(Original Post)

12/30/2010 1:42:00 PM by Traci DeLore

WASHINGTON - A number of small businesses, including family farms, could be forced into diverting resources into measures to minimize the newly reinstated estate tax instead of using that money to grow their business, according to a new study published by the American Family Business Foundation.

The report found that up to 67 percent of estates subject to the estate tax in 2011 would own more small business assets if not for the tax.

Under a tax plan signed into law just before Christmas, the government will reinstate the estate tax at a rate of 35 percent, with a $5 million exemption. While nearly 200,000 total U.S. households' net wealth will exceed the $5 million threshold and could pay if the owner dies, the report predicted that nearly 10,000 households will actually pay estate taxes in 2011, based on age and assuming a 5 percent mortality rate.

The problem, the report stated, is that small business owners will need to divert resources toward preparing for the impact of the estate tax, which means they are using fewer resources to grow their businesses and create jobs.

The American Family Business Institute is a Washington, D.C.-based trade association of family business owners and farmers who oppose the estate tax and are working towards its permanent repeal.

Supporters of the estate tax have their own arguments.

The tax will result in billions of dollars of revenue and repealing it permanently would increase the national debt, according to Citizens for Tax Justice, a nonprofit research and advocacy group that focuses on tax policies.

Contact DeLore at tgregory@tmvbj.com

(Original post)

By Dan Eggen

December 23, 2010

Amid all the goodies for ethanol producers, NASCAR racetracks and the like, the tax-cut compromise legislation approved by Congress this month also includes a little-noticed sop for Wall Street banks and major multinationals.

And it only costs U.S. taxpayers $9 billion.

Under the provision, financial services firms and manufacturers can defer U.S. taxes on overseas income from a type of financial transaction known as "active financing." Boosters say the two-year exemption helps level the playing field with foreign competitors by ensuring that U.S. corporations aren't taxed twice.

Major business groups and financial companies consider the exemption a key lobbying priority in Congress, which has regularly extended it on a temporary basis for more than a decade. Those lobbying in favor of the policy include dozens of the largest U.S. companies, from General Electric to J.P. Morgan Chase to Caterpillar, records show.

The Active Financing Working Group, a coalition of companies and trade associations focused on the issue, has paid $540,000 in lobbying fees to Elmendorf Strategies since last year, according to Senate disclosure forms.

The exemption ensures "that U.S.-based financial services [businesses] are able to continue to operate competitively and provide the funds needed for investment and economic growth," the working group wrote in a letter to the Treasury Department.

But the provision has long been opposed by watchdog groups and labor unions as a needless tax break that encourages companies to create jobs overseas instead of within the United States.

"This loophole creates an enormous tax shelter for the companies who have lobbied it into law," said Steve Wamhoff, legislative director at Citizens for Tax Justice, a liberal advocacy group. "It ought to be allowed to expire."

Companies have long been allowed to defer U.S. taxes on most money earned by their overseas subsidiaries, but financial activities have traditionally been left out of this exemption because such transactions are too easy to shift offshore, according to Wamhoff and other experts.

But the business lobby gained an exception in 1997 for "active financing," which includes some kinds of insurance and banking income as well as income from financing the sale of products overseas. A heavy-equipment manufacturer, for example, can use a foreign subsidiary to finance the sale of its machines to an overseas customer, and does not have to pay any U.S. corporate income tax on that transaction.

Backers say the measure amounts to simple common sense in the global marketplace, especially since many other countries have lower corporate tax rates and do not attempt to tax foreign income.

The Joint Committee on Taxation, which calculates the costs of congressional legislation, estimates the provision will cost $9.16 billion through 2011. The entire package - which also includes unemployment benefits and a two-year extension of the Bush administration tax cuts - will cost $858 billion.

Scott E. Talbott, chief lobbyist at the Financial Services Roundtable, said the economic benefits of the active-financing exemption far outweigh the costs to the Treasury. He said the measure is particularly important in helping U.S. companies rebound from the recession.

"As the U.S. economy is struggling to recover, if we don't provide an even playing field for U.S. companies, it provides a huge disadvantage," Talbott said. "It allows U.S. firms with overseas operations to remain competitive globally."
        
What $185,908 buys

Getting in the spirit of the season, the Center for Responsive Politics took an only-in-Washington approach to the "Twelve Days of Christmas" - tallying up how much it would cost to enlist lobbyists for all the items listed in the iconic song.

The pipers and drummers at DLA Piper and at Drummer & Associates, for example, will cost about $56,000 for a dozen days of service, the watchdog group calculated.

The Dairy Farmers of America - presumably with access to maids-a-milking - will require $11,100. Getting all those birds, from swans to French hens, will run more than $12,000 for the National Chicken Council and others.

The biggest expense would be Goldman Sachs, which surely could turn up five gold rings for $103,000 in lobbying costs.

The California Pear Growers Association will cost just $879 for the necessary pear tree, if not the partridge.

"All told," the watchdog group concludes, "$185,908 can buy you 12 days of access to everything from drummers to pear trees."

(Original Post)

by Holly Sklar Richmond County Daily Journal

Republicans played President Obama in the tax deal like mortgage hustlers played homeowners. Focus on the teaser rates, borrow more than you need and trust us to work with you to refinance later when rates jump.

The teasers are the needed extension of unemployment benefits – always extended before with high unemployment – and continued tax cuts for non-rich Americans. The President folded on more tax cuts for millionaires and doubled down with a renovated estate tax set at the lowest rate since 1931. And a cut in the Social Security payroll tax, which Republicans will use to gut Social Security later. The tax deal will cost most Americans and our economy much more than it gains.

Obama’s tax deal falls for the same trap Republicans have been running since the Reagan administration. Cut taxes to reward the wealthy and purposely run up the debt to cause cutbacks later in programs Republican lawmakers don’t like, which is most everything outside the military and corporate subsidies for Big Oil, Big Pharma and other favored big business using small businesses as poster children.

Handed a budget surplus by the Clinton administration, President Bush slashed taxes - breaking precedent by asking the wealthy to pay less, not more, during wartime – and chopped away at the public services and infrastructure that underpin actual job creation and long-term economic growth. Bush left America in the worst economic crisis since the Great Depression, and falling down the world rankings in wages, living standard, life expectancy, economic mobility, education, infrastructure and global competitiveness. The richest 1 percent of Americans had the greatest share of national income since 1928, which was not coincidentally right before the Great Depression.

Today, the too big to fail banks are bigger and Wall Street continues paying big bonuses for playing heads I win, tails you lose with our money. Wall Street campaign donations flooded to Republicans promising to roll back financial reform. Big businesses are sitting on a record pile of cash and liquid assets while small businesses still get the cold shoulder from banks. Millions of Americans have been foreclosed or are in default. One out of ten Americans are unemployed by the official count, which leaves many uncounted. Our infrastructure – much of it built decades ago when the highest-income taxpayers were more productive and less greedy - is rotting. The promised green jobs of the future are increasingly today’s jobs in Germany, China, Brazil and other countries investing more in their economies.

And now comes the tax deal, offering tax cuts that will be paid for next year and the years after by pay freezes and big budget cuts for the services and infrastructure most Americans and a healthy economy depend on. In a twist on the rightwing strategy long known as “starve the beast,” Senate Republican Leader Mitch McConnell praised the tax deal as “cutting off the spigot.”

People used to talk about robbing Peter to pay Paul. Now it’s more like robbing everyone to pay the richest 1 percent.

In the set up to the real robbery, the bottom 20 percent of Americans will save $396 on average in 2011 from the tax deal, the middle 20 percent will save $1,521 and the richest 1 percent will take the lion’s share, saving $76,949, according to Citizens for Tax Justice. The tax deal cost of $424 billion in 2011 will be added to the national debt.

Enabled by Obama, the Republicans will use the increased debt to set up the ultimate foreclosures: Social Security and Medicare. “President Obama and the Republicans will say that the payroll tax holiday is all about stimulating the economy. But don’t be fooled,” said Nancy Altman, co-director of Social Security Works. “There are many better ways to stimulate the economy with that $120 billion the payroll tax holiday will cost, including simply extending the Making Work Pay Tax Credit … And the other, better forms of stimulus pose no threat to Social Security.”

The payroll tax holiday, which will likely be extended, not ended heading into the next election, poses a grave threat. Scrapping the cap on earnings subject to Social Security taxes – now just $106,800 – eliminates the future Social Security shortfall projected after 2036. Cutting the tax while leaving the cap is a gift to those who want to cut, privatize and destroy Social Security under the pretense of saving it.

 Like the bait and switch mortgages still wreaking havoc, the tax deal sets up big losses to come.

Holly Sklar is the Director of Business for Shared Prosperity (www.businessforsharedprosperity.org), which produced “The Business Case for Letting High-End Tax Cuts Expire.” Readers can write to her at hsklar.writer@gmail.com.

(Original Post)

Raju Chebium • WASHINGTON BUREAU • December 19, 2010

WASHINGTON — The $858 billion measure that will cut taxes and extend unemployment benefits would do something else of keen interest to New Jersey — prevent 1.6 million state residents from being hit with the Alternative Minimum Tax for two years.

That tax, which middle-class and wealthy filers pay on top of federal income taxes, affects more people in high-wage New Jersey than any other state.

The bill, which President Barack Obama signed into law Friday, passed the House 277-148 around midnight Thursday. Liberal Democrats were unable to increase the estate tax rate on the wealthy, a major sticking point that had threatened to doom the measure, which Obama negotiated with congressional GOP leaders.

Ten of the 13 New Jersey House members voted for the bill, with Democrats Rush Holt and Donald Payne and Republican Scott Garrett voting against it. The measure passed the Senate on Wednesday, 81-19. In a rare development, New Jersey Democrats Frank Lautenberg and Robert Menendez split their votes, with Lautenberg voting no and Menendez voting yes.

The measure would prevent tax increases averaging $1,400 for New Jersey families come Jan. 1, extend unemployment benefits for nearly 322,000 unemployed Garden State residents and cut Social Security payroll taxes from 6.2 percent of annual income to 4.2 percent for a year.

The AMT provision will keep affected New Jerseyans from having to pay up to $5,600 in additional taxes, according to Menendez, who serves on the Senate Finance Committee and was a leading advocate of the AMT "patch."

"For many of us, this is not about whether or not to support tax cuts for millionaires; it is about whether we are going to stand up for the middle class, protect them from the tax increase that's looming two weeks from now and actually provide significant additional relief beyond that," Menendez said in a statement.

Menendez said he also led an effort to preserve a $230 monthly transit benefit, originally part of the $814 billion economic stimulus bill that Obama signed into law in February 2009. The subsidy — used by many New Jerseyans who commute to New York and Philadelphia — was going to be cut to $110 a month beginning Jan. 1 unless Congress acted, according to the American Public Transportation Association.

Even if the tax-cut bill had failed, middle-class New Jerseyans wouldn't have had to pay anything close to $5,600 in annual AMT taxes, said Steve Wamhoff of Citizens for Tax Justice, a liberal advocacy organization. In a more accurate example, he said, a couple earning $100,000 a year, would have had to pay an extra $796.

"Most of what Congress is doing when it passes AMT relief is helping taxpayers among the richest 20 percent," Wamhoff said.

The AMT originally was meant to apply only to the wealthy but eventually affected middle-income taxpayers because it wasn't adjusted for inflation.

Rather than permanently repeal it — which could deprive the Treasury of at least $1 trillion in future revenue, Congress has adopted a series of temporary fixes.

According to the Joint Committee on Taxation, the current two-year AMT fix — which will keep the tax from applying to people earning less than $47,450 and married couples earning less than $72,450 — will cost $137 billion.

