(See Original Post)

2 top banks likely to be spared from federal taxes

Experts say status isn’t unique for Bank of America and Wells Fargo

By CHRISTINA REXRODE

MCCLATCHY NEWSPAPERS

March 28, 2010, 7:54PM

CHARLOTTE, N.C. — This tax season will be kind to Bank of America and Wells Fargo: It appears that neither bank will have to pay federal income taxes for 2009.

Bank of America probably won't pay federal taxes because it lost money in the U.S. for the year. Wells Fargo was profitable, but can write down its tax bill because of losses at Wachovia, which it rescued from a near collapse.

The idea of the country's No. 1 and No. 4 banks not paying federal income taxes may be anathema to millions of Americans who are grumbling as they fill out their own tax forms this month. But tax experts say the banks' situation is hardly unique.

“Oh, yeah, this happens all the time,” said Robert Willens, an expert on tax accounting who runs a New York firm with the same name. “Especially now, with companies suffering such severe losses.”

Bob McIntyre, at Citizens for Tax Justice, said he opposes the government giving corporations such a break.

“If you go out and try to make money and you don't do it, why should the government pay you for your losses?” McIntyre said. “It's as simple as that.”

For 2009, Bank of America netted a $2.3 billion benefit related to income taxes, according to its annual report: It had a benefit of $3.6 billion from the federal government, and an expense of $1.3 billion that it paid to different state and foreign governments.

It's not unusual for a company's debt to the federal government to vary widely from its debt to state governments, as appears to be the case with Bank of America, said Douglas Shackelford, a tax professor at University of North Carolina-Chapel Hill.

Confidential returns

The federal government often offers more tax deductions than the states; for example, Bank of America wrote down its federal taxable income with credits from low-income housing and losses on foreign subsidiary stock.

Company tax returns aren't public, so it's difficult to say for certain how much a company pays to, or receives from, tax coffers in any year.

The bank's $3.6 billion current federal tax benefit for 2009 came in a year when it lost $1 billion in the U.S., according to its latest annual report. For the previous year, when the bank had profits of $3.3 billion in the U.S., it listed a current federal tax expense of $5.1 billion.

Wells Fargo was profitable in 2009, with $8 billion in earnings applicable to common shareholders. But its tax payments were reduced because of Wachovia's losses.

Wells netted an overall tax benefit of $4.1 billion in 2009. It got a benefit worth nearly $4 billion from the federal government, and another worth $334 million from state governments. It had an expense of $164 million in foreign taxes. Wells did record an overall income tax expense of $5.3 billion, but that was offset by the tax benefits of the Wachovia losses.

The topic of corporate tax breaks has gained buzz recently because of a provision in the 2009 stimulus bill, which allows companies to “carry back” their losses for 2008 and 2009 to the previous five years, instead of just the previous two years. Homebuilders and other industries that suffered big losses in 2008 and 2009, but made a lot of money in the years before that, stand to gain billions in refunds. However, the stimulus bill provision does not apply for Bank of America and Wells Fargo, because companies that received TARP loans are ineligible.

‘Arbitrary' time period

UNC's Shackelford said the argument for carrybacks stems from the belief that it's “arbitrary” that taxes are collected on an annual basis.

“There's no reason we couldn't collect them on a monthly basis or a two-year basis. Then your losses and gains would be offset over the period,” he said. “The carryback enables you to not be penalized because your losses got bunched in a different year from your gains.”

Help from Congress

The stimulus bill provision, he said, was helped by business lobbying. “There's an awful lot of companies that paid a lot of taxes in the 2004 period, then they lost a lot of money, and they went to their legislators and said, ” Shackelford said. ‘Please help us,'

McIntyre, at Citizens for Tax Justice, co-authored a report in 2004 related to carrybacks, after the Bush administration expanded many corporate tax breaks. The report examined 275 of the country's largest companies and found that nearly one-third paid no federal income taxes in at least one year from 2001 to 2003. The companies overall were profitable in those years, but took advantage of tax breaks.

“If you or I lose money in the stock market, we don't get to carry back our losses to any significant degree,” said McIntyre. His group works on closing tax breaks for corporations.

“Getting a refund from the past, that's just weird,” he added.

St. Paul Pioneer Press (Minnesota)

March 15, 2010 Monday

Pawlenty slashes bonding bill

By Bill Salisbury bsalisbury@pioneerpress.com

Gov. Tim Pawlenty  carved up a $1 billion public works bill over the weekend, canceling more than half the money lawmakers had appropriated for state colleges and universities, scrapping all new funding for metro transit construction and eliminating cash for dozens of parks, trails, conservation projects and civic and cultural centers.

In all, Pawlenty slashed $313 million, or about one-third of the projects funded in the bonding bill.

The Republican governor told lawmakers, in effect, I told you so.

"I am deeply disappointed the bill spends nearly $1 billion despite my repeated and pointed warnings that I would not sign a bill of this magnitude," he wrote in a veto message delivered to legislators Monday. "Like any family or business, state government needs to live within its means and follow a budget."

After his cuts, the state is now authorized to borrow $686 million for new public works projects. That is less than the $725 million he had said he would accept but close to the $685 million he proposed spending in January.

Democratic-Farmer-Labor legislators complained that Pawlenty vetoed far more than he had led them to believe he would cut. "He basically massacred the bill," said Sen. Keith Langseth, DFL-Glyndon, chairman of the Senate Capital Investment Committee.

But St. Paul-area projects fared relatively well in the surviving portions of the bonding bill.

The city got $16 million to build a 1,100-seat concert hall at the Ordway Center for the Performing Arts and $11 million for a new gorilla exhibit at Como Zoo. In addition, Ramsey County will receive $10 million for an addition to Gillette Children's Specialty Healthcare, and Metro State University got $5.9 million for a new classroom building.

"This is a big day for St. Paul," Mayor Chris Coleman said in a statement. "Funding the Ordway and Como in the bonding bill is a significant investment in two of our strongest regional assets, allowing us to put thousands of people to work improving the crown jewel of our parks system and maintaining the momentum we have built downtown."

Usually a harsh critic of Pawlenty, Coleman thanked the governor for sparing those city projects and the city's legislators for helping to pass them.

Much of the credit should go to the negotiating skills of Rep. Alice Hausman, DFL-St. Paul, chairwoman of the House Capital Investment Committee and co-chief sponsor of the bonding bill.

While Hausman was delighted St. Paul fared so well, she criticized Pawlenty for his deep cuts in other areas. DFLers called the public works measure a "jobs bill," and Hausman estimated the line-item vetoes would cost 7,000 of the 21,000 to 27,000 jobs that the bill was projected to create. Another analysis by Wayne Cox, executive director of the pro-labor Minnesota Citizens for Tax Justice, found the vetoes would eliminate 8,500 potential jobs.

Pawlenty left the door open to negotiating a second, smaller bonding bill, but Hausman said lawmakers could not pass such a bill because "so many (legislators) lost so much" to the line-item vetoes, and they wouldn't vote for a second bill unless it funded their projects.

She also said the DFL majority most likely won't try to override any of Pawlenty's line-item vetoes because that would require a handful of Republican votes and GOP lawmakers have refused to defy the governor this year.

Langseth agreed, saying "I see no point in going further." He said he would try to revive the vetoed projects next year, "when we will have a governor we can trust." Pawlenty is not seeking re-election this year.

