provision could be controversial, because it will increase administrative and employer costs during a tough economy, Salisbury says.

*Improve the savers credit. The plan would increase the tax credit to families earning up to $65,000 annually, from $50,000. Savers would be entitled to a refundable 50% credit on the first $1,000 in contributions.

*Make permanent the American Opportunity Tax Credit and make it available to more families. This provides a $1,000 child tax credit to low-income families.

The thrust of the tax proposals is to make the tax law more progressive, says Daniel Goldberg, professor at the University of Maryland School of Law.

But the far-reaching plans worry some.

"They're going to extend the Bush tax cuts and add their own tax cuts," says Bob McIntyre of Citizens for Tax Justice. "They don't explain how they're going to pay for it."

Contributing: Mimi Hall

Proposed upper-income tax changes

President Obama's 2009 budget would, beginning in 2011, raise taxes on taxpayers earning more than $250,000 (married filers) and $200,000 (single filers) and make other tax changes, such as limiting itemized deductions. How it could look:

Change Under current law 2011

Increase top tax rate to 36% and 39.6% $44,8281 in taxes paid $46,173 in taxes paid

An upper-income filer claiming $10,000, for example, in charitable giving would face a reduced deduction benefit to 28%, down from 33% to 35% $3,500 $2,800

Change tax rate on capital gains and dividends 15%2 20%3

1 -- married, filing jointly with income not above $357,700; 2 -- majority of wealthy filers face 15% rate; 3 -- effective in 2010

Sources: Office of Management and Budget, USA TODAY research

(Original Post)

The Globe and Mail (Canada)

February 27, 2009 Friday

Only in Kazakhstan, alas: the maximum wage fight

by RICK SALUTIN

COMMENT COLUMN; Pg. A15

A friend on the left says it may be time to stop fighting for a higher minimum wage and start fighting for a maximum, like those mild compensation limits in the Obama bank bailout bills. But it's Kazakhstan's Prime Minister, Karim Masimov, who's shown the way on this. He says "executives at state-run firms and banks" should make no more than he does, in order to "prevent social unrest." He makes a modest $4,700 a month - he wrote on his blog - but it's nearly 12 times the average. Mining and oil execs get way more. His proposal is "likely to be implemented immediately," though only in Kazakhstan, alas.

Economic inequality has yawned ever wider in recent times, especially in the United States, source of the current crisis. Since 1968, when U.S. society was at its relatively most equal, the gaps have increased sharply, at the expense of the middle groupings. Average worker earnings there are now worth less than in 1973, while CEOs, who made 45 times as much as workers then, now get 300 times as much. This has long been a blatant sign of moral rot. It is now at a point where the economic implications are severe, too. How so?

Some of it is the amounts involved. Citizens for Tax Justice says "the Bush tax cuts saved the top 1 per cent nearly half a trillion dollars" from 2001 to 2008. Their 2008 tax cuts were larger than the combined U.S. federal budgets for education and environmental protection. The relatively few, really, really rich are now a serious source of diverted public spending.

Comparable places, including Canada, have so far avoided this extreme polarization through progressive taxation and mild redistribution via social programs. The U.S. now profiles more like an underdeveloped country where the gap feeds on itself. The absurdly rich use their wealth to buy politicians who will further cut taxes on them, and cut social programs, too, since they can afford their own health care, education etc. The poor at the far other end lack resources to fight back. What's the alternative? Narrowing that gap, by rebuilding a healthy middle or working class that can't afford its own health care or education and sees the benefits of taxes, well spent. But how?

I say this with no animus or "class anger." But for the sake of economic, social and political well-being, there are too many people who are absurdly, stupidly rich. There are also too many poor, as always. But at this particular time, the problem is the overrich.

There is an easy, non-violent solution: Move some of their excess wealth to the people in the middle, since it all, according to the stats, came from there anyway. It can be done democratically - via taxation and redistribution through social programs. And otherwise, like making unionization easier, since unionized workers tend to earn 30 per cent more than non-union ones. That means they wouldn't need to plunge into heavy debt to fulfill their duty to consume, which would, in turn, undercut the "financialization" of the economy that led to the banking-credit fiasco. And, of course, the maximum wage.