New Jersey's congressional lawmakers generally agree that fixing the AMT is important, but not every lawmaker who voted for the tax-cut package highlighted the AMT language as a key reason.

Rep. Rob Andrews, a South Jersey lawmaker and a member of the House Budget Committee, touted the overall bill's potential to create jobs by providing tax relief to small businesses, which employ most Americans.

"The country will benefit because Democrats and Republicans have come together to fight this painful recession," the Haddon Heights Democrat said in a statement. "We needed to pass this bill to help put our people back to work — we now have a responsibility to work across party lines to cut our debt and deficit."

Lautenberg and other critics of the tax-cut package objected to extending Bush-era tax cuts for individuals making at least $200,000 and couples making at least $250,000. Other critics, including Holt, cited the provision cutting Social Security payroll taxes, which will deprive the retirement system of much-needed revenue.

"You can't build a building from the chimney on down and you can't build a society from the wealthiest on down," said Lautenberg, a multimillionaire. "Windfalls for the wealthiest of us do not benefit our economy or create jobs."

Holt accused Congress of shortchanging Social Security's future and making it "just another bargaining chip" in a political game.

"As much as we need economic stimulus now, we will need Social Security for decades to come," the Hopewell Township Democrat said in a statement.

Raju Chebium: rchebium@gannett.com

(Original Post)

CounterSpin (12/17/10-12/23/10)

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This week on CounterSpin: On the Fox News the story of the recently concluded UN climate summit was that it was really cold in Cancun, where the summit was held, so what was the point? Even actual journalists didn't seem to find much to say though; one account said the results didn't look like helping much with global warming, but they were a vote of confidence in 'the process' of addressing global warming. We'll get another take on things from Michael Dorsey, professor of global environmental policy at Dartmouth College.

Also on the show: the White House cut a deal on taxes with Republican leaders that outraged many Congressional Democrats, progressive activists and liberal pundits. That drew the wrath of Barack Obama, who chided the left for not knowing how the game works in Washington. The media cheered Obama's left-bashing and presented the deal as proof that the White House was finally reaching across the partisan divide. So who actually wins and who loses in this tax deal? Bob McIntyre from Citizens for Tax Justice will join us to sort it out.

(Original Post)

12/15/2010

By Timothy Egan

Timothy Egan on American politics and life, as seen from the West.

Crybaby. Wimp. Sensitive man. The reviews of John Boehner’s sobfest in a “60 Minutes” profile last Sunday have been all over the map, fueling a debate on when it’s appropriate for men in public life to cry.

Barbara Walters said the incoming speaker of the House has an emotional problem, and that if Nancy Pelosi had been such a serial bawler, she’d never have heard the end of it. Walters’s colleague on “The View,” Joy Behar, called Boehner “The Weeper of the House.” And Sean Hannity of Fox said people should lay off Boehner, because when right-wingers cry it’s not a sign of weakness.

What’s been missing is the reason why Boehner cries so much. Around Washington, he’s known as a chain-smoking, Merlot-swilling, golf-loving conservative hardliner. Lobbyists love him, no more so than when he handed out checks from the tobacco industry to compliant members of Congress on the House floor.

It’s when he talks about how he rose from his humble past — the son of a bar owner, one of 12 children who grew up in a small home with a single bathroom — that Boehner starts to weep.

“Making sure these kids have a shot at the American Dream like I did is very important,” he said, choking up, when asked on “60 Minutes” about his crying.

But a look at Boehner’s record during his two decades in Congress shows a man who has voted against nearly every boost for the working stiff. There’s no empathy for those with the longest shots at the American Dream in his voting pattern. Instead, we see a politician who is hard-hearted in his legislative treatment of the people now coping with the kind of economic conditions in which the Boehner family grew up.

The American Dream that Boehner evokes between tears has never been more threatened. By some measures, social mobility — that is, the ability of people to move up a notch in class — is at an all-time low in this country. Poor Americans now have less than a 5 percent chance of rising to the upper-middle-class within their lifetimes.

At the same time, the gap between the rich and poor, and the concentration of wealth owned by those at the very top, has never been so great. After examining these trends, The Economist wrote that “the United States risks calcifying into a European-style class-based society.”

Numerous studies have shown that what knocks people out of the middle class, or keeps them from ever joining it, is a catastrophic bill or two — usually from getting sick and not having health care. Then, those debts go on credit cards, which leads to a misery hole of high interest and limited choices.

Against this backdrop, Boehner has fought against strivers and strugglers at the lower end, while shilling for ever-more concentrated corporate power and banker control. The one thing that stirs his passion is tax cuts. But nearly half of American households don’t pay any income tax at all, so Boehner’s crusade doesn’t affect them. And a decade of aggressive tax-cutting has done nothing to reverse the woes of everyday working people.

Boehner voted for the major trade agreements that make it easier to ship jobs overseas, while voting against assistance to workers who lose jobs to globalization. He voted no on expanding health care for poor children, no on raising the federal minimum wage to $7.25 an hour, and no on a bill to allow people to purchase F.D.A.-certified prescription drugs at a cheaper price from certain countries.

So: he wants to deny health care to poor children, let millionaires hold onto more of their money while blocking a small raise for the lowest earners and prevent people on fixed incomes from getting a break on the costliest item in their personal budget — their meds.

Boehner got a zero rating from Citizens for Tax Justice, a nonprofit founded in 1979 to give average people a greater voice on tax policy amidst a stadium full of lobbyists for the rich.

More recently, he voted against modifying bankruptcy rules — rebuffing an effort to help people avoid mortgage foreclosures. He said no to the federal rescue of General Motors, which saved the American auto industry, countless jobs in Boehner’s Midwest, and did it all without a long-lasting hit on the Treasury. And he gave a thumbs down to regulation of the subprime mortgage industry.

Like Boehner’s father, my grandmother in Chicago owned a small bar that catered to a working-class clientele. She lived above the bar, a widowed single mother, working seven days a week. What saved her in her old age was a great, expansive government program that allowed so many Americans to live out the last decades of their lives in dignity — Medicare. Yes, that single-payer, socialized medical system that Boehner would surely vote against if it came up today.

For whatever reason, Boehner’s life story never gave him a broader governing vision for the folks he knew in his hometown of Reading, Ohio. When he turns on the waterworks while talking about them, it raises two questions:

Is Boehner crying because he escaped that fate? Or because of the person he has become — a politician whose votes show he couldn’t care less for the people he left behind?

(Original Post)

December 15, 2010

by Maggie Mahar

When President Obama struck a deal with conservatives on tax cuts, his opponents set the stage for 2012. With this legislation, the conservative agenda of the Bush administration once again becomes national policy. The goal: to redistribute wealth upward--even if that means letting the deficit balloon.
Not long ago, conservatives on the Deficit Commission were warning that the deficit represents a “cancer” that will "destroy the country from within."

Now, politicians on the right are arguing for tax cuts that will add $858 billion to the deficit over ten years—plus $383 in interest over the same span—bringing the total impact on the national debt to $1.24 trillion through 2020. And somehow, that is suddenly a brilliant idea?

Trust me, there is a method to Mitch McConnell’s madness: The larger the deficit, the more compelling the conservative case for  shrinking entitlements such as  Medicare, Medicaid, Social Security and Health Care reform in 2012.

                 Slashing Income Taxes--Who Benefits?

By extending Bush-era income tax breaks for the rich, the compromise endorses “trickle-down” economics, a theory which says that if you cut taxes for the very wealthy, they will spend more, creating jobs and lifting wages for the middle-class. In fact, the past thirty years have taught us that “supply-side” economics is a myth. While the top 2% watched their marginal tax rate plunge, middle-class incomes remained flat to down. And the Bush-era tax cuts for the rich did little to stimulate the economy. (See this Health Beat post for a chart which illustrates how middle-class incomes have stagnated, along with a table showing how marginal tax rates for wealthy Americans have fallen.)

Ignoring the lessons of the past, the McConnell-Obama compromise extends income tax cuts for those in the top 2% (individuals earning over $200,000 and couples bringing home more than $250,000) for another two years. Over that span, the windfall for high earners will boost the deficit by roughly $80 billion. On average, the affluent households that benefit from these cuts will save $25,000 annually—or $50,000 over two years—assuming that the tax cuts are allowed to expire in 2012.

Granted, the middle class also will continue to enjoy the Bush-era cuts, at a cost of roughly $310 billion. But when that $310 billion is divided among 98% of the population, the benefit for any individual household will be modest.

Indeed, when you add up all of the tax breaks in the “compromise” legislation, the poorest 20 percent of Americans save just $396 in 2011, and the middle 20 percent wind up with $1,521. Meanwhile, the richest 1 percent will save $76,949, according to Citizens for Tax Justice.

Finally, what most pundits don’t mention when they talk about the income tax cuts is that, under the “compromise,” lower-middle-class Americans will wind up paying higher taxes.  Families making less than $40,000 (and individuals earning less than $20,000) will lose refunds they received from the President’s “Make Work Pay” refundable tax credit that wasn’t part of the deal. (Thanks to Robert Borosage at “ourfuture.org” for highlighting this fact.)

                Paring Social Security Taxes: A Hidden Agenda

Declaring a one-year “tax holiday,” the compromise legislation also offers to reduce the amount withdrawn from worker’s paychecks to fund Social Security. In 2011, the Social Security tax would fall from 6.2% to 4.2% of income up to $106,800.

The 2% cut in taxes masquerades as a tool to stimulate spending and create jobs. But as Marc Pascal points out on “The Moderate Voice”: “Cutting the payroll tax for social security is not a viable economic stimulus measure and it will not create any new jobs. It merely underfunds the program so Republicans can gut it later because it isn’t paying for itself.”

Many pundits have suggested that middle-class households will use a larger paycheck to purchase the things they have wanted to buy for the past year. This, in turn, will create the demand that companies are waiting for before they begin hiring.

But the truth is that for the average middle class family (with joint income of $60,000) the tax holiday means that they save roughly $100 a month—or $1200 a year. Some may use this modest windfall to pay down credit card debt. This would be prudent, but it won’t create jobs. And many others are likely to find that an extra $25 a week disappears very quickly as they pay higher prices for the necessities of life: health care, utilities, gasoline and food. (The U.S. Dept of Agriculture forecasts that food prices will rise by 2% to 3% next year.)  Because global demand for fuel continues to outpace supply, Goldman Sachs predicts that the cost of oil will rise more than 10% in 2011, and another 10% in 2012.

Of course those who earn more would save more. But since only the first $106,800, of an individual’s earnings are subject to the Social Secruity tax, even wealthy taxpayers will save only $2,100. Meanwhile, this provision adds another $120 billion to the deficit.

As for the motive behind the cut, Holly Sklar, executive director of Business for Shared Prosperity, agrees with Pascal: the hidden agenda is to fulfill one of George Bush’s fondest dreams—cut Social Security benefits—or, better yet, privatize the program, and let the private sector do the dirty work. She quotes Nancy Altman, co-director of Social Security Works; “President Obama and the Republicans will say that the payroll tax holiday is all about stimulating the economy. But don’t be fooled … There are many better ways to stimulate the economy with that $120 billion the tax holiday will cost, including simply extending the Making Work Pay Tax  Credit … And the other, better forms of stimulus pose no threat to Social Security.”

If legislators  wanted to give the middle-class a tax break, without reducing funding for Social Security—or adding $120 billion to the deficit—they could pay for the 2% cut by “scrapping the $106,800 cap on earnings subject to Social Security taxes,” Altman notes.  This would also “eliminate the projected Social Security shortfall.” Alternatively, one could simply lift the cap—say to $140,000—shifting the cost to those who earn more than $106,800, without in any way undermining a program that so many seniors depend on. But of course taxing the wealthy and saving Social Security is not part of the conservative blueprint for America.

