Recent News about In the News

Time: Washington Mulls a Corporate Tax Overhaul

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(Original post)

Friday, Mar. 04, 2011

By Steven Gray

Washington is more divided than ever, but there's a surprising area in which lawmakers are finding a measure of consensus: corporate tax reform. Conservatives, unsurprisingly, support it, arguing that America's 35% corporate tax rate stymies investment. President Obama embraced reform, too, saying in his State of the Union address that America has "one of the highest corporate tax rates in the world." The President's debt commission has recommended adopting a single corporate tax rate as low as 23%.

In reality, few companies actually pay 35% of their profits to Uncle Sam, or even 23% for that matter. A series of generous corporate tax loopholes brings the effective rate for businesses down to barely a dime on every dollar earned, in some cases. Consider Boeing. Between 2008 and 2010, the company reported about $9.7 billion in pretax U.S. income. But the company received a rebate of $75 million, according to a new report from Citizens for Tax Justice, a Washington advocacy group. (See the top 10 tax dodgers.)

One of the hurdles to reform could be that a streamlined tax code, even at a lower stated rate, could mean a corporate tax increase, something most Republicans and companies would oppose. What's more, at a time when the public is increasingly budget-conscious, skeptics wonder how well proposing lowering corporate taxes will play with voters. "It's a no-brainer that you have to eliminate all those loopholes," says Vermont Senator Bernie Sanders, who caucuses with the Democrats. "But do I believe at the end of the day it has to be revenue-neutral? I don't. Corporations are making a huge profit and in some cases getting a refund. It's wrong."

Nonetheless, many agree that the current system for determining what corporations pay Uncle Sam is a confusing state of affairs. At a recent Congressional hearing on the subject, North Dakota Democratic Senator Kent Conrad, the chairman of the Senate Budget Committee, called the current tax code a "Chinese riddle" that only a "contortionist" could deal with. A streamlined tax code could boost government revenue and at the same time provide clarity for corporate executives, many of whom have cited uncertainty about government tax policy as one of the reasons they have been slow to hire after the recession. (See inside Big Business's push for tax breaks.)

Surprisingly, the biggest driver behind the corporate tax-reform debate is President Obama. Beyond the State of the Union mention, the Treasury Department is believed to be formulating corporate tax-reform proposals. White House officials, meanwhile, say promoting corporate tax reform will be one of the key areas of focus for GE CEO Jeffrey Immelt, who was recently appointed head of the President's Economic Recovery Advisory Board. Immelt is likely to find much support among other CEOs. Caterpillar's Doug Oberhelman, who joined President Obama at a December meeting of CEOs at Blair House, recently told Fox News that the current corporate tax code "puts us at a little bit of a disadvantage. It encourages us to park foreign earnings outside this country. Wouldn't it be nice to have that free flow of funds back here and put some of that to work in the U.S.?"

One of the most promising blueprints for reform could come from a bill co-sponsored by Senator Ron Wyden, the Oregon Democrat. Wyden's bill lowers the stated corporate tax rate to 24%. At the same time, Wyden's bill would end special tax breaks favoring certain business sectors and repeal a rule that allows companies to defer taxes on income earned abroad. The exception would be small businesses — roughly defined as outfits earning less than $1 million annually — which Wyden proposes be allowed to expense all equipment bought in a given year. (See where the jobs are in a struggling economy.)

The latest in a wave of hearings on corporate tax reform came Thursday, convened by Dave Camp, Republican Representative from Michigan and chair of the House Ways and Means Committee. There was the usual parade of small-business owners and tax experts. But few observers believe the hearings will amount to substantive action this year. Bob McIntyre, executive director of Citizens for Tax Justice, predicts corporate tax reform will likely be an issue during the upcoming presidential campaign cycle, as it was in 1984.

Wyden, though, says key fiscal scorekeepers, like the Tax Policy Center, have declared his bill to be "revenue neutral." The conservative Heritage Foundation even issued a report calling the bill "ambitious" and "excellent." So why now? Wyden frames the need for corporate tax reform as a job-creation bill. In the two years after the last significant tax reform became law in 1986, the U.S. created more than 6 million nonfarm jobs, Wyden says. During George W. Bush's two Administrations, just under 3 million jobs were added. (Comment on this story.)

"There are other reasons that went into job creation in the 1980s," Wyden says, but tax reform "was a significant factor." He says his reform would create 2 million jobs and pump more than $500 billion into the economy by 2015. Nevertheless, Wyden remains optimistic. "We're really getting traction, for a sense of urgency."

Wall Street Journal: New York's Vanishing Millionaires-and Other Myths

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(Original post)

By Robert Frank

High state taxes are chasing out the rich, according to the antitax crowd. We have it in Maryland, New Jersey, Rhode Island, and Connecticut.

Now comes some new research claiming that taxes are driving the rich out of New York. But like the other research, it contains some fundamental flaws.

The Partnership for New York City, comprised of business leaders, says the state’s “Millionaire’s Tax” has forced some of the state’s most valuable earners and tax-payers to other states. The tax, which applied to those earning $200,000 or more, expires at the end of 2011. But some Democrats want to keep it from expiring.

The Partnership says New York lost a net 1.7 million residents from 1999 through 2008, and the average net worth of people who left was $338,000, citing stats from the Center on Wealth and Philanthropy. (Note, this is before the “Millionaire’s Tax” was imposed).

The report says that from 2007 to 2009, when the Millionaire’s tax was imposed, New York saw a 9.4% decline in state taxpayers who earn $1 million or more. Citing stats from Phoenix Marketing, the Partnership says the number of $1 million earners fell to 345,892 in 2009 from 381,786 in 2007.

It sounds scary. But it isn’t entirely accurate. As the liberal Citizens for Tax Justice points out, the 9.4% decline was actually for people who have wealth of $1 million, not for those who earn $1 million or more. And during that time, the nation as a whole lost wealth and millionaires because of the stock-market swings.

But there is something else to note in the Partnership’s research. The number of millionaires in New York actually increased in 2010–while the tax was in place. New York had 381,197 millionaires in 2010, an increase of 35,000 millionaires from 2009. This again likely reflects wealth gained from the stock market and Wall Street, not from taxes.

Kathryn Wylde, the president and CEO of the Partnership, was kind enough to call me while she was out of the country to clarify. She said the population number is indeed for wealth not income. But when I pointed out that the numbers still failed to prove a link between tax changes and the population of rich people, she said that “anecdotally” she was hearing a lot about wealthy people leaving the state, to lower-tax New Jersey, Connecticut and Florida.

“It’s a very difficult thing to measure,” she said. “We get a lot of it anecdotally. Our evidence is from conversations with lots of high earners and there is an increasing tendency to gravitate to lower-tax places.”

She is absolutely right. Measuring the precise movements of the wealthy is difficult without data. It is even harder to measure the reasons for their movements. And that is why we should take all of these studies for what they are–political talking points with very little supporting data.

It is very possible rich people are leaving New York because of high taxes. But there is little or no supporting evidence.

Do you think the rich are leaving New York because of taxes?

Crain's New York Business: Biz report on 'millionaire's tax' is attacked

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(Original Post)

Wednesday, February 23, 2011


A labor-backed advocacy group called Citizens for Tax Justice has struck back against a Partnership for New York City report on the state's so-called millionaire's tax. The Partnership, which represents big business, had argued that the three-year personal income tax surcharge has already caused thousands of high earners to leave New York, and that it should not be extended past this year. Citizens for Tax Justice claimed that the Partnership resorted to “making data up” in reporting that the number of $1 million earners in New York fell 9.4% from 2007 to 2009.

CTJ, which seeks “fair taxes for middle-income and low-income families,” wrote, “The Partnership is implying that millionaires had the magical ability to see into the future and start moving out of New York in 2007 and 2008 as a result of a tax increase that hadn't even happened yet.”

Technically, no crystal ball was needed. The surcharge passed in May 2009. New Yorkers could have left the state in mid-2009 and filed 2009 tax returns as residents of their new states.

But CTJ's other points raise legitimate questions. The Partnership claimed that New York had 381,786 taxpayers who earned $1 million or more in 2007, but CTJ cited Internal Revenue Service data showing only 375,265 tax returns had adjusted gross incomes of $200,000 or more that year.

CTJ notes IRS data for 2009 is not even available yet. The group wrote that the Partnership got its numbers from Phoenix Marketing International, which measured net worth, not “taxpayers who earn $1 million or more,” as the business group claimed.

Kathy Wylde, president of the Partnership, said her study tried to show that extending the tax would only make it easier for legislators to ignore the state's long-term deficit, even if it didn't push high-income earners out of state.

In any case, Phoenix Marketing International's data showed the number of millionaires nationwide fell 13.9% from 2007 to 2009, so New York's drop of 9.4% was better than average, despite the tax surcharge. New York lost proportionately fewer millionaires than 43 of the 50 states, CTJ found.

The nationwide decline suggests that New York lost millionaires primarily because New Yorkers made less money and saw their property values drop during the recession, not because they moved to other states.

The Guardian: The Real Reason for the Public Finance Crisis

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(Original post)

If you want to know why we have budget deficits all over, look no further than the roaring success of corporate tax avoidance.

Richard Wolff

19 February 2011

Nothing better shows corporate control over the government than Washington's basic response to the current economic crisis. First, we had "the rescue", then "the recovery". Trillions in public money flowed to the biggest US banks, insurance companies, etc. That "bailed" them out (is it just me or is there a suggestion of criminality in that phrase?), while we waited for benefits to "trickle down" to the rest of us.

As usual, the "trickle-down" part has not happened. Large corporations and their investors kept the government's money for themselves; their profits and stock market "recovered" nicely. We get unemployment, home-foreclosures, job benefit cuts and growing job insecurity. As the crisis hits states and cities, politicians avoid raising corporate taxes in favour of cutting government services and jobs – witness Wisconsin, etc.

Might government bias favouring corporations be deserved, a reward for taxes they pay? No: corporations – especially the larger ones – have avoided taxes as effectively as they have controlled government expenditures to benefit them.

Compare income taxes received by the federal government from individuals and from corporations (their profits are treated as their income), based on statistics from the Office of Management and the Budget in the White House, and the trend is clear. During the Great Depression, federal income tax receipts from individuals and corporations were roughly equal. During the second world war, income tax receipts from corporations were 50% greater than from individuals. The national crises of depression and war produced successful popular demands for corporations to contribute significant portions of federal tax revenues.

US corporations resented that arrangement, and after the war, they changed it. Corporate profits financed politicians' campaigns and lobbies to make sure that income tax receipts from individuals rose faster than those from corporations and that tax cuts were larger for corporations than for individuals. By the 1980s, individual income taxes regularly yielded four times more than taxes on corporations' profits.

Since the second world war, corporations have shifted much of the federal tax burden from themselves to the public – and especially onto the middle-income members of the public. No wonder a tax "revolt" developed, yet it did not push to stop or reverse that shift. Corporations had focused public anger elsewhere, against government expenditures as "wasteful" and against public employees as inefficient.

Organisations such as Chambers of Commerce and corporations' academic and political allies together shaped the public debate. They did not want it to be about who does and does not pay the taxes. Instead, they steered the "tax revolt" against taxes in general (on businesses and individuals alike). The corporations' efforts saved them far more in reduced taxes than the costs of their political contributions, lobbyists' fees and public relations campaigns.

At the same time, corporations also lobbied successfully for many loopholes in the tax laws. The official federal tax rate on profits is now around 35% for large corporations, which theoretically have to pay additional state taxes on their profits and local taxes on their property (land, buildings, business inventories, etc). Those official and theoretical tax obligations have been used to support conservatives' claims that corporations pay half or more of their profits to federal, state and local levels of government combined. However, because of loopholes, the truth is very different. The actual tax payments of corporations, and especially large corporations, are far lower than their official, theoretical obligations.

The most comprehensive recent study of what larger corporations actually pay by three academic accountants – professors at Duke, MIT and the University of North Carolina – gets at that truth. It examined a large sample of corporations. Their average turned out to be a rate of total taxation (federal, state and local combined) below 30 %. The study concluded:

"We find a significant fraction of firms that appear to be able to successfully avoid large portions of the corporate income tax over sustained periods of time. Using a 10-year measure of tax avoidance, 546 firms, comprising 26.3% of our sample, are able to maintain a cash effective tax rate of 20% or less. The mean firm has a 10-year cash effective tax rate of approximately 29.6%."

General Electric (GE) deserves special mention. The New York Times reported that its total tax payment amounted to 14.3% over the last five years. Citizens for Tax Justice corrected that down to 3.4%, as the profits tax it paid in the US. Thus, GE paid a far lower tax rate on its income than most Americans paid on theirs. In 2009, GE received a huge $140bn bailout guarantee of its debt from Washington. By choosing GE's chief executive, Jeffrey R Immelt, to head his economic advisory panel, President Obama effectively rewarded the corporate programme: give us more and tax us less.

Corporations repeated at the state and local levels what they accomplished federally. According to the US Census Bureau, corporations paid taxes on their profits to states and localities totalling $24.7bn in 1988, while individuals then paid income taxes of $90bn. However, by 2009, while corporate tax payments had roughly doubled (to $49.1bn), individual income taxes had more than tripled (to $290bn).

If corporations paid taxes proportionate to the benefits they get from government and in fair proportion to what individuals pay, most US citizens would finally get the tax relief they so desperately seek.

Slate: Cellular Sin Taxes: Why Are Mobile Phone Taxes So Ridiculously High?

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(Original post)

By Timothy Noah

Feb. 16, 2011

A couple of years ago Bob McIntyre bought his daughter a mobile phone. She was living in Oakland, Calif., at the time, and McIntyre lived in northern Virginia. He told her to buy the phone in Oakland and to send him the bill. With rebates and discounts the phone ended up costing about $25. But when McIntyre got the bill, he hit the roof.

McIntyre, I should point out, is director of Citizens for Tax Justice, a liberal nonprofit. CTJ has a well-established reputation for scrupulously honest research—McIntyre's been tutoring me about tax distribution tables for three decades—and the man doesn't waste a lot of time griping that our wallets have been picked clean by the gol-durned guv'mint. (That's Grover Norquist's racket.) But McIntyre was flabbergasted to receive a bill of nearly $60 for his daughter's cell phone, of which the majority was taxes. The city fathers of Oakland had calculated their tax based on the phone's sticker price of about $300. Consequently, McIntyre ended up paying more for the tax than he did for the phone.

Taxes on mobile phone use are so high that you might wonder whether the government considers their use a vice, like the consumption of alcohol or tobacco. A pack of smokes costs about $5, on top of which state tax will add, on average, $1.45. That's an average tax rate of 22 percent. In the states of Nebraska, Washington, or New York—where taxes on cellular service are highest—the combined state and local tax is 18 or 19 percent, which isn't too far behind. Nationwide, the average state-local tax burden on cell phone service is 11 percent, compared with an average general sales or use tax of only 7 percent.

Federal taxation of cigarettes (a federal excise tax of about 25 percent is built into the price of a pack) is much more onerous than federal taxation of cell phone use (a 5 percent surcharge paid into the Federal Communication Commission's Universal Service Fund, which subsidizes schools, libraries, hospitals, and rural providers). But when combined with state and local taxes on mobile phone service in Nebraska, Washington, or New York, the total tax burden is 22 or 23 percent. Nationwide, the combined federal-state-local tax on cellular phone service averages 16 percent.

Why are mobile phones taxed so much? A new analysis by Scott Mackey, a Vermont-based economist who works for wireless providers, lays into the FCC, which since 2007 has raised its USF surcharge from 4 to 5 percent. (I'm relying on Mackey for all my cell phone data.) But state and local taxes on cell phone use average more than twice this federal surcharge. And Mackey points out that during the recession local governments have been bumping up their taxes on cellular phone service as they scramble to replace lost revenue. Baltimore went from $3.50 to $4 per month. Montgomery County, Md., went from $2 to $3.50. (Neither of these calculations includes county 911 fees, nor, of course, other state and federal fees.)

Flat-rate taxes on the purchase of goods or services are by definition regressive. That's why states typically keep sales taxes below 10 percent. But the nationwide average tax on cell phone use is, again, 16 percent. That is largely, I would guess, a relic of the time (a dozen years ago?) when cell phones were still a luxury item. It wouldn't have seemed especially regressive to tax somebody's Nokia back when audiences were flocking to see Titanic. But today cell phones are ubiquitous. Although 25 percent of American households have no land lines, only 2 percent have no phone service at all, according to the Pew Foundation's Internet and Life Project. Families too poor to have a land line usually have at least one cell phone. Increasingly, that phone is a smart phone; according to another Pew study, 17 percent of families earning less than $30,000 rely on a cell phone to access the Internet.

As McIntyre often points out, the federal income tax is superior to most state taxes because it's progressive. Rich people pay a larger percentage of their income in taxes than middle-class people, middle-class people pay a larger percentage than poor people, and the poorest people pay no income tax at all. Indeed, they may achieve a net income gain through the Earned Income Tax Credit. That's the way it's supposed to work, anyway; assorted deductions and exemptions and other loopholes undo progressivity a bit. (McIntyre can tell you about that, too.) When the federal and state governments need revenue it's generally not a good idea for them to jack up taxes on goods and services. Far better that they do it through federal and (in the 43 states that have them) state income taxes.

The only logical reason to maintain the current tax scheme would be to discourage cell phone use. That's why we have sin taxes on unhealthy stuff like Marlboros and Coca-Cola. But cell phones aren't unhealthy (except if people use them while driving—already banned in eight states, and for novice drivers in 28—or engaged in some other activity where multitasking is unsafe). And except in certain situations (in class; at the dinner table, the movies, or a funeral; on Amtrak's quiet car; perhaps in bed with your spouse) cell phone use is perfectly acceptable. It's wonderfully convenient, even fun! If we're going to chide cell phone providers—as we should—for adding sneaky fees to your bill, we mustn't ignore the government when it does the same.

Washington Post: How Obama Can Close Those Tax Loopholes

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(Original post)

By Conor Williams

Friday, February 11, 2011

This week's coverage of President Obama's speech at the U.S. Chamber of Commerce largely portrayed him as a chastened progressive crusader. With hat in hand and downcast eyes, the president walked across Lafayette Park and assured American corporate leaders that he was ready to play nice.

Tired of "outdated and unnecessary regulations," corporate America? We'll back off. Might you consider spending some of the "nearly $2 trillion sitting on [your] balance sheets" to hire a few Americans off of our unemployment rolls? We'll call you "corporate patriots!"

So what does this mean for the president's stated goal to eliminate tax loopholes and subsidies that allow many American corporations to pay much lower taxes than they would otherwise? Industry relies on the nation's infrastructure, political institutions and much more. In last month's State of the Union address, Obama insisted that American business should start paying its share. After all, while American corporations report near-record profits, many unemployed Americans are still waiting for their chance at economic recovery.

So how to make the case? The president might look across the Atlantic -- in Britain, a group called U.K. Uncut has been protesting government austerity cuts in an especially promising way. It seeks out corporations and individuals that avoid paying taxes, calculates how much their taxes would be without loopholes, and then highlights programs that could be saved if they paid their share. Cellphone giant Vodafone recently settled a tax bill of 6 billion pounds -- about $9.6 billion -- for 1 billion pounds, or about $1.6 billion. Meanwhile, the British government cut $11.2 billion in public services to the nation's poor. So U.K. Uncut shut down a number of Vodafone's stores with sit-in protests.

Sir Phillip Green heads a number of British retail outlets and is one of the country's richest men, but in 2005 he managed to avoid the equivalent of $455 million in taxes via some borderline legal financial jujitsu. This didn't stop Britain's Conservative government from asking him to provide advice on spending cuts. In response, U.K. Uncut shut down some of Green's stores to highlight how his unpaid taxes could cover the salaries of 9,000 National Health Service nurses.