The governor flew back from a Florida vacation Sunday to sign and line-item veto the bill. He was not available for comment Monday because he flew back to Orlando, Fla., to speak at a Republican Governors Association fundraising reception.

"The DFL played political Santa Claus," said his spokesman, Brian McClung. "They loaded up the bill. There was a little bit of something for everybody. And then they left the governor to be the one who's fiscally responsible, who brings the bill down to size, and so he did that for them."

The governor used line-item vetoes to eliminate 17 of the 27 building projects that the Legislature had approved for the Minnesota State Colleges and Universities system, cutting its appropriation by $91 million to $88 million.

"We are very disappointed that the governor vetoed so many projects," said MnSCU spokeswoman Linda Kohl, noting that Pawlenty cut $8.5 million more than he initially recommended funding.

"The projects that were vetoed all have a common theme of strong student enrollment and heavily based in the sciences," Kohl said. "We are hopeful some projects will get a second look."

Pawlenty also vetoed the entire $43.5 million appropriation for Metro Transit construction projects.

"If there was any doubt that Gov. Pawlenty was hostile to transit, his line-item vetoes of the capital investment bill made that position definitive today," Senate Transit Division Chairman Scott Dibble, DFL-Minneapolis, said in a statement.

But Met Council Chairman Peter Bell said the veto won't delay any of the major projects on the drawing board, including the Central Corridor light-rail line between St. Paul and Minneapolis, the Cedar Avenue high-speed bus line in Dakota County and the proposed Southwest Corridor light-rail line from downtown Minneapolis to the western suburbs.

While no current projects will "drop dead," Bell, a Pawlenty appointee, said the transit projects that won't be funded now will have to compete with other projects in the future. But Dibble said vetoed transit funding included an $8.5 million state match needed to qualify for a $45 million federal grant to convert St. Paul's Union Depot into a transit hub. Now Ramsey County officials will have to search for another source of matching funds.

Pawlenty also cut the entire $25 million allocated for the Reinvest in Minnesota program, which pays landowners to take marginal cropland out of production. Steve Morse, executive director of the Minnesota Environmental Partnership, said that will cost the state an additional $35 million in federal matching dollars and is a "setback in water quality, wildlife habitat and land conservation."

The governor scrapped all $21 million appropriated for state trails, projects that lawmakers like to brag about back home.

In addition, he cut:

• $53 million for civic centers in Mankato, Rochester and St. Cloud.

• $5 million for an Asian-Pacific Cultural Center in St. Paul.

• $3 million for a regional fire training center in Maplewood.

• $2 million for the Minneapolis Sculpture Garden.

• $1 million for renovating Phalen-Keller Regional Park.

• $1 million for a winter Olympic training center in Minneapolis.

Although Pawlenty previously ridiculed funding arts and sports projects while the state faces a budget deficit, he did approve funding the Ordway and a $16 million renovation of Minneapolis' Orchestra Hall, plus $4 million for an addition to the National Volleyball Center in Rochester and $950,000 to add women's facilities to the National Sports Center hockey rink in Blaine.

Other east metro projects that he approved include $21 million for a new entrance, visitors center and education facilities at the Minnesota Zoo, $6.5 million for a MnDOT training center in Arden Hills, $5 million to renovate the Cedar Street National Guard Armory, $2.3 million for a public safety emergency operations center in Arden Hills and $1 million for a park and trails at the Rock Island Bridge in Inver Grove Heights.

• $91 million from Minnesota State Colleges and Universities (leaving $88 million for construction projects)

• $43.5 million from the Met Council transit construction program

• $25 million from the Reinvest in Minnesota land conservation program

• $21 million from state trail acquisition and development

• $28 million from Rochester to expand the Mayo Civic Center

• $13 million from St. Cloud's civic center expansion

• $12 million from Mankato's civic center expansion

• $5 million from an Asian-Pacific Cultural Center in St. Paul

• $3 million from an east metro regional fire training center in Maplewood

• $2 million from the Minneapolis Sculpture Garden

• $1 million from renovating Phalen-Keller Regional Park

• $1 million from the Theodore Wirth Winter Recreation Center in Minneapolis

(See Original Post)

Congress is long overdue for serious effort at tax reform

By Ezra Klein
Washington Post Staff Writer   
Sunday, March 14, 2010; G01

Congress is ready for a nap. The financial crisis was a year-long emergency. Health-care reform has been a seemingly endless grind. No one quite knows what to do about jobs. Cap-and-trade seems doomed in the Senate, which means all the work the House did to pass its bill was for nothing. The election looms. There's not a lot of enthusiasm for taking on another big, complicated issue that will be distorted by interest groups and screamed about on cable networks and ripped apart on op-ed pages.

But there is some. A lot of it is coming out of Sen. Ron Wyden's office. Wyden (D-Ore.) -- last seen pushing a bipartisan, comprehensive health-care reform bill that would have passed in a landslide if pundits and experts had votes in the Senate -- is Congress's Energizer Bunny when it comes to proposing ambitious policy overhauls. His next target is tax reform.

As well it should be. There aren't many free lunches left in Washington. But from a policy, if not a political, standpoint, tax reform is one of them. Economists of all stripes agree that the tax code has become so complex and inefficient that we're raising less money than we could with a simpler tax code that offered lower rates. Think about that: We could cut taxes for most Americans while keeping revenue steady.

The problem, of course, is that not everyone agrees those breaks and loopholes and deductions and exemptions and deferrals and exclusions are bad. Save for a couple of big-ticket tax items -- the mortgage interest deduction, for example -- the politics for most of the sections you'd want to clean from the tax code pit a tiny group of beneficiaries who are committed to preserving their sweetheart deals against the vast majority of Americans who have no idea that the tax code contains that deal in the first place. "Every interest group around will be lined up saying if you take our tax break, Western civilization will end," Wyden predicts.

Luckily, he isn't alone on this one. Sen. Judd Gregg, the ranking Republican on the Budget Committee, has joined him. The bill they have crafted shows the ways that tax policy is, and isn't, an ideologically polarized issue. Republicans and Democrats get into a lot of fights about how high taxes should be and what they should fund. But Wyden and Gregg have largely sidestepped those fights by holding revenue more or less steady and are simply attempting to clean up the code. "We think there's very fertile ground for a bipartisan initiative, which takes the tax laws and makes them dramatically simpler and maintains their progressive nature," Gregg says.

The Wyden-Gregg plan takes the six income brackets currently on the books and compresses them into three (15 percent, 25 percent and 35 percent). It gets rid of the alternative minimum tax. It triples the standard deduction available to all taxpayers, which means that people don't need to spend as much time trying to itemize deductions and figuring out ways to game the system. It kills off the existing six corporate rates and eight corporate brackets, and replaces them with a flat corporate tax of 24 percent. And it reduces the task to a one-page form.

The result of all these changes? The average corporation and taxpayer would pay quite a bit less. But the system wouldn't be bringing in less money because fewer people would escape their burden altogether. That last bit is particularly important, says Bob McIntyre, director of Citizens for Tax Justice. "If you're getting rid of loopholes and lowering rates, you get winners and losers, not just losers. So all of a sudden it's not only one side that cares. That's especially true on the business side, which is where the real action is in tax reform and lobbying. That's the dynamic that makes tax reform possible."