Moreover, as we head into the 2012 election, Altman suggests that politicians are likely to extend the tax holiday. I agree. Thus she calls the so-called tax holiday a “grave threat” to Social Security: “Cutting the tax while leaving the cap is a gift to those who want to cut, privatize and destroy Social Security under the pretense of saving it.”

Dean Baker, co-director of the Center for Economic and Policy Research shares Altman's concern that the payroll tax cut will not sunset at the end of 2011, but will continue “indefinitely.” In that case, Baker observes, “Social Security's finances will appear much more shaky. As it stands, Social Security is fully funded through the year 2037, but that doesn't keep the Washington Post and National Public Radio from running endless scare stories about the program's funding crisis.

“If the payroll tax is permanently reduced by 2.0 percentage points,” Baker concludes, it would double the program's projected 75-year shortfall. This would give far more ammunition to the Social Security fear mongers.” This would also mean adding $120 billion to the deficit not just in 2011, but year after year.

          Will Conservatives Let the Bush-era Income Tax Cuts Expire? 

I also believe that income tax cuts for the top 2% will be renewed beyond 2012. Consider what that would mean for the deficit. According to the conventional wisdom, over ten years, the tax deal will add $858 billion to the deficit (plus $383 billion in interest)—but the CW “assumes that each component of the tax extension deal expires on schedule,” notes Ernie Tedeschi, an economic analyst for the Pew Economic Policy Group. Tedeschi is skeptical.

Writing on his blog, “Lobster Stuffed with Tacos,” he explains: “If you believe that, then you expect that in 2012, the 2001/2003 tax cuts will expire for everyone, and individual income tax brackets will revert back to their 2000 levels.” Tedeschi observes that there is “good reason” to find this assumption “unreasonable.” If he is correct, “then the debt effect of the deal will be more than 6 percentage points of GDP in the long-run, possibly significantly more.” (Tedeschi emphasizes that the views he expresses on his blog are his alone, and not those of the Pew Economic Policy Group.)

I am afraid Teseschi is right. After all, just how likely is it that voters will accept what they are bound to see as a major tax increase if rates revert to 2000 levels? Do you really think that conservatives will graciously agree to give up the tax breaks that are so central to their agenda? Their goal, after all, is not just to lower taxes, but to shrink government. Permanent tax breaks would do just that. Are we certain that liberals will have the majority they would need in both Houses to ensure that the tax cuts are not renewed?

Those who support the Obama-McConnell truce insist that both the payroll tax cut and the income tax break for the wealthy will expire in one or two years. As the New York Times’ David Herszenhorn explained last week-end: “The White House is betting that it will be far harder for Republicans to defend the tax cuts for the wealthy in 2012, when the economy is expected to be stronger.” 

But the truth is that the recovery is likely to be much slower than the administration suggests. In 2012 economists estimate 8 percent to 9 percent of all Americans will remain officially unemployed. Writing in the New York Times last week-end, even David Leonhardt, who calls the tax deal “a second stimulus” acknowledged  that: “Initial estimates . . . suggest that the [compromise legislation] will  reduce the unemployment rate by one-half a percentage point to a full point over the next year, compared with allowing all the tax cuts to expire and passing no new stimulus.” 

In other words, by the end of 2011, we can hope that only 9% to 9 ½% of the country will be officially unemployed—plus however many are no longer counted, either because they have given up looking for work, or because they have settled for a part-time job, even though they need a full-time job. (Those two groups are not included in the official unemployment number. When you acknowledge their existence, it turns out that roughly 17 percent of the U.S. labor force is now either unemployed or underemployed.)

Leonhardt continues: “By the end of 2012, the decline could be up to 1.5 percentage points.” That puts unemployment at 8% two years from now. Given the depth of the financial crisis, it could take years to bring unemployment down to the levels we saw in the 1990s.

Here it is important to differentiate between the economy on Main Street and the economy on Wall Street. In 2012, corporations may be reporting fat profits, but unless there is demand for their products, they will not be creating new jobs. “The president’s team is touting the corporate tax break that allows companies to write off investments completely in the next year,” writes Robert Borosage. “But its effect on jobs is likely to be very limited. Companies already are sitting on trillions in cash.” They have the money to create jobs, but not the customers. “Worse still the larger companies are using much of their investment to build plants abroad where markets are growing.” This will not help Main Street.

I am willing to grant that this tax deal may insulate us against a deeper recession. But we need more than that: Washington should be investing in America. Lawmakers should be spending money on infrastructure, education, the environment…This is how government could generate jobs. The demand for workers exists in the public sector where classrooms are crowded and bridges are crumbling. We could add to the wealth of the nation by tending to the people’s business. But legislation that adds $1 trillion, or more, to the deficit leaves lawmakers empty-handed, killing the chances of a new “New Deal.” 

Thus, the economic recovery on Main Street—where most of us live—is likely to be painfully slow. And on Main Street unemployment is not the only problem.  “Home values aren’t recovering, and Americans have only begun to dig themselves out of excessive debt,” Borosage notes. Americans are not feeling wealthy. The years of compulsive consumption have ended.

Meanwhile, the deficit has turned into a shapeless blimp, hovering over the economy. How large will we let it grow? How will we pay it off? Conservatives have an easy answer.  First, let the deficit balloon, then take an axe to entitlement programs.

(Original Post)

By Robert Reich, Guest blogger / December 15, 2010

Jamie Dimon, chairman and CEO of JPMorgan Chase & Co., praises the President’s agreement with Republicans to extend the Bush tax cuts.

Robert Reich

Robert is chancellor's professor of public policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Clinton. He has written 13 books, including 'The Work of Nations,' 'Locked in the Cabinet,' and his most recent book, 'Aftershock: The Next Economy and America's Future.' His 'Marketplace' commentaries can be found on publicradio.com and iTunes.

 “If we’re going to strengthen our economy and grow jobs, this type of outreach — and cooperation between the administration, Congress, and the private sector — are critical,” says Dimon.

Dimon met last week with the President. Thirty other CEOs are meeting with him today.

Dimon’s compensation over the last three years has averaged $21,991,394 a year. The tax deal agreed to between President Obama and the Republicans will give Dimon and extra $1,179,000 next year, according to an analysis by Citizens for Tax Justice.

The bank Dimon heads was also the beneficiary of the giant Wall-Street bailout of 2007 and 2008. JPMorgan Chase & Co, along with other Wall Street banks, also poured millions of dollars into a lobbying campaign to water down the financial reforms Congress considered earlier this year.

-----------------------------

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on www.robertreich.org.

(Original Post)

December 14, 2010

Well-to-do Alabamians would do even better under a compromise tax proposal that survived a test vote in the U.S. Senate on Monday. In fact, all working Alabamians would do better under the compromise proposal, but the top 1 percent of Alabama taxpayers would do extremely well.

According to an analysis by Citizens for Tax Justice, a Washington-based nonprofit group, the top 1 percent of Alabama taxpayers in earnings would get more than 22 percent of the benefit from the income, estate and payroll tax cuts in the plan worked out between President Obama and Republican leaders in Congress.

That wealthiest 1 percent, with an average income of $991,193, would receive an average tax reduction of $54,832, according to the analysis.

The president has drawn fire from Democrats in Congress for the compromise because it is so favorable to the nation's wealthiest taxpayers. But Obama argues that it is the only way to preserve existing tax cuts for all wage earners.

The pattern of the largest benefits going to the wealthiest taxpayers holds true for Alabamians as well.

The Citizens for Tax Justice analysis shows that in Alabama:

The lowest 20 percent of taxpayers with an average income of $10,915 would get 3 percent of the benefit of the tax changes, or an average tax savings of $367.

The second 20 percent of taxpayers with an average income of $21,273 would get 7.8 percent of the benefit of the tax changes, or an average tax savings of $953.

The middle 20 percent of taxpayers with an average income of $35,988 would get 11 percent of the benefit of the tax changes, or an average tax savings of $1,373.

The fourth 20 percent of taxpayers with an average income of $61,529 would get 17 percent of the benefit of the tax changes, or an average tax savings of $2,095.

The next 15 percent of taxpayers with an average income of $104,329 would get 25 percent of the benefit of the tax changes, or an average tax savings of $4,125.

 The next 4 percent of taxpayers with an average income of $212,079 would get 13.8 percent of the benefit of the tax changes, or an average tax savings of $8,431.

And again, the top 1 percent of taxpayers would get 22.2 percent of the benefit of the changes for an average savings per taxpayer of $54,832.

The president is probably right that a compromise that preserved tax breaks for the wealthy was necessary to avoid losing those breaks for the middle class. But this compromise is clearly skewed too far toward the wealthiest Americans -- and Alabamians. The tax breaks also will feed the nation's deficits and pad the national debt.

The Obama-GOP compromise may be the only alternative that Congress can agree on before tax cuts expire in January. But when this compromise agreement ends in two years, new tax proposals should focus on addressing the deficit and more rationally sharing the tax load based on ability to pay.

(Original Post)

By Ledyard King • Gannett Washington Bureau • December 13, 2010

WASHINGTON - The Senate voted overwhelmingly Monday to move forward with a massive package of tax breaks that would increase the soaring national debt but includes several provisions beneficial to South Dakota.

Democrat Tim Johnson and Republican John Thune, often on opposite sides of key issues this year, joined in a bipartisan 83-15 vote to endorse the deal President Barack Obama cut with Republican leaders last week.

The motion to move ahead with the bill needed 60 votes to pass. A final Senate vote on the package is expected by Wednesday.

The bill faces hurdles in the House, where many liberal Democrats are outraged that it would extend tax breaks for the richest Americans.

The $858 billion package would extend Bush-era tax cuts for all income groups through 2012, reduce payroll taxes by 2 percent through 2011 and set the estate tax at 35 percent for everything above the first $5 million of an individual’s estate.

A South Dakota family earning $69,000 would see a benefit of about $2,400 if the plan is adopted, according to Citizens for Tax Justice, a liberal advocacy group based in Washington.

Among the package’s tax breaks is a one-year credit for employers who hire American Indians, help for wind energy, and a one-year extension of a 45-cents-per-gallon credit for ethanol blenders.

Jeff Broin, CEO of Sioux Falls-based Poet Inc., the country’s largest ethanol producer, said last week that not extending the credit could force plant closures and cost jobs.

The package also would renew unemployment benefits for 13 months, benefiting 2,215 South Dakotans who lost coverage last month, according to the White House.

Obama had wanted to preserve unemployment benefits and permanently extend tax cuts only for individuals earning less than $200,000 and couples earning less than $250,000, a threshold most Democrats in Congress backed.

But the president said he agreed to cuts with no income limits because Republicans appeared unwilling to back down and he didn’t want unemployment benefits or middle-class tax breaks to expire as the economy continues to struggle.

Johnson and Thune expressed reservations about the deal in the days leading up to the vote. Johnson opposed tax breaks for the wealthy and Thune was unhappy spending cuts weren’t found to offset the $56.5 billion cost of extending unemployment benefits. He has offered an amendment that would use unspent, unobligated discretionary government funds to offset the benefits extension.

South Dakota Democratic Rep. Stephanie Herseth Sandlin has not announced how she’ll vote on the tax-cut package, but she has endorsed a temporary extension of all tax breaks to help the economy and buy time for a more permanent solution.

Contact Ledyard King at lking@gannett.com.

(Original Post)

By Gregory Junemann

Dec. 13, 2010  

I spend my workweek in Washington, D.C., as an elected leader of a labor union representing technical, scientific and professional employees in the public and private sector. On weekends, I come home to Milwaukee to be with my family. Every time I make the trip, I get whiplash.

Here in the heartland, hundreds of thousands of families are struggling to make ends meet. But the political debate in Washington has become increasingly heartless, piling insult after insult upon the already injured middle-class workers who are the real engine of America's economic growth.