It's true this will evoke charges of class war and socialism. But class war has been made by the other side for decades; the casualties are strewn all over the battlefield. As for socialism, in the mild sense of public economic leadership - so what? The last Depression only ended due to public programs. Anyone who says no, it ended with the Second World War, is also right but misses the point that the war was a huge public spending program. Everyone then feared the Depression would return, a result avoided by more public military spending in the form of a Cold War.

Beyond that, prosperity was maintained through developing new areas such as computers and the Internet, built entirely on the public dime, then handed gratis to the private sector. Bill Gates owes all he has, and all he gives away, to "socialism" in that mild, limited sense.

rsalutin@globeandmail.com

(Original Post)

The Hill

February 26, 2009 Thursday

Obama,  Senate Dems are divided on taxes

By Alexander Bolton

Pg. 3

A proposal expected in President Obama's budget to raise tax rates on hedge funds and private equity partners sets up another clash with Senate Democrats over taxes. Obama largely won the first disagreement, with Democrats on the Senate Finance Committee, over his plan to adjust tax rates for middle-income earners, saving individuals up to $400 and couples up to $800. But Obama's call to raise the tax rate on hedge funds and private equity groups targets a powerful industry that has given millions to Democratic coffers. It would also affect an important constituency for lawmakers who represent states where the finance industry wields clout, such as New York and Massachusetts - including Democratic Sens. Charles Schumer  (N.Y.) and John Kerry  (Mass.). "It was definitely the case that we heard Democrats on the Finance Committee expressing hesitation about supporting it," said Steve Wamhoff, legislative director of Citizens for Tax Justice, who worked on the issue when the Senate last considered the tax proposal in 2007. "Listening to Democrats on the Finance Committee, there was a question of whether it could pass out of the committee."

Hedge funds gave almost $11 million to federal Democratic candidates during the 2008 election cycle, almost twice as much as to Republicans, according to the Center for Responsive Politics, which tracks fundraising. Private equity and investment firms gave $13.5 million to Democrats and $9.8 million to Republicans. Senate and House lawmakers have said that Obama will call for higher taxes on hedge and private equity funds, which could raise as much as $25 billion in revenue. At issue is whether to increase the tax rate on the 20 percent slice that investment managers take from the profits they earn for clients, known as "carried interest." This share of profits is now taxed at the 15 percent capital gains rate instead of the 35 percent rate normally assessed to high-income earners. Obama would like to close what liberal-leaning advocates call a "tax loophole." But this threatens to put Obama at odds with several of the most senior Democrats in the Senate. At the beginning of the last Congress, Schumer resisted a House-championed proposal to raise rates for fund managers. Kerry and Senate Finance Committee Chairman Max Baucus  (D-Mont.) are still undecided about such a proposal. "I want to see his budget," said Baucus. "There's lots of way to do lots of things." Baucus, who held several hearings on raising rates for hedge funds in 2007, predicted the plan would meet with some resistance from Democratic senators. Baucus also said that Obama's proposal deserved to be on the table. Kerry told The Hill he had concerns when the Senate last visited the issue two years ago. "I was concerned we were trying to draw distinctions among the different entities it might or might not be applied," Kerry said. But the political tide has begun to turn as many Americans blame banks and investment funds for precipitating the economic crisis that has frozen the nation's credit markets. Kerry acknowledged a new political dynamic since the Wall Street meltdown: "I think the argument is much different now in the context of what has since happened." Dana Chasin, senior policy adviser at OMB Watch, which supports higher taxes on such funds, said Kerry has perceived correctly. "Within the hierarchy of Dante's inferno of whipping boys, it's pretty clear that hedge fund managers are at the bottom rung," he said Schumer now says he would vote for a tax increase for hedge funds and private equity groups. Schumer pointed to his vote in December 2007 to support ending debate on an a measure to freeze the Alternative Minimum Tax (AMT), which would have been paid for in part by raising the tax rate on carried interest from 15 percent to 35. Baucus and Kerry also voted for cloture, but Republicans mustered enough votes to block the AMT measure. Chasin, however, said that the vote was not a clear statement of lawmakers' positions on raising taxes for hedge and private equity funds. "It was not a pure play," said Chasin. "Principally it was a vote on AMT." Chasin noted that Schumer had referenced a procedural vote and not a final vote on legislation, and that the carried-interest proposal was combined with other revenue-raising provisions. Proponents of raising tax rates for hedge fund managers also note that the December 2007 vote was a relatively easy one for Democratic supporters of the financial industry because they knew enough Republicans opposed the measure to block it.