And even if the project proves difficult, we're long overdue for tax reform. Most experts think you've got to scrub the code every 10 or 15 years, much like ship owners have to dock the boat every so often and shear the barnacles from the hull. For a while, we were doing just that: We had major tax reform in 1954, 1969, 1976, 1986, and then . . . nothing. We've gone 25 years without a serious effort at tax reform. That's 25 years that corporations and interest groups and constituencies have spent complicating the tax code. No wonder 60 percent of us have someone else prepare our taxes, and 20 percent or more use computer software.

Reforming the system has been made more difficult by another trend: We've begun running more of our social policy through the tax code. Rather than creating programs, we create tax credits. "It's easier politically," says Roberton Williams, a senior fellow at the Tax Policy Center, "because it's easier for a congressman to say that I cut your taxes rather than that I started a new program to spend your money."

The irony is that writing policy this way actually results in more spending because the funding grows automatically. A program needs Congress to vote to give it more funding. A tax deduction simply requires more people who qualify to take advantage of it, or more accountants who figure out how to make it look like their clients qualify for it.

Which is just one more reason to take a good, long look at the tax code. Since Congress doesn't need to reevaluate each bit of it every year, a lot of breaks and credits and deductions survive long past their sell-by date. Congress might be tired, but on this issue, it's been slumbering for too long.

"This is the first major total tax reform effort put forward by bipartisan senators in 25 years," Gregg says.

It's about time.

(Original Post)

Star Tribune (Minneapolis, MN)

March 13, 2009 Friday
Metro Edition

In DFL proposal, schools face a nearly $1 billion cut;
The Senate plan also includes a 7% budget cut that slices nearly across the board. Reaction made for unusual allies.

BYLINE: Mike Kaszuba, Patricia Lopez, staff Writers

SECTION: NEWS; Pg. 1A

LENGTH: 985 words

Public schools would suffer a nearly $1 billion budget bite over the next two years under a fiscal blueprint outlined Thursday by DFL Senate leaders, who also hinted at the likelihood of large income tax increases for the wealthy.

Republicans and education advocates decried the proposal, but DFLers said including schools in a 7 percent reduction to nearly every part of the state budget was necessary as the state and national economies continued to spiral through a major recession. "If everyone shares in it, this is going to be much easier," said Sen. Tom Bakk, DFL-Cook, the Senate Taxes Committee chairman, explaining the across-the-board budget cut plan.

With Republican Gov. Tim Pawlenty
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expected to release a revised budget shortly, Thursday's announcement signaled the beginning of a political tug of war at the State Capitol over how to resolve a budget deficit that has ballooned to $6.4 billion but has been tempered by a $1.8 billion injection of federal stimulus money.

Republicans said the DFL Senate plan to raise revenue by $2 billion, especially in a difficult economy, would lead to a backlash from taxpayers, and there were indications the plan would even find opposition among House DFLers.

Hours after the Senate plan was announced, House Speaker Margaret Anderson Kelliher, DFL-Minneapolis, said the House proposal, expected late next week, would include "significant cuts in spending, but not cuts across the board. Minnesotans tell us they want a strategic approach to budgeting that identifies priorities."

Unlikely allies

Bakk said the "lion's share" of the $2 billion in new revenue would come in income tax increases that would be focused on higher-income Minnesotans. But he said he personally opposed extending the state sales tax to clothing and service providers, such as accounting and legal services. Bakk, one of the Senate's most influential members and a gubernatorial candidate, also said he favored having local governments forgo various state aid payments and credits in a move he said would "freeze their aid payments where they're at today."

Republicans, including Senate Minority Leader David Senjem of Rochester, said that increasing taxes by $2 billion was almost certain to target middle-income taxpayers as well. "On a good day, maybe tax(ing) the rich is worth $800 million," he said. "Is Minnesota ready for this?"

But DFLers said the plan, which would cut $2.4 billion in spending over the next two years, would balance the state budget without resorting to what they described as one-time accounting gimmicks that Pawlenty wants to employ. Senate Majority Leader Larry Pogemiller also said the plan, by making difficult cuts now, would position Minnesota to avoid the budget rollercoaster many other states are experiencing. "If we don't resolve and balance now, we will be like California and other states that never get ahead of the game and are constantly cutting budgets and raising taxes," he said.

Senate leaders acknowledged that the $973 million in proposed K-12 education cuts over a two-year period would be difficult but said education represented too large a share of the overall state budget to be exempted. Under the plan, higher education would face $221 million in cuts over the same period. While pledging to spare local police and fire departments, the DFL Senate plan nonetheless calls for $78 million in public safety cuts over the next two years.

In an unusual political break from the DFL, the state's largest public teachers union criticized the education cuts as shortsighted. "The cuts would be devastating to our K-12 system," said Tom Dooher, president of the 70,000-member Education Minnesota. "Kids would end up in classrooms of 45 (students) or larger and that doesn't, to me, set a priority for Minnesota.

"Prioritize schools -- that's the way we're going to get out of this economic challenge," he said.

Dooher found an unlikely ally in Brian McClung, Pawlenty's spokesman, who had similar criticisms. "The DFL's proposal fails to set priorities by cutting everything equally, including some of the state's most important priorities: military and veterans programs, public safety, K-12 education, programs to crack down on sex offenders, and much more," said McClung.

"At least DFLers are finally publicly admitting they'd like to wallop the families and small businesses of Minnesota with massive tax increases," he added.

Tax aversion questioned

The plan's 7 percent cut would mean a $719 million reduction over two years to health and human service programs, a move that also brought a negative reaction from at least one prominent DFL senator. "There needs to be cuts, but we can't be cutting the most vulnerable," said Sen. John Marty, DFL-Roseville, another gubernatorial candidate. "From what I know about it, I'm not going to sign onto this."

Republicans had for weeks said that DFLers, who hold majorities in the House and Senate, would be proposing a tax increase but were reluctant politically to make it public. At one point Thursday, House Minority Leader Marty Seifert handed out an internal DFL document he said he obtained that showed DFLers had for weeks been debating a $2 billion tax increase plan. "This plan confirms what everyone has been waiting for," Seifert told reporters.

But Wayne Cox, the executive director of Minnesota Citizens for Tax Justice, a union lobbying group, said Republicans may in the end miscalculate the state's opposition to a tax increase. Twice within the past year, with the DFL's transportation initiative and the constitutional amendment for the outdoors and the arts, legislators and taxpayers had opted for tax increases, he said. "It seems to me like the voters are way ahead of the Republicans," Cox said.

Patricia Lopez - 651-222-1288 Mike Kaszuba - 651-222-1673

SENATE DFL PLAN

$2 billion increase in taxes

$1 billion cut to public education

7 percent cut to nearly every part of state budget

(See Original Post)

A Same-Old GOP Budget: Rich Pay Less, Everyone Else Pays More

David Corn, Columnist

03/10/10

At President Obama's White House summit on health care last month, when it was the House Republicans' turn to make an opening presentation, GOP leader John Boehner turned to Rep. Paul Ryan (R-Wis.), the top Republican on the House budget committee, to put forward the Republicans' case. Ryan, a sincere-sounding policy wonk, said nothing about insurance company abuses, nothing about expanding coverage and nothing about addressing the affordability of health insurance. Instead, he zeroed in on one matter: the deficit. He conceded that the Congressional Budget Office had concluded that the health care reform legislation backed by Obama would reduce the deficit by $131 billion over the next decade, but he contended that this was because the bill was loaded with "gimmicks and smoke-and-mirror." He proceeded to argue that the health care measure would actually lead to $460 billion in deficit expansion.