The so-called budget compromise reached by President Barack Obama and Republican legislators, for example, will deliver a desperately needed extension of unemployment benefits to 2 million jobless workers. That includes 40,000 women and men in Wisconsin. A worker earning a mid-range benefit of $200 a week, who remains unemployed for the maximum extension period of 13 months, would receive about $11,000.

That's real money that will help real families. But it's small beer compared to what the Obama-GOP deal will deliver to Wisconsin's millionaires: a two-year tax cut worth $108,000, according to Citizens for Tax Justice.

In other words, this "compromise" is worth almost 10 times more to your average Wisconsin millionaire than to a laid-off worker struggling to pay the family grocery bill.

Sound fair? If not, watch your wallet, because you're paying for it. This windfall for the wealthy will add $120 billion to the national debt. That's real money, too, and we - or our grandchildren - will have to pay the bill someday.

Shortly before accepting a tax deal strongly tilted in favor of high-income households, President Barack Obama made life more difficult for the middle class by adopting another really bad Republican idea: a two-year wage freeze for federal workers.

This is supposed to save the government about $2.5 billion a year, which means it can't be taken seriously as a way to close the federal budget deficit, projected at over $1 trillion in 2010.

Demanding a haircut for middle-class public servants when millionaires are getting a boatload of benefits from Uncle Sam isn't about economics. It's about politics, fueling the myth of "overpaid" federal workers.

That dog won't hunt. According to the government's own data, federal workers earn 22% less, on average, than their private-sector counterparts. Members of my union aren't busting the federal budget; we're delivering a bargain by providing essential public services at below-market wages.

A pay freeze for federal employees isn't just unfair - it's unwise. Uncle Sam is our nation's largest employer, with more than 2.5 million full-time workers. Wal-Mart is a distant second. A lot of corporate CEOs don't like Obama, but they will love his idea of a pay freeze. More private-sector workers can expect demands to freeze or reduce their compensation in the months ahead.

Taking money out of people's pockets is the worst thing you can do for an economy struggling to recover from an epic recession. Consumer spending accounts for 70% of U.S. Gross Domestic Product. But consumers can't spend what they don't have.

A race to the bottom, with pay freezes and pay cuts for working Americans, will mean less consumer spending. That means lower sales, fewer jobs - and lower tax revenues, which will drive the deficit even higher.

Any way you count it, lowering pay for middle-class workers - in the public or private sector - is the wrong way to go. Instead, we need a comprehensive plan that requires equal sacrifice from all Americans, regardless of income level. If we're serious about shared sacrifice, everybody needs to come to the table - not just the middle class.

 Gregory Junemann is president of the International Federation of Professional and Technical Engineers, the fastest-growing union in the United States. IFPTE represents 70,000 highly-skilled, white-collar workers in both the public and private sectors, including 25,000 federal employees.

(Original Post)

By Merrill Goozner, The Fiscal Times

December 13, 2010

President Obama’s decision to embrace tax reform signals the start of a long and contentious debate over a cumbersome, loophole-ridden and globally uncompetitive U.S. tax code that leaves the nation with huge structural deficits even when unemployment is low.

While enacting a major overhaul of the federal tax code in the next two years would be daunting, the president signaled that he may include elements of tax reform in the budget he will propose to Congress next February. At the press conference last week where he lashed out at liberals in Congress who are balking at voting for the tax-cutting stimulus plan hammered out with Republican leaders at the White House, Obama said, “I don’t think anybody thinks the tax code right now is fair or efficient.”

Obama followed up by ordering Treasury Secretary Timothy Geithner to review the options and repeated his intent to pursue reform in an exclusive interview to National Public Radio on Thursday. “The general concept of simplifying — eliminating loopholes, eliminating deductions, eliminating exemptions in certain categories — might make sense if, in exchange, people's rates are lower,” he said. “That may end up being a more efficient way of doing business.”

That approach mirrors proposals contained in the report issued early this month by the National Commission on Fiscal Responsibility and Reform, which won votes from some Republicans and Democrats on the panel. But there are huge political challenges that must be surmounted before Congress overhauls the tax code.

Reform inevitably involves raising taxes on some people and businesses while lowering them for others. Eliminating common deductions like payments made on home mortgage interest and the exclusion of health insurance benefits from taxation would change the rules of the game for major sectors of the U.S. economy, whose firms individually and collectively deploy small armies of lobbyists in Washington to defend their interests.

Reform also pits deficit hawks, who want to use the tax changes to raise additional revenue and reduce the deficit, against conservative Republicans,  who usually can be counted on to oppose any tax plan that doesn’t “starve the beast,” a phrase first uttered by President Ronald Reagan in 1981 to describe a tax-slashing plan that he hoped would limit the size of government by reducing tax collections.

On the other side of the political spectrum, liberals fear reform because they see it as a backdoor strategy for undermining social programs that benefit the poor and middle class and entitlement programs that help everyone, like Medicare and Social Security.

Leaders from both political parties say they are willing to discuss tax reform. For instance, Rep. Dave Camp, R-Mich., the  incoming chairman of the House Ways and Means Committee, told the Tax Council in mid-November that “tax reform is an important part of deficit reduction because while an efficient tax code can ensure the government has the money it needs with as little drag on the economy as possible, a broken tax code that impedes growth will fail to generate sufficient revenues even if spending is cut dramatically.”

But the political calendar isn’t hospitable to a serious effort over the next two years. The president’s initial embrace of reform took place at a press conference where he was defending the deal he and congressional GOP leaders negotiated that would insert a raft of new tax breaks into the code. The tentative agreement, which awaits congressional action, angered liberals by rewarding wealthy taxpayers, and frustrated deficit hawks by adding nearly $900 billion to the nation’s long-term budget outlook.

 With those tax breaks due to expire in two years, the table is set for a repeat of this year’s debate over the Bush-era tax cuts – but next time Obama will be in the midst of a presidential election campaign. “The conventional wisdom is that tax reform can only happen in the second term of a popular president,” said Martin Sullivan, a contributing editor at Tax Notes who previously helped craft the nation’s tax policy while on Capitol Hill, at the Treasury Department and as a corporate tax lobbyist. “It would certainly be difficult under current conditions, where there is so much partisanship.”

The goal of tax reform is to eliminate loopholes, broaden the tax base, and lower overall rates.  This goal has only been achieved once in the past half century. The 1986 tax reform law, signed by Reagan, is considered a model for tax reformers, since it lowered rates by eliminating corporate tax loopholes, many of which had been opened up when he first came into office.

In fact, Reagan signed three major tax increases after the massive 1981 tax cut – raising corporate, fuel and Social Security taxes. There was also a raft of smaller tax increases during his eight years in office.  Those set the stage for the 1986 law, which achieved lower rates but was close to revenue neutral.

The law, which was championed by centrists from both political parties, including Democratic Sen. Bill Bradley and Republican Sen. Bob Packwood, lowered rates by closing numerous corporate loopholes. That angered large parts of the business community while winning plaudits on the left.

“I thought it was a good thing,” recalled Robert McIntyre, executive director of Citizens for Tax Justice, a liberal advocacy group. “The complaint of my colleagues at the time was, why should we lower rates while closing loopholes. I said we could raise the rates later on to raise revenue [which happened under President Bill Clinton in 1993]. I won a few bets on that,” he said.

But the huge budget deficit confronting the nation over the next decade makes a revenue neutral tax reform bill undesirable. “The broader question is how we can talk about tax reform while fixing the budget,” said Donald Marron, director of the Urban-Brookings Tax Policy Center.

He remains mildly optimistic that something can get done in the next two years. “American history shows that leadership by elected officials, particularly the president, can cause things to happen,” he said.

(Original Post)

Shay Totten on December 11, 2010 at 02:02 PM

On Friday, Sen. Bernie Sanders (I-VT) captured the nation's attention with an eight-and-a-half hour speech on the Senate floor that specifically railed against proposed tax cuts for the wealthy, and more generally at capitalism run amok.

If you missed the speech on C-SPAN 2, the network put up the speech in three parts (links can be found in my Friday post).

Sanders' stem-winder against Walll Street greed, capitalist excess and laissez faire government has also been entered into the Congressional Record.

Below is the full record of his speech, which includes two colloquies, one with Sen. Sherrod Brown (D-OH) and one with Sen. Mary Landrieu (D-LA). It comes in just shy of 70,000 words.

The Senate is scheduled to truly debate the merits of the proposed tax cut deal on Monday, a deal Sanders has criticized since it was first announced last week. We'll learn then if Sanders' speech has had any effect on his colleagues and their constituents.

Perhaps Sanders' staff should print up his speech in a nice little booklet (a little red booklet perhaps?) and package it along with a DVD of the speech. Proceeds of any sales could be used to pay down the debt. It'd be a great stocking stuffer for your favorite socialist. Or, better yet, that Tea Party uncle you love to debate at holiday meals.

So, kick back and scroll.

(Author's note to readers: I didn't do a lot of formatting changes, given the amount of text involved, so apologies for any missed punctuation or incorrect spacing.)

“Furthermore, according to a report from Citizens For Tax Justice, 82 Fortune 500 companies in America--I guess that is 82 out of 500--paid zero or less in Federal income taxes in at least 1 year from 2001 to 2003. That is a report from Citizens For Tax Justice. And the Citizens For Tax Justice report goes on to say:

   In the years they paid no income tax, these companies earned $102 billion in U.S. profits. But instead of paying $35.6 billion in income taxes, as the statutory 35 percent corporate tax rate seems to require, these companies generated so many excess tax breaks that they received outright tax rebate checks from the U.S. Treasury totaling $12.6 billion.

   That is from the Citizens For Tax Justice report.“

“ According to the Citizens for Tax Justice, if the Bush tax breaks for the top 2 percent are extended, these are some of the people who will benefit and what kind of benefits they will receive: Rupert Murdoch, the CEO of News Corporation, would receive a $1.3 million tax break next year. Mr. Murdoch is a billionaire. Do we really think he needs that? Jamie Dimon, the head of JPMorgan Chase, whose bank got a $29 billion bailout from the Federal Reserve, will receive a $1.1 million tax break. Trust me, Jamie Dimon, the head of JPMorgan Chase, is doing just fine. Vikram Pandit, the CEO of Citigroup, the bank that got a $50 billion bailout, would receive $785,000 in tax breaks. Ken Lewis, the former CEO of Bank of America--a bank that got a $45 billion bailout--the guy is already fabulously wealthy--would receive a $713,000 tax break. The CEO of Wells Fargo--these are the largest banks in America; the CEOs of these banks are already making huge compensation. John Stumpf, who is the CEO of Wells Fargo, would receive a $318,000 tax break every single year. The CEO of Morgan Stanley, John Mack, whose bank got a $10 billion bailout, would receive a $926,000 a year tax break. The CEO of Aetna, Ronald Williams, would receive a tax break worth $875,000.”

(Original Post)

By Holly Sklar - 12/10/10 02:18 PM ET

Republicans played President Obama like mortgage hustlers played homeowners. Focus on the teaser rates, borrow more than you need and trust us to work with you to refinance later.

The teasers are the needed extension of unemployment benefits – the unprecedented denial of which were a Republican bluff that paid off big time – and continued tax cuts for non-rich Americans. The president doubled down with some Republican remodeling in the form of a restored estate tax set at the lowest level since 1931. And a cut in the Social Security payroll tax, which Republicans will use to gut Social Security later.

Congressional Democrats should stop the deal before it closes. It will cost most Americans and our economy much more than it gains.

Obama’s tax deal falls for the same trap Republicans have been running since the Reagan administration. Cut taxes to reward the wealthy and purposely run up the debt to cause cutbacks later in programs Republicans don’t like, which is most everything outside of the military and corporate subsidies mostly for big oil, big Pharma and other big business using small business as poster children.