(Original Post)

Columbia Daily Tribune

February 14, 2009 Saturday

Corporate executives overpaid, undertaxed

By Holly Sklar

OPINION; Columnists

In today's mad world, underpaid workers are bailing out banks and corporations run by overpaid, undertaxed bosses who milked their companies and our country like cash cows.

While workers across America were losing jobs, homes and health insurance, Merrill Lynch paid nearly 700 employees more than $1 million each in bonuses last year, amounting to a $3.6 billion bonus bonanza while Merrill lost $27 billion.

Workers have been sacrificing for years. Average worker paychecks are worth less now than in 1973, but CEOs and other rich Americans not only make much more, they pay less in taxes.

Average full-time workers made $41,198 in 1973 and $37,606 in 2008, adjusted for inflation.

CEOs made 45 times as much as workers in 1973 and more than 300 times as much as workers now. The top tax rate was 70 percent in 1973 and just 35 percent now; taxpayers pay the top rate on the portion of taxable income that falls within the highest bracket and pay lower rates on income below that. The top rate for capital gains on the sale of stock and other assets was 36.5 percent in 1973 and 15 percent now.

Irrational pay and tax cuts have generated a massive redistribution of income and wealth from workers to CEOs, hedge fund managers and others in the richest 1 percent.

By 2006, the richest 1 percent had increased their share of the nation's income to the second-highest level on record. The only year higher was 1928 -- on the eve of the Great Depression.

According to the latest IRS data, excluding tax-exempt interest income from state and local government bonds, the richest 400 taxpayers had an average adjusted gross income of $263 million each on their federal income tax returns in 2006 -- up from $221 million in 2005 and $67 million in 1992, adjusted for inflation.

Remember, that's annual income, not accumulated wealth. That $263 million comes to more than $5 million a week.

In 2006, the 400 ultrarich were taxed at an average rate of 17 percent -- down from 26 percent in 1992. The ultrarich get most of their income from capital gains. The capital gains tax was cut from 28 percent in 1992 to 20 percent in 1997 and cut again to 15 percent in 2003.

To make matters worse, the rich cheat more on their taxes. Forbes recently reported on a study using IRS data showing that taxpayers with income between $500,000 and $1 million a year understated their adjusted gross incomes by 21 percent in 2001, compared to 8 percent for those earning $50,000 to $100,000, and lower rates for those earning less.

We should raise taxes at the top so the nation's richest bosses no longer pay lower effective rates than workers and we can start reversing the obscene rise in inequality rather than reinforcing it. President Obama's plan to cap CEO cash pay at $500,000 for senior executives at companies on the government dole sounds better than it is, affecting few firms and full of loopholes.

At the very least, President Obama should not delay restoring the top tax rate to the 39.6 percent rate that prevailed in 2000. The Bush tax cuts saved the top 1 percent nearly half a trillion dollars between 2001 and 2008, reports Citizens for Tax Justice.

The $79.5 billion in tax cuts for the top 1 percent in 2008 was more than the budgets of the Department of Education and Environmental Protection Agency combined. In 2008, it took an annual income greater than $462,000 just to get into the top 1 percent.

Even better, we should add a top rate of 50 percent on income above $1 million, as advocated by Netflix CEO Reed Hastings among others.

People for whom $1 million and above is an annual paycheck should pay more so people for whom $1 million is an unattainable lifetime fortune don't have to.

If we don't start taxing the wealthy more now, then you can be sure that the mountain of debt created by tax cuts and the bailout will be used to drive "entitlement reform." Workers' last forms of security -- Social Security and Medicare -- will be on the chopping block to pay for the wreck the truly entitled made of our economy.

Holly Sklar is co-author of "A Just Minimum Wage: Good for Workers, Business and Our Future" ( www.letjusticeroll.org ) and "Raise the Floor: Wages and Policies That Work for All of Us."

(c) 2009, Holly Sklar

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