Ryan's presentation -- which contained its own gimmicks -- was a signal that the Republicans see him as their go-to guy on fiscal matters. So it's quite fair to view the radical budget plan he unveiled a few weeks ago as a mainstream GOP initiative. Under his proposal -- which Ryan calls "A Roadmap for America's Future" and promotes on a rather spiffy Web page with gee-whiz graphics -- Social Security would be rejiggered to include private accounts, and Medicare and Medicaid would be replaced with vouchers-based private systems. This would indeed be bold change, and some conservatives just adore Ryan for being so audacious and so in love with the power of markets. But there is a same-old Republican aspect to his plan: The rich would pay less taxes . . . and everyone else would pay more.

This week Citizens for Tax Justice, a Washington-based advocacy group that focuses on tax policy, released a report analyzing how Ryan's master plan would affect taxes for Americans -- and compared it to Obama's budget proposals. These number-crunchers found that the top 1 percent -- people who make $460,700 or more a year -- would get a tax break of 15 percent and on average pay $211,300 less than under the Obama plan. Everyone in the top 10 percent ($127,769 and above) would receive a break. Those in the bottom 80 percent ($88,658 and below) would pay more taxes -- on average $1700 more. People making less than $20,063 would have to dole out $1605 in extra taxes.

These are pretty stark numbers. One reason low- and middle-income families would get socked by Ryan's plan is that he proposes replacing the corporate income tax with an 8.5 percent "business consumption tax" -- essentially a sales tax. Citizens for Tax Justice explains:

Low- and middle-income families spend most or all of their income on consumption, since they have little or no money left to save after paying for basic necessities. High-income families are able to save much more of their income. This means that if Congress enacts a tax that applies only to consumption (like a VAT or national sales tax), it would eat up a much larger percentage of total income for poor and middle-class families than for wealthy families. . . .

The 8.5 percent VAT is (almost) the entire reason why the bottom 90 percent of taxpayers would pay more under Congressman Ryan's plan than under President Obama's plan.

Moreover, Ryan's plan, this group says, would lead to the government collecting $183 billion less revenue in 2011 and more than $2 trillion less over a decade:

It's difficult to design a tax plan that will lose $2 trillion over a decade even while requiring 90 percent of taxpayers to pay more. But Congressman Ryan has met that daunting challenge.

Ryan's plan has received attention mostly for getting rid of Medicare and Medicaid and pushing Social Security toward privatization. But now there's another case against it: It will squeeze more tax dollars out of low- and middle-income Americans to ease the burden on the wealthy.

Democrats ought to have a political field day with Ryan's plan during the 2010 campaign. It shows what the Republicans would like to do if they regain power: cut taxes on the wealthy, boost them for everyone else, while replacing Medicare and Medicaid with vouchers that will not cover the same amount of health care. Free-market health care for the elderly and poor, more regressive taxation -- all this sounds like a road map to the past.

(See Original Post)

The Unbarking Dog

Why aren't Republicans raising holy hell about Obamacare's payroll tax hike?

By Timothy Noah

Tuesday, March 9, 2010, at 10:52 PM ET

Why aren't Republicans livid about Obamacare's proposed Medicare tax increase?

As someone who believes in progressive taxation and would like to see Obamacare become law, I hesitate to bring this up. But I'm a long-standing observer of Homo Republicanus, and anthropological curiosity is getting the better of me. Obamacare would raise taxes on rich people. Why isn't the GOP making a bigger stink?

The tax I refer to was selected by Senate Majority Leader Harry Reid as a less-controversial alternative to the House's proposed 5.4 percent surcharge on family incomes above $1 million, which would raise an estimated $460 billion over 10 years. Instead Reid chose to increase the employee portion of the Medicare payroll tax, currently set at a flat rate of 1.45 percent of income, to 1.95 percent for family incomes above $250,000. Later Reid bumped that up to 2.35 percent to make up lost revenue as he bargained away much of the bill's proposed tax on high-cost "Cadillac" health insurance policies. Later still, President Obama added a 2.9 percent surcharge on investment income for family incomes above $250,000, as he bargained away still more of the Cadillac tax. Reid's proposal and Obama's proposal combined would raise $184 billion over 10 years.

The White House describes Obama's new surtax on investments as an extension of the current Medicare tax. The 2.9 percent figure represents the current employee share (1.45 percent) plus the current employer share (also 1.45 percent). Since the employer pays out of what would otherwise be wages, employees today really pay, practically speaking, a Medicare payroll tax of 2.9 percent. This rationale allows the new tax on investment income (2.9 percent) to exceed the new tax on wages (2.35 percent). That's fair and just, since even within the rarefied cohort of people earning more than $250,000, the folks whose income comes disproportionately from capital tend to be wealthier than the folks whose income comes disproportionately from labor. According to an analysis by the labor-backed Citizens for Tax Justice, the Medicare payroll tax increase would fall almost entirely on the richest 5 percent, and 84 percent of it would be paid by the richest 1 percent. This is the sort of thing that drove conservatives batty in the past.

It doesn't seem to be driving them batty now. Would you like to know how many times Republicans brought it up at the bipartisan health care meeting on Feb. 25? Twice, both times in passing. Senate Minority Whip John Kyl, R-Ariz., mentioned it while arguing that Obamacare would hurt small business. ("One way you don't help small businesses is by raising the payroll—the Medicare payroll tax on them, which is what this legislation does.") And House Minority Whip Eric Cantor, R-Va., complained vaguely, "Now, you suggest investment income should be taxed." Three days earlier, after the president unveiled his proposal, a press release issued by House Minority Leader John Boehner, R-Ohio, griped that it would "raise taxes" but never mentioned the Medicare payroll tax. Neither did a press release by Senate Minority Leader Mitch McConnell, R-Ky. "Broadened Medicare Tax Likely To Spur Backlash," predicted the Hill's "Blog Briefing Room" on Feb. 22. To be sure, the payroll tax has been mentioned here and there in GOP position papers. But Republicans have been far likelier to complain that the bill would use taxpayer money to fund abortions (it wouldn't), that the Democrats' plan to pass the bill using the budget reconciliation process is unusual (it isn't), and that Obamacare amounts to a government takeover of the health care industry (it doesn't).

Where is the Republican Party I knew in 2003? Back then, high-ranking economic officials in the Bush administration forthrightly challenged the very idea of income progressivity, arguing that the real problem with taxes was that the rich paid too much and the poor too little. The chief proponent of this view in Congress was Rep. (now Sen.) Jim DeMint, R-S.C., who more recently predicted that health reform would be Obama's "Waterloo." But in a March 3 press release ("Takeover of Health Care Can't Be Fixed, Must Be Scrapped"), DeMint made no mention of the Medicare payroll tax increase for high-income families. Some Wellington! During the Dubya era, any suggestion to tax capital at a higher rate than labor would have struck Republicans as topsy-turvy. "Rather than tax investment income and labor income on an equal basis," Jonathan Chait observed in his 2007 book The Big Con, "Bush has tried to wipe out all taxes on capital by eliminating the estate tax and slashing rates on capital gains and dividends." Such fanaticism appears now in retreat. Why?