While U.K. Uncut is a grass-roots program (and American progressives would do well to work along similar lines -- I'm looking at you, Coffee Party), there's no reason that the president couldn't use these sorts of arguments to shape the political agenda in 2011.

Imagine if, every few days, the White House announced something like this: "This year many big oil corporations recorded record profits (ExxonMobil reported over $30 billion in earnings), while American taxpayers provided them $4 billion in tax subsidies. If Congress acts to stop these fiscally irresponsible programs, we could use this money to double Race to the Top education funding."

Or how about this? "Under current tax law, U.S. corporations may defer taxes on their offshore profits until they return these profits to the U.S. The deferral makes it much easier for them to avoid taxation altogether. Citizens for Tax Justice estimates that adjusting this policy could net around $200 billion through 2015, enough money to bring wireless broadband to every American household and fund high-speed rail development for several years."

And then on a really cranky day: "If adopted, GOP Rep. Paul Ryan's 'Roadmap for America's Future' would dramatically slash corporate taxes and decrease federal revenue by $183 billion if enacted this year. To avoid more deficit spending under this scenario, we'd need dramatic cuts -- like eliminating the departments of State, Interior and Veterans Affairs."

When asked, around 70 percent of Americans reliably answer that corporations pay too little in taxes. A strategy calling attention to corporate tax avoidance could drum up support for the tax reforms that Obama has been pushing since arriving in office. A steady diet of fiscal facts would go a long way towards marginalizing GOP posturing. While the president would be fighting corporate lobbyists and the inclinations of many members of Congress, he'd have the clear moral and fiscal high ground, which might just be what he needs to pass some of these reforms.

Beyond Chron: Don't Blame California Public Employees!

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(Original Post)

Guest Editorial

by Martin J. Bennett‚ Feb. 10‚ 2011

A recent article in the Economist magazine titled “Tough Times for Everyone – Except Public Sector Workers” states that taxpayers are now learning about “the banquet public sector workers have been having at the expense of everyone else” and that many public employees can “retire in their mid-50s on close to full pay.”

These unsubstantiated claims – repeated endlessly in media – stand reality on its head. Such accusations are part of a systematic campaign by corporate America to mislead taxpayers and scapegoat public employees.

California public sector workers, such as teachers, public health nurses, firefighters, librarians, maintenance, park, transit, and social workers are not responsible for the economic crisis that makes drastic cuts to state and local governments necessary. These public employees earn modest, middle-class pay and benefits.

Rather, it was big business and the wealthy who gamed the deregulated financial system to make huge profits. Their speculation in the home mortgage markets triggered the Great Recession; then they proceeded to take billions in bailouts from the government; and last year, Wall Street’s leading investment and financial services firms paid out a record $144 billion in compensation and benefits.

These same corporate interests adamantly refuse to pay their fair share for vital public services or education.

Moreover, the recent Congressional extensions of the Bush era tax cuts are an unexpected windfall for the richest Californians. According to the Citizens for Tax Justice, the top 1% of the state's income earners will now bring home about $14 billion more each year to their mansions. This represents more than one half the state's budget deficit.

What are the myths and what are the facts about California public employees?

First, there are not “too many” public employees in California. According to the California Budget Project (CBP), we have the second lowest ratio of state workers per 10,000 residents in the nation. In addition, more than 70,000 public sector jobs have been eliminated in California since the crash of 2008, and public sector job loss is proportionately greater in California than in most other states.

Second, public employees in California are not overpaid and they do not receive lavish benefits, compared with the private sector, according to the UC Berkeley Institute for Labor and Employment (IRLE). Economists Sylvia Allegretto and Jeffrey Keefe authored the IRLE report, “The Truth about Public Employees,” in which they examined wage and demographic data from the Bureau of Labor Statistics, and found that the average California public sector worker is older, more experienced, and more educated than their private sector counterpart – 55 percent of public employees have completed a bachelor’s degree, compared to 35 percent in the private sector.

The report indicates that the typical private sector worker receives higher wages, but public employees with the same characteristics earn somewhat better vacation, medical and retirement benefits. The researchers conclude that an “apples to apples” comparison that takes into account age, experience, and education reveals “no significant differences in the level of employee compensation costs on an annual or per hour basis between private and public sector employees.

Third, public sector employees do not receive “gold plated” pensions as alleged by the corporate media like the Economist magazine. Again, reality defies the myth.

The California Public Employee Retirement System (CalPERS),
which administers and manages a pension fund for 1.6 million public employees, reports that the average CalPERS retiree receives a pension of $25,000 per year. Half of CalPERS retirees receive less than $16,000, and 78 percent receive less than $36,000 annually. Less than 2 percent of CalPERS retirees receive a pension of more than $100,000 per year, and the majority of these are highly paid managers and supervisors – not union members – with 30 years’ service.

Often forgotten is that public pensions are not paid from operating budgets of state and local government but are earned through monthly employee and employer contributions over 20 to 30 years. CalPERS professionals manage the $225 billion trust fund, and 75 cents on every dollar of retirement benefits are investment earnings. The taxpayers contribute 14 cents for every dollar of benefits.

Blaming public employees for our fiscal crisis deflects from the central issue of the historic, and widening, divide between the rich and everyone else. The solution is to reform our inequitable and unsustainable system of taxation.

The CBP reports that corporate profits increased by more than 400 percent between 2001-2008 in California, and the adjusted gross income of the upper 1 percent increased by 77 percent between 1993-2008, while incomes of the bottom 80 percent remained flat. Yet state revenues from corporate taxes have declined by one half since 1981, and the wealthiest 1 percent of income earners (who averaged $1.7 million in 2010) pay lower tax rates than they did two decades ago.

In California we have a revenue crisis – and not a spending crisis.

Tax reform and boosting taxes for those most able to pay would make it possible to restore cuts to public services, adequately fund public education, safety, and health care, and fairly compensate public employees. Such a progressive tax policy includes: (1) increasing by a modest 1% the corporate tax rate (returning to the 1981 level); (2) closing corporate tax loopholes such as the failure to reassess commercial real estate at market rates (now protected by Proposition 13); (3) enacting a severance tax on oil extracted and produced in California; (4) restoring the top personal tax rate for the upper 1 percent from 9.3 to 11%; (5) reconsidering and repealing some of the $12 billion in tax cuts by the legislature for individuals and corporations over the last fifteen years.

A healthy and vital public sector is essential for the private sector to flourish.
Corporations and the wealthiest Californians greatly benefit from public investment in infrastructure such as mass transit and affordable workforce housing, high quality education accessible to all, and comprehensive social services, particularly for low-income Californians.

Let’s stop pointing fingers at hard working public employees and begin to build a broad coalition to implement a responsible and progressive tax policy.

Martin J. Bennett teaches American history at Santa Rosa Junior College, serves as Co-Chair of the Living Wage Coalition of Sonoma County and is a member of the California Federation of Teachers Local 1946.

FoxNews: Group Disputes Obama's Assertion That He Didn't Raise Taxes

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(Original post)

By Stephen Clark

February 08, 2011 | FoxNews.com

A taxpayer watchdog group is throwing a penalty flag on President Obama's assertion in a Super Bowl pre-game interview that he didn't raise taxes, claiming the president signed into law at least two dozen tax increases.

"Just 16 days into his presidency, Obama signed into law a 156 percent increase in the federal excise tax on tobacco -- a hike of 62 cents per pack," Americans for Tax Reform said in a press release Monday, arguing that Obama's approval of this tax hike was a violation on his campaign pledge not to raise taxes on the middle class.

Seeking to burnish his centrist credentials, President Obama told Fox News' Bill O'Reilly Sunday that he "didn't raise taxes once."

"I lowered taxes over the last two years," he said in an interview that aired before the heavily-viewed Superbowl on Sunday.

But ATR cites the health care law as an Obama administration imperative that contains two dozen new or higher taxes, including the individual mandate tax and the employer mandate tax.

"President Obama's entire claim of being a net tax-cutter rests merely upon the temporary tax relief he has signed into law," the group said. "The tax increases Obama has signed into law have invariably been permanent. In fact, Obama has signed into law $7 in permanent tax hikes for every $1 in permanent tax cuts."

The group estimates that the permanent changes to tax law Obama signed totals a net tax hike of $618.7 billion.

But supporters of the president say ATR's math doesn't add up.

"I think it's a little tendentious on their part," Robert McIntryre, director of the progressive Citizens for Tax Justice, told FoxNews.com."If the rule is anything that's temporary doesn't count as a tax cut, then George W. Bush is in trouble from their point of view since all of his tax cuts were temporary. They must hate Bush."

Ryan Ellis, the tax policy director for ATR, responded that Bush would have made his tax cuts in 2001 and 2003 permanent if he could have gotten the 60 votes required in Congress.

But Obama, he argued, prefers to make the tax cuts temporary.

"If you're looking at temporary tax cuts, how are you paying for it? He's paying for it with a permanent tax hike," he said. "It's not exactly fair to mix those things together."

"It's a question of baselines and the biggest problem is he's a tax cutter of temporary tax cuts by permanent tax hikes that never go away," he added.

White House Press Secretary Robert Gibbs said Tuesday that he had not seen ATR's claims but "I would note that I think the Congressional Budget Office released figures yesterday that show that for the third consecutive year the American people are paying less in taxes than they did during the previous administration."

The CBO on Monday said that according to projections, income tax payments this year will be nearly 13 percent lower than they were in 2008, the last full year of the Bush presidency, and corporate taxes will be lower by a third.

The White House also has defended the tobacco tax hike previously, saying it didn't violate Obama's pledge because it didn't apply to income, payroll or investment taxes. Supporters have also noted the money gained from the tobacco tax is intended to finance a major expansion of health insurance for children.

The White House has addressed charges that the health care overhaul raises taxes, saying the law includes the largest health are "tax cut" in history for middle class families. The White House has cited the Congressional Budget Office estimate that Americans buying the same coverage they have today in the individual market will see premiums fall by 14 to 20 percent.

ATR says the individual mandate tax, which starts in 2014, will require anyone not buying "qualifying" health insurance to pay an income surtax of $495. That amount increases to $990 for two members of a family and $1,485 for three-member families.

Among the other tax hikes ATR cites in the health care law are:

* the medicine cabinet tax, which began in January. It will prevent consumers from using their health savings accounts (HSA), flexible spending accounts (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin), the group argues;

* the HSA withdrawal tax hike, which started in January. It increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, making them less appealing than IRAs and other tax-advantaged accounts, which remain at 10 percent, ATR said;

 * the flexible spending account cap, or the "Special Needs Kids Tax," which was unlimited. It has been capped at $2,500 since January. The new cap imposes a "particularly cruel and onerous" burden on parents of special needs children who use the money to pay for costly tuition, the group argued.
    
* the medical itemized deductions cap, which allows consumers to deduct medical expenses if the total cost reduces the filer's income by 7.5 percent, will face a threshold of 10 percent starting in 2013.

* the tax on indoor tanning services, which began in July, imposes a new 10 percent excise tax on Americans using indoor tanning salons.

History News Network: Celebrating Reaganomics

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(Original Post)

2-07-11

By Joseph A. Palermo

Mr. Palermo is Associate Professor of American History at CSU, Sacramento. He's the author of two books on Robert F. Kennedy: In His Own Right (2001) and RFK (2008).

The overstated celebrations and commemorations of the centennial of Ronald Reagan’s birth, with their razzle-dazzle of Super Bowl tributes and marathon deifying in Simi Valley, are fitting tributes to a president whose public relations guru, Michael Deaver, was a pioneer of this same kind of flim-flammery.  But the Reagan centennial’s flashy hagiography masks a far more complicated reality.  He set the nation’s economic agenda, imitated by Democrats Bill Clinton and Barack Obama, which continues to this day.

“Reagan taught us deficits don’t matter,” Dick Cheney once boasted.  But not even the staunchest of Reaganites (Democrat or Republican) would make that assertion today.  Those who are celebrating the centennial of President Reagan’s birth are rejoicing in the trajectory he put the nation on.  And what a trajectory these last three decades have been.

At the start of his 1980 campaign, after undergoing several cram sessions with enthusiasts of “supply side” economic theory, Reagan told an interviewer:  "an across the board reduction in tax rates, every time it has been tried, it has resulted in such an increase in prosperity . . . that even government winds up with more revenue."  But Reagan had no evidence to support this assertion, which his own vice president, George Herbert Walker Bush, famously denounced during the Republican primaries as "voodoo economics."

There was little question that the new ethos the Reaganites brought to Washington had a profoundly different attitude toward the poor than had been seen in the Capitol for many years.  Reagan's friend and ally from California, Edwin Meese III, who later became his attorney general, told reporters that the administration "had considerable information that people go to soup kitchens because the food is free and that's easier than paying for it."  Throughout his two-term presidency Reagan blocked any increase in the federal minimum wage.  His domestic policymakers sought to roll back federal help to the working poor who were reeling under the worst economic conditions in a generation.  In fact, during the 1980s, the word "welfare" itself became strongly associated with failure and waste.

Thirty years ago this month, on February 18, 1981, during Reagan's first State of the Union address, the House chamber boomed with applause when he proposed cuts totaling $41.4 billion in the federal budget.  In his first budget he dropped about 400,000 households from the food-stamp program.  At the same time he planned to boost military spending by $7.2 billion, which added significantly to Carter's earlier defense buildup.

On August 13, 1981, Reagan held an outdoor signing ceremony for the Economic Recovery Tax Act (ERTA) at his 688-acre ranch outside Santa Barbara.  Forty-eight House Democrats crossed over to join the Republicans' overhaul of the nation's tax code.  The new legislation reduced marginal income tax rates for all Americans by 25 percent.  The wealthiest Americans, who paid 70 percent in 1981, would see their tax rate lowered to 50 percent.  Rates for lower-income people fell more modestly, from 14 percent to 11 percent.  Today, the Republicans scream bloody murder at the thought of raising the top rate from 35 percent to 39.5 percent.

Not only did the rich reap the greatest windfall from the changes in the tax code but during the "sausage-making" mark-up of the legislation congresspersons and senators larded the bill with billion-dollar tax breaks for corporations, oil conglomerates, and other special interests.  One corporation that benefited from the new legislation was Reagan's former employer, General Electric.  Citizens for Tax Justice, a liberal advocacy group in Washington, D.C., estimated that the new law yielded $1 billion for GE over the course of five years.  GE also paid no income taxes during the first years of the Reagan presidency.  Keeping with Reagan’s spirit of bipartisan servitude to wealthy elites, President Barack Obama recently tapped the CEO of GE, Jeffrey Immelt, to head his economic team.

The supply-siders' prognostications for increased government revenues turned out to be as whimsical as their critics had suspected.  Even with the harsh cuts in social programs and Reagan's signature on subsequent tax hikes designed to mitigate the negative fiscal impact of the initial ERTA, the federal budget deficit swelled from $74 billion in 1980 to $300 billion by the middle of the decade.  So any honest evaluation of Reagan’s legacy on taxes and budget cuts would have to acknowledge that he tilted the playing field in favor of the rich at the expense of the poor. 

PATCO

Reagan’s National Labor Relations Board (NLRB) favored management over labor far more than any previous administration.  Companies now had greater latitude to impose speed-ups, hire scab workers, and violate labor contracts.  No battle illustrates this new order in labor relations than how Reagan handled a strike by the Professional Air Traffic Controllers Organization (PATCO) that began early in his presidency.

Ironically, in 1980, PATCO had been one of three national labor unions that had endorsed Reagan for president; the other two were the Teamsters and the Airline Pilots Association.  During the previous decade strikes by public workers were usually settled quickly with good-faith negotiations and federal arbitration.  Reagan gave PATCO 48 hours to end the strike and when the workers refused he fired all 11,600 of them.  He then brought in supervisors and air traffic controllers from the U.S. military to break the strike.  Reagan's Justice Department even arrested some of the union's leaders and promised to criminally prosecute them.  In a few short weeks PATCO was history.  It was the most aggressive stand against organized labor by the federal government since the passage of the anti-labor Taft-Hartley Act of 1947. 

The president's decisive stand against PATCO altered long-established norms and provided a context for a string of private sector strikes that ended badly for the unions.  Like today, in the recessionary context of the early 1980s it was easy for Reagan and his corporate allies to gain the upper hand against organized labor.  Not long after the PATCO action, the Greyhound Bus Company and Eastern Airlines fired striking workers and replaced them with non-union substitutes.  The labor leader and co-founder of the United Farm Workers, Dolores Huerta, later noted:  "We found that right after the PATCO people were fired the United Auto Workers union accepted an agreement to freeze their wages.  That put a lot of pressure on the other unions to do the same thing.  So, what you had was a tremendous weakening of the power of labor."  Labor’s long slide (which has gone on for thirty years and took down a big chunk of the middle class with it) was initiated early in Reagan’s first term.

 

Foxes In Henhouses

 

Reagan attempted to defang federal regulatory agencies that conservatives had long railed against by elevating lobbyists, corporate lawyers, and executives to pivotal positions inside the administration.  The tactics included appointing people to high government posts from the regulated industries themselves, saddling the regulatory agencies with debilitating budget cuts, and encouraging bureaucratic inertia.  For example, to head his NLRB, Reagan tapped John Van de Water, who ran a West Coast consulting firm that specialized in union busting.

Other similar appointments followed.  To lead the Department of Agriculture's marketing and inspection division, Reagan appointed C.W. McMillian who was formerly the vice president of the National Cattleman's Association; Richard Lyng, a lobbyist for the American Meat Institute, became undersecretary of agriculture.  The assistant secretary of energy for conservation and renewable energy, Joseph Tribble, came from the Georgia Pulp and Paper Company, a corporation that had been charged with dumping toxic waste into rivers.  James Watt, who became Reagan's secretary of the interior, had been a lawyer for the Mountain States Legal Foundation, a law firm that represented some of the nation's largest mining and timber corporations.  Anne Gorsuch (Burford) was put in charge of the Environmental Protection Agency (EPA) who, like Watt, came from Colorado and had built her career fighting against environmental regulations as a state legislator.  Secretary of Labor Raymond Donovan had been a construction company executive who instructed the agencies under his command, including the Mine Safety and Health Administration (MSHA), to emphasize "voluntary" compliance by mine operators of health and safety laws.

On the 1980 campaign trail, Reagan had called the Occupational Safety and Health Administration (OSHA) "one of the most pernicious of the watchdog agencies" that sought "to minimize the ownership of private property in this country."  He slashed OSHA's budget by 10 percent and chose Thorne Auchter to be an assistant secretary of the agency whose family-run construction business in Jacksonville, Florida had been charged with forty-eight safety violations.  To chair the Securities and Exchange Commission (SEC), Reagan recruited the Wall Street insider, John Shad, who worked diligently to transform the once feared enforcement arm of the federal government into a partner in the prerogatives of brokerage houses and investment banks.  Shad also emphasized "voluntary" compliance with financial regulations.  During his seven-year tenure at the SEC he froze the number of investigators at its 1981 level even though the number of stock traders nearly doubled in that period.  Reagan cut the SEC's budget by roughly 30 percent and the enforcement division's staff was reduced from two hundred investigators to fifty. 

Reagan's secretary of the treasury, Donald Regan, who entered government directly from his post as CEO of Merrill Lynch, moved to de-regulate the financial services industry and nurtured an environment where big Wall Street players could manufacture new debt instruments, such as "junk bonds," and engage in Leveraged Buy-Outs (LBOs).  Both of these innovations strained the financial system and sapped the productivity of other sectors of the economy.  So the appointing of corporate “foxes” to guard the public’s “hen houses” began under Reagan and has continued through both Democratic and Republican administrations ever since. 