Handed a budget surplus by the Clinton administration, President Bush slashed taxes - breaking precedent by asking the wealthy to pay less, not more, during wartime – and chopped away at the public services and infrastructure that underpin actual job creation and long-term economic growth. Bush left office with the nation in the worst economic crisis since the Great Depression, and falling down the world rankings in wages, living standard, life expectancy, economic mobility, education, infrastructure and global competitiveness. He also left office with the richest 1 percent of Americans having the greatest share of national income since 1928, right before the Great Depression.

Today, the too big to fail banks are bigger and Wall Street is back to paying big bonuses for playing heads I win, tails you lose with our money. Their campaign donations flooded to Republicans who want to undo financial reform and their lobbyists are hard at work trying to make the regulations much weaker in practice than on paper. Today, big businesses are sitting on a record pile of cash and liquid assets while small businesses still get the cold shoulder from banks. Millions of Americans have been foreclosed or are in default. One out of ten Americans are unemployed by the official count, which leaves many uncounted. Our infrastructure – much of it built decades ago when the highest-income taxpayers were more productive and less greedy - is rotting. The promised green jobs of the future are increasingly today’s jobs in Germany, China, Brazil and other countries investing more in their economies.

And now comes the tax deal, offering tax cuts that will be paid for next year and the years after by pay freezes and big budget cuts for the services and infrastructure non-rich Americans and a healthy economy depend on. People used to talk about robbing Peter to pay Paul. Now it’s more like robbing everyone to pay the richest 1 percent.

In the prelude to the real robbery, the poorest 20 percent of Americans will save $396 from the “compromise plan” in 2011, the middle 20 percent will save $1,521 and the richest 1 percent will save $76,949, according to Citizens for Tax Justice. The deficit will grow by $424 billion in 2011 and more after.

Enabled by Obama, the Republicans will use the rising deficit to set up the ultimate foreclosures: Social Security and Medicare. In the words of Nancy Altman, co-director of Social Security Works, “President Obama and the Republicans will say that the payroll tax holiday is all about stimulating the economy. But don’t be fooled … There are many better ways to stimulate the economy with that $120 billion the payroll tax holiday will cost, including simply extending the Making Work Pay Tax Credit … And the other, better forms of stimulus pose no threat to Social Security.”

The payroll tax holiday on the other hand, which will likely be extended, not ended heading into the next election, poses a grave threat. As Altman points out, scrapping the cap on earnings subject to Social Security taxes (now just $106,800) eliminates the projected Social Security shortfall. Cutting the tax while leaving the cap is a gift to those who want to cut, privatize and destroy Social Security under the pretense of saving it.

Obama’s hollow bring-it-on rhetoric aside, if we don’t avoid this trap now, it will set up much bigger losses in the future.

Holly Sklar is executive director of Business for Shared Prosperity.

(Original Post)

Missing Provision in Senate Tax Bill Should Be Reinserted

Ethanol producers are among those who benefit from special business tax breaks. A proposed provision in the tax agreement would require Congress to review these tax breaks each year.

By Seth Hanlon | December 10, 2010

A small but important item is missing from the tax framework bill negotiated by the Obama administration and congressional leaders and introduced in the Senate last night. The provision, which has already been passed by the House of Representatives in separate legislation, would require Congress to evaluate for effectiveness special business tax breaks that Congress renews on a year-to-year basis. The reviews would provide basic information to Congress about whether each of these tax breaks serves its intended purpose.

The provision was included in legislation introduced by Sen. Max Baucus last week and has already passed the House as part of a separate bill. It’s unclear why it was not included in the latest version of tax legislation introduced last night. The Senate and House should make sure it is added back in before the legislation is finalized.

This study is long overdue. About 50 tax provisions are regularly scheduled to expire every year. Many of these breaks benefit targeted industries such as ethanol producers, filmmakers, and financial services companies operating abroad. Congress typically waits until the waning days of the legislative session to take up the tax breaks, then bundles them together in a “tax extenders” bill.

Problem is, there is no systematic process for reviewing the effectiveness of particular tax provisions, so members of Congress have little opportunity to learn about, weigh, or debate their merits. Some of the tax breaks are left out of the final “extenders” package and die off, but Congress usually extends most of them for another year. A tax break’s survival is sometimes just a matter of which lobbyist got the last word in.

The provision in the House legislation, authored by Rep. Lloyd Doggett (D-TX), would require the nonpartisan Joint Committee on Taxation to review each of these so-called “tax extenders” in consultation with the Government Accountability Office and present its findings to Congress. These ongoing studies would evaluate tax extenders on the basis of 10 criteria, all intended to provide Congress with basic information: What purpose do they serve? Do they work? Should they be made permanent? Should they be scrapped?

Most of these tax extenders are part of a broader universe of “tax expenditures,” those special exemptions, deductions, and credits in the tax code that amount to more than $1 trillion a year. Last week, President Barack Obama’s deficit-reduction panel suggested eliminating all but a few tax expenditures. And the president recently said he is contemplating a broad overhaul of the tax code that would reduce tax expenditures.

As policymakers turn their attention to tax expenditures, it’s critical they understand which ones work and which don’t. That’s why the Center for American Progress has emphasized the need for greater scrutiny and transparency of tax expenditures—and the tax extender study is an important step toward this end. As Carl Davis of Citizens for Tax Justice notes, putting the study back in the Senate bill “would signal Congress’ interest in tax reform, deficit reduction, and general government efficiency.”

Congress should halt its annual cycle of extending significant and costly tax provisions without reviewing their effectiveness. The tax extenders study has widespread support and should be noncontroversial. Lawmakers should add the missing provision back into the tax bill so that the next Congress can finally make well-informed decisions about which tax breaks are worth keeping.

Seth Hanlon is Director of Fiscal Reform for CAP's Doing What Works project

(Original Post)

By MATTHEW CLARK

The Morning Sun

Posted Dec 08, 2010 @ 09:00 AM

Last update Dec 08, 2010 @ 11:56 AM

On Tuesday, President Barack Obama announced that a deal has been struck with Republican lawmakers on extending the Bush-era tax cuts.

The deal includes an extension of the tax cuts for all income levels — which were set to expire at the end of the year — including lower and middle-income-taxpayers, as requested by Democrat leaders.

However, the deal also includes extending those same benefits for the upper-class, who make more than $250,000 per year.

Kansas Republican Sen. Pat Roberts praised the deal, calling it “critical tax relief for all Americans.”

“I am encouraged that Republicans and the President were able to come to an agreement on a plan to protect all Americans from the disastrous consequences of raising taxes on a nation recovering from a recession,” Roberts said.

Other elements of the deal include making changes to the estate tax and providing tax breaks to businesses to help spur hiring. Some officials have estimated that the deal could add another $900 billion to the federal deficit over the next two years.

Democrats have voiced their opposition to two parts of the compromise — extending tax cuts to the upper-income bracket and changing the estate tax — both proposals which have been long-sought by the Republicans.

House Speaker Nancy Pelosi, D-Calif., issued a statement following Obama’s address stating: “We will continue discussions with the president and our caucus in the days ahead.”

Had an agreement not been reached, taxes would have been scheduled to increase on Jan. 1 — a paramount reason Obama made for the concessions.

Outgoing Kansas Congressman Todd Tiahrt said that allowing the tax increases to happen would have “stifled job growth.”

“More tax hikes will only continue to strangle an already faltering economy,” Tiahrt said. “Government must get out of the way. Small businesses are the backbone of our economy and the best job creators we have.”

The package also extends benefits for the long-term unemployed for 13 months. The aid had expired on Nov. 30 and up to 2 million unemployed Americans would have run out of benefits by the end of the year.

Another part of the deal includes cutting Social Security taxes for one year. That means that workers earning $40,000 per year would see an $800 windfall while those earning $100,000 could bring home $2,000 more.

According to the group, Citizens for Tax Justice, the average taxpayer would save just under $3,000 in 2011. The top 1-percent of earners would save nearly $77,000 and the poorest 20 percent would see an average tax break of $396.

Matthew Clark can be reached at matthew.clark@morningsun.net or at 620-231-2600, Ext. 140

(Original Post)

By David Kocieniewski

Published: December 8, 2010

More bad news for government workers.

At a time when state and local governments across the country are imposing furloughs and layoffs, and President Obama has frozen pay for federal employees, it turns out that one of the few groups to face higher federal taxes next year may be public sector employees.

The proposal to extend the Bush-era tax breaks unveiled by Mr. Obama this week would offer a tax cut for most Americans. The deal would end the Making Work Pay credit, which gave a tax reduction of up to $400 to workers with low and middle incomes. That credit will be replaced by a 2 percentage point decrease in the payroll tax for Social Security for people of all incomes.

But more than six million federal, state and local government employees do not pay into Social Security at all. Instead, they pay into public pension systems. So if the agreed proposal becomes law, such employees will lose the $400 credit and would not reap any benefit from the payroll tax cut.

According to the most recent statistics by the House Ways and Means Committee, more than 174 million workers paid into Social Security in 2007, but about 5.7 million state and local government employees paid into other pension systems. While the federal government has been moving its work force into Social Security in recent decades, there were still 600,000 employees excluded from it in 2007.

Some tax experts say that it is unfair for a $900 billion tax cut package to give a quarter of its benefits to the top 1 percent of wage earners while forcing public sector workers, who are largely middle class, to have to pay more.

“It makes so little sense that you have to hope that the people who negotiated this didn’t think it through,” said Robert McIntyre, director of Citizens for Tax Justice, a public interest group aligned with unions. “And when they do think it through, they’ll realize it’s not fair. It would be cruel not to do something about it.”

Amy Brundage, a White House spokeswoman, acknowledged that the current version of the plan could result in a higher tax bill in 2011 than 2010 for some government workers. But she stressed that the plan would nonetheless spare them, and all taxpayers, a much steeper increase that would have resulted if no deal had been struck and all the Bush tax cuts were allowed to expire on Dec. 31.

While Mr. Obama had proposed an extension of the Making Work Pay credit, the $120 billion payroll tax reduction worked out is twice as large and will offer a break of up to $2,136 each to millions of middle- and high-income taxpayers.

“The payroll tax cut would reduce taxes for over 155 million workers, providing effective tax relief that will create jobs and boost the economy,” Ms. Brundage said.

While many Democrats have criticized Mr. Obama for abandoning a campaign pledge to let the cuts expire on the wealthiest 2 percent of wage earners, Ms. Brundage said that the president did so only after winning the extension of an assortment of credits for low-income Americans and a 13-month extension of unemployment benefits.

“The cumulative impact of these provisions will be good for America’s working families and our economy,” Ms. Brundage said.

Leaders of the American Federation of State, County and Municipal Employees were muted in their reaction to the prospect of more taxes for public employees.

The union spent $90 million to help elect Democrats during the last election cycle, when Mr. Obama promoted a plan to preserve tax cuts for all but the wealthiest 2 percent of Americans. But Democratic leaders in Congress declined to vote on the measure before the elections and, after Republicans won control of the House, could not win approval for it during the lame duck session of Congress.

“We are aware of it,” said Gregory King, a union spokesman, “and we are discussing it with the appropriate leaders in Congress.”

This article has been revised to reflect the following correction:

Correction: December 15, 2010

An article on Thursday about the effect on public employees of a proposal to cut payroll taxes for one year misstated the size of the cut proposed for those who pay into the Social Security system. It is two percentage points, not 2 percent.