Maybe the recession has made solicitude on the part of the rich less plausible to the electorate. Maybe squawking too loudly about a tax increase affecting people earning more than $250,000 a year would be hard to square with Republicans' populist cavils about Medicare cuts. Maybe Republicans figure their wealthier constituents will flee the tax by declaring themselves to be S corporations, a payroll-tax dodge made famous in 2004 by John Edwards. (For this reason, and because it raises more revenue, I prefer the House's millionaire surtax.) For whatever reason, the proposed Medicare payroll tax increase has been mostly a nonissue for Republicans. Dare we call that progress?

Update, March 10: "Noah is confusing rhetoric with commitment," Chait says. "[T]he point of the rhetoric isn't to identify the parts of the bill Republicans dislike the most. The point is to kill the bill, or exert the highest possible political toll on Democrats for passing it." OK, that works. Chait's blog post on this question is worth reading in full.

E-mail Timothy Noah at chatterbox@slate.com.

(See Original Post)

Lessons from eastern Europe's flat tax

By John Dyer

March 8, 2010 07:51

A theory in the US is reality in Bulgaria and elsewhere in the region. Does it work?

By John Dyer

SOFIA, Bulgaria — American economist Alvin Rabushka keeps the flags of about 30 nations— mostly post-communist countries like Bulgaria and Slovakia — in his office at Stanford University's Hoover Institution. They remind him of the bittersweet victories he’s helped achieve since he co-authored “The Flat Tax” in 1985.

For while the United States has yet to scrap its progressive, graduated income tax in favor of a single rate, politicians in Sofia, Bratislava and other eastern European capitals have enthusiastically adopted flat taxes, often to the benefit of their treasuries and, some would argue, their economies.

“The whole thing has kind of taken on a life of its own,” said Rabushka. "I don’t push domestic politicians anymore. My approach is, keep pushing in the world."

Now Rabushka's push is coming full circle. Washington's deficit-driven interventions in the American economy since the 2008 Wall Street meltdown have led some to trumpet eastern Europe’s experience with flat taxes as proof they would work in the U.S. The flat tax, advocates argue, could protect Americans from the massive tax increases the federal government might levy in the future to service the country’s ballooning debt.

"It is rather ironic that former communist countries are moving in a free market direction while America becomes more like Germany or France," said Daniel Mitchell, a senior fellow at the Cato Institute in Washington, D.C.

But it’s not certain that eastern Europe’s success with the flat tax can be replicated in America. Critics said it’s foolish to draw parallels between an advanced economy and those transitioning from centralized control with plenty of room to grow.

And while Americans would welcome a more straightforward tax return, voters have never shown an inclination to allow the affluent to pay the same proportion of their income as everyone else, said tax expert Chuck Marr of the Washington, D.C.-based Center on Budget and Policy Priorities.

“I think conservatives would overstate the relevance,” Marr wrote in an email. “If the U.S. were to move to a flat tax and be revenue neutral, it would be a massive tax increase on middle class people — that is a central reason why it has never gained traction here.”

The flat tax hasn’t been big news in the U.S. since Steve Forbes made it a central plank in his 1996 presidential campaign. Many tea party movement members are now calling for a flat tax, but it’s not clear how many people they really represent.

In eastern Europe, however, where growth percentages have long outpaced those in western Europe and the U.S., right-leaning economists with advice from Americans like Rabushka have lobbied successfully for flat taxes. Since Estonia implemented one in 1994, most of eastern Europe, including Russia but excluding major holdouts Hungary and Poland, have opted for a flat tax.

Starting in 2005, Bulgaria gradually shrank its income tax from three brackets with a top rate of 24 percent to a single rate of 10 percent, one of the lowest in Europe, said Georgi Angelov, an economist at the Open Society Institute in Sofia who helped draft the changes.

Bulgarian income tax revenues grew by 40 percent afterward, he said, partly from the then-booming economy but also because more earnings in the gray market were declared under the simplified system.

The spread of flat taxes in the region shows they are essential to remaining competitive, he added. “When you see it’s working for your neighbors, you decide to do the same,” Angelov said. “It’s like a disease, but positive.”

Angelov cautioned that U.S. policymakers were flirting with slowed growth if they continued to boost spending that eventually would require higher taxes. Formerly communist countries, he said, know how overweening governments can stifle productivity.

“The U.S. is going to see the same European problems with taxation: creating incentives for the gray economy, creating incentives for people not to work and to depend on the social security system,” said Angelov.

Robert McIntyre, director of Citizens for Tax Justice, a labor-backed group in Washington, D.C., disputed Angelov’s claims. Many ex-communist states, like Russia in 2001, upped enforcement among reforms that included a flat tax. “They probably didn't have a tax system before to speak of,” he said. “Anything would raise more money.”

When the U.S. income tax was created in 1913, it was very simple, McIntyre said. But, as the economy grew in size and complexity, so did the tax code. The same occurred about a decade after then-President Ronald Reagan simplified taxes in 1986. McIntyre predicted special interest groups in eastern Europe would win exceptions to their flat taxes, too, someday.

Many eastern European countries also continue to tax capital gains as income, a practice American flat tax advocates want to abolish. Average Americans show no sign of wanting Wall Street financiers to avoid paying taxes on their investment gains, said McIntyre.

Still, the flat taxers can hope. “If I can only get one western European country to do it, I think that would raise some eyebrows,” said Rabushka. “Maybe an independent Scotland would buy into it. Maybe we can break up Belgium once and for all and Flanders would buy into it.”

(See Original Post)

Specter hasn't switched his support for flat tax

March 07, 2010

By Colby Itkowitz

CALL WASHINGTON BUREAU

-- Since becoming a Democrat, Sen. Arlen Specter has embraced the party's platform, toeing the partisan line on nearly every issue.

But there's at least one that the 30-year incumbent isn't budging on -- the flat tax.

Specter introduced legislation to simplify the tax system in 1995, campaigned on it when he ran for president in 1996, then introduced a flat tax bill almost every year thereafter.

His unwavering commitment to streamlining how Americans pay their taxes by having everyone pay the same rate is squarely in line with his general election challenger, Republican Pat Toomey. Toomey co-sponsored flat-tax legislation when he was a Lehigh Valley congressman.

Specter's Democratic primary challenger, Rep. Joe Sestak, has leapt on the issue, pressuring Specter to switch his position.

But Specter reintroduced his flat tax proposal just a year ago, mere weeks before he switched from a Republican to a Democrat. It would be difficult for Specter to suddenly renounce it.

''When you have that kind of paper trail, it would be really hard to make a case that you hadn't been behind that policy,'' said Chris Borick, a political science professor at Muhlenberg College in Allentown. But he added that a candidate's position on a flat tax isn't emotional enough to incite voters.

Specter's proposal would flatly tax everyone's income at 20 percent. It exempts families making less than $40,000, according to his office. Home mortgages and charitable donations would still be tax-deductible.

Specter touts his plan for its simplicity. He says it would save Americans billions of hours filing their taxes. He holds up a 10-line postcard and says it would replace the pages of forms needed now to file taxes. Doing so would eliminate ''tax loopholes.''

''We all understand that paying taxes will never be something we enjoy, but neither should it be cruel and unusual punishment,'' Specter said in a 2007 Senate floor statement.

There is much debate over how a flat tax would affect the different economic classes. A report released in mid-February by the liberal organization Citizens for Tax Justice said Specter's plan would result in major tax breaks for the wealthiest, more taxes for the middle class and lost tax credits for the poor.