 

Deregulation

 

On February 17, 1981, Reagan signed Executive Order 12291 mandating that all federal regulations undergo a "cost-benefit" analysis.  Proposals for new guidelines were to be submitted to David Stockman's Office of Management and Budget (OMB) to determine their effects on big business's bottom line.  Any rule that corporations did not like would be subjected to an industry-friendly review.  Reagan gave the OMB new powers to reject "burdensome" regulations and he named a corporate lobbyist, Jim Tozzi, to be the deputy administrator of the Office of Information and Regulatory Affairs (OIRA), a division of OMB.  Tozzi had specialized in finding ways around federal rules for his clients, and as a high-ranking official he now could "review" many of the same directives he had fought against.

Reagan appointed J. Peter Grace, chief of W. R. Grace & Company, to head the "President's Private Sector Survey on Cost Control."  The Grace Commission had an executive committee consisting of CEOs from some of the nation's largest corporations.  Accustomed to working behind closed doors, the panel refused to cooperate when Congress demanded a list of its members.  In the mid-1980s, Grace's own company was forced to settle a civil lawsuit that accused it of poisoning two wells in Woburn, Massachusetts that led to the leukemia deaths of five children and one adult.  The Woburn case was later chronicled in a best-selling book and even made into a Hollywood movie, A Civil Action.

The end result after Reagan’s two terms was a tripling of the national debt, from about $900 billion to $2.9 trillion.  No president in U.S. history had tripled the debt in peacetime.  Then, as today, the same politicians who brought us the tax cuts and military spending point to the deficit as an excuse to gut programs that serve not only the poor but the working middle class.

 

Reaganomics

 

In his best-selling 1981 book, Wealth and Poverty, the conservative author George Gilder offered a spirited defense of laissez-faire capitalism and bluntly stated the underlying premise of supply-side economics.  “A successful economy depends on the proliferation of the rich,” he wrote, “to help the poor and middle classes, one must cut the taxes of the rich.”

What transpired throughout most of Reagan's time in office was a patchwork of fiscal measures designed to blunt the negative budgetary effects of the original 1981 ERTA, and shift the tax burden from the wealthy to the working and middle classes.  The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 closed some of the loopholes and raised specific taxes that the ERTA had dropped.  Richard Darman, a top White House aide, labeled the $37.5 billion in new taxes contained in TEFRA, (along with the Highway Revenue Act's $3.3 billion), “the single largest tax increase in history.”  The 1983 Social Security Amendments raised payroll taxes and imposed new restrictions on workers' benefits.  The Deficit Reduction Act of 1984 and the Omnibus Budget Reconciliation Act of 1987 both found ways to raise revenues while cutting social spending.  In addition, Congress stepped in with its own initiatives in the form of the Gramm-Rudman-Hollings Act of 1985, followed by the Gramm-Rudman Act of 1987, which set fixed deficit targets and a means of theoretically achieving them.

During the Reagan years labor unions suffered their most precipitous decline in the post-war period.  The share of private sector workers who belonged to unions fell from close to 20 percent in 1980 to 12.1 percent in 1990.  (By the 2000s it had dropped to about 7 percent.)  This decrease in private sector unionization is sometimes attributed to changing attitudes among the workers themselves, but public employee unions grew steadily during this period and accounted for most of the new unionization.  It was far more difficult for governmental institutions to practice the kind of aggressive anti-union tactics that have become the norm in the private sector since the 1980s.

The Harvard economist, Benjamin Friedman, calculated that the portion of national income invested in plant and equipment during the Reagan administration averaged about 2.3 percent.  During the previous three decades it had averaged three percent and had never reached that number in the 1980s.  Friedman’s analysis undercuts the view that supply-side tax cuts had produced greater investment in domestic plant and equipment.

Throughout the post-World War II period the United States had run modest trade surpluses.  But on September 16, 1985, the Commerce Department announced that the United States had become a debtor nation.  For the first time since 1914 the United States brought into being a situation where it had to borrow money from abroad to pay for its imports.  In 1980, the U.S. still kept up a trade surplus of $166 billion, but by 1987 the nation owed foreigners $340 billion.  The trade imbalances were, in part, the product of “neo-liberal” trade policies that rewarded American companies that outsourced production to low-wage countries.

In early 1981, Reagan’s Secretary of Human Services Richard Schweiker caused a stir when he called for reducing Social Security benefits for those who retired before the age of sixty-five and imposing new requirements to punish early retirees.  Reagan had been a harsh critic of Social Security throughout his public career, which he considered a "coercive" government program.  Reagan appointed a fifteen-member "bipartisan" commission headed by one of the administration’s favorite free market economists, Alan Greenspan, to examine the condition of Social Security and make recommendations.

Greenspan had been a close associate of the free-market guru and Atlas Shrugged author, Ayn Rand, and, along with Milton Friedman, was among the academic economists most famous for holding an almost religious devotion to the precepts of laissez-faire capitalism.  The Greenspan Commission imposed higher payroll taxes on working people, which accounted for about half of the hike in taxes from 1984 to 1989.  The Commission’s work was widely praised because the legislation that sprung from it was bipartisan.  But the higher payroll taxes, along with the regressive tax increases contained in the TEFRA and other acts of Congress during the 1980s, constituted nearly a 50 percent tax hike on lower-and middle-class workers. 

Cash-strapped state and local governments also raised taxes to offset the reductions in federal assistance.  When viewed in the context of the substantially lower tax rates for the highest income earners, the changes in the tax structure associated with Reaganomics amounted to one of the largest redistributions of wealth upward in U.S. history.

By 1984, Reagan had largely succeeded in realigning the economic debate away from Keynesianism with its positive view of the role of government and toward a culture that valued deregulation and free markets over all else.  Large swathes of the public had become suspicious of social programs and contemptuous of government.  In 1987, Reagan appointed Greenspan to chair the Federal Reserve Board, which was a post he held for the next eighteen years, thereby institutionalizing many of the tenets of Reaganomics.  Deregulation, along with "free trade" and cutting welfare spending, became bipartisan orthodoxy in Washington as domestic policy moved definitively in the Republicans’ direction.

What came after Reagan were bipartisan “free trade” agreements, NAFTA, GATT and the WTO, which ended up outsourcing millions of good-paying American jobs to low-wage countries.  Then came the bipartisan deregulation of the Telecommunications industry that gave us Fox News, and at the close of Clinton’s second term, the bipartisan deregulation of the financial services industry that took a mere eight years to bring the nation’s economy to its knees.

Now, out of the wreckage from the last thirty years of bipartisan Reaganite economic policy designed to serve the richest of global elites, we have the bipartisan calls for shredding what’s left of the social safety net, including Social Security, as a way to “make hard choices” to tackle the deficits that were produced by more or less the same politicians that brought on the catastrophe in the first place.        

Today, with states, counties, and municipalities reeling under a load of debt, brought to us by failed Reaganomics, the public sector, by which I mean health care services for the poor and elderly, schools, libraries, police and fire fighters, child protective services, as well as social programs of all kinds that help people, are being cut back past the bone and into the marrow.  What we’re seeing at the state and local levels is nothing short of the systematic dismantling of public institutions that took decades to build.

“Jobs, Jobs, Jobs” is a nice slogan but it tells us nothing about the quality of those jobs.  Today, what’s happening all over the country are across-the-board layoffs of public employees who had decent jobs with okay benefits and in their place are either McJobs or no jobs at all.  What we’ve seen happening over the past three or four years is a further deskilling and downgrading of the living standards of the average American worker.

The legacy of Reaganomics continues with the aggressive attempt to turn public school teachers into Wal-Mart workers.  Put in its context of austerity and debt reduction, this concerted attack on teachers is just the latest onslaught against the American working middle class.  They’ve already wiped out the manufacturing workers and their unions, now they’re going after public employees and their unions.  Across the country, right-wing Republican governors are teaming up in a spirit of “bipartisanship” with clueless “education reform” zealots like Michelle Rhee to eliminate teacher tenure, slash pensions, and generally make public school teaching a profession that someone would have to be crazy to want to join.

If you like the way things are in the United States today—with Gilded Age levels of inequality, weak labor unions, low-wage service jobs for most of the workforce, and a public sector that’s dying on the vine—then you can thank Ronald Reagan.

If you could have seen the parade of disabled people (many of them severely) who came to the California State Capitol in Sacramento on February 3 begging their elected leaders to block a proposed cut of $750 million from programs that help them live better lives—one by one, approaching a microphone at a recent hearing, speaking eloquently and poignantly, and calling out for human dignity and compassion—you’d have a better idea of the kind of suffering that this brand of heartless economics have wrought in this country.  That’s the true Reagan legacy.

 

Washington Post: What's Next for Tax Code? Geithner Discusses Overhaul with Wide Range of Groups

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(Original post)

By Brady Dennis

Thursday, February 3, 2011

Timothy F. Geithner can't seem to talk enough these days about corporate tax reform. From D.C. to Davos, the Treasury secretary has chatted up chief executives and academics, bankers and labor groups, Republicans and Democrats, all in the name of fixing a tax code that most everyone agrees could use a major overhaul.

What remains unclear is whether the Obama administration actually intends to push for meaningful changes to the corporate tax code this year, or whether political obstacles will relegate Geithner's campaign to a mere plank in President Obama's new business-friendly platform.

Over the past few weeks, Geithner has met on multiple occasions with corporate leaders and others with a stake in the debate, with the aim of building support for the administration's proposal to dramatically reduce the 35 percent corporate tax rate while closing windows in the tax code that permit many corporations to pay much less.

Some of those who attended the powwows have left with the impression that little real action lies ahead.

"All this talk about tax reform is happy talk," said one participant, who spoke on the condition of anonymity because the Treasury Department asked guests not to discuss the private meetings. "This is a way for them to talk about something the business community cares about, but it's not for real."

Others, however, see an administration determined to pursue real changes.

"I think they're committed to trying to get tax reform done," said Scott Talbott, chief lobbyist for the Financial Services Roundtable, whose members have met with Geithner and members of Congress on the topic. "Their tone, their body language, their approach - everything they're doing leads me to believe they're serious."

Since the beginning of the year, Geithner has taken the temperature of a wide range of groups with an interest in changing the corporate tax code. There have been meetings with executives from Wal-Mart, Exxon Mobil and Caterpillar; with think tanks as disparate as the conservative American Enterprise Institute and the liberal Citizens for Tax Justice; with advocacy groups such as the Business Roundtable and the AFL-CIO; and even with Bill Bradley, the former New Jersey senator who helped engineer the last major overhaul of the tax system in 1986.

In his recent State of the Union address, Obama issued an explicit call for a tax overhaul, saying it makes no sense that some companies and industries can end up paying no taxes while others are "hit with one of the highest corporate tax rates in the world." He called on lawmakers to "level the playing field" by lowering the tax rate and eliminating loopholes.

At 35 percent, the U.S. tax on corporate profits has become one of the highest in the industrialized world as other nations have steadily cut corporate rates. The U.S. business community has been calling for years for a reduction, arguing that the higher rate discourages domestic investment and encourages companies to locate operations overseas.

However, many companies already pay a much lower effective tax rate, thanks to a spectrum of deductions and credits with which they would be reluctant to part. Multinationals, in particular, benefit from the current code, which allows them to defer taxes on profits earned abroad unless and until they bring the money home to the United States.

Republicans are pressing for adoption of a "territorial" tax system that would tax only profits earned domestically, the system in effect in virtually every other developed country. But such a move is likely to face opposition from smaller domestic companies, as well as from many Democrats who argue that such a system would encourage the largest firms to outsource U.S. jobs.

Further complicating efforts: Many businesses are not organized as corporations at all and therefore do not pay corporate taxes. Instead, they pay taxes on their profits under the individual tax code. Obama has ruled out an overhaul of the individual tax code for now, because it is likely to require him to break his campaign promise not to raise taxes on Americans who earn less than $250,000 a year. But Rep. Dave Camp (R-Mich.), chairman of the House Ways and Means Committee, has said he would prefer a global tax overhaul that tackles both parts of the code and reduces tax rates for businesses of all sizes.

The administration has placed other constraints on the debate. For example, Obama and Geithner are advocating that corporate tax changes remain "revenue neutral," meaning they would shift the tax burden among corporations without increasing or reducing overall federal tax collections.

Despite a consensus on the need for change, many observers see little chance of such legislation getting through Congress anytime soon.

"The constraints are too tight. . . . There's not unanimity on how you would get there," said Douglas Holtz-Eakin, former director of the Congressional Budget Office and now president of the American Action Forum. He said overhauling just corporate taxes would be tough under the best circumstances, let alone with a divided Congress and huge budget and deficit problems looming.

University of Michigan law professor Michael Barr, a former assistant Treasury secretary under Obama, said that many industries are wedded to the current tax structure and that any changes would create clear losers, while the benefits of changing the code are likely to be diffused throughout the economy.

Still, he said, that doesn't mean it's not worth trying.

"They are serious about it. They are really going to push hard for it," he said of the administration. "Conceptually, people say there's agreement. When push comes to shove, we'll see who in Congress is willing to take it on."

Staff writer Lori Montgomery contributed to this report.

Accounting Today: Groups Urge Passage of Tax Strategy Patent Ban

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(Original post)

February 2, 2011

By Roger Russell

A coalition of 15 national organizations urged the Senate Judiciary Committee to keep a provision in S. 23, The Patent Reform Act of 2011, which would stop tax strategy patents. The bill goes to mark-up on Feb. 3.

The coalition thanked committee chairman Sen. Patrick Leahy, D-Vt., and ranking member Sen. Charles Grassley, R-Iowa, for including the tax strategy provision in the broad patent reform bill.

“We commend you for including a provision in S. 23…to address the serious problem of tax strategy patents,” the letter said. “We believe that this pro-taxpayer measure is a critical component of any comprehensive patent reform effort. The ongoing, serious concerns associated with tax strategy patents pose a significant threat to American taxpayers and businesses, and we believe that Congress must prioritize fixing this problem as soon as possible.”

The coalition said tax strategy patents “may limit the ability of taxpayers to utilize fully interpretations of tax law intended by Congress – effectively creating a monopoly for the patent holders to determine who can and cannot utilize parts of the tax code.”

The letter noted that as of now, the number of tax strategy patents have grown to over 130 issued, with more than 150 applications for patents currently pending.

The organizations that signed the letter are the American Institute of CPAs, Tax Justice Network USA, New Rules for Global Finance, American College of Tax Counsel, Consumer Action, The American College of Trust and Estate Counsel, Partnership for Philanthropic Planning, Global Financial Integrity, International Association for Registered Financial Consultants, National Association of Enrolled Agents, USPIRG, Certified Financial Planner Board of Standards, Financial Planning Association, American Association of Attorney-CPAs and Citizens for Tax Justice.

Gotham Gazette: Bloomberg Takes Out a New Budget Playbook

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(Original post)


By Glenn Pasanen

27 Jan 2011

Last month, Mayor Michael Bloomberg fueled what Paul Krugman has described as "a recurrent fantasy about a Bloomberg third-party candidacy that will save America" when he presided over the convention of new political group dubbed No Labels.

"No Labels," of course, implies a nonpartisan, non-ideological effort, but, whatever progressive positions Bloomberg holds to on social issues, the mayor's fiscal strategy over the last three years has come from a standard conservative political playbook: reduced services -- especially in education and human services -- criticisms of city unions, expanded privatization and regressive tax policy. In his State of the City speech on Jan. 19, Bloomberg reiterated these positions. He called for smaller government. He took aim at public employee unions, pledged to chip away at seniority privileges and scale back pensions. And he vowed not to raise taxes.

The speech came only days after the City Council, having gotten some items restored, signed off on Bloomberg's latest budget-cutting modification, his ninth in the past three years. A substantial 10th slice is likely with the release next month of the preliminary budget for fiscal year 2012. What these serial budget cuts make clear is that New York, once a laboratory for national liberal policies, is conducting an experiment in urban conservative policy.

ANALYSIS

The current strategy is very much at odds with that of the first-term Bloomberg administration. The mayor's response in November 2002 to the fiscal crisis following 9/11 and the accompanying recession did resemble a" No Labels" strategy. For instance, its emergency $6 billion budget-cutting plan was split equally between much higher taxes and service reductions. It was nonpartisan and apolitical, based on shared sacrifices from all New Yorkers.

The City's Fiscal Condition

The focus on cuts in education and human services next year looks premature in terms of the city's actual fiscal condition. According to the Independent Budget Office's December Fiscal Outlook, New York City is in surprisingly good shape. It has lost fewer jobs than projected, and increased city revenues, not acknowledged in the city's November plan, will add $525 million to the current fiscal year budget, $790 million in fiscal 2012, and an average of $2 billion in each of the following two years.

That helps create a $1.7 billion surplus this fiscal year and shrinks the city's projected budget deficit for 2012 to $1.1 billion -- a nominal figure at this date in a projected $67.5 billion budget. It also reduces the city's projected deficits for 2013 and 2014.

The Independent Budget Office's forecasts are a reminder that the city, in spite of billions of dollars in budget reductions, is reducing the pace of growth of spending, not actual spending. From 2011 to 2014, city spending (including state and federal funding) will grow from $65.1 billion to $74.6 billion. Admittedly the city still does not know how much the state will reduce its funding for schools and general aid. That, the Independent Budget Office, concedes, is a wild card in its predictions.

The IBO projections, indeed, are more optimistic than those of state and city fiscal monitors. The State Financial Control Board December staff report on the November modification makes the bleakest, worst-case projection. It finds the fiscal 2012 deficit could reach $3.9 billion, with markedly higher amounts in later years.

Managing Deficits: Privatization

In his latest effort to reduce the deficit -- whatever its size -- Bloomberg has increasingly underscored another conservative strategy -- privatization. The new deputy mayor for operations, Stephen Goldsmith, the former mayor of Indianapolis, is famous for privatizing city public services. His first public action, a published review of several city agency programs offered a rather blunt critique of current Bloomberg administration practices, but promised a $500 million savings with better management over the next four years.

Since then, the management news has not been so good, and Goldsmith has much to attend to beyond his role in the snow snafu in December.

One goal of privatization is saving money. In some cases -- most notably the CityTime payroll management project, which is more than 10 times over budget -- this goal clearly has not been met.

Yet concerns about contracting practices are nothing new. City Limits magazine, for instance, recently noted that it identified problems with the CityTime contract more than two years ago. It also quoted Lillian Roberts, executive director of the city's largest public employee union, DC37, as saying that the federal indictments in that case are "merely the tip of the iceberg and an outrageous example of the greed and corruption that are the result of an unregulated procurement process."

The city's efforts to upgrade and modernize its 911 emergency response system have been plagued by cost overruns and missed deadlines, with the city removing one contractor and in the midst of trying to get its money back from another. Last month City Comptroller John Liu rejected a $286 million contract for another 911 project.

The Daily News has been investigating the Department of Education's use of consultants and reported in January that, between 2008 and 2010, the department spent some $200 million on consultants. In 2010, more than 100 consultants got over $100,000 each, and close to two dozen received over $200,000.

The Independent Budget Office, which is doing a series of studies of the department, reported in a December blog, "What is Yellow and Rises at the Same Time it Falls," that school transportation contracting costs will exceed $1 billion this school year. In the last five years, it found, costs have risen by $115 million while ridership has fallen. Some reasons for the increase are unclear although non-competitive contracts and fewer contractors may be factors, along with higher gas prices.

City Comptroller John Liu added to the questions surrounding contracting with an announcement in November, entitled, "Trim Fat Around City Contracts Before Resorting to Layoffs and Service Cuts" that cites "$157.4 million in potential savings through audits of city agencies."