(Original Post)

 by Deborah Weinstein

Executive Director, Coalition on Human Needs

Posted: December 8, 2010 04:05 PM

Because Congress failed to act in November to continue the federal emergency Unemployment Insurance program, two million unemployed workers are expected to go without income this month. Another million each month will go without unemployment benefits into the New Year. If Congress does not act in December, tax cuts affecting most Americans will expire and take-home pay will be lower starting in January. Why hasn't Congress acted? Because a powerful minority made up of Republicans and some Democrats blocked action until they got what was most important to them: billions in tax cuts for the nation's wealthiest individuals.

The Obama Administration negotiated with the hostage-takers. They gave in to odious demands to hand the inheritors of about 3,000 multi-million dollar estates $20 billion over the next two years. They agreed to continue high-income tax cuts with a two-year price-tag of about $95 billion. In return, they got the reinstatement of federal emergency unemployment insurance for 13 months. Tax cuts will continue for everyone receiving a paycheck, and low-income earners and college students will continue to get refund checks worth $40 billion over the next two years. They also got a one-year reduction in the payroll tax worth about $120 billion. They agreed to the hostage-takers' demands because the economy is on life-support right now and might not withstand the shock of so many billions not available to low- and middle-income people.

Millionaires, on whose behalf the hostage-takers were negotiating, will each walk away with a gag-inducing nearly $140,000 more on average in 2011 compared with what they would have received if all the tax cuts had expired.

Queasy Democrats in Congress are trying to see if the deal can be improved. Some have announced opposition to the package and if their votes are needed there could be an opportunity for important changes. Any package of improvements should include preventing the recently-passed SNAP/food stamp cuts from taking $59 a month from low-income households in 2013, when unemployment will still be high. The list should also include restoring the TANF Emergency Fund, which would create 250,000 jobs, and continuing federal funding for child support collections, which would prevent single-parent families from losing $2 billion a year. Taken together, these extremely effective measures constitute less than half the cost during one year of the gift to the richest estates-and they would put federal dollars where they will do the most good.

The President's package contains urgently needed provisions. The $56 billion to prevent federal unemployment insurance from expiring will help seven million workers and their families. But there is room for improvement. In some states, unemployment insurance runs out many weeks before the federal maximum. The deal does update the formula to prevent workers now covered in many states from losing federal unemployment benefits 13 or 20 weeks sooner than the federal maximum, but not all of the jobless will be reached. Those who think the federal emergency unemployment insurance program is doing too much could not be more out of touch with the painful economic realities facing Americans today. Continuing federal unemployment insurance and preventing the jobless from destitution must not wait beyond this month.

The Obama negotiators also protected other important help for the lowest-income families with children. Improvements made in the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) will continue. A full time working parent with two children and earning minimum wage now gets about $1,725 from the CTC. If the current level expires, that family's credit drops to about $225. Increases in the EITC for families with three or more children and for married parents also continue under the plan, as does the $2,500 American Opportunity Tax Credit, which provides tuition assistance for low-income college students. Under no circumstances should Congress leave without continuing these credits.

The hostage-takers refused to include a continuation of the President's Making Work Pay tax credit in the deal. Instead, they accepted a one-year payroll tax cut that is not as helpful to low-income workers. As a consequence, people with incomes below $20,000 will get a smaller tax cut next year than they get now. Replacing the payroll tax cut with the Obama Making Work Pay credit would give the one-fifth of the population earning less than $20,000 an average tax cut of $507. The compromise deal reduces their tax cut to $396, according to Citizens for Tax Justice. On the other hand, the top 20 percent do a lot better, particularly the richest 1 percent, who would receive about $48,000 more in 2011 under the compromise than Obama originally proposed. Such is the power of the hostage-takers.

The Obama Administration makes a big point of noting that the upper-income gifts are only for two years. As well it might--if they were to continue, their cost would skyrocket and truly jeopardize our economic security. But what will reduce the power of the hostage-takers two years from now?

This question is critical: big money interests do not lightly let go of billion dollar gains. We can only avoid being taken hostage again if the President uses every opportunity over the next two years to show the harm inflicted by the upper-income tax cuts, if Senators and Representatives do the same, and advocates help by showing the choices very clearly in human terms.

We urge advocates to join with us in a vital new Hostage Prevention Initiative. Month after month we will show people who are benefiting from services now threatened, or those who cannot get help because Congress is unwilling to find the funds. Over and over, we must bring home to the American public and to Congress that jobs, food and other necessities for millions of low-income families are more important than billions of dollars for a relative handful of multi-million dollar estates or living millionaires. That's the only way the jobless and the rest of us hostages can avoid being taken in 2012.

(Original Post)

by The Associated Press

WASHINGTON December 7, 2010, 07:26 pm ET

The tax deal struck by President Barack Obama and congressional Republicans essentially gives Americans a pay raise — pumping money into the economy almost immediately and probably creating hundreds of thousands of jobs over the next two years, economists say.

The compromise already has economists raising their forecasts for growth next year, mainly because it includes a surprising one-year cut in Social Security taxes. The amount of that cut — 2 percent of pay for most American workers — instantly becomes more take-home money. Critics complain that the deal would further swell the $1.3 trillion federal budget deficit.

Two central parts of the agreement extend income-tax cuts that would have expired Dec. 31 and renew benefits for the long-term unemployed. Those were both expected. But they still give a psychological boost to shoppers in the midst of the holiday shopping season.

The certainty that income-tax cuts will now remain for at least another year could also reassure Americans and businesses to spend more in 2011 and help rejuvenate the still-sluggish economy.

"It will ensure the economic recovery evolves into a self-sustaining economic expansion," said Mark Zandi, chief economist at Moody's Analytics. "Prior to this, I was less sure of that."

Zandi noted that the plan doesn't only put more money in people's pockets. It also gives businesses more incentives to invest by increasing tax write-offs for new equipment. Zandi has raised his forecast for economic growth next year from 2.7 percent to 4 percent. Economists at JPMorgan Chase have raised theirs from 3 percent to 3.5 percent.

Their old projections had assumed that Congress would approve only an extension of the income-tax cuts Congress enacted in 2001 and 2003.

"It will make a real difference in the lives of the people who sent us here," Obama said Tuesday at a news conference in which he defended concessions he made to Republicans as part of the tax-cut compromise.

Under the deal, the president and the GOP agreed to extend benefits for the long-term unemployed for 13 more months. That aid had expired Nov. 30. Up to 2 million unemployed people would have run out of benefits by year's end.

Economists note that cutting Social Security taxes and extending unemployment benefits are among the most effective ways that policymakers can energize the economy. Both steps free up more cash for low- and moderate-income families who are most likely to spend it.

The one-year reduction in Social Security taxes amounts to a cut in the rate from 6.2 percent of gross income to 4.2 percent. A worker earning $40,000 a year would receive an $800 windfall. Someone earning $100,000 would take home $2,000 more.

The activist group Citizens for Tax Justice estimates that the plan would save the average taxpayer just under $3,000 next year. The top 1 percent of earners would save nearly $77,000 on average. And the poorest 20 percent would get an average tax break of just $396.

Economists at Deutsche Bank say the Social Security tax cut alone would increase economic growth by 0.7 percent next year. The Center for American Progress estimates that it would create 720,000 jobs within two years.

On long-term unemployment aid, the Labor Department says every $1 spent generates $2 in economic growth. The Center for American Progress predicts that extending those benefits through next year will generate or save 520,000 jobs.

The White House and Republicans also agreed to extend tax breaks to low-income families. And businesses will be able to write off 100 percent of their investments in equipment next year, up from 50 percent.

The deal also limits the estate tax to 35 percent of estates on any value above $5 million. Obama had wanted to impose a 45 percent tax on estates starting at $3.5 million. Michael Linden, a tax policy specialist at the Center for American Progress, estimates that only about 3,200 estates a year would have to pay estate taxes under the plan.

"There's no question that people at the top will receive a much, much larger per-person benefit" from the tax plan, Linden says.

That's because of the lower estate-tax rate and the extension of income tax cuts for everyone, regardless of income. Obama had opposed an extension of the tax cuts for the highest-earning Americans.

The deal should also ease both political and economic pressure on the Federal Reserve and its embattled chairman, Ben Bernanke. Last month, Bernanke pushed the Fed to start buying $600 billion in government bonds to try to help stimulate the economy. That decision came under fire from Republican leaders on Capitol Hill. Some said they feared the Fed's action will spur inflation and lead to speculative buying on Wall Street.

Bernanke acted at a time when Congress seemed unlikely to approve any new stimulus money for the economy. But the new agreement, especially the Social Security tax cut, amounts to a stimulus by another name.

Now the spotlight will turn to Congress and tax cuts. And critics are warning that the plan could push the federal budget deficit to new record highs.

Analysts at BNP Paribas estimate the cost of the package at $1 trillion over two years. That would increase the federal deficit in the 2012 budget year from 6.9 percent of the nation's gross domestic product to what BNP calls a "much scarier" 9.8 percent.

Some critics said the scope of the tax-cut deal seems jarring at a time when the leaders of a presidential deficit commission have just proposed a mix of spending cuts and tax increases to slash the budget over the coming decade.

"This feels more than a bit surreal," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. "It's utterly exasperating."

Congress still must approve the plan. And many liberals are balking at extending the tax cuts for the highest-earning taxpayers at the cost of even larger deficits.

Congress should "not lower taxes for people who are already extraordinarily wealthy and increase the national debt that our children and grandchildren would have to pay,"' said Sen. Bernie Sanders, I-Vt., said

Analysts expect the plan to pass anyway because of how fragile the economy remains.

"Raising taxes on everybody in January would have put a real dent in the economy," said John Silvia, chief economist at Wells Fargo.

(Original Post)

By Charles Wallace Posted 8:31 AM 12/07/10

President Barack Obama unveiled his compromise to extend the Bush-era tax cuts and renew unemployment benefits Monday evening, calling it an "essential step on the road to recovery." But he's already coming under fire from his own liberal supporters for giving the Republicans everything they wanted without winning major concessions.

"It's really kind of pathetic that he was willing to give up so much and get so little in return," says Dean Baker, co-director of the liberal Center for Economic and Policy Research. "[Obama acts] like the president of the United States is the least powerful person in the county." Tax cuts for the wealthy are just about the worst way to put more money into the economy, Baker adds. "There are many more productive uses of that money."

Obama agreed to Republicans' demands to extend the Bush tax cuts for all taxpayers, including those making above $250,000, for two years. In a surprise concession, he also agreed to accept the Republican estate tax proposal, which levies a 35% tax on the inheritance of estates worth more than $5 million. Obama had been calling for a 45% tax on estates worth more than $3.5 million. The estate tax was repealed for this year, but was scheduled to jump back up to 2001 levels of 55% on estates worth $1 million and more starting Jan. 1.

The compromise plan also would reduce the 6.2% Social Security payroll tax by 2% for one year, which could give middle-income workers an additional $1,000 in take-home pay, and leaves the capital-gains tax untouched at 15%.

Unemployment Benefits Extended

In exchange, Obama won GOP agreement for a 13-month extension of unemployment benefits for as many as 2 million jobless Americans. The benefits are due to start expiring at the end of this month. "We cannot play politics," Obama said.

Bottom of Form

But while the unemployment benefits were extended for just over a year, the tax benefits for the wealthy were left in place for two years.

Bernie Sanders, a left-wing independent in the Senate who caucuses with the Democrats, has vowed to block the compromise.

Alan Viard, a resident scholar at the American Enterprise Institute, a conservative think tank, says he's glad the president decided to extend the cuts for both middle and high-income taxpayers. "We should not give the middle-class tax cuts unconditional priority because the high-income tax cuts are actually more powerful in providing incentives for long-run growth," Viard says.

The Price of Inheritance

The estate-tax compromise also drew mixed reactions. Viard says the 35% tax will still leave "potentially significant savings disincentives in place for those households subject to the estate tax."