'''It is actually a plan for a massive redistribution of wealth from the middle class to the rich and a means to slash federal programs that working families depend on,'' Sestak's campaign wrote in a letter to Specter.

But Bill Ahern, the nonpartisan Tax Foundation's director of policy and communications, sees it differently.

''Anyone who looks into the damage that this complex tax code causes is bound to cast about for something, anything, to improve the situation,'' Ahern said. ''It's true that tax filing is the biggest payday that some people get. The tax code has been used to provide what welfare used to provide.''

While the flat tax is largely considered a favorite of the conservative right -- its supporters include billionaire publisher Steve Forbes and anti-tax advocate Grover Norquist -- versions of a flat tax have been introduced by Democrats. President Barack Obama's chief of staff, Rahm Emanuel, supported what he called a flat tax, but it still required that higher-income earners pay a higher percentage.

In an interview, Sestak said Specter's position on the flat tax, as well as his support for former President George W. Bush's tax cuts, is evidence that he doesn't belong in the Democratic Party.

''He belongs in the Republican Party -- the far right of the Republican Party with Pat Toomey,'' Sestak said. ''It must be pretty hard at times to wake up in the morning and decide that morning where he stands on an issue.''

Christopher Nicholas, Specter's campaign manager, said Sestak's criticism must mean he supports the status quo.

''Sestak has gone out of his way to defend today's complicated and unnavigable maze of regulations and loopholes,'' Nicholas said.

Sestak's campaign responded with a four-page tax plan that includes closing tax loopholes for corporations and oil companies. But it also adds new tax credits and relief, which wouldn't simplify tax filing.

Austin American-Statesman (Texas)

March 6, 2010 Saturday

McCaul pressing to renew tax perk for high-tech R&D

by Tim Eaton AMERICAN-STATESMAN STAFF

U.S. Rep. Michael McCaul  has been pushing an idea around Washington that could save some Austin high-technology companies hundreds of millions of dollars in taxes. McCaul, R-Austin,  has been trying to persuade his colleagues to restore and extend a business tax credit that was allowed to die at the end of last year. If he can stir up enough support, companies would be allowed a credit of 20 percent of the cost of some research and development projects.

The government would collect $87 billion less in taxes from 2011 to 2020 if the measure passes, the White House budget office estimated. But McCaul said he thinks the ultimate economic impact would be more than that amount by the end of decade.

At minimum, McCaul's first priority is to restore a 14 percent tax credit that companies have enjoyed since the 1980s but that lawmakers did not reauthorize last year. He also would like to make it permanent so that it would not have to be renewed each year.

Additionally, McCaul said he wants to boost the tax credit to 20 percent for certain research and development costs.Advanced Micro Devices Inc.,  which employs 2,200 people in Austin and spent $1.7 billion on research and development in 2009, has stood behind McCaul since the tax credit expired in December.

Steve Kester, AMD's director of government relations, called the credit an "effective tool" that would allow the U.S. to keep up with foreign governments, such as China and India, that offer similar investment credits.

Al Wargo, CEO of Austin-based Zebra Imaging Inc. , said the credit would allow him to expand his 67-employee company, which makes holographic products, he said.

"As a small company, our growth is driven by the amount of R&D investment," Wargo said. "It's directly related to job growth."

But not everyone supports the measure.

"It's probably mostly a waste of money," said Bob McIntyre, director at Citizens for Tax Justice, a nonpartisan tax policy and advocacy nonprofit group, adding that some companies would probably take the credit for work that is not research.

But McCaul and U.S. Rep. Anna Eshoo, D-Calif. , who co-chair the Congressional High Tech Caucus , have said the credit is crucial. They had collected 125 signatures from supportive colleagues in Congress as of Friday. President Barack Obama, House Speaker Nancy Pelosi and Senate leaders also are on board.

" We will work with the Senate and the administration to seamlessly extend the provision," Nadeam Elshami, a spokesman for Pelosi, said in a statement.

In the Senate, Finance Committee Chairman Max Baucus, D-Mont., and Majority Leader Harry Reid, D-Nev., introduced legislation last week that would, among other things, extend the tax credit through this year and increase it to 20 percent. It also would provide an alternative simplified credit of 14 percent.

Mike Rosen, a spokesman for McCaul, called the Senate's move "a good first step."

But a lot must happen for an idea in Washington to become a reality, Rosen said.

"There's a long road ahead," he said.

teaton@statesman.com; 445-3631

St. Paul Pioneer Press (Minnesota)

March 4, 2010 Thursday

Minnesota clothes tax? DFLer says it's time

By Jason Hoppin jhoppin@pioneerpress.com

A prominent DFL lawmaker on Thursday proposed a head-to-toe expansion of Minnesota's tax base, calling for new taxes on the sale of beanies, boots and everything in between.

The proposed clothing tax by Sen. Tom Bakk, DFL-Cook, a gubernatorial candidate who chairs the Senate's Tax Committee, would move Minnesota out of the small minority of states that do not tax apparel.

Gov. Tim Pawlenty quickly said he would oppose it, even though the proposal would lead to a lower overall sales tax.

"I would argue that it doesn't raise taxes; it actually lowers taxes," Bakk said. "It will cut our general sales tax rate, which is a significant benefit, especially to our business community."

Bakk pitched the idea to help reduce the state's $1 billion deficit and repay $1.2 billion Pawlenty borrowed from the schools last year to help balance the budget. The tax would generate $257 million in its first year, solving more than a quarter of the state's fiscal problem.

While the clothing tax would start in July, beginning next year the state's basic sales tax rate would be cut by a quarter point, and another quarter point once schools are repaid in 10 years.

While Bakk asked Pawlenty to "not throw cold water on this" and consider the proposal, that's exactly what he did.

Pawlenty said clothing was a basic necessity that shouldn't be taxed and that Minnesota retailers have a competitive advantage over neighboring states that tax clothing.

It is not a new idea. Just last year, the governor's 21st Century Tax Reform Commission recommended expanding the sales tax base to include more goods and services.

Many have raised questions about the state's sales tax pool, especially as untaxed online purchases increase. Formerly a reliable source for expanding revenues, sales tax receipts have ground to a halt in recent years, dropping 5 percent last year, according to the Department of Revenue.

But sales taxes are a tricky subject at the state Capitol, where several of the top-spending lobbying groups -- including the Minnesota Chamber of Commerce, the Minnesota Business Partnership and the Mall of America -- have a keen interest in any proposal.

Tom Hesse, vice president of governmental affairs for the Minnesota Chamber of Commerce, praised Bakk for recognizing that the sales tax is a "major" business tax, with 45 percent of the revenues generated by business purchases.

But he said Chamber membership would be split on the bill.

"Retailers in border communities will not like that," Hesse said. "Other members, I think, support sales tax base expansion, and not just on clothing but other goods and services, as a means to broader business tax reforms."

Mall of America representatives called the proposal "extremely detrimental."

"At a time when our state economy is in crisis, why would we choose to raise taxes that will hinder tourism to Minnesota?" MOA spokesman Daniel Jasper said in a statement.

Minnesota is just one of five states that generally exempt clothing from taxation (the state does tax fur, jewelry and a handful of other goods), while a few others exempt clothing sales up to a certain price, according to the National Conference of State Legislatures.