Education and Social Services Cuts

While private companies and organizations still get city contracts, some groups are being asked to bear the brunt of the city's budget problems. Over the past eight years, the administration's concept of sacrifice has narrowed considerably. The city comptroller's December report on the city's economy and finances, for instance, notes that the city’s budget cutting -- almost $600 million this year and over $1 billion in 2012 -- is nearly 90 percent service cuts and 10 percent new revenues.

According to the state comptroller's review of the November budget plan recently approved with some modification by the City Council, those cuts "would fall hardest on the city's schools and the neediest citizens." The city comptroller points out that cuts in education total $670 million over the 2011 and 2012 fiscal years and that the number of teachers is scheduled to be reduced by 5,398 in 2012, nearly 4,000 by layoffs and the balance by attrition. Teachers would represent 70 percent of all headcount reductions in city departments in 2012. (In contrast, there will be no reduction in uniformed police officers.)

The Mayor's Management Report gives little information about the impact of nine rounds of cuts on human services. But the four-year plan of the November modification is pretty clear about Bloomberg administration priorities: Over the next four years, children's services would be cut by nearly 6 percent, homeless services by 6.6 percent, and health and mental hygiene by over 7 percent. During this time, housing and libraries would lose 23 percent, cultural affairs 29 percent, and youth and community development 33 percent.

Labor and Deficits

More than anything, else, though, the mayor plans to rely on pension reductions and labor concessions to rein spending. In his State of the City speech last week, he laid out a number of proposals for accomplishing this, including raising the retirement age for future non-uniformed city workers to 65, getting rid of a bonus for uniformed workers and allowing the city to negotiate pensions with the unions, something currently barred by state law. Bloomberg pledged not to approve any salary increases for city workers "unless they are accompanied by reforms in benefit packages that produce the savings we need to continue making investments in our future and protecting vital services."

That reflects what already was in his November plan. After several years of annual 4 percent increases, the mayor drew a line in the sand and said the unions will self-fund any raises, through productivity savings and/or benefit concessions.

Much of the uncertainty about future budget deficits comes from the unresolved negotiations with the city's unions. Contracts for a number of unions -- DC37, the police and firefighter unions, and the Communications Workers of America, which together represent nearly 50 percent of the workforce -- have already expired. According to the state comptroller, raises at the projected inflation rate would cost over $1 billion a year.

Further, the mayor has long delayed any settlement with the teachers and supervisors unions, who have been working without a contract. At stake in any final deal is, according to the city comptroller, nearly $900 million in this fiscal year and $800 million to $900 million in each of the following three years -- none of which is included in the November modification.

The new pressure on city labor echoes a national argument by many governors, including New York's Andrew Cuomo, that public-sector workers are over-compensated, and that taxpayers can no longer afford early retirement ages, rising pension costs and health plans that strike many who work in the private sector as generous. But Michael Powell in a recent New York Times article wrote, "A raft of recent studies found that public salaries, even with benefits included, are equivalent to or lag slightly behind those of private sector workers." (He did not offer figures for New York City alone.)

Read His Lips

Perhaps the most significant indication of the mayor's recent shift to conservative political strategies is his rejection of income tax hikes. During the 2002 fiscal crisis, the mayor raised average property tax rates by 17.5 percent and temporarily increased personal tax rates for higher income people for three years, much as Mayors David Dinkins and Rudolph Giuliani did in the 1990s. Bloomberg also instituted a three-year, temporary sales tax increase.

The average property tax remains the same in 2011 (market valuation increases, however, have raised assessments, thus raising actual tax bills). The regressive city sales tax, recently raised to 4.5 percent, is at a historic high. The higher personal income tax rates on wealthier New Yorkers, however, reverted to lower rates in 2006, although the Independent Budget Office found no evidence that anyone left the city because of the tax increase -- one argument used by the mayor to explain his refusal to re-introduce higher rates.

The mayor has vowed to continue his no tax increase policy. "Let me be clear," he said in his State of the City speech, "we will not raise taxes to balance the budget." Increasing taxes, he said, "would undermine our recovery by driving people and businesses to lower-tax cities and states and deterring investment from overseas."

This decision not to raise taxes on the most affluent New Yorkers takes hundreds of millions of dollars off the budget table. The Independent Budget Office's Budget Options report last February noted that a modest tax rise -- still lower than the 2003-2005 rates -- on high-income New Yorkers would raise almost $500 million in 2011 and $678 million in 2013, approximating the education department cuts in 2011 and 2012. The rates would affect only the 8.4 percent of taxpayers with adjusted gross income over $125,000, who would pay an average of $9,500 more than they currently pay.

But the appeal of tax cuts for high-income taxpayers, as seen in the two-year extension of the Bush federal tax cuts for the nation's wealthiest, seems to outweigh any argument for shared sacrifice. This persists in spite of the fact that that, according to Citizens for Tax Justice, "the combined taxes levied by federal, state, and local governments in the United States are among the lowest in the developed world."

Incidentally, Citizens for Tax Justice reports that the extended personal income and new estate tax cuts in the December compromise will mean an average tax break of $120,726 for the top 1 percent of New York State taxpayers, those with an average income of $2.3 million. They will receive 43 percent of the total tax cut in New York State, while the average benefit for the 20 percent of New Yorkers with the lowest incomes, averaging $11,975 a year, will be $182.

Across the country and in New York City, these actions -- fewer human services, attacks on labor, lower taxes, privatization, growing inequality, less shared sacrifice – are the ingredients on a familiar political label: conservatism. Perhaps we should address -- rather than deny -- political labels, so that we can better understand what is happening.

Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.

New York Times: Corporate Tax Code Proves Hard to Change

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(Original post)

January 27, 2011

By BINYAMIN APPELBAUM

WASHINGTON — Large trucking companies paid the government more than 30 percent of their income in 2009. Biotechnology companies paid less than 5 percent.

Such yawning gaps among industries have become a defining feature of the nation’s corporate tax code, an unwieldy accretion of rules and exceptions that amount to a reward for some kinds of businesses and a rebuke for others.

President Obama on Tuesday added his name to the long list of politicians who have called for an overhaul of those rules, so that companies of all kinds pay the federal government a roughly equal share of their annual profits.

“It makes no sense and it has to change,” Mr. Obama said in his State of the Union address. “Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years — without adding to our deficit. It can be done.”

But recent efforts to rationalize the code all have failed, and some members of both parties express skepticism that this time would be different. The problem, in a nutshell, is that the popular step of lowering taxes for industries like trucking requires the unpopular step of raising taxes for industries like biotech.

The very idea already is drawing howls from the corporate sector.

Moreover, many of the individual exceptions that allow corporations to shield profits from taxation actually enjoy broad popularity, like tax breaks to support domestic manufacturing, low-income housing and green energy.

There is also the chance of political gridlock. Senate Democrats and House Republicans both are holding hearings on tax reform. Both declare the subject a priority. But it is hardly clear that the two parties are talking about the same thing.

Many conservatives want Congress to cut the overall amount collected from corporations to spur economic growth.

Representative Paul D. Ryan, the Wisconsin Republican who gave the party’s response to the president’s State of the Union address Tuesday night, has proposed eliminating the corporate income tax. Mr. Ryan instead would impose a smaller, 8.5 percent tax on business “consumption” — a measure of income that excludes investment, meaning that the government would collect a much smaller share of a much smaller tax base.

Many liberal groups, meanwhile, see increasing corporate taxation by closing loopholes as a relatively painless way to reduce the federal deficit.

“It doesn’t make a lot of sense to say that we’re going to close loopholes and then give all the money back to corporations,” said Steve Wamhoff of Citizens for Tax Justice, a nonprofit group that favors increased corporate taxation. “This would be one deficit reduction measure that would get the most support from the public.”

The United States imposes a top corporate tax rate of 35 percent. It is almost entirely a theoretical exercise. Various government and private studies have found that the average corporation generally pays about 25 percent of its income, thanks to a mix of deductions and ever-more-sophisticated tax avoidance strategies.

Google, saluted by the president Tuesday as a paragon of American innovation, paid the government 22 percent of its income in 2009, according to its reports. The company reduced its tax bill by more than $1 billion, claiming deductions for research and investment and exploiting a popular corporate strategy by routing a large share of its income through Ireland.

Even more striking are the differences among industries. Aswath Damodaran, a finance professor at New York University who has researched the issue, said that young high-tech companies often pay less than 10 percent of income in taxes, while old-line firms like railroads and utilities often pay more than 25 percent.

This inequality is one of the administration’s major arguments for tax reform. But the idea is widely supported by economists and other academics for a different reason — the concern that the current rules encourage companies to make bad choices.

The ability to deduct interest payments, for example, leads companies to borrow more money than they need. The rules governing real estate have long spurred new construction that would not be profitable without tax benefits.

“The tax code makes bad investments into good ones,” Mr. Damodaran said. “Changing the tax code is going to create economically better decisions.”

A major stumbling block is that Congress — often at the urging of presidents including Mr. Obama — has regularly tinkered with the tax code to effect policies.

The president on Tuesday charged that “a parade of lobbyists has rigged the tax code to benefit particular companies and industries.”

But many of the largest loopholes were designed by the government. A tax break to encourage domestic manufacturing costs will reduce tax collections by $10 billion this year, according to the Office of Management and Budget. Tax breaks to support research will cost about $8 billion. A tax break for companies that invest in low-income housing will cost about $6 billion.

There are some signs that Congress is willing to rethink its ways. Senator Max Baucus, the Montana Democrat who leads the Finance Committee, has been influenced in his thinking by conversations with corporate leaders who told him they would prefer the certainty of a lower tax rate to the uncertain application of various deductions.

Mr. Baucus is now holding a series of hearings on the tax code, beginning with a history of past efforts at reform, emulating the methodical approach he employed in helping to construct last year’s healthcare legislation.

Senator Orrin G. Hatch, the ranking Republican on the Finance Committee, said after the State of the Union address that he believed the entire tax code should be cleaned up — in part because many small businesses actually are taxed as individuals.

“The president is right that our nation’s corporate tax rate, the second highest in the world, is an impediment to economic growth and a significant drag on our economic competitiveness,” Mr. Hatch said in a statement.

Representative Dave Camp, the Michigan Republican who is chairman of the House Ways and Means Committee, is planning a series of hearings on broader tax reform starting Thursday.

But in a sign of the disagreements lurking just beneath the surface, Mr. Camp emphasized that his hearing was focused in part on reducing “the cost burdens of the current code.”

He described the president’s proposals as “a few token gestures.”

The Examiner: How Paul Ryan (R-WI) Would Ditch Medicare and Increase Taxes on 90% of Americans

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(original post)

January 26th, 2011

By Ryan Witt, Political Buzz Examiner

Last night Representative Paul Ryan (R-WI) delivered the Republican response to President Obama's State of the Union speech.  Ryan's speech followed the script most expected.  He criticized the President for what he called the "fail stimulus" and a growing deficit over the past two years.  Ryan argued the country must make tough cuts in order to once more balance the budget and that Republicans would lead the way in this process.  What was missing from the entire speech, which can be read here, was any reference to Ryan's own plan to solve the budget deficit.  A closer look at Ryan's plan may explain why he conveniently left out any reference to his own plan.

Ryan's plan is called the "Roadmap for America's Future."  To his credit, Ryan does manage to balance the budget in the future with his plan.  What is very controversial, and likely the reason Ryan has so few co-sponsors for his bill, is how Ryan goes about balancing the budget.  Ryan makes very deep cuts to Social Security and Medicare.  The Social Security age would be raised under Ryan's plan, forcing people to either work longer or find some other way to pay the bills later in life.  Ryan would completely do away with Medicare and replace with a voucher seniors would use to purchase private insurance.  If an 80-year-old man's voucher was not sufficient to pay for a policy he would either have to make up the difference or simply go without insurance.

Ryan also proposes to greatly change the tax code as the Citizens for Tax Justice explain in a recent report.  Ryan would permanently extend the Bush tax cuts for the rich, but do away with tax cuts that help the poor and middle class, such as the Earned Income Credit and refundable child tax credit.  Ryan would also allow for an "alternative tax" under which individuals would pay 10% on the first $100,000 they earn, and 25% for all income earned above $100,000.  Ryan's plan would effectively lower taxes on the rich from their current rate of 35% to a new low of 25%.

Ryan's tax plan really hits the poor and middle class in two ways.  First, to make up for lost revenue caused by tax cuts to the rich Ryan would implement a "Value Added Tax" or VAT.  Ryan would repeal the corporate income tax and replace with a 8.5% tax on business consumption.  So when Wal-Mart purchases toilet paper to sell to the public that purchase would be taxed to Wal-Mart at 8.5%.  Wal-Mart would then pass that cost on to consumers through higher prices.  A VAT effectively works as an indirect sales tax.  Finally, Ryan would do away with the current tax exclusion for health care benefits.  In the future if an employer gave employees health insurance that insurance would be taxabe as "income" under Ryan's plan.  Ryan would attempt to make up the difference by giving individuals a $2,300 voucher to purchase insurance, but with many individuals they would still end up paying more.

The effect of Ryan's plan on income groups are dramatic as illustrated below:

— The top 10% of income earners would pay less while the other 90% of Americans would pay more in taxes.
— The top 1% would pay 15% less in taxes, an average of $211,314 less.
— The bottom 80% of taxpayers would end up paying $1,700 more on average.
— The bottom 20% (the poorest Americans with the least money to spare) would end up paying 12.3% more under Ryan's plan.

With facts like these, it is easy to see why Ryan avoided the specifics of his plan to to balance the budget.

Bloomberg: Obama Backs Corporate Rate Cut Along With Tax Simplification

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(Original post)

By Ryan J. Donmoyer and Peter Cohn - Jan 26, 2011

President Barack Obama called on Congress to cut the top U.S. corporate tax rate for the first time in 25 years “without adding to our deficit,” a sign that businesses will have to give up tax breaks in exchange for lower rates.

The president, in his State of the Union address to Congress last night, also pressed for simplifying the tax system for individuals, which would restructure how more than $1 trillion in revenue is collected annually.

“The best thing we could do on taxes for all Americans is to simplify the individual tax code,” he said, to applause from the audience. “This will be a tough job, but members of both parties have expressed interest in doing this, and I am prepared to join them.”

Some analysts said Obama’s willingness to consider a corporate tax overhaul along with tax simplification may lead to changes in the code.

“Tax reform has been like the weather, everyone talks about it but no one does anything about it,” said Pat Heck, a partner at the Washington law firm KL Gates and a former top aide to the Senate Finance Committee. “Tonight’s speech could be a game changer. While it would be naïve to think tax reform legislation will be drafted overnight, a long journey always begins with a first step.”

‘Disappointed’

Representative David Camp, a Michigan Republican who chairs the tax-writing House Ways and Means Committee, said he was “disappointed” by the lack of details in Obama’s call for a tax overhaul.

“I think it could have used a little bit more on his proposals on individual tax reform,” Camp said in an interview after the speech. “Frankly, we really need more of a path forward even on the corporate side. I think we need some more concrete plans.”

Obama’s proposal for a corporate tax-rate decrease, accompanied by removal of tax breaks, is at odds with that espoused by corporate chiefs. Robert McDonald, CEO of Procter & Gamble Co., and groups such as the Washington-based Business Roundtable have urged the administration and lawmakers to set aside deficit concerns for now to focus on rate reduction.

Each percentage-point reduction in the 35 percent corporate tax rate could cost $8 billion or more a year in foregone revenue to the Treasury, according to the congressional Joint Committee on Taxation.

Financing a rate cut could mean that corporate tax breaks such as a deduction for domestic manufacturing and production income and accelerated depreciation of capital expenses may have to be sacrificed.

Winners and Losers

“If it’s revenue neutral for businesses, there’s probably some winners and some losers,” said Daniel Shaviro, a professor of taxation at the New York University School of Law. “And when you take away a lot of special benefits, you tend to get losers complaining more than the winners celebrating.”

The top marginal corporate tax rate, or the rate paid on the last dollar of income earned, has stood at 35 percent since 1993.

Companies often pay a lower effective tax rate, after taking advantage of tax credits and deductions and keeping overseas earnings reinvested indefinitely. The U.S. is among a handful of countries that tax profits earned in other countries, though only when the money is brought home, or repatriated.

Obama’s call to cut the top rate “will be highly welcomed by the business community,” though it ought to be paired with changing the way overseas profits are taxed, said Drew Lyon, a principal in the Washington national tax services office of PricewaterhouseCoopers LLP. He said Obama should endorse switching from a worldwide system of taxation to a “territorial” system, where companies’ overseas branches and subsidiaries pay tax only to their host governments.

Deficit Concerns

A report by the Washington advocacy group Citizens for Tax Justice released before the speech said the goal should be to reduce the budget deficit, which was $1.3 trillion for the fiscal year ending Sept. 30. The report said Obama should follow President Ronald Reagan’s example in ending more corporate tax breaks than necessary to finance a rate cut.

The president in his speech also called for ending Bush-era income tax cuts for individuals earning more than $200,000 and married couples earning more than $250,000.

The tax cuts enacted under President George W. Bush for all income levels were extended through 2012 as part of a deal Obama worked out with congressional Republican leaders in December.

Obama also asked Congress to make permanent a stimulus tax credit for higher education expenses, up to $10,000 for four years of college. That proposal was estimated by the JCT last year to cost $58.1 billion over 10 years.

The Hill: Liberal Group: Use Tax Reform to Reduce Deficit

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(Original post)

By Bernie Becker - 01/26/11

A labor-backed group has said that President Obama’s call for corporate tax reform was “half right, half wrong,” arguing that an overhaul of the tax code should be used to pay down the deficit.

In his State of the Union address on Tuesday night, the president identified revamping the corporate tax code as a way to help American companies compete, but stressed that any reform should not add to the national debt.

But in a report released Tuesday, Citizens for Tax Justice — which played a role in the last major overhaul of the tax code 25 years ago — contended that out-of-touch officials in Washington thought a lower corporate rate should be the main goal of reform and that it was wrong to think that decreasing the corporate rate could spark the economy.

“This kind of thinking is particularly bizarre when our government is in dire need of additional revenue to reduce the budget deficit,” the liberal group’s report said. “One would think that politicians would gravitate towards revenue-raising measures that the public approves. But instead, Congress is contemplating all sorts of program cuts that the public will have a hard time digesting.”

Revenue collection does appear to be emerging as a possible sticking point in the debate over tax reform, which has so far gathered general support from officials in both parties. But as of now, that conversation is centering on whether a reform plan should at first break even when it comes to revenue.

Democrats have tended to agree with the president that a tax code overhaul should be revenue-neutral. But Republicans and some business leaders have generally maintained that tax reform should concentrate more on increasing competitiveness by lowering America’s statutory corporate rate, which is scheduled to soon become the highest in the developed world.

Robert McDonald, the chief executive of Procter & Gamble, said at a House Ways and Means Committee hearing last week that business leaders were asking to take revenue-neutrality “off the table for now.”

“I think if we work together, we can develop a competitive tax system for this country and do it in a fiscally responsible way,” McDonald said.

But in its report, Citizens for Tax Justice argues that — because of loopholes and tax breaks — what corporations actually pay in taxes is comparatively low, citing a Treasury Department report from 2007 that says the U.S. “takes a below-average share of corporate income in taxes.”

The group also suggested corporate tax provisions that Congress could eliminate, including companies’ ability to defer paying taxes on income gained outside the U.S. until those profits are repatriated.

Politics Daily: Far From Humble Republicans Prep for the State of the Union

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(Original post)

January 25, 2011

David Corn

Republicans seem a tad cocky these days. After repealing President Obama's health care law -- I mean, voting symbolically to repeal it -- they are claiming this week that they have already rescued the economy, and they are highlighting their party's most unpopular positions without concern for popular backlash. Hubris, anyone?