Steve Wamhoff, legislative director for the Citizens for Tax Justice, a liberal think tank in Washington, D.C., says that even when the estate tax was set at 45% in 2009, it affected just the top 1% of the country's estates. The 35% proposal "is just a terrible idea," he says.

And Dick Patten, president of the American Family Business Institute, a lobbying group that opposes any estate tax, says the 35% is the best interim solution. 'If our families have 35% of the capital confiscated instead of 55%, that's a step in the right direction," he says.

While Republicans are hailing the deal, it still faces opposition from some Democrats in Congress -- although the GOP majority in the House of Representatives makes it less likely that the compromise

(Original Post)
December 6th, 2010

The Osgood File. Sponsored in part by Taxmasters. The IRS has stepped up its collections efforts - now it's even more likely you'll need Taxmasters. This is Charles Osgood.

What are we going to do about Uncle Sam? He's a dear old guy - we love him. But the older he gets - or I should say, the older we get - the more he spends over what he takes in.

According to the National Debt Clock, he now owes more than 13.8 trillion dollars - it's going up by the second.

If every American shared a piece of that, we could get rid of the debt by having each man, woman and child in the country send him $44,000 and change. But that's not going to happen.

And so, as Prof. Michael Graetz of Columbia Law School puts it...

SOT - Prof. Michael Graetz, Columbia University Law School
"And so we have to either raise taxes on income or raise taxes on something else in order to finance the deficit." (:08)

A something else called "VAT" - after this...

((( SPOT )))

The VAT --- value-added tax --- is used by 150 countries around the world.

It's a kind of national sales tax, imposed by the government at each stage of production, passed on to anybody who buys anything - goods or services.

Professor Graetz says...

SOT - Prof. Michael Graetz
"Countries that have value added taxes and lower income taxes will do better in terms of attracting investment and promoting jobs..." (:09)

Or that's the theory anyway. Our CBS News colleague Seth Doane says there are many kinds of VAT to choose from.

VO - Seth Doane, CBS News Correspondent
"One choice is to consider adding a sort of Federal VAT on top of state sales taxes as a tool to fight debt." (:08)

In Britain, the VAT is going to go up from 17-and-a-half percent to 20% in the new year.

Let's find out how Christmas shoppers in London feel about it...

SOT - Karen Stubbs, a shopper in London
"It's not a good thing, and it affects everyday items...."
VO - Seth Doane
"London cabbie Gary Zylberzsac - who pays VAT on everything, from gas to his taxi rental - has a warning for Americans."
SOT - Gary Zylberszac, cab driver in London
"Look out, you're going to be paying a lot more for everything that you buy." (:14)

Bob McInytre directs a group in this country called "Citizens for Tax Justice."

SOT - Bob McInytre, director of the group Citizens for Tax Justice
"The idea of having a national sales tax comes up periodically - and is always shot down after people realize just how unfair it is..." (:09)

Don't tax you, don't tax me -
tax the fellow behind the tree.
And when it comes to the VAT,
behind the tree ... is you and me.

The Osgood File. Charles Osgood on the CBS Radio Network.

The Osgood File. December 6th, 2010.

(Original Post)

December 5, 2010

"Tough Choices:" A Change in the Mortgage Interest Deduction May Result in a Higher Mortgage Payment

The challenge is to cut the amount the U.S. treasury loses by subsidizing home ownership.  (CBS)

 (AP)  With so much at stake, over the days and weeks ahead the CBS Evening News will be taking a closer look at the Tough Choices the country will be facing to reduce the debt and deficit. (Scroll down to vote your opinion on the issue)

Our latest CBS News poll on issues facing the country finds an overwhelming 73 percent of Americans saying the deficit problem is very serious.

With Washington's attention focusing on new steps to reduce the annual federal budget deficit and government debt, CBS News correspondent Bianca Solorzano reports one idea is to target the tax deduction for home mortgage interest. Currently, 75 million Americans are eligible to deduct the interest paid on their home mortgage from what they owe the government at tax time. Those who do save an average of $2,078 per year.

CBS Evening News Series: "Tough Choices"

The Challenge: To cut the amount the U.S. treasury loses by subsidizing home ownership. One way to do that is to reduce the mortgage interest tax deduction and replace it with a tax credit.

Ray Garcia and his wife, Yishane, are aware cutting the deduction could hurt their bottom line.

"We'd definitely be bummed to lose it, because it's a big chunk of money," says Yishane Lee.

The New Jersey couple's monthly mortgage payment is $3,455, with more than half going to interest. Now they are eligible for a $22,000 deduction. In their current tax bracket that yields $6,205.

The National Commission on Fiscal Responsibility and Reform proposes to change the mortgage interest deduction, which saves home owners a total of $80 billion every year in taxes.

The commission would replace the deduction with a 12 percent "mortgage interest credit" for all home owners. That's less than the average 17 percent credit homeowners currently claim and would increase federal revenue around $300 billion over 10 years.

For the Garcias the change would reduce the tax savings on their home by $3,500.

The Choice: Whether to modify the mortgage interest deduction at all. Some advocate eliminating it entirely.

"If you bought a house and you can afford to pay your mortgage because of the deductions the government just can't get rid of it," says director of Citizens for Tax Justice Bob McIntyre. "I mean that would put you in a pickle."

Which is why if the government did phase out the deduction, it would probably do so over 10 or 20 years.

"That would give housing prices time to correct, time to adjust for the new reality, and if you did that, you could bring marginal tax rates down," says tax policy director of Americans for Tax Reform Ryan Ellis.

The deficit commission also proposes limiting your mortgage interest deduction to one house and cutting the amount of mortgage eligible from $1 million to $500,000. That would raise another $41 billion dollars over 10 years.

Until Washington makes a tough choice it is life as usual for the Garcia family as they break in their new home. "To live your life according to what's going on in Washington is kind of crazy," says Yishane Lee.

"I make sure that I can pay my monthly mortgage regardless of the deduction," says Garcia.

(Original Post)

by thefourthbranch

Sat Dec 04, 2010 at 01:08:29 PM PST

Republican lawmakers continue to argue that tax cuts do not need to be "offset" and that they do not decrease revenue (which is another way of saying they do not add to the deficit).  That's a fascinating insight and one that suggests we don't have much of a deficit at all anymore!  

The aggregate amount of deficits from 2002-2010 was approximately $4.8 trillion.  I list 2002 first because that was the first year following implementation of the first Bush tax cut.  

The total impact on the deficit of the Bush tax cuts, according to a Citizens for Tax Justice analysis (PDF), is approximately $2.5 trillion from 2002-2010.  That's a big number, but lucky for us we can subtract it from the $4.8 trillion deficit amount using Republican logic.  It has no effect.  Then, of course, you have the Obama tax cuts from the stimulus bill (which amounted to approximately $288 billion- a third of the cost of the stimulus).  Those cuts are factored into the reported deficit amounts, so let's take those out too.  All those tax cuts together add up to about $2.8 trillion.  That still leaves a fairly sizable aggregate deficit from 2002-2010 of about $2 trillion.

But wait!  We can do better than that, surely.  If tax cuts don't add to the deficit, reductions in tax revenue from the economic recession ought not to be added to the deficit either, right?  That's good news, because the CBPP has estimated that the recession is responsible for about a $900 billion reduction in taxes from 2009-2010.  It shouldn't really matter if the government lowers your taxes, or if an external force lowers your taxes by reducing your income, should it?  Either way, you are paying less in taxes and tax reductions don't add to the deficit.  So that brings the aggregate 2002-2010 deficit down to a mere $1.1 trillion.  That averages out to about a $122 billion deficit each year since 2002.  Fantastic!  That's pretty manageable.

Obviously, I'm being facetious and yes, I am distorting the Republican argument for emphasis.  Republican leaders aren't actually saying tax cuts don't have an initial cost, they are saying (wrongly) that they pay for themselves through a multiplier effect (government lets you keep more money, you spend more money, that creates more jobs, more jobs means more income tax revenue, etc.).  Admittedly there is SOME revenue generated by tax cuts, but it is nowhere near 100% of the tax cut amount.  If it were, we could cut taxes to 0.1% and still bring in the same amount of revenue.  Mark Zandi, the chief economist at Moody's, has estimated that for each dollar spent on the Bush tax cuts, GDP increases by about $0.32 the following year.  That's an increase in GDP and not an increase in revenue, but as GDP rises a small percent of the GDP increase will return to the federal government in tax receipts.  That's a bump, but not a significant bump.

What's lost in Republican rhetoric, however, is their implicit support for fiscal stimulus and their explicit dishonesty on the deficit.  Spending money on tax cuts to generate more revenue, which is what Republican leaders argue they want, is... fiscal stimulus.  

Functionally, tax cuts and spending operate similarly.  In a tax cut, you identify a group of individuals who will get money (those earning under $250,000 a year who itemize their taxes, for example) and you cut their tax rates or issue a tax rebate to get them the desired amount of cash.  In spending, you identify a smaller group of recipients (such as the unemployed for unemployment insurance), or even a particular industry (such as the construction industry for large infrastructure spending projects), and you pay money to those individuals or groups in the desired amount.  Unsurprisingly, then, various forms of spending also have a "multiplier effect" akin to the one Republicans cite with tax cuts.  Mark Zandi estimates that each dollar spent on infrastructure spending adds about $1.57 to GDP.  Each dollar spent on unemployment benefits adds about $1.61 to GDP.  Both infrastructure spending and unemployment benefits, then, are about 5 times more stimulative than the Bush tax cuts.

Given that spending and tax cuts operate in much the same manner, one may ask why the Bush tax cuts are so much less stimulative than infrastructure spending and unemployment benefit spending.  The short answer is that the targeted recipient is very different.  The overwhelming majority of the Bush tax cuts go to reduce the taxes of the wealthy.  The wealthy, however, do not need to spend any extra money which lines their pockets.  They can put it in a bank and be just as happy as they were before they received the tax cut.  With infrastructure spending and unemployment insurance, however, most recipients will be the poor or the working class who are far more likely to spend those government dollars than they are to hoard them- thus the higher multiplier.  This is the same reason that other forms of tax cuts, such as a payroll tax holiday, have a higher multiplier than the Bush tax cuts (about $1.24 increase to GDP, according to Zandi).

President Obama recognized the Republican support for fiscal stimulus when he lobbied for the stimulus bill.  In part to gain Republican support, he pushed for almost $300 billion of the $814 billion legislation to be tax cut spending.  Republicans then hit him on two fronts in a whirlwind of hypocrisy.  First, despite Republican arguments that tax cuts don't add to the deficit, they not only added the $300 billion into the cost of the bill, but then they often rounded up to talk about the "$1 trillion spending bill passed by Obama."  Second, they have consistently argued that the stimulus bill was an absolute failure and didn't stimulate any economic growth at all (even though 1/3 of the bill was tax cuts and despite significant evidence that the bill DID stimulate growth).  Third, to the extent the stimulus bill wasn't as effective as it could have been, it is in large part due to the fact that a third of its spending was focused on tax cuts which have a lower multiplier effect than other forms of spending, such as unemployment insurance and infrastructure spending.

For whatever reason, most of the media establishment has bought into the Republican line of "reasoning."  The deficits are Obama's fault.  Democrats are involved in runaway spending.  The stimulus didn't work.  Government spending isn't stimulative.  Obama is raising your taxes.  The deficit is the most important issue facing the nation right now.  

So what's the first item on the agenda after Republicans win the House?  Extending the Bush tax cuts- and not just extending cuts for those under $250,000 in income.  Extending the cuts for everyone (particularly the wealthy whom the tax cuts were designed to benefit the most).  And what happens if Obama agrees to do exactly that?  Republicans will hammer him when the deficit numbers increase dramatically next year over current projections and when Democrats ask to raise the deficit ceiling in order to have room to pay for the tax cut extension.  An economically incoherent argument is becoming a brilliant political strategy.