Advocacy groups frequently criticize sales taxes as regressive, meaning they hit the poor disproportionately hard. Bakk defended his proposal by saying a clothing tax is not as regressive as others, because wealthier people buy more expensive clothing, and more of it.

He said more than 30 percent of the new revenue would come from Minnesota's wealthiest 10 percent.

But the proposal still drew criticism from Minnesota Citizens for Tax Justice.

"Higher income persons do spend more on clothing, but they spend a much smaller percentage of their income on clothing that do those with much less income," Executive Director Wayne Cox said, who still praised Bakk for trying to find solutions to the budget deficit.

Pawlenty has proposed cuts to government bureaucracy, health care and welfare programs, nursing homes and elsewhere to help balance the budget. The DFL-controlled Legislature is holding sometimes-tense hearings on those cuts.

Bakk prefers to help the state's financial problems through income tax increases, but he said he knows Pawlenty would veto that bill.

Bakk's bill also would reduce a dedicated three-eighths of a percent tax that goes to the outdoors and arts, as well a local Hennepin County sales tax that helped pay for the new Minnesota Twins stadium and a five-county metro transit tax.

Those tax rates would be reduced in order to keep the overall pool of money going into those funds constant, Bakk said.

According to the National Conference of State Legislatures, Minnesota ranks 13th in the nation in per capita sales tax collections, but that figure drops to 25th when measured against personal income.

Bakk is among several Democrats vying to be the party's nominee for governor. They are gearing up for the DFL Party state convention next month in Duluth.

"There's a lot of risk in this for me. Tax increases don't poll well in the deep recession that we're in," Bakk said.

This report includes information from the Associated Press.

(See original post)

By Joseph N. DiStefano

Thursday, March 4, 2010

Sen. Arlen Specter may be a Democrat now, but he's remained a supporter of the 20% flat income tax on U.S. incomes made popular by millionaire business publisher Steve Forbes, as he did in his last campaign as a Republican in 2004. (Back then the proposal was 19%).

Specter laid out his thinking in a 2007 floor speech that still represents his position, aide Kate Kelly told me. Said the senator: "The flat tax is a win-win situation for America because it lowers the tax burden on the taxpayers in the lower brackets" thanks to a family exemption of $40,000. Charitable donations and home mortgage would still be deductible.

But Specter's math only works if you ignore what, for many working Americans, is a larger federal tax burden: the 7.65% we pay for Social Security and Medicare. We only pay Social Security (7.2%) on the first $107,000 we earn (the smaller Medicare portion is unlimited.) You don't have to pay it on income above that limit. So the higher you earn in the six-, seven- and infinite-figure range, the lower your payroll tax rate.

Under Specter's flat tax, the Feds would take 28 cents of every dollar from the paychecks of people earning $40,000 to $107,000 a year. The rich would pay less. The poor would get a break, but may already do; and they'd still have to pay Social Security and Medicare.

That's given Specter's quixotic primary challenger Rep. Joe Sestak, D-Pa., a club to beat Specter with. Citing data from the Citizens for Tax Justice, Sestak says the wealthiest 1 to 2 million Americans would pay less under the flat tax Specter backs, while most others would pay more.

Specter's on firmer ground when he says his way would be simpler. Pennsylvania already has a flat income tax, and the form's the size of an index card. "A 10-line postcard filing would replace the myriad forms and attachments" of the current code, saving time, money, frustration, the senator argued in his 2007 remarks. "It would allow us to slash the mammoth IRS bureaucracy of approximately 87,000 employees," not to mention paid tax preparers, freeing them for jobs "elsewhere in the government or private industry." And all that untaxed wealth, especially for people making $400,000 and up each year -- currently taxed at 36%, scheduled to rise to 39% next year -- would boost U.S. "growth" and "productivity," while cutting "fraud."

But is all that simplicity worth paying an extra $2,000 to $5,000 a year, as the CTJ estimates? For that much you could get a lot of tax prep help. If Specter wants to really flatten the tax rate -- instead of just bending it -- he could start by working the Social Security and Medical taxes into his plan, instead of ignoring them. The rich would still pay less.

(See Original Post)

K St.: Speaker Pelosi really holds reins of power on Ways and Means committee

By Jay Heflin and Kevin Bogardus - 03/03/10 09:08 PM ET

It doesn’t matter who the chairman of the Ways and Means Committee is to K Street, because Speaker Nancy Pelosi (D-Calif.) has been the de facto power behind the panel for some time, according to lobbyists and congressional staffers.

Pelosi has had a major say on the committee’s agenda since Rep. Charles Rangel (D-N.Y.) came under fire last year for several ethics controversies, these sources said.

Most lobbyists don’t expect that to change now that Rep. Pete Stark (D-Calif.) will serve as the acting chairman of Ways and Means.

Rangel on Wednesday said he would give up his gavel until the House ethics panel concludes its investigations of him, but given worries that ethical scandals could hurt Democrats this fall, it could be difficult for Rangel to regain his chairmanship.

John Raffaelli, founding partner of Capitol Counsel, said the panel should not change that much institutionally in the wake of the leadership change, particularly since Rangel’s staff is expected to stay put.

“I’m pretty sure Rangel’s staff will stay completely intact. They are professionals and very well-liked,” said Raffaelli.

“The big difference is in the comfort level that the people downtown have. But [there] was the same feeling when Mr. Rangel took over,” Raffaelli continued. “The fear of the unknown is always great.”

Another consistency is Rep. Chris Van Hollen (D-Md.), who sits on the committee and is also assistant to the Speaker. Some lobbyists say they’ve been directed to go through Van Hollen to get the Speaker’s input on issues going through the committee, something likely to continue.

“Pelosi wanted more of a say in what Ways and Means does, and the congressman helps that along,” one lobbyist said.

Van Hollen’s office recently told The Hill that the congressman’s committee role had expanded, and that he meets more frequently with Rangel to discuss policy. But aides said it was not to give Pelosi greater control over the Ways and Means agenda.

“As the assistant to the Speaker, this year, the Speaker has given him a larger policy role,” the staffer said, adding, “But as far as an enhanced role, that is not correct.”

Pelosi’s influence on the panel can be seen in its agenda, several sources argued. Rangel’s chief priority, tax reform, has been given little attention at the committee level since he came under scrutiny.

“No one expects tax reform to happen this year, but you could at least hold a couple of hearings on the subject and mark something up,” one lobbyist said.

Tax reform isn’t likely to move to the front burner with Stark, an expert on healthcare.

“This makes fundamental tax reform much less likely,” said Ralph Hellmann, senior vice president of government relations for the Information Technology Industry Council. “Congressman Rangel put a lot of constructive thought and engagement into this issue.”

Though Pelosi is expected still to wield power behind the scenes, several other lobbyists emphasized the difference in dealing with Stark instead of Rangel.

Though Rangel proposed the “mother of all tax reforms” and represents liberal Harlem, his reputation as a dealmaker earned him respect with the business world. He also is perceived as being sensitive to business’s needs.

Stark is a different story.

He has long pushed for healthcare reform and is an ardent critic of the pharmaceutical and health insurance industries, which both have plenty of business in front of Ways and Means.

Conservative groups questioned Stark’s ability to put his partisan views aside when addressing issues like trade or tax policy.

“This is a guy who has been pretty universally for tax increases throughout his career,” said Ryan Ellis, tax policy director at the right-leaning Americans for Tax Reform.