On Monday morning, Dow Jones reported that a quarterly survey of 84 companies conducted by the National Association for Business Economics found that 42 percent of these firms expect to hire more workers in the coming six months. Fifty-five percent reported rising demand. As soon as the report was out, the office of House Majority Leader Eric Cantor (R-Va.) e-mailed reporters, "THERE ARE THE JOBS" -- as if the GOP could take credit for this encouraging news. But the survey was taken between Dec. 17 and Jan. 5, before the House Republicans had done anything. The trends the survey had captured had been in place for months -- and unconnected to any GOP action.

Still, Sen. Jon Kyl (R-Ariz.) also tried a similar stunt, during an interview with Bloomberg's Al Hunt. Here's the exchange:

HUNT: Let me talk about the Obama administration and business. Corporate profits are soaring. Goldman Sachs named 110 new partners. Bonuses are flowing. S&P has risen more than in any three-year period since the tech bubble. General Motors is -- the IPO. This isn't an anti-business administration, is it?

KYL: I would contend that, for the last two years, it's been highly anti-business. Some of the results that you just talked about, I suspect, are . . . coming from the fact that we extended tax rates that the president did not want to extend, but was willing to do so at the end of the year last year.

Reality check. The positive swing in the economic indicators occurred prior to the tax cut deal. And until that compromise was concocted last month, there was no telling which rates would be extended. (Remember, the Democrats and Obama supported extending the Bush tax cuts for mid- and low-income Americans, and the GOPers wanted to extend those tax rates plus the tax cut bonuses for the wealthy.) The math here is simple: Maintaining the tax breaks for the rich had nothing to do with the rise in corporate profits or GM's turnaround. Kyl, like Cantor, is acting like a rooster who believes its crowing is responsible for the sunrise. In this case, they're crowing in the afternoon.

The U.S. economy, believe it or not, does not move on the basis of GOP press releases. But that does not mean that Republican positions don't deserve scrutiny.

Take Rep. Paul Ryan (R-Wis.), the new chairman of the House Budget Committee. The Republicans tapped him to deliver the GOP reply to Obama's State of the Union address on Tuesday night. That sends a strong signal: Ryan is the Republicans' guy when it comes to the party's grand economic message. But Ryan is also a policy extremist.

Last year, he unveiled an economic plan dubbed "A Roadmap for America's Future." It is most notable for urging the privatization of Social Security and the elimination of Medicare and most of Medicaid. Citizens for Tax Justice concluded that Ryan's comprehensive scheme would lead to tax hikes for 90 percent of Americans and lower taxes for the wealthiest Americans -- and still cause massive debt. Last year, Rep. John Boehner (R-Ohio), now the House speaker, declined to endorse Ryan's plan. And Cantor has kept his distance from the "Roadmap," hailing only "elements" of the plan. National Review magazine reports that Boehner, Cantor, and other House GOPers "are not showing much eagerness to take up the roadmap's specifics."

Yet the Republicans have placed Mr. Roadmap in the spotlight, consequently providing Democrats the opportunity to deploy one of their all-time favorite arguments: Republicans want to take down Social Security. And grab that opportunity the D's have. On Monday, the office of Senate Majority Leader Harry Reid (D-Nev.) fired out a statement blasting Ryan:

In an unsettling development for America's seniors, ending Social Security and Medicare is now the official position of the Republican Party. Republicans tapped Rep. Ryan, the architect of a plan to end Social Security and Medicare, to deliver their response to the President's State of the Union.

The Reid statement exclaimed that "Republicans are not only endorsing Rep. Ryan's extreme plan, but giving him unprecedented power to carry it out." That was something of a stretch. But providing Ryan this coveted and high-profile spot does prompt an inconvenient question for Boehner, Cantor, and other Republican leaders: Do they or do they not support Ryan's proposal to privatize Social Security and end Medicare?

By anointing Ryan their pointman, the Republicans are inviting trouble. And by claiming that they are responsible for recent economic progress -- if only by mere presence alone -- they invite the charge of arrogance. When Boehner was sworn in as speaker of the House, he said that Republicans will "now move forward humble in our demeanor." Did he really mean it?

Salon: Why Does the GOP Hide Its Agenda?

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(Original post)

Ryan Stays Mum about His Budget-Busting "Roadmap" While Bachmann Peddles Debunked Myths in Rebutting Obama's SOTU

By Joan Walsh

Tuesday, Jan 25, 2011

Prepared for President Obama to give a "centrist" State of the Union address to prove he can work with intransigent Republicans, I was pleasantly surprised. They may be small things, but a few points stood out. I was happy he pledged that "we simply cannot afford a permanent extension of the tax cuts for the wealthiest 2 percent of Americans," adding "Before we take money away from our schools, or scholarships away from our students, we should ask millionaires to give up their tax break." I just hope he fights to end those tax cuts in 2012 even though he didn't in 2010. I'm glad Obama promised to cut taxpayer subsidies for oil companies (even though almost no one clapped.)

Sadly, it took a little bit of courage to speak with compassion about the children of illegal immigrants or to say "American Muslims are part of our family." I liked a lot of what he said about investment in education, transportation and infrastructure, but I have no idea how that squares with his promise to freeze domestic spending for five years.

The president was lucky to have not one but two GOP rebuttals, and they were equally strange and dishonest. Rep. Paul Ryan railed against the deficit without proposing even one specific cut. He didn't talk about his own infamous "Roadmap," maybe because most analysts have called it a budget buster, even though it essentially replaces Social Security and Medicare with vouchers. The Congressional Budget Office estimates Ryan's plan wouldn't balance the budget until 2063, and would add $62 trillion to the debt by then. Citizens for Tax Justice said Ryan's Roadmap raises taxes on 9 out of 10 taxpayers and while slashing them for the wealthiest.

Wisely, Ryan talked about none of that. He promised to repeal "Obamacare" and replace it with "fiscally responsible patient-centered reform," but didn't say word one about what it would entail. Most dishonestly, Ryan said Democrats had overspent "to the point where the president is now urging Congress to increase the debt limit," ignoring the fact that Congress raised it seven times under President Bush. That's your new chair of the House Budget Committee. (Update: Somehow I missed the best line in Ryan's rebuttal, in which he worries we're headed toward "a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency." I want to ask the 14.5 million unemployed Americans, and the millions more who are underemployed, how they're enjoying their hammocks. Leave it to a Republican to come up with such vivid metaphors of leisure to talk about suffering. It's the only way they can relate.)

Tea Party leader Michele Bachmann followed Ryan, and CNN chose to broadcast her talk while other networks didn't. Bachmann has actually proposed budget cuts – eradicating the Department of Education and saving money (?) by repealing the Dodd-Frank Financial Regulation act. But she didn't talk specifics in her SOTU rebuttal, either. Luckily, she didn't get into American history, after her disastrous Iowa speech sugarcoating slavery and otherwise distorting the American past. (Note to Bachmann: George Jefferson was definitely not one of the founders.) She flashed Perot-style charts blaming rising unemployment solely on Obama, and ranted about 16,500 new IRS agents supposedly hired to enforce Obamacare (Factcheck.org has already debunked that myth).

Bachmann ended with a shot of soldiers raising the flag at Iwo Jima (which she mispronounced) and compared it to Americans fighting the debt crisis. "We will proclaim liberty throughout the land," she concluded. "We the people will never give up." Unfortunately, she was looking at the wrong camera for the entire speech, so she always seemed to be looking over the viewer's left shoulder (in my case, at my dog Sadie.) It was a little creepy.

Throughout his career, Barack Obama has benefited from having lame opponents, and that trend is clearly continuing thanks to the new leadership of the GOP. He looked presidential; Ryan and Bachmann looked small and lost. The worst response was from GOP Rep. Paul Broun, the one who was afraid Democrats wanted to play "kissy-kissy" by sharing seats during the SOTU. He skipped the address and spent it on Twitter, where he declared, "Mr. President, you don’t believe in the Constitution. You believe in socialism." That's probably better than Rep. Joe Wilson interrupting an Obama address to the House by screaming "You lie," but not by much.

Tax Notes: Geithner Holds Another Meeting on Corporate Tax Reform

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January 24, 2011

By Drew Pierson and Meg Shreve

Leaders of 17 organizations representing higher education institutions, public policy advocacy groups, and industry associations met with Treasury Secretary Timothy Geithner on January 21 for a closed-door meeting on corporate tax reform.

“I think there is a consensus [in America] we need to do something about the high corporate tax rates relative to the rest of the world,” said Tax Foundation tax counsel Joe Henchman, who attended the meeting.

With Japan recently announcing plans to lower its corporate tax rates, the United States will have the highest corporate income tax rates among the 34 wealthy nations in the OECD, at 40 percent (combined with state taxes) in 2010, according to the Cato Institute.

Participants involved with the discussion at the Treasury Department said the focus was revenue-neutral corporate tax reform. Although both Henchman and Robert McIntyre, director of Citizens for Tax Justice, declined to offer many details because Treasury had asked that no specifics from the meeting be discussed, they said they had offered varying suggestions as to the feasibility and scope of such reform.

For example, McIntyre said he advocated corporate tax reform that was not revenue neutral, but rather would increase revenue to address the nation’s rapidly mounting debt. Henchman noted the difficulty of reforming corporate tax rates by only eliminating expenditures because of the relatively limited number of them on the corporate side of the tax system. He said it might be wise to consider larger reform that takes on personal income tax as well.

“It doesn’t get you very far down,” Henchman said of lowering the rates by eliminating corporate tax expenditures.

National Economic Council deputy director Jason Furman on January 21 reiterated the Obama administration’s preference for revenue-neutral corporate tax reform at a conference in Washington.

Tax reform has been a frequent topic of discussion in both major parties during the early weeks of the 112th Congress. House Majority Leader Eric Cantor, R-Va., said January 4 that tax reform could boost U.S. competitiveness and that he expects Obama to discuss reform during his State of the Union address on January 25.

But lately the focus on reform has shifted from both corporate and personal income taxes to mostly only the corporate side. The day before the meeting, on January 20, the House Ways and Means Committee held the first in a series of hearings on corporate tax reform, at which invited business leaders argued for a lower rate.

Not everyone is convinced a corporate-only focus on tax reform is the best approach. Federal Reserve Chair Ben Bernanke testified before the Senate Budget Committee January 7 that he hoped Congress would undertake a tax reform effort to reduce the deficit and encourage economic growth, and said that individual and corporate taxation should be treated “as a holistic, single part of policy.” Senate Budget Committee member Ron Wyden, D-Ore., echoed those remarks.

The meeting was the third on corporate tax reform between Geithner and community leaders. On January 14 the Treasury secretary held a closed meeting with the chief financial officers of many high-profile businesses, including Coca-Cola and the Walt Disney Co., to discuss such efforts, and he met with business leaders again on January 20.

Henchman said he thought the January 21 meeting was “a good discussion.” Although he declined to say whether Geithner had indicated if more such meetings would be held, Geithner has said previously he expects to participate in a series of these meetings. Besides Henchman and McIntyre, Rosanne Altshuler of Rutgers University was in attendance, as was Maya MacGuineas, president of the Committee for a Responsible Federal Budget, and Daniel Shaviro of the New York University School of Law, among others.

Other organizations represented at the meeting included the American Enterprise Institute, the Center for American Progress, the Center for Budget and Policy Priorities, the Business Roundtable, the Service Employees International Union, Columbia Law School, the American Action Network, the Brookings Institution, the U.S. Chamber of Commerce, the AFL-CIO, the National Association of Manufacturers, and the University of California, Berkeley.

This Can't Be Happening: Here's One for the Birthers: Is GE's Jeffrey Immelt Really an American?

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(Original post)

1/21/2011

Dave Lindorff
 
If President Barack Obama had announced this week that he was appointing Japan’s Takanobu Ito, president and CEO of Honda, to head his new Council on Jobs and Competitiveness, one can imagine the shock wave that would go through the American body politic. A foreigner!--and one from one of America’s major competitors--to head a White House advisory panel on jobs and competitiveness?

And yet, at least the president could argue that Ito represents a company that earns the bulk of its revenues from its operations in the US.

But what are we to make of the actual announcement, that the president has named Jeffrey Immelt, chairman and CEO of GE Corp., to chair the President’s Council on Jobs and Competitiveness?

Immelt heads a company that has for years topped the list of transnational corporations as ranked by the size of their foreign asset holdings. More significantly, GE is a company that for years has also received more of its revenues and its profits from abroad than from its US operations (a record 60% in 2009), that has far more of its 304,000 employees overseas than in the US, and that has more assets abroad than at “home,” where its headquarters offices are located.

Even those domestic revenues and earnings are less than they might appear, in terms of jobs at least, since they are primarily from the company’s financial subsidiaries, while most of the revenues and earnings from abroad are from its manufacturing operations.

What this means is that in very real terms, GE is not an American company. It is a foreign company that happens to be headquartered in the US, and that happens to have a chairman/CEO who was born in the US, and holds a US passport.

If Congress were serious about enforcing government rules on foreign lobbying, and if the Federal Election Commission were serious about enforcing its rules about foreign influence in US elections, Immelt and GE would have to register as foreign agents when they lobby Congress and the White House, and GE would be barred from donating funds to election campaigns.
Find the real AmericanFind the real American

It’s ironic, isn’t it, that people on the loopy right are still making a fuss about whether President Obama was really born in Hawaii, or might really have been secretly born abroad before being sneaked into the US territory by his mother, but aren’t outraged at the appointment of the head of a functionally foreign firm to advise him on his domestic jobs policy. The truth is, it would hardly matter where an American president entered the world from his mother’s womb. The important thing would be where he grew up, how he viewed his national allegiance, and of course, whether he is an American citizen, none of which is in question in Obama’s case. On the other hand, there are plenty of good reasons to wonder whether GE’s chief executive, in becoming the president’s top advisor on jobs policy, really has America’s and American workers’ best interests at heart. (He isn't even being required to resign his posts at GE, which makes the question of where his real loyalty lies even more grave.)

Between 2005 and 2009, according to GE’s own 10-K financial reports, the company shed jobs in the US so fast, and added them abroad so fast, that the US employee share of GE’s total workforce dropped from 51% to 44%, a process of job destruction that has continued apace since then. In 2009 and 2010, according to information compiled by the United Electrical Workers (UE), GE closed down 29 manufacturing plants in North America, 28 of them in the US and one in Canada. A total of 3000 workers lost their jobs in those closings, with many of those jobs being added at GE facilities overseas in low-paying countries like China and India. But actually, the job losses were greater, as those shuttered facilities had until recently employed twice that many workers, UE reports.

Just last September, for example, GE announced that it was shutting down its last US lightbulb manufacturing plant and moving that operation to China. The 200 workers at the factory in Winchester, VA, who had been earning some $30 per hour making lightbulbs for the US market, were all added to the US jobless rolls. Why? Workers in China could make the new substitute fluorescent bulbs cheaper, and then GE could import them back into the US duty-free.

Meanwhile, Immelt recently told Forbes magazine about his company’s plans for expanding jobs...in India. As he put it to the magazine, the company’s approach to expanding its markets in the rest of the world is “to be ‘local’ in every sense of the word. That means migrating P&L (profit and loss) responsibility and major business functions (like R&D, manufacturing and marketing) from a centralized headquarters to an experienced in-country team.”

Doesn’t sound like the kind of model that’s likely to be adding many jobs here in the US, does it?

And yet, President Obama, in naming Immelt to his new post, said, “We think GE has something to teach businesses all over America.”

On the evidence, let’s hope not!

You have to wonder what kind of advice Immelt will be giving the president (and American businesses). GE likes international trade agreements that allow the company to shift production abroad and then import the goods to the US tariff-free. The company also likes the idea of lower corporate taxes (for the years 2007 to 2009, according to Citizens for Tax Justice's Bob McIntyre, Immelt's GE managed to finagle a tax rate of -14.1%, which is to say the government gave the company an extra 14.1% over and above its profits!), and of course all kinds of tax incentives aimed at increasing hiring, though these measures, while helping corporate bottom lines, have demonstrably failed to lead to significant job creation. GE also opposes measures that would punish companies for outsourcing production, or that would make it harder for it to bring in high-skilled workers from abroad to replace educated but higher-paid American workers. A key reason GE's US tax rate is regularly negative is that it writes off against US income the higher taxes it is paying to foreign countries on the much greater earnings it books on production and sales in its operations in those countries.

Arguably, from the point of view of American workers, it might be better if Obama had hired Honda’s chief executive, whose company at least has been adding jobs in the US, not eliminating them.

Looked at another way, it’s ironic to note that the US Justice Department is currently trying to cook up a legal concoction that will allow it to arrest and prosecute Australian Wikileaks founder Julian Assange for espionage, because he dared to do what US journalists should have been doing--digging up the documents that expose US misdeeds abroad. They might more appropriately be looking into the way ostensibly American corporate executives like Immelt have been using their companies to sabotage the nation’s entire economy and political system.

Come to think of it, that kind of thing--undermining the country--used to be called treason. Now it’s just a ticket to a job as White House adviser.

Reuters: Cut to U.S. Corp Tax Could Help Firms -- Obama Aide

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(Original post)

2011-01-21

By Kim Dixon

WASHINGTON, Janp 21 (Reuters) - U.S. companies are not overtaxed on average, but trimming the highest corporate tax rate could help raise U.S. business global competitiveness, a top economic adviser to President Barack Obama said on Friday.

Obama officials have been listening to major U.S. companies gripe about the top 35 percent marginal corporate rate as the president mulls whether to tackle reform of the tax code -- a mammoth task by all accounts.

Obama president also faces the challenge of a divided Congress where it could be tricky to pass sweeping initiatives in the next two years, which lead up to his re-election campaign.

A top economic adviser told corporate tax officials that Obama is open to all ideas as he considers a law rewrite.

'The high top marginal rate is an indicator that reform could have meaningful benefits, especially in an increasingly global economy where business activity responds to tax rates,' Jason Furman, deputy director for Obama's National Economic Council, told executives at an event on tax policy.

Still, he noted the impact of the high rate is sometimes overblown, citing loopholes and tax preferences in the code.

'The high top marginal tax rate is not evidence that American companies are on average overtaxed compared to historical averages of other countries,' Furman said. For a comparison of international tax rates, see:

For an overhaul of the tax system, Obama needs to take the lead, analysts and observers said. Many are looking to the State of the Union speech on Tuesday for a sign of his commitment.

'We're in the second inning; we'll know a lot more after the State of the Union,' said a tax official at one of America's biggest companies, who spoke on condition of anonymity.

Secretary Timothy Geithner last week met with chief financial officers with America's biggest companies and on Friday met with academics and policy officials to gather ideas.

Many believe the politics of taxes make substantive changes unlikely in the next two years, especially with Republicans in control of the U.S. House of Representatives and a looming presidential campaign.

'I'd be shocked if anything could pass in the current Congress,' said Bob McIntyre, president for Citizens for Tax Justice and a participant in Friday's meeting with Geithner.

He said the president and lawmakers need a mandate from the public to move forward.

Two participants at the meeting, who did not want to be identified, said it didn't appear Treasury had a clear plan yet on a way forward.

RAISING REVENUE?

Furman said any revamp must not result in a loss of revenue, given the near $14 trillion federal debt.

'The president isn't looking to the corporate sector to help solve this fiscal challenge,' Furman said. 'What he is asking is that in the process of doing any reforms to the tax code we don't make these fiscal problems any worse.'

A top Procter & Gamble official told Congress this week that Congress shouldn't get hung up on ensuring that any tax cuts are fully offset by spending cuts.

McIntyre said he told Geithner that any corporate tax overhaul should raise money to chip away at the deficit.

The 1986 tax overhaul signed by President Ronald Reagan raised money on the corporate side to account for cuts in individual tax rates.

One meeting participant, speaking on the condition of anonymity, said the administration appeared to be in the early days of thinking on the matter.

'To be honest, I was more optimistic that this might be a 2011 issue before I got the call to come to this meeting,' the person said. 'I'm not convinced that this is going to be his No. 1 agenda item when they are now having feel-good meetings with think tank folks,' the person said.

(Reporting by Kim Dixon; Editing by Andrew Hay and Leslie Adler)

Wall Street Journal: Treasury's Geithner, Think Tanks Discuss Corporate Taxes

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(Original post)

JANUARY 21, 2011

By Jeffrey Sparshott

WASHINGTON (Dow Jones)--Treasury Secretary Timothy Geithner Friday met with think tanks, unions, universities and business groups to discuss corporate taxes as the Obama administration weighs changes to the tax code.

Geithner in a speech last week said the White House is looking for ways to encourage growth and investment while also cutting the deficit.

The Treasury secretary met Friday with representatives from 17 groups from across the political spectrum, including the American Enterprise Institute, Brookings Institution, Business Roundtable, AFL-CIO and Columbia Law School. The Treasury Department didn't provide further details.

Participants said the groups held a roundtable discussion with the secretary, with each party given a chance to express views while the Treasury pooled ideas.

"There were thoughtful comments the whole way through," said Joseph Henchman, tax counsel for the non-profit Tax Foundation. "Obviously there is a consensus for doing something about our high corporate tax rate."

The U.S. corporate tax rate is 35%, though many pay less due to credits, deductions, exclusions and exemptions. Still, the headline rate is significantly higher than other developed nations--for example, U.K. companies pay 28%, Canadian 18%, German just under 16%, Swiss 8.5% and Japanese 30%, according to OECD data.

Many companies argue the higher rate makes them less competitive, and one common idea has been to broaden the tax base by eliminating exemptions while lowering the overall rate.

But the administration also faces mounting debt and some calls to generate more revenue.

"I didn't think it was a good idea to use all or most of the money from corporate tax reform to cut rates," said Bob McIntyre, director of the liberal Citizens For Tax Justice and one of the meeting participants. "Revenue neutral reform would be a disaster."

Friday's meeting is one in a series of discussions between senior Treasury officials and outside experts. It follows by a week a gathering with chief financial officers from more than a dozen major U.S. companies.

-By Jeffrey Sparshott, Dow Jones Newswires; 202-862-9291; jeffrey.sparshott@dowjones.com

Daily Kos: Its a lie that there are no economic alternatives to budget cuts

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(Original Post)

by dcampbell

Sat Jan 08, 2011 at 05:57:58 PM PST

The Sacramento Bee on Saturday features an article by Dale Kasler on page 1 entitled “State’s economic levers limited.”  This piece and others promote a piece that is fundamentally wrong.  It is simply not accurate that the state can not respond to the economic crisis.  Here is a start.  I will return to the issue of why the press  gets this issue wrong  or what Robert Reich calls- “The big lie.”

It is clear that the California budget is in crisis,  but the argument that there is little that can be done is simply wrong.  There are resources to fund job recovery and economic growth.  It is a choice.  We can not simply cut our way out of the crisis, budget cuts and lay offs make the recession worse. California will need to raise taxes to fund the schools and to repair the social safety net.

Specific policy proposals:

As a consequence of the just passed federal tax reductions, including the reduction of taxes to the wealthiest taxpayers,  Washington-based Citizens for Tax Justice estimate that  California’s richest taxpayers will be saving about $14 billion annually on their federal taxes. The next wealthiest 4 percent, with an average income of $310,000, will save another $6.5 billion.  State taxes should be increased on these two groups to secure this available 20.6 Billion dollars to fund the necessary jobs creation projects.  Enforce the current California law taxing the sales of goods by out of state companies ( such as Amazon)  over the internet.  Gain. 1.2 billion $.

Pass an oil extraction tax.  Require that the oil companies pay taxes when they take our oil out of the ground and then refine it and sell it back to us.  Gain.10 Billions.  Pass the 10.1 billion dollar jobs package as proposed in the Assembly last year.  This would pay off debts to local governments and keep teachers in classrooms to avoid massive layoffs. California is the only oil producing state in the country that imposes no taxes on the pumping of oil. The proposed tax was to be 6% of the sales price of oil.  Alaska and Louisiana both charge 12.5%.  
 
In California we need to spend more state money to improve schools, to develop roads and infrastructure, and to create jobs.  Those who are well educated are more employed and paying taxes while those with less education, those who leave school, are in a prolonged economic crisis.  It is well documented that our schools and our universities are in a finance crisis.  We need to be preparing young people for new jobs and to create new industries.  The success of students in higher education will significantly determine California’s future competitiveness and prosperity.   Improving education, including both k-12 and higher education, makes California more likely to attract investment and the creation of new jobs and new industries.

California government must protect and empower our citizens. To foster prosperity  it must prepare the young for civic participation. (BTW. This has been recognized since the first California Constitution of 1849).  Protection includes health care, social security, safe food, environmental protection, safe streets, job protection, etc.

Our economy needs roads, bridges, telephone lines, communications systems, energy and quality education.  These services make freedom and prosperity possible. Conservative opposition to these services ignore the economies need for infrastructure.

The finance capital collapse and theft on Wall Street produced this crisis, not immigration.   Now Wall Street has recovered, but the states and specifically California is left with the destruction.  The best available response is for California to tax and spend to stimulate the economy- that is Keynesian stimulus. The anti tax radicals and the Republicans will oppose this approach.  They must be defeated.  

Specific proposals :
Enforce the current California law taxing the sales of goods by out of state companies ( such as Amazon)  over the internet.  Gain. 1.2 billion $.

Pass an oil extraction tax.  Require that the oil companies pay taxes when they take our oil out of the ground and then refine it and sell it back to us.  Gain.10 Billions.  Pass the 10.1 billion dollar jobs package as proposed in the Assembly last year.  This would pay off debts to local governments and keep teachers in classrooms to avoid massive layoffs.

Pay for the Jobs package with a new oil severance tax.    Imposition of an oil severance tax. California is the only oil producing state in the country that imposes no taxes on the pumping of oil. The proposed tax was to be 6% of the sales price of oil.  Alaska and Louisiana both charge 12.5%.    

Establish a  public state bank such as the Bank of North Dakota. Initially move 25% of all state revenue, receipts and reserves into this bank and 25% of all PERS and STRS funds. Manage the bank as a public service. Over time, finance state borrowing from our own bank.   Gain.  6% of the budget.

Continue efforts to eliminate waste, fraud and abusive where it exists.  There may be legitimate savings here.  For example not paying $13.2 billion for a Bay Bridge that originally was to cost under $6 billion.   Do not pay to import the steel for the bridge from China.
Repeal the 2009 and 2008 tax cuts for corporations passed to gain the extra Republican votes for the budget.  Savings $1 billion.

As a consequence of the just passed federal tax reductions, including the reduction of taxes to the wealthiest taxpayers,  Washington-based Citizens for Tax Justice estimate that  California’s richest taxpayers will be saving about $14 billion annually on their federal taxes. The next wealthiest 4 percent, with an average income of $310,000, will save another $6.5 billion.  State taxes should be increased on these two groups to secure this available 20.6 Billion dollars to fund the necessary jobs creation projects.  

Sell state bonds to gain funds for investment. At present we pay bond holders a market rate.  Rates are so low at present we should borrow and invest.  To achieve a Keynesian stimulus we could sell many more bonds in particular to  the public employees retirement system PERS  and STRS.   Once started ( stimulated) debt financed building will stimulate more building bringing private  debt financing into productive investments.

Many more sources of revenue need to be developed.  We have been thinking too small and looking in the wrong directions.  Please make suggestions.

Unfortunately we would be unable to tap  a major source of potential revenue because it is tied to the national economy.  There should be a significant tax on the sale of stocks, bonds, and financial instruments.  The sources of this tax are in New York and can be easily moved around the globe.  Some planning is necessary to develop this source.  Potential Gain.  $30 billion per year.

Limits on Keynes.

A major limit on the use of Keynesian theories within one state is that most states- particularly California- are not allowed to go into debt.  Keynesian theory and practice call for public expenditures  and going into debt to pay for these expenditures.  Of course California has been going into debt each year for the last three years, it is just that accounting moves have been used to disguise the debt.

Since the state can not go into debt it will need to use tax policy to raise the funds necessary for public investments.  The state has also been targeting particular industries, notably the film industry with tax subsidies and local governments have been providing tax subsidies in the form of enterprise zones.  Along with needed  tax reform, these forms of subsidies (debt) should be reformed to focus on economic growth.    Tax suggestions were in the prior section.

A state can not print money, but it can sell bonds to fund development. California currently sells bonds.  We could develop bonds for more  growth oriented public investment.  At present we pay bond holders a market rate. To achieve a Keynesian stimulus we could sell many more bonds in particular to  the public employees retirement system PERS  and STRS.  These are among the largest investment funds in the nation. Their investment strategies should be re designed to promote in state economic growth.  After all, the money in PERS and STRS is California money.  And, the best way to keep these funds financially solvent is to improve the California economy.  So, directing investment in a manner to promote growth would provide significant capital for public projects.  We could sell bonds to PERS and STRS at a better rate than they are presently getting.  Further, by working with PERS and STRS we could develop a system where they serve as a marketing director to sell state bonds to their members.  There are many people interested in investing in public bonds.

After a 2-4 year transition period, a similar pool of available funds would develop in the new California Public Bank.

Alternative;

We can follow the process of Ireland and Greece and dramatically cut services and raise taxes and impoverish the economy.  Then, since the nation is poorer and has less income you will need to raise more taxes and cut more services all in an effort to protect the excessive profits of bankers and bond holders.

California can continue the current process of cuts and reductions.  The fiscal crises of the states – all the states- has caused major cut backs and retrenchment and made the economic crisis approach a depression.  The state cut backs are greater than the federal stimulus producing a prolonging of the crisis for working people.  Continuing on the present direction produces obscene profits for billionaires along with growing poverty

There are kids who need teachers, hospitals that need nurses, neighborhoods that need police and fire protection.

Four  more at www.choosingdemocracy.blogspot.com

(Original Post)

Lloyd Doggett on Sunday, December 12th, 2010 in an interview.

Lloyd Doggett says tax cut for richest Americans exceeds annual income of average Central Texas families

Rep. Lloyd Doggett speaks to KVUE-TV, Dec. 12, 2010

Austin U.S. Rep. Lloyd Doggett vigorously opposed the deal reached between President Barack Obama and Republicans to extend tax cuts initially put in place by Congress when Republican George W. Bush was president.

After Vice President Joe Biden urged House Democrats Dec. 9 to vote for the deal, Doggett told reporters: "If it's take it or leave it, we'll leave it," according to an online USA Today news post. Early Dec. 17, the House approved the extension. Doggett then said on CNN’s "American Morning:": "We all like less taxes. But this came at an immense cost. It's our money. It certainly is. But it's also our (future) debt."

Doggett, a Democrat representing the state's 25th Congressional District, which takes in parts of Travis and Bastrop counties plus Hays and five counties south and east of Austin, had swung home before the vote. And on Dec. 12, he told Austin’s KVUE-TV, Channel 24: "The richest 1 percent of America will get a bigger tax cut through this bill than the family income of the average family here in Central Texas. That’s just not equitable."

Solid comparison?

To our inquiry, Doggett’s office passed along a report by Citizens for Tax Justice, a liberal group focused on federal, state and local tax policies and their impact. The Dec. 9 report states that under the extension, the nation’s wealthiest 1 percent would enjoy an average tax cut of almost $77,000 in 2011. The report says that in Texas, the wealthiest 1 percent would see an average cut of $79,563.

Doggett spokesman Cameron Arterton said the U.S. Census Bureau says the median family income for Doggett’s Congressional District 25 based on a 2009 survey is estimated at $57,723. Arterton said for Travis County, the median family income is $67,030; for Hays County, $70,998; and for Bastrop County, $55,344. To refresh, the median is not the same as the average, which is based on adding up all the family incomes and dividing the total by the number of families. In this instance, half of the area’s families have a lower income than the median and half of the area’s families have a higher income than the median.

At the Census Bureau, spokeswoman Jenna Arnold guided us to county-by-county survey research showing estimated median and mean (or average) family incomes for the counties singled out by Doggett’s office for 2005-09; they differ slightly from the one-year estimates cited by Doggett’s office. For 2005-09,  the median family income in Travis County is estimated at $69,251, about $25,000 less than the county’s average estimated family income of $94,955. Bastrop County’s median family income, $59,582, was about $12,000 less than its estimated average, $71,656. Hays County’s median family income, $72,647, was about $14,000 less than its estimated average, $86,364.

Median or mean, what’s the best way to judge income?

Lloyd Potter, the state demographer, told us that generally, he prefers to use average (or mean) income in comparisons rather than median income. "There’s something intuitive about the concept of an average," he said.

But averages, Potter said, are sometimes distorted by extreme values at the high or low ends.
"So if you had someone (in your county) who was really wealthy, like a billionaire, or just a couple, that would pull the mean up fairly significantly. It’s perhaps misleading as far as how most people are living," Potter said. "You’ve got some very wealthy people in Travis County. Doesn’t Sandra Bullock live there?"

We heard next from Doggett, who pointed out via e-mail that in his Dec. 16 House remarks opposing the extension, he correctly compared the tax cut for the wealthiest Americans to median--not average--family incomes in Central Texas.

Doggett said that in the earlier KVUE interview, "I wasn’t trying to change the standard of measurement... I was conveying the same important point about this tax deal -- the inequality between the tax benefits for the wealthiest 1 percent in this deal and the typical family income in our area for an entire year."

His e-mail continues: "Even if you strictly limit ‘average’ to mean ‘mean,’ not ‘median,’ my statement is still accurate for the congressional district I represent." His office pointed us to census research indicating that family incomes in the district averaged $75,455 for 2005-09 in 2009 inflation-adjusted dollars.

Doggett added that "‘median’ is a type of ‘average’ too according to Merriam Webster’s online, which lists the first definition of  ‘average’ as ‘a single value (as a mean, mode, or median) that summarizes or represents the general significance of a set of unequal values.’)"

As he acknowledges, Doggett didn’t specify median or mean incomes to KVUE, enabling his statement to leave the misimpression that the 2011 tax cut for the nation’s wealthiest 1 percent exceeds the average income of Central Texas families.

Solely considering average family incomes, his claim doesn’t hold up for two of three counties singled out by his office. Taking median incomes into account, though, his statement is supported.

We rate the statement Mostly True.

Washington Informer: Crisis is Snowballing In Winter of Discontent

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(Original Post)

By Dr. Barbara Reynolds   

Thursday, 06 January 2011 00:00
Nowhere to be found, not under the mistletoe, Christmas tree nor tucked in gift bags are what Black Americans need most for the coming year: Faith, courage, and leadership to stem a snowballing crisis.

All over the United States, many non-White, non-wealthy citizens are shivering from the passage of an $858 billion tax bill that feels like an iceberg crashed down on their heads, freezing out dreams of a better life. 
Moreover this year the usual cheery lyrics extolling a White Christmas take on cynical even angry significance.

Passage of the bill will extend 13 months of unemployment benefits at a cost of $60 billion, but this is a mere sop when you see almost $800 billion going to the rich and the super-rich. The scenario looks worse because covering the costs means more misery for people at the bottom who face stagnant wages, rising fuel costs, and slashed education funds.

How much more can middle-America take from the job squeeze, mortgage foreclosures and billions fleeing from housing, education, and energy assistance?

Could all the pain eventually erupt into open class warfare like that unfolding in Britain? U.S. Senator Bernie Sanders certainly thinks so. On the Senate floor, the Vermont Independent took his colleagues to task about America’s "disappearing and shrinking middle class."
Sanders said that the wealthiest Americans today earn about 12 cents of every dollar in the economy, adding that the top 1 percent of income earners make 23.5 percent of all income. According to Sanders, that is creating a severe unequal distribution of wealth in America. "We got to own up to it," Sanders concluded. "There is a war going on. The middle class is struggling for existence. Greed has no end. If we don't start representing those families, there will not be a middle class in this country."

The war is claiming casualties among African-Americans, many of whom were considered middle-class. Black unemployment is now about 16.7 percent, compared to 8.7 for Whites. The Economic Policy Institute estimates that 40 percent of African Americans will have experienced unemployment or under employment by the end of 2010, and this will increase child poverty from one-third of African American children to slightly more than half.

While the Black middle class and the elderly become cash poor, the deal makers on the hill are shamelessly continuing the President Bush era money grab.

The Citizens for Tax Justice states that the wealthiest one percent of taxpayers will pocket almost $77,000 per year more as a result of the new tax deal. The top one percent would take home more than 25 percent of the total tax cut; the bottom 60 percent would share less than approximately 20 percent.

Reports showing the depth of greed are outrageous. The Economist Magazine reported that “As great wealth has accumulated at the top, the rest of society has not been benefiting proportionally. In 1960 the gap between the top 20% and the bottom 20% was thirtyfold. Now it is seventy-five fold. Thirty years ago the average annual compensation of the top 100 chief executives in the country was 30 times the pay of the average worker. Today it is 1000 times the pay of the average worker.”

Two years ago, in a report entitled Democracy in an Age of Rising Inequality, the American Political Science Association concluded that progress toward realizing American ideals of democracy in some areas have reversed. “Privileged Americans roar with a clarity and consistency that public officials readily hear and routinely follow while citizens with lower or moderate incomes are speaking with a whisper.”
In other words, while the privileged demand and even defend their largesse as their entitlement, those who are being exploited raise hardly a whimper.

The handwriting is on the wall, the money grabbers have been buoyed by how easy it was under President George W. Bush and now President Barack Obama to grab taxpayers money for their special interests. Can we say with any certainty now that Social Security or Medicare, will be protected or the continued raid on school budgets to make up for shortfalls won’t critically destroy education progress for millions of young people?

The silence of those being exploited must cease. There are no more comfort zones for the have-nots to rest. Behind the gated enclaves of the newly arrived black upper middle class, hard-times are knocking on their doors. With much of the corporate press on the side of the privileged, either the stepped on will stand up or be ground into the dirt.

Leadership must grab hold of this Winter of Discontent before it snowballs into a revolution. That will take courage and faith that the great victories Black Americans helped won can be won again.

Bay Citizen: Will Gov. Brown Tax the Rich?

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(Original Post)

By Annette Fuentes|January 4, 2011 12:30 p.m. |In Budget Crisis

Where, oh, where, will new Gov. Jerry Brown and his legislative colleagues find billions to fill that humongous budget gap (up to $26 billion, give or take) they face going into the new year? Well, commentator Peter Schrag has a compelling idea. According to calculations by Citizens for Tax Justice in DC, when President Obama and Congress voted to extend the federal Bush-era tax cuts for uppermost income earners, they voted to save California’s 5 percent richest people about $20.5 billion in taxes every year.

Schrag, former Sac Bee editorial page editor and columnist for the California Progress Report, notes that such a sum is about 75 percent of the projected deficit and suggests that tapping just a bit of that bounty from the state’s most affluent—about three-quarters of a million people—could go far to saving the state’s most vulnerable institutions. Like public education.

Brown, who was sworn in yesterday as governor, has certainly hinted at the possibility of raising taxes to rescue the state from its crisis. And he called out public schools and education in general as a priority. Would California’s richest residents rebel at revenue raising to rebuild schools? We might find out.

Mohawk Valley Business Journal: Trade association opposes estate tax

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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

Washington Post: 'Active Financing' Exemption for Some Businesses to Cost Taxpayers $9 Billion

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(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."

 

Richmond Daily Journal: Tax deal like a bait-and-switch mortgage

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(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.

Daily Record (NJ): Tax-cut bill also gives 1.6 NJ reprieve from Alternative Minimum Tax

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(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

Counterspin: Michael Dorsey on Cancun climate talks, Bob McIntyre on tax plan

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(Original Post)

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

Listen: [mp3] [RealAudio not avalailable]

Note: Please feel free to download the mp3 by right-clicking the mp3 link and choose the "Save Target As" function.

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.

New York Times: The Tears of John Boehner

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(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?

Taking Note: What Does the Tax Cut Deal Mean for Medicare, Social Security and Health Care Reform?

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(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.

Christian Science Monitor: New era of cooperation between White House, big business

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(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.

Advertiser Editorial: Rich Alabamians get richer under tax plan

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(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.

Argus Leader: Johnson, Thune back tax deal

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(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.

Journal Sentinel: In the heartland, D.C. looking more heartless

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(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.

The Fiscal Times: Obama May Tackle the 800 Pound Gorilla--Tax Reform

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(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.

Seven Days: The Energizer Bernie: Text of Sanders' Fiery Faux Filibuster

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(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.”

The Hill: Tax deal like a bait and switch mortgage

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(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.

Center for American Progress: Tax Breaks Need Scrutiny

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(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

The Morning Sun: Kan. lawmakers: Tax cut plan a victory

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(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

New York Times: In Tax Deal, Many Public Employees Will Pay More

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(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.

Huffington Post: The Economy -- and the Unemployed -- Held Hostage

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(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.

NPR News: Tax Deal Should Help Economy, Analysts Say

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(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.

Daily Finance: Obama Takes Liberal Heat for His Tax-Cut Compromise

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(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

Osgood File: Does America Need a Value-Added Tax?

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(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.

CBS News: Cutting the Deficit May Cut Your Home Tax Saving

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(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.

Daily Kos: Congratulations, America! The deficit is almost gone.

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(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

The Fine Print: Colbert Reminds Us What the Estate Tax is Really About

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(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.

Cap Cod Times: Why we need to raise our taxes

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(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.

Tax Justice Network: Cisco tax rate dives as offshore profits pile up

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(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.

SEIU: Who's behind the CEO-driven effort to extend Bush-era tax cuts for the rich?

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(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.

United Steel Workers: USW Questions Fiscal Commissioner David Cote as Tax Reformer

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(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/.

(Original Post)

Tuesday, November 30th, 2010 at 4:40 p.m.

Alan Grayson on Wednesday, November 17th, 2010 in a speech on the House floor.

Alan Grayson going down swinging on Bush tax cut extension

Alan Grayson says the wealthiest Americans can buy wine from 1787 with the money they'll save if the Bush tax cuts are extended for them.

File this under the category of things that won't surprise you -- Alan Grayson isn't leaving office quietly.

The Orlando Democrat who lost his bid for re-election took to the U.S. House floor on Nov. 17, 2010, to rail against Republicans who want to extend the Bush 2001 and 2003 tax cuts for all Americans, including the wealthiest 1 percent of income earners.

With a series of cardboard posters, Grayson mocked Republicans for more than five minutes. "The Republican plan for tax cuts is to give each millionaire -- each person who makes $1.4 million a year on average, the top 1 percent of income in this country, the high and mighty -- $83,347 a year in tax cuts," Grayson said, turning to his posters.

Grayson said the wealthiest could use the money to buy a 2011 Mercedes-Benz E-Class sedan, once a year, every year for the next decade. Or they could buy a Hermes "Birkin" handbag every year or a bottle of 1787 Chateau d'Yquem wine.

"Here's something else they can do," Grayson said, showing the next poster. "They can buy 20,000 jars of their favorite mustard, Grey Poupon. Twenty thousand jars. That's certainly enough for them, their family, their friends, even a few poor people.

"Thank you Republican Party."

Grayson came back on Nov. 18, 2010, and continued poking the GOP -- saying the money could be used to buy three tickets to the most expensive suite at the Super Bowl, to climb Mt. Everest, or for a 110-day couple's cruise around the world. ("Not just one year, but every single year," he said.)

Grayson's point is that the money could be better used creating jobs than going to America's top earners. That the country could essentially take the money and hire 3 million people at $30,000 a year, creating jobs instead of lining the pockets of the rich. There's some false logic in his thinking, at least from the Republican point of view. Republicans say it's those top earners who create jobs and taking money out of their pockets will cost jobs. Grayson also certainly is guilty of hyperbole in suggesting that the rich will use the money saved from the tax cuts only on outrageous luxury items.

But that's all a philosophical debate we'll let you have at your dinner tables.

For PolitiFact Florida, we wanted to zero in on his baseline number, that the Republican plan for extending the 2001, 2003 and other Bush-era tax cuts would result in the top 1 percent of earners paying $83,347 a year less in taxes.

Grayson said his figure comes from an analysis provided by a liberal public policy group called Citizens for Tax Justice.

Citizens for Tax Justice Legislative Director Steve Wamhoff backs up Grayson's numbers, saying that if all of the tax cuts scheduled to expire at the end of this year remain in place, the top 1 percent of earners will save $83,347 on average. But there's more to the story, Wamhoff said.

First, extending all of the Bush-era tax cuts for everyone isn't exactly "the Republican plan."

Senate Minority Leader Mitch McConnell introduced a bill on Sept. 13 that would extend most of the Bush-era tax cuts, and would restore the estate tax, at some level, for some people. The effect of the McConnell bill is that the top 1 percent of income earners would see a total cut of $74,621, according to Citizens for Tax Justice.

Another bill filed on Nov. 17 by Republicans Rep. Mike Pence of Indiana and Sen. Jim DeMint of South Carolina would permanently repeal the estate tax for everyone, meaning the top 1 percent would see the cut suggested by Grayson -- $83,347, using Citizens for Tax Justice numbers.

And there's a second caveat. Democrats, including President Barack Obama, want to extend some of the tax cuts for the wealthiest 1 percent of Americans too. Just not to the extent that Republicans do.

While President Obama's preferred alternative is to extend the 2001 and 2003 Bush tax cuts for only those individuals making $200,000 or less and couples making $250,000 or less, he does support extending other tax cuts that would benefit wealthier Americans, including restoring a reduced estate tax. Under Obama's plan, the top 1 percent of earners would pay $28,728 a year less in taxes than they would if all of the tax cuts were allowed to expire at the end of the year, according to Citizens for Tax Justice.

How does this all add up?

If all of the tax cuts are allowed to expire, the wealthiest 1 percent will pay around $83,347 a year more in federal taxes on average.

If President Obama's plan is approved, the wealthiest 1 percent will pay about $54,619 a year more in federal taxes than they do now.

If McConnell's bill passes, they'll pay $8,726 a year more.

And if the DeMint/Pence plan passes, they'll pay the same amount.

Now we know you're probably wondering if Citizens for Tax Justice's numbers are credible, especially since they define themselves as being liberal. We did, too. So we also checked with the Tax Policy Center, an independent, nonpartisan think tank. They didn't measure things exactly like Citizens for Tax Justice, but they did corroborate one critical fact. They found that if President Obama's tax plan becomes law, the wealthiest 1 percent of Americans would pay $53,674 a year more, on average, in federal taxes (CTJ's number was $54,619).

We also found research from the Congressional Joint Committee on Taxation -- a nonpartisan committee with a professional staff of economists, attorneys and accountants -- that helps illustrate the same point, though by using slightly different criteria. The Joint Committee on Taxation found that, for those who have income of $1 million or more, extending all of the Bush tax cuts would mean $32.7 billion that the government would not collect in 2011. That amount would apply to 315,000 tax filers. Divide the foregone tax revenues by the number of filers, and you get $103,809 per tax filer. That's a bigger number than Citizens for Tax Justice, but also applies to a different pool of people.

And it substantiates Grayson's broader point, which is that extending the tax cuts for the wealthiest Americans means they will save a lot of money in federal taxes.

In a pair of dramatic House floor speeches, he said that the Republican plan to extend the Bush-era tax cuts would result in the wealthiest 1 percent of Americans saving $83,347 a year. He's quoting a study from the group Citizens for Tax Justice accurately, and the math is largely backed up by the more independent Tax Policy Center. But he neglects to mention that another GOP-embraced tax plan would shrink the tax savings of the wealthiest Americans slightly and that a significant chunk of the tax cuts he's talking about are also supported by Democrats and President Obama. So we rate this claim Mostly True.

Huffington Post: Chamber Of Commerce's Lobbying To Extend Bush Tax Cuts Would Reap Millions For Wealthy Backers

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(Original post)

11-29-10

Amanda Terkel

WASHINGTON -- The labor-backed advocacy group U.S. Chamber Watch is taking aim at the U.S. Chamber of Commerce in a new report, arguing that the industry group's aggressive lobbying effort to extend the Bush tax cuts is less about creating jobs for businesses and more about lining the pockets of wealthy corporate CEOs who would personally gain from hundreds of thousands to millions of dollars.

"Let's be clear: The US Chamber isn't fighting to extend the Bush tax cuts because it helps small businesses (it doesn't) or the vast majority of its members (nope); it merely helps Chamber CEOs like Rupert Murdoch, JPMorgan Chase's Jamie Dimon and Wellpoint's Angela Braly who sleep easier knowing they'll be able to afford that extra private jet," said Chamber Watch spokesperson Christy Setzer. "The US Chamber has thrown its Main Street members under the bus to protect the wallets of its wealthiest CEOs."

From the key findings compiled by Chamber Watch and the liberal public policy organization Citizens for Tax Justice (CTJ):

-- Rupert Murdoch, the CEO of News Corporation, whose donation of $1 million to the U.S. Chamber of Commerce led to well-publicized shareholder outrage, would pocket more than $1.3 million.

-- Don Blankenship, a former U.S. Chamber Board member and the CEO of Massey Energy, whose company owned the mine in which twenty-nine miners died in April 2010's mining disaster, the worst in forty years, would take home more than $700,000.

-- David Cote, the CEO of Honeywell and a member of the National Fiscal Commission, who keynoted an address to the National Chamber Foundation expressing concern about the national debt over the next ten years, would get a tax cut of over $1.2 million.

-- CEOs of big banks on Wall Street who helped collapse the economy and then used the U.S. Chamber to fight stronger financial regulations stand to reap between $700,000 and $1.6 million each.

-- The CEOs of the health insurance industry, whose industry saw an overall increase in profits this year even while they slashed benefits and instituted breathtaking premium increases, are looking to personally benefit from another hit on the middle class by taking in between $335,000 and $875,000.

-- U.S. Chamber president and CEO, Thomas Donohue, who has shifted the Chamber's mission from serving mainstream business to serving the interests of the CEOs whose corporations write the biggest checks, will personally gain over $200,000.

In its lobbying efforts, the Chamber has said that raising taxes on any Americans during an economic downturn hurts recovery. "The Chamber believes that no one should have their taxes raised during a time of economic weakness -- not individuals, not small businesses, not large businesses," wrote Bruce Josten, the Chamber's executive vice president for Government Affairs, in a Nov. 15 letter to members of Congress. "Job creators are especially sensitive to tax rates and any tax increase right now would only hinder the already too weak recovery."

In an email to The Huffington Post, a Chamber spokesman argued that the burden of increased taxes on high-income earners will fall on the entire economy. "When high-income taxpayers have to pay higher taxes, many mitigate their new tax burden by reducing investment income, which leads to lower job creation," the staffer wrote. "The chain reaction results in fewer opportunities and smaller salaries for lower-income workers."

Chamber Watch, however, points to a January report by the nonpartisan Congressional Budget Office, which identified tax cuts as the least effective of the measures currently on the table to create jobs.

CTJ Director Robert McIntyre noted that extending the Bush tax cuts for the wealthiest Americans wouldn't affect companies' bottom lines anyway.

"In the case here, where we're looking at executives of big companies, they're not hiring people with their own money, they're hiring people with the companies' money," he told The Huffington Post. "Are they saying that if they don't get paid -- if their after-tax income goes down a little bit -- that their company won't hire people?"

A few CEOs have been coming out and publicly arguing against extending the Bush tax cuts for the wealthiest Americans, with billionaire Warren Buffett recently saying that people like him should be paying much more in taxes.

 

U.S. News & World Report: 10 Things You Didn't Know About the Bush Tax Cuts

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(Original post)

By U.S. News Staff

November 22, 2010

1. In 2000, the United States boasted a more than $236 billion budget surplus (the national debt was just under $6 trillion).
Click here to find out more!

2. The Economic Growth and Tax Relief Reconciliation Act of 2001 decreased each tax bracket and created a 10 percent bottom rung. Top earners' tax rate dropped by 4.6 percentage points.

3. The act also increased the child tax credit from $500 to $1,000 and gave married couples filing jointly a standard deduction twice that of an individual.

4. To conform with a Senate rule that required budget-reconciliation legislation to not decrease tax revenue for more than 10 years, the cuts were set to expire on Dec. 31, 2010.

5. The savings were scheduled to phase in gradually, but in 2003 President Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act, which accelerated the timeline of the earlier cuts and benefits.

6. Citizens for Tax Justice estimated the cuts saved taxpayers $2.5 trillion between 2001 and 2010.

7. Now three years into a severe economic downturn, the Congressional Budget Office estimates the budget deficit was $1.3 trillion in fiscal year 2010 and the national debt neared $14 trillion.

8. If Congress does nothing, tax rates will rise and credits will disappear.

9. The Treasury Department estimates that if all the cuts are kept, taxpayers would save (and the government would lose) $3.7 trillion over the next 10 years.

10. Democrats and Republicans mostly agree on extending the tax cuts for Americans making less than $200,000 ($250,000 for couples filing jointly), but President Obama wants to let the cuts expire for the top wage earners.

    * Read more about the deficit and national debt.
    * See who is donating to your member of Congress.
    * See which industries give the most to Congress.

Time Magazine: Earmarks: Will Congress Tackle Tax Expenditures?

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(Original post)

Monday, Nov. 22, 2010

By Michael Scherer / Washington

Erskine Bowles, a co-chair of President Obama's deficit commission, fully supports recent congressional efforts to stop spending earmarks, also known as pork. But he is also on a mission to raise America's awareness of the other white meat that is much more responsible for bloating the federal budget.

"You all write and give all these guys up there all this credit for getting rid of $16 billion a year in earmarks," Bowles said Friday, referring to Congress, during a bacon-and-egg breakfast with reporters that had been organized by the Christian Science Monitor. "Those are earmarks that are in the spending bills. There are $1.1 trillion in annual earmarks in the tax bills. And you give them a free ride. It's crazy." (See TIME's special report on the rising stars of U.S. politics.)

Earmarks in the tax code are commonly called tax expenditures under federal law, and they include all special exclusions, deductions, exemptions, credits, preferential rates and deferrals that allow people to reduce their taxes. These include all kinds of widely popular programs from which millions of Americans benefit. If you pay a mortgage, you benefit from the mortgage-interest deduction. If you have a child, you benefit from the child tax credit. They also refer to a group of narrowly tailored programs that benefit certain industries or companies — breaks for owners of NASCAR tracks, makers of archery equipment and oil companies, just to name a few.

"There is a whole lot of spending Congress is doing that is not recognized as spending because it is done through the tax code," explains Steven Wamhoff, the legislative director for Citizens for Tax Justice, a liberal group that advocates more responsible budgeting. "There are a lot of situations where members of Congress think if you call something a tax cut that makes it a lot more appealing than calling it spending."

In each case, the tax break is protected by interests as influential as any locality in need of a new bridge to nowhere or a federally funded agricultural history museum. But the politics around tax expenditures historically can be sharply different from the politics that surround earmarked spending.

In recent months, incoming Speaker of the House John Boehner has claimed that Congress should change the way it looks at specialized tax breaks. "We need to take a long and hard look at the undergrowth of deductions, credits and special carve-outs that our tax code has become," Boehner said in a pre-election speech about his priorities. "And yes, we need to acknowledge that what Washington sometimes calls tax cuts are really just poorly disguised spending programs that expand the role of government in the lives of individuals and employers."

Other conservatives, however, are dead set against any reduction in special tax exemptions if the savings from those reductions go to reducing the deficit. Grover Norquist, author of the Taxpayer Protection Pledge, which has been signed by 235 Representatives and 41 Senators from the incoming Congress, has long maintained that unlike with spending earmarks, any money saved by eliminating tax expenditures cannot be used to spend down the deficit. "Then what you would be doing is raising net taxes," explains Ryan Ellis, the tax-policy director for Norquist's organization, Americans for Tax Reform.

A draft proposal by the co-chairs of the Obama deficit commission has targeted tax expenditures for massive cuts by going after everything from the mortgage-interest deduction to depreciation benefits for business. The cuts would be offset, in part, by lowering marginal rates for personal and corporate income tax.

Such lines in the sand are likely to be tested next spring, when Republicans have promised a showdown (and hinted at the possibility of a shutdown) over the need to raise the debt ceiling. Deficit hawks hope that the debate over the ceiling will force some hard choices, including the elimination of many tax expenditures. "Let me tell you, this is going to be beautiful politics, the brutal kind," said former Wyoming Senator Alan Simpson, the other co-chair of the Obama debt commission. "The debt limit, when it comes in April or May, will prove who's a hero and who's a jerk and who's a charlatan."

Washington Informer: Obama Should Reject Bush Tax Breaks for the Wealthy

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(Original post)

Thursday, 18 November 2010

By George E. Curry   

President Obama should set the tone for his next two years by insisting that the Bush tax cuts remain in place temporarily for 98 percent of Americans, but not the top 2 percent who already enjoy a disproportionate share of the benefits.  All signs are pointing to the President caving in to obstinate Republicans in Congress who want to extend the cuts, set to expire at the end of the year, for everyone including the top 2 percent.

President Obama campaigned on a pledge to end the Bush tax cuts for the top 2 percent of taxpayers, defined as an individual earning at least $200,000 a year and couples earning a minimum of $250,000.  But it appears he is on the brink of breaking that promise.  If neither President Obama nor Republicans are willing to take such a modest step of extending the tax breaks only to those who need them the most, they are not serious about wanting to reduce the deficit.

President Obama repeatedly reminds us that he inherited a mess from George W. Bush.  And he is correct.  “If not for the tax cuts enacted during the presidency of George W. Bush that Congress did not pay for, the cost of the wars in Iraq and Afghanistan that were initiated during that period, and the effects of the worst economic slump since the Great Depression (including the cost of steps necessary to combat it), we would not be facing these huge deficits in the near term,” observed the Center on Budget and Policy Priorities, a nonpartisan think tank in Washington, D.C.

In case no one has noticed, Bush has not lived in the White House for the past two years.  And the person who does live there moved in after volunteering to clean up after the Bush circus left town.  This should begin with President Obama stating that unlike Republicans, he will not serve as a mouthpiece for big business and people with big bucks.

“In 2010, when all of the Bush tax cuts are finally phased in, a staggering 52.5 percent of the benefits will go to the richest 5 percent of taxpayers,” noted Citizens for Tax Justice.  According to the Treasury Department, extending the Bush tax cuts to the top 2 percent of taxpayers would cost $678 billion over the next decade.

The federal deficit for fiscal 2009 was $1.4 trillion.  It represents nearly 10 percent of the Gross Domestic Product (GDP), the largest proportion of the economy since World War II.  If nothing is done to curb the deficit, it is expected to remain near $1 trillion a year for the next 10 years. Mounting deficits requires borrowing more money from abroad and continuing to pay interests on those and other loans, leaving less money available to invest in future programs.  Some call it mortgaging the future.

The Republican solution to attacking the deficit, if it can be called that, is to cut non-security discretionary programs.  A plan outlined by incoming House Speaker John Boehner would reduce such spending by $101 billion or 21 percent.  Exempt from the cuts would be spending for defense, homeland security, military, and veteran’s appropriations.

There is no way to come close to making a serious dent in the deficit without touching many programs considered untouchable.  According to the Congressional Budget Office, Social Security is projected to account for 21 percent of the federal budget, Defense 16 percent, Medicare 14 percent, Medicaid 10 percent, net interest 14 percent and other spending 22 percent.

Slashing budgets could have a devastating impact on many programs, including education.  A 21 percent decrease in K-12 education funding, for example, would mean a loss of more than $8.7 billion.  The Center on Budget and Policy Priorities said such a cut could mean reducing housing programs by $6.9 billion, children and family services by nearly $2.2 billion and the nutritional program for at-risk pregnant women, infants and children (WIC) by $1.6 billion.

Federal aid to cities and states would compound deep cuts already made at that level.  According to the Center on Budget and Policy Priorities, 46 states have balanced their budgets during this fiscal crisis by cutting funds to education, health and other programs for the needy.

President Obama should just say no to the Party of No.

George E. Curry is the former editor-in-chief of Emerge magazine and the NNPA News Service.  He can reached at www.georgecurry.com or follow him on Twitter at:  www.twitter.com/currygeorge

Shanker Blog: Evasive Maneuvers

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Evasive Maneuvers

Posted November 10, 2010

Original Post

In a previous post, I showed how the majority of funding for education and other public services comes from state and local tax revenue, and that low-income families pay a disproportionate share of these taxes (as a percentage of income). 

One of the reasons why this is the case is that many corporations – especially the largest and most profitable – have managed to avoid paying most of the state taxes that they owe (45 states have some form of business tax).  State corporate income taxes (CIT) are levied on business profits – so, for the most part, it’s only the highest-income individuals who are liable (through the businesses they own) for corporate taxes (the top 10 percent wealthiest individuals own about 90 percent of all corporate stock).

A 2005 joint report by Citizens for Tax Justice and the Institute on Taxation and Economic Policy took a close look at state CIT payments by 252 Fortune 500 companies between 2001 and 2003. Their findings were astounding. These corporations were able to shelter roughly two-thirds of their actual profits from state taxation, while 71 of them paid not a penny in state taxes during at least one year between 2001 and 2003.  During the years they paid no taxes, these 71 companies reported $86 billion in profits to their shareholders.

In other words, 71 Fortune 500 companies paid zero state corporate income taxes, while as a whole, the 252 paid tax on only about one-third of their actual profits. For example, in 2001, IBM made roughly $5.6 billion in profits, but paid no corporate income tax to any state. 

As a consequence of this evasion, the proportion of state revenue coming from corporate profits has decreased steadily over the past 30 years, leaving the rest of us to shoulder a greater share of the burden for education and other vital services.

The simple graph below presents the percentage of total state revenue coming from CIT between 1977 and 2008. The data come from the U.S. Census Bureau.

The proportion of states’ general revenue from CIT was basically cut in half during this period (there is a similar decline when tax revenues are measured as a share of GDP). The decrease in the graph is about 2.5 percentage points, and that is equivalent to roughly $40 billion in state revenue today, representing almost one-third of the projected budget shortfalls for FY2011 (note, however, that this is only a very rough illustrative estimate, especially since corporate profits have suffered due to the recession).

So how did state corporate income tax collections erode at the same time that corporate profits were soaring? The disturbing answer is that many companies avoided taxation without breaking a single law. 

There are many tax avoidance strategies, and the details are complex. In some cases, states invite it by aggressively offering tax breaks in exchange for the “economic development” that results from corporations moving in (and public disclosure of these subsidies is often lacking).

In most cases, though, corporations use clever accounting tricks, like declaring all their profits in fake “shadow companies” that are set up in states that have no corporate taxes (e.g., Delaware), or, similarly, in other nations that serve as corporate tax havens (thankfully, some states have started closing these loopholes, most notably through the use of combined reporting, which requires all profits made in a state to be declared in that state).

Now, some people argue that states are justified in permitting these loopholes – or in providing direct tax incentives for businesses to set up shop in their states – since taxpayers receive other “economic development” benefits, such as higher employment.  You might also hear the argument that some CIT is indirectly paid by everyone, even low-income families, since businesses just pass it down to consumers through higher prices.

But it is difficult to justify the fact that this corporate tax avoidance, regardless of its “benefits,” has the end result of saddling everyone else – especially the lowest-income families – with a larger share of the burden of paying for vital public services, such as education (which is almost entirely funded by states and localities). Some corporate income taxes may be indirectly paid by everyone, but so are the consequences of its erosion (rather directly at that).

It also seems to me that no argument can account for the fact that dozens of the largest corporations in the world—some larger than the GDPs of entire nations—have managed to avoid paying any state income taxes at all. And those that do pay taxes often pay only a fraction of what they owe.

So, again: the next time you hear about layoffs of teachers or other public servants, or about massive program cuts, or how education or other public spending is “unsustainable,” go take a quick look at the list of corporations that paid no taxes between 2001 and 2003. You will find some of the largest and most profitable institutions on Earth. Then tell me if there isn’t a better way to fund our public services?

Reuters: Republicans eye reviving tax cut debate in 2012

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Republicans eye reviving tax cut debate in 2012

Tue, Nov 9 2010

By Kim Dixon

Original Post

WASHINGTON (Reuters) - Republicans, emboldened by their big mid-term elections wins, are mulling backing a temporary extension of Bush-era tax cuts, which would tee up the issue to use against President Barack Obama in 2012 contests.

As lawmakers prepare to return to Washington next week for a post-election session, Republicans are considering backing a two-year extension of George W. Bush-era tax cuts, lawmakers and analysts say, which would postpone their bid to make permanent all of the rate cuts, including for wealthy that Obama and most other Democrats oppose.

Such a deal would ensure the debate will be revived in 2012 when Obama will be up for re-election and the parties struggling again for control of Congress.

"It's a debate they (Republicans) would like to have." said John Harrington, a former Republican staffer on the tax-writing House of Representatives Ways and Means Committee. "There is a view that Republicans did well in the recent tax debate."

Republicans have a stronger hand after winning control of the House and cutting into the Democrat's Senate majority in last week's midterm elections.

Democrats tried to permanently extend tax cuts for lower and middle income groups enacted under Bush, a Republican, before last week's elections. But they deadlocked when some of their members broke ranks and joined Republicans in demanding that cuts for the wealthy also be extended.

Most individual income tax rates are set to rise in January unless Congress acts, which lawmakers from both parties agree would be hazardous in the current weak economy.

The White House last week said it was open to talks with Republicans to extend all of the lower tax rates, but the White House said any extensions for the wealthy must be temporary.

Before the election, Obama opposed extending cuts for the rich at all, arguing that would create an unacceptable increase in the $1.3 trillion budget deficit.

Most Democrats want to separate the issue of tax cuts for individuals making less than $200,000 and families making less than $250,000 from cuts for those with higher incomes, thinking it will be tougher for Republicans to defend lower rates for the rich next time they expire.

Top Republicans have not signaled compromise.

"One of the ideas that we've seen floated is decoupling - that is we would extend the tax rate as they are for those making under two hundred thousand permanently ... and somehow do it less of a time for those higher earners," Eric Cantor, No. 2 in the House Republican leadership, said on Monday. "That's exactly what we don't need right now," he said.

"Republicans seem to be digging in on a temporary extension of all the tax rates," Capital Alpha analyst Jim Lucier said.

Republicans see benefit in waiting until they control the House in January and have more leverage, analysts said.

WHO WILL BLINK FIRST

House Speaker Nancy Pelosi has control during the post-election "lame-duck" session and could force a vote just on renewing lower rates for the middle class - daring Republicans to vote against them.

"She has been almost defiant in her reading of election results and her insistence that she protect accomplishments of Democrats," said Sean West, a fiscal policy analyst for the Eurasia Group advisors. "Pelosi doesn't cave on this stuff."

But West doubts such a bill would pass the Senate, where conservative Democrats have sided with Republicans.

Liberals fear Republican boldness in the who-will-blink-first game will mean all taxes go up in January.

"Sometimes when there is a game of chicken on taxes, Republicans have shown us they aren't afraid of real world consequences," like having everyone's taxes go up, even temporarily, said Steve Wamhoff, legislative director for the consumer group Citizens for Tax Justice.

While Obama has signaled some room for compromise, it is unclear what the mood of congressional Democrats, scores of whom lost their seats last week, will be when they return to Washington on November 15.

One compromise being considered by Democrats is another way to separate "the middle class" from the "rich." The idea would be a new category for rates for those earning above $500,000 or $1 million, for example.

"It's hard to tell what these disaffected members are going to feel like when they get back," said a senior House Democratic aide.

The issue will be a hot topic when they return next week, and a focus of a dinner Obama will hold with Republicans leaders on November 18.

(Additional reporting by Thomas Ferraro; Editing by Vicki Allen)

The Christian Science Monitor: Death tax showdown at the OK Corral

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Death tax showdown at the OK Corral

Original Post

Ranchers want to die before year end to avoid the estate tax, claims Rep. Lummis. Whether or not the story is true, the underpinnings are myths: the family ranch and a looming 'death tax.

By Howard Gleckman

November 3, 2010 at 8:05 am EDT

Who needs death panels? Representative Cynthia Lummis (R-WY) claims that ranchers and farmers in her state are planning on ending dialysis or other life-extending medical treatment before the end of the year so they can avoid paying the estate tax. This may cost the Treasury some revenue, but there is a silver lining for deficit hawks. After all, it will save Medicare a bundle.

Many Republicans opposed a provision in an early version of the health bill that would have let Medicare pay physicians to talk to their patients about end-of-life choices. But it seems Wyoming ranchers need more than medical advice. They really need to talk to a good lawyer. If they did, nearly all of these suddenly suicidal cow punchers would realize that pulling the plug is, from a tax planning point of view at least, completely nuts.

To understand why, remember the current state of play over the estate tax. Thanks to the 2001 tax law, estates of all people who die in 2010 are tax-free. But that 2001 law expires on Dec. 31. If Congress does not act, starting on Jan. 1 estates of $1 million or more will be subject to a tax of up to 55 percent.

Thus, we have a specter of a tough and independent Clint Eastwood-like cowboy who chooses to head prematurely for that great roundup in the sky, all to save his hard-earned herd from some Internal Revenue Service bureaucrat hovering over his hospital bed, awaiting that final breath. It brings a tear to the eye.

Except it is all a carefully crafted myth.

Start with the cowboy. Some Wyoming ranchers have been on their land for generations—property stolen fair and square from Native Americans in the 19th century. Others are grazing their herds on federal land while paying cut-rate fees for the privilege. And still others are LA doctors, lawyers, and actors who spend a few weekends a year on their ranchettes, where they enjoy both spectacular scenery and generous income tax subsidies for grazing a few head of someone else’s cattle.

The second myth is that their heirs will lose their ranches to the taxman. To start, there is no serious discussion in Congress of allowing the estate tax to return to 2000 levels. Even President Obama and the congressional Democratic leadership would at least return the law to where it was in 2009, exempting the first $3.5 million ($7 million for couples) from tax and setting a rate of no more than 45 percent. In addition, family farmers and small businesses get an extra $1 million exemption ($2 million for couples) for a total exemption of $9 million. And in the rare case where farm estates do owe tax, they can defer the debt for up to five years and extend payments for a decade after that.

So how many of these yeoman ranchers would lose their land if we returned to the 2009 law? Roughly none. The Tax Policy Center estimates that in the entire United States, about 110 small farm and small business estates would owe any estate tax in 2011. Citizens for Tax Justice estimated that under the 2004 rules (when the exemption was only $1.5 million) only 62 Wyoming estates of any kind owed tax. And not all of them, of course, had farm assets.

Finally, a rancher who chooses to die this year may end up costing his heirs money. Because 2010 is also a year when heirs lose the benefit of stepped-up basis, if they eventually sell the ranch they will end up paying capital gains tax based on its value when it was first acquired rather than on what it was worth at the time of death. While this provision applies to all assets, ranches, where the tax basis is usually quite low, are exactly the sort of property that could get hit.

Over-the-top hyperbole is all part of the political game, of course. But if Rep. Lummis is aware of constituents who are planning on killing themselves to avoid the estate tax, she has something of a responsibility to let them know the difference between reality and myth.

Wonk Room: Indiana's GOP Governor Pushes Regressive Property Tax Cap Amendment

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Indiana’s GOP Governor Pushes Regressive Property Tax Cap Amendment

Original Post

Gov. Mitch Daniels (R-IN)

On Election Day, voters in Indiana will cast their ballots for or against enshrining a property tax cap in their state constitution. The cap — which would hold property tax increases to one percent for residential homes, two percent for rental properties and farms, and three percent for businesses — is already being implemented by the legislature, but the amendment would make it much harder to alter the cap down the road.

As the Wall Street Journal reported today, the amendment is receiving the enthusiastic support of Indiana’s governor, Mitch Daniels (R):

Gov. Mitch Daniels, a Republican considered a potential presidential candidate in 2012, has been campaigning in favor of the amendment. Otherwise, he said in an interview, it will be too tempting for lawmakers to raise tax rates. “Human nature and the bureaucratic instinct for self-preservation very rarely reform, absent some pressure to do so,” Mr. Daniels said.

Daniels has been relatively reasonable when it comes to taxation recently, acknowledging in an interview with Newsweek that tax increases may have to be part of the nation’s budget solutions (which they do). But back in his home state, he is supporting a regressive tax cap that is going to do a lot for wealthy homeowners, but not much for anyone else.

The amendment is being sold as one that will benefit all Indiana residents. But as the Indiana Institute for Working Families pointed out, that’s not true:

Indiana homeowners benefit from a variety of generous property tax breaks that disqualify many Hoosiers from being eligible for the tax caps, including a $45,000 homestead deduction and 35% deduction on home values up to $645,000. Those fortunate Hoosiers with homes worth more than $645,000 also receive an additional 25% deduction on the remaining value of their home. These deductions dramatically reduce the property taxes paid by most Hoosiers, and do so in a way that makes the most expensive homes more likely to be eligible for the caps. For example, after factoring in the benefit of the homestead deductions and applying a fairly typical 2% tax rate, a home valued at $125,200 would receive no benefit from the caps, while a home worth $1 million would receive over $3,000 in benefits!

Plus, as Citizens for Tax Justice pointed out, “since some of the cost of these recent changes to the property tax was offset by a regressive sales tax increase, renters and lower-income homeowners can expect to pay more in taxes overall.”

In addition to bestowing an unwarranted tax break on the wealthy, the caps will force already cash-strapped municipalities to make further cuts. For instance, “mayors and city-council members across the state also have blamed the caps for forcing them to cut library hours and bus routes, and to lay off police officers and firefighters.” A report from Indiana’s nonpartisan Legislative Services Agency said “cities and towns lost almost 10% of their potential total tax levies this year because of the caps.”

The Birmingham News: Number of Alabama Families that Had to Pay Federal Estate Tax Drops, But That May Change

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(See original post)

Sunday, October 31, 2010

Mary Orndorff

U.S. Rep. Spencer, chairman of the House Subcommittee on Financial Institutions and Consumer Credit, and the rest of the Republicans -- and one Democrat -- in the Alabama delegation have co-sponsored bills to permanently repeal the estate tax.

WASHINGTON -- The number of Alabama families that have had to pay federal estate taxes has dropped steadily this decade, from 1.2 percent of deaths in 2000 to .2 percent last year, according to IRS data.

In 2009, only 108 estates in Alabama owed the tax after a death moved the property and assets into someone else's hands through inheritance. That was down from 530 in 2000.

The decline is by design and is happening across the country. Congress in 2001 began the gradual repeal of the estate tax, and this year it is completely phased out. But that repeal expires at the end of the year. Whether the estate tax comes back in 2011 -- and at what rate -- will be debated on Capitol Hill in the coming weeks.

If Congress does nothing, the estate tax will return next year for estates worth more than $1 million per spouse, and they will be taxed at a rate of 55 percent. At that dollar amount, the tax would affect far more families than it has in recent years, and both parties in Congress say they do not want that to happen.

At the other extreme, if Republicans retake the majority in the U.S. House after next week's elections, their agenda calls for a permanent repeal of the estate tax.

U.S. Rep. Spencer Bachus, R-Vestavia Hills, and every Republican in Alabama's congressional delegation has co-sponsored legislation to permanently repeal the estate tax. So has Rep. Bobby Bright, D-Montgomery. But previous attempts at permanent repeal have failed, even when the GOP controlled the White House.

President Barack Obama has instead proposed allowing the tax to return for estates worth more than $3.5 million per spouse, or a total of $7 million. The rate would be 45 percent, which is the 2009 rate.

In 2009, according to the IRS statistics, 272 estates in Alabama were subject to about $1.6 billion in estate taxes. But after deductions for spouses and charitable bequests, and after expenses and debts are paid, the net estate tax liability in Alabama last year was $178 million on 108 estates.

Nationally, about 33,500 estates worth a total of $194 billion were large enough to trigger the estate tax in 2009. But after deductions, about 14,700 of them paid $20.6 billion in net estate taxes, according to the IRS.

The number of estates subject to the estate tax is smaller than most people realize, said Steve Wamhoff, legislative director of the Citizens for Tax Justice, a Washington nonprofit that favors a return of the tax as a way to generate revenue for government services from the wealthiest in America.

"It is one of the most misunderstood things in the tax system and that's really saying something," Wamhoff said.

A third proposal, endorsed by Citizens for Tax Justice, would keep the $3.5 million per spouse exemption but increase the tax rates for the largest estates. For example, estates from $3.5 million to $10 million would be taxed at 45 percent; $10 million to $50 million at 50 percent; and over $50 million would be 55 percent. Known as the Responsible Estate Tax Act, the bill is pending in the U.S. Senate.

Both U.S. Sens. Richard Shelby and Jeff Sessions have voted in the past to permanently repeal the estate tax.

"We hope that Congress does deal with this sooner rather than later. They need to do something before the end of the year," Wamhoff said.

Join the conversation by clicking to comment or e-mail Orndorff at morndorff@bhamnews.com.

Tax Justice Network: CTJ responds to Tax Foundation attack in US

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Friday, October 29, 2010

CTJ responds to Tax Foundation attack in US

Original Post

For those with an interest in the unreasonable claims of tax lobbyists in the U.S., this latest report from Citizens for Tax Justice, in its usual wry style, neatly skewers some of those arguments that have been put forward. This is somewhat involved, so probably only for connoisseurs of U.S. tax details. Click here.

It is also worth reading their recent How to Enact (and Maintain) Tax Reform.

The Hill: Report: Few hit by 2008 estate tax

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Report: Few hit by 2008 estate tax

By Jay Heflin - 10/22/10 03:30 PM ET

Original Post


Using data from the IRS, a report by Citizens for Tax Justice (CTJ) found that 0.6 percent of deaths that occurred in 2008 were hit by the estate tax. 

Under President Obama's proposal, which extends the 2009 law, fewer taxpayers would be subjected to the tax, the report found. 

Estates in 2008 worth more than $2 million (per spouse) were hit with a 45 percent tax. 

In 2009, the exemption level jumped to $3.5 million per spouse while the tax rate remained constant. Because of the increase in the exemption level, CTJ concludes that Congress adopted Obama's proposal so fewer estates would be subjected to the estate tax.

A copy of the report can be found at: www.ctj.org/pdf/estatetax2010.pdf.

California Progress Report: Meg Whitman's Projected Capital Gains Tax Windfall

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Meg Whitman’s Projected Capital Gains Tax Windfall