I'm not suggesting, by the way, that tax cuts are a bad idea.  Tax levels ought to be lower in a down economy than they are in a booming economy.  The ideal tax level for each bracket isn't ever easy to identify, but maintaining current tax levels for income earners below $250,000 could be beneficial right now.  It won't be as stimulative as other spending the government could do, but it's an arrow in the government's quiver to get the economy moving faster.  But let's be honest about matters: it will increase the deficit with an absolute certainty.  It's Keynsian economics.  Both parties have adopted Keynesian economics.  The biggest difference is that Republicans favor implementing it poorly while denying they are implementing it at all.

Check us out at http://www.thefourthbranch.com

(Original Post)

12/2/2010

On The Colbert Report yesterday, host Stephen Colbert mocked conservative pundits and politicians ginning up fear over the return of the estate tax in 2011. Recently, conservatives have been bemoaning the potential impacts of a returning estate tax on the decision-making processes of families with wealthy relatives near death. Colbert empathized with "all those innocent, God-fearing people who are willing to kill Nana for the extra cash."

With Congress likely to pass an extension of the Bush tax cuts – which set in place the gradual reduction and then temporary one-year elimination of the estate tax for 2010 – during the current lame duck session, Democrats and Republicans alike want estate tax language included in the bill.

President Obama has proposed permanently extending 2009 estate tax levels – which exempted the first $3.5 million of an estate and taxed any amount above that at 45 percent – while most Republicans have signed on to the Lincoln/Kyl proposal, which would weaken the estate tax beyond 2009 levels.

If Congress fails to adopt any proposal, the estate tax will spring back to 55 percent on estates worth more than $1 million next year.

To hear those within conservative circles, though, anything other than the permanent repeal of the "death tax" is a menace to not only business but also the loved ones of elderly business owners.

On Tuesday, Rep. Steve King (R-IA) claimed there would be "people that are on their death bed, families gathered around the death bed, making life and death decisions by looking at tax liabilities." The congressman added, "That is cruel."

Colbert commended Rep. King's courageous stand against "yet another injustice to the oft overlooked minority: children of the obscenely wealthy."

And Colbert's right. According to Citizens for Tax Justice (CTJ), the estate tax affected only 0.6 percent of deaths in the U.S. in 2008, according to the most recent statistics available. In 2008, the estate tax exempted the first $2 million of an estate and taxed any amount over that at 45 percent.

Moreover, while their argument about the implications of a returning estate tax on family life-and-death decisions is pretty silly, if Rep. King and other conservatives want to get upset about it, they should be angry with their own party for writing into the 2001 Bush tax cuts the sunset of the one-year repeal. But, like the larger issue of who the estate tax affects, that's just an inconvenient detail of their scare tactics.

(Original Post)

By Jack Edmonston

December 01, 2010

The election is over and the time has come to look seriously at what we have to do to get our deficit under control. We need to drop the campaign slogans and get down to business. It is not going to be easy.

The truth is that we cannot have lower taxes and keep all of our benefits. We also cannot balance the budget simply by cutting "waste, fraud and corruption."

If you want to see for yourself there are a couple of places on the web where you can. One is a New York Times article with detailed budget cutting options. It is at www.nytimes.com/2010/11/14/weekinreview/14leonhardt.html.

The other is a budget and tax simulator created by the bipartisan Committee For a Responsible Federal Budget. It lets you decide for yourself about a whole variety of cuts and tax increases while showing you the effect of your actions. It can be seen at www.crfb.org/stabilizethedebt.

If you do not want to wade into the budget swamp, check the draft Fiscal Commission report recently released by chairmen Erskine Bowles, a Democrat, and Alan Simpson, a Republican. It shows there is no reasonable way to balance the budget without both raising taxes and making cuts to the so-called budget busters: defense, Medicare, Medicaid and Social Security.

The Fiscal Commission co-chairmen came up with a draft plan that relies on budget cuts for two-thirds of the deficit reduction, and taxes for only one-third. I think we should rely more on taxes and less on cuts to Medicare and Social Security.

We are not, in my opinion, "overtaxed." Analysis by the well respected Citizens for Tax Justice web site, www.ctj.org, makes two points.

-The U.S. has one of the lowest tax burdens in the Organization for Economic Cooperation and Development, of which we are a member, along with all of the major European countries. In 2008, total federal, state and local taxes in the United States were 26.2 percent of our gross domestic product, ranking us 25th among the 27 countries in the organization for which data are available. Only Turkey (23.5 percent) and Mexico (20.4 percent) had lower taxes. Just above us, with somewhat higher taxes, are Korea, Ireland and Japan. We are, if anything, "undertaxed."

-High-income Americans do not pay more than they should. The primary principle of taxation is that society is best-served when taxes come from income over and above that needed for food, clothing and shelter. High-income earners have more income than others, much more than is needed to meet basic living needs, so they are more able to pay taxes than others.

Citizens for Tax Justice looked at how taxes affect different wage groups and found that when you add up federal, state and local taxes, the top 1 percent of Americans get 20 percent of all income and pay 22 percent of all taxes. The top 20 percent get 58 percent of all income and pay 64 percent of all taxes. The middle 20 percent, including those with median income, get 12 percent of income and pay 10 percent of all taxes.

These data do not support the argument that the most well-off among us bear more of the tax burden than they should.

Jack Edmonston lives in East Sandwich.

(Original Post)

December 1, 2010

First Microsoft, then Google - now Cisco. A whopping 20 percentage point fall (or a 53% absolute fall) in its tax rate in just 13 years. Courtesy of the always excellent Marty Sullivan of Tax Analysts. The article is here, courtesy of TaxProf. This is happening across the board.

We recently blogged about deferred tax - and this is a big part of the story. Companies only get taxed on offshore income once they repatriate it home, say to pay dividends. What doesn't get brought home sits, deferred indefinitely, offshore (OK: it's a bit more complicated than that, but the basic point is valid.) Bloomberg estimated in May that there was US$1 trillion of these deferred taxes sitting offshore, not subject to U.S. taxes. Cisco CEO John Chambers estimated it at US$1.2 trillion (though this does depend a bit on what we mean by deferred tax).

George W. Bush approved a one-off loophole in 2004 that set a low five percent tax rate on repatriated income: and US$360 billion of deferred taxes whooshed back into the United States through that loophole. Citizens for Tax Justice estimated then that it did not create a single job in the U.S. - though it did fatten CEO paychecks dramatically. Now take a look at this latest academic research on the effects of that loophole it led to U.S. companies shifting ever more money offshore, in eager anticipation of the next one:

"Statistical analysis of the data shows that there has been a dramatic increase in the rate at which firms add to their stockpile of foreign earnings kept overseas. Further analysis shows that this change has been driven both by an increase in the fraction of foreign earnings that remain permanently invested abroad and also, in the case of some categories of firms, by an increase in foreign earnings relative to domestic earnings. These findings are consistent with the hypothesis that the temporary holiday conditioned firms to anticipate future such holidays and to change their behavior by placing more earnings overseas than ever before. Thus, although the AJCA was a short-term success in getting foreign earnings repatriated, it may have been a long-term failure by creating a long-term net increase in total earnings kept overseas."

We hope they don't allow this again. However, as tax expert David Rosenbloom noted in 2007:

Congress can swear on two stacks of Bibles that it’ll never do it again,” Mr. Rosenbloom said, “but they’ve lost their virginity.

Chambers said something similar, just a few days ago:

‘I’d be very surprised if repatriation does not happen,’’ Chambers told Bloomberg television on November 11.

The Republicans have made a comeback. Chambers could well be right.

Caution: reading TJN blogs may cause depression.

(Original Post)

By Kate Thomas

2:53 PM Eastern - December 1, 2010

As more than 800,000 long-term job seekers today face the loss of their emergency unemployment benefits due to Congress's inaction, it's hard to ignore one particularly sad and ironic contrast. Come January 1st, this very same brand of Congressional inaction could result in an extension of Bush-era tax cuts--which would result in ridiculous monetary gains for many already-wealthy CEOS and execs.

If tax cuts on incomes over $1 million are allowed to expire at the end of 2010 as scheduled...

• CEOs of big banks on Wall Street stand to reap rewards of between $700,000 and $1.6 million each.
• CEOs of the health insurance industry--who slashed benefits and instituted breathtaking premium increases--would receive between $335,000 and $875,000 each.
• Former U.S. Chamber Board member and CEO Don Blankenship of Massey Energy--the company who owns the mine in which twenty-nine miners died--would receive more than $700,000.

This week, a new U.S. Chamber Watch report details the millions of dollars that corporate CEOs stand to gain personally from a permanent extension of the Bush tax cuts for the rich. According to the report, instead of focusing on creating millions of new jobs through infrastructure and other investments, the U.S. Chamber has been lobbying heavily for a permanent extension of these CEO tax breaks.

According to figures from the U.S. Treasury, it doesn't seem as if extending the Bush-era income tax cut for the richest 2 percent would have much of a trickle-down effect for regular working Americans. Tax policy group Citizens for Tax Justice estimates these tax breaks could end up costing $678 billion over a decade.

More on just how much benefit some CEOs will gain from an extension of Bush-era tax cuts on http://www.fixtheuschamber.org. Full PDF report from U.S. Chamber Watch here.

(Original Post)

December 1, 2010

Honeywell CEO Keeps 230 Workers Locked Out Over Pension Cuts

Contact:  John Smith; 618-638-7894;  >jsmith@usw7-669.com
                Gary Hubbard; 202-256-8125; >ghubbard@usw.org

Washington, D.C. (Dec. 1) -- Leaders of a five-month labor dispute at Honeywell Corp., were in the hearing room today of the National Commission on Fiscal Responsibility and Reform to keep their eye on CEO David Cote, questioning his self interest lobbying as a commissioner who seeks to continue tax cuts for the rich, while threatening his employees jobs and retirement security.

Darrell Lillie, USW Local 7-669 President representing 230 workers at the Honeywell uranium processing plant in Illinois, challenged Cote’s accountability at the hearing with a statement, saying: “We think it’s a joke that our CEO can serve on the Fiscal Commission while he has locked us out, hired hundreds of replacement workers to steal our jobs and now seeks to eliminate our pension plan.”

The union leader challenged Cote’s seat on the Commission: “We forewarn all American working families that this millionaire executive’s agenda is questionable.”  Cote also serves on the commission’s “Tax Reform Working Group.”

Lillie cited a report released Monday by U.S. Chamber Watch, a non-profit research group, that revealed Cote would personally stand to gain $1.2 million from the tax cut extension being promoted by the U.S. Chamber of Commerce.  The report noted that Cote gave the keynote address at a Chamber October event called “Balancing Act: Federal Debt,” after being introduced as a member of the Fiscal Commission.

The report was prepared with support by the tax policy group Citizens for Tax Justice (CTJ), who wrote, “Fiscal responsibility, job creation, and tax fairness all depend on Congress allowing the Bush tax cuts for the rich to expire at the end of this year as scheduled. According to figures from the U.S. Treasury, extending the Bush income tax cut for the richest 2 percent would cost $678 billion over a decade.”

USW Local 7-669 President Darrell Lillie declared: “We’re going to raise our voices with Honeywell’s CEO to advocate for a contract offer that doesn’t cut our retiree benefits and strip our members of the rights this union has fought for the last 50 years.” The next scheduled negotiating session is Dec. 13-14 in Metropolis.

The locked out workers are the only ones in the U.S. who produce first stage commercial fuel for nuclear power plants operating in most of North America. For more information on the lockout:  www.usw7-669.com/.