The left-leaning Citizens for Tax Justice was more receptive. “We’re going to work with the Ways and Means Committee no matter who is in charge,” said Steve Wamhoff, a legislative director for the group.

On trade, advocates for pending free-trade agreements (FTAs) with Colombia, South Korea and Panama expect the Californian congressman to keep his anti-trade stance as chairman and resist moving forward on pacts that haven’t seen action since George W. Bush held office.

“He is not really a big fan of the FTAs,” said Bill Reinsch, president of the National Foreign Trade Council, an organization that supports enactment of the pacts.

A Cabinet-level official in the Obama administration said he had not had a chance to consider how Rangel’s decision to step down temporarily will affect the pending trade deals that need congressional approval.

“I don’t know Congressman Stark as well,” said USTR Ron Kirk, who called Rangel “a good friend and a leader for many years.”

Lobbyists also question if Pelosi will be able to control Stark as effectively as she did Rangel. Stark’s cantankerous outbursts and resistance to authority are well-known on Capitol Hill.

Stark has maintained a low profile since he took to the House floor in 2007 to apologize for saying that President George W. Bush was amused by U.S. soldiers getting their heads blown off in Iraq. That’s undoubtedly helped him with the Speaker.

Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) advised Stark on Wednesday to tone down his comments.

“I don’t think it always serves his interest to be as outspoken as he has, but that’s up to him,” Waxman said. “If he wants to ruffle feathers, it makes it harder for him to go back to some of those people.”

Market analysts said Wednesday that they view Rangel’s departure as making it slightly easier for lawmakers to impose new taxes on financial firms based in the Caribbean. Domestic and foreign insurers have clashed over a bill sponsored by Rep. Richard Neal (D-Mass.) that would increase the U.S. tax burden for foreign-owned firms.

“Rangel looked out for Bermuda similar to the way he looked out for Caribbean nations and opposed the Neal bill in the past and blocked it,” said Brian Gardner, an analyst at Keefe, Bruyette & Woods. “Him stepping down probably breathes some incremental new life into the bill.”

Gardner cautioned that House and Senate lawmakers have yet to signal how they want to proceed on the bill.

Silla Brush contributed to this article.

(See Original Post)

Must-pass bills falter in unpopular Congress as Dems blame Republicans

By Alexander Bolton

03/01/10

Failure to advance must-pass legislation has added to the Democrats’ problems when Congress is suffering from its lowest approval ratings in years.

Democrats claim they can blame Republican obstruction for the gridlock, but political experts and some Democratic allies say the majority party will also suffer because it controls Congress.

To make matters worse, the stalled bills were expected to pass easily.

The gridlock problem came to a head when Sen. Jim Bunning (R-Ky.) held up a 30-day extension in unemployment benefits, filibustering what Democrats assumed would be a slam-dunk bill.

Senate Democrats are catching blame from low- and middle-income workers, one of the biggest constituencies, for letting the situation spin out of control and leaving an estimated 200,000 workers without benefits this week.

Democrats decried Bunning and the GOP in a flood of press releases Monday, but those feeling the pain may not make distinctions.

“I certainly think the majority leadership understands what a catastrophe this is. They overestimated the good will of the Senate as a whole,” said Jody Conti, federal advocacy coordinator for the National Employment Law Project, a nonpartisan organization that advocates for low- and middle-income workers.

“The calls and e-mails we’re already getting are turning rapidly to, ‘Democrats have a supermajority, why can’t they move this through?’ Workers are placing the blame on both sides of the aisle,” said Conti.

Democratic strategists say their candidates will blast the GOP for obstruction. “If Republicans are stopping something as basic as helping the unemployed, they’re going to take a hit on it,” said John Anzalone, a Democratic pollster.

Anzalone said unemployment benefits are becoming more important to upper- middle-income and high-income workers, who make up the GOP base.

But he said gridlock would also hurt the party in control. “People are seeing that their lives are being played with because of party politics, and that’s bad for everyone,” he said.

Democrats had hoped to extend unemployment benefits early last month but were beset by unexpected problems, including two blizzards that paralyzed Washington, and a rebellion of Senate liberals against a jobs bill crafted by Senate Finance Committee Chairman Max Baucus (D-Mont.).

Lawmakers postponed action until the final hour, giving them no maneuvering room when Bunning launched his surprise one-man filibuster.

Bunning’s roadblock also undid a freeze to a scheduled cut in doctors’ Medicare reimbursements. As a result, doctors around the nation are facing a whopping 21 percent cut in payments for Medicare patients, who can account for 30-50 percent of a doctor’s patient base.

Doctors, whom Senate Majority Leader Harry Reid (D-Nev.) courted in his effort to pass healthcare reform legislation last year, reacted angrily.

“It is shocking that the Senate would abandon our most vulnerable patients, making them the collateral damage of their procedural games,” said American Medical Association President J. James Rohack, who did not draw any distinction between Democrats and Republicans.

“The Senate had more than a year to repeal the formula and ensure the security and stability of Medicare and TRICARE, but that opportunity has been squandered,” Rohack said. “This drastic cut will hurt our senior, disabled and military patients, as well as baby boomers who start entering the Medicare program next year.”

Ironically, the bill extending unemployment benefits and freezing the doctors’ payment cuts stalled immediately after Reid scored his biggest bipartisan legislative victory of the year: passage of a $15 billion jobs measure.

A source with the doctors’ trade association said that Congress last failed to act in time in 2006. But the then-administrator of the Centers for Medicare and Medicaid Services used his regulatory power to stop the cut until Congress could pass a fix.

“BUT, 21 percent cut is twice as big as any previous cut,” the AMA source wrote in an e-mail.

Senate inaction on the extenders bill also threatened to cause the loss of some satellite television services for an estimated 1.8 million viewers in rural parts of the country. The expiration of a licensing agreement could have deprived viewers of network television signals, waking people around the country to dysfunction on the Senate floor.

Service interruptions were averted when the chairmen of the Senate and House Judiciary committees promised DirecTV and other providers that they would be held harmless for continuing transmissions without proper authorization.

“I’m sure they would be frustrated,” Andrew Reinsdorf, a lobbyist for DirecTV, said of the company’s customers.

Democrats have drawn criticism for failing to act on other legislative fixes that their allies thought would have been addressed last year.

Liberal advocacy groups are outraged the Democratic-controlled Congress allowed the estate tax to drop to zero because of legislation passed under President George W. Bush.

“The people who care about tax fairness are outraged that Congress failed to prevent this huge tax cut for millionaires that had not yet gone into effect before this year,” said Steve Wamhoff, legislative director of Citizens for Tax Justice.

“It’s surprising and pretty outrageous that when the time comes for one of the most regressive of Bush taxes to come into effect, Congress fails to prevent it,” he said.

Congress has also frustrated business lobbyists and trade associations for allowing a slew of business-related tax incentives and credits to expire at the end of last year.

Steven Smith, a professor who specializes in congressional politics at Washington University in St. Louis, said Republicans are “playing with fire” by blocking something as non-controversial as extended unemployment benefits.

He said voters could end up blaming the GOP for paralyzing government assistance during a recession.

But he noted that it is difficult for Democrats to blame Republicans for the failures of government because they are in charge.

“The public is confused,” he said. “It hears complaints about obstructionism but can’t fully understand why the majority party can’t compromise enough to get on with the public’s business.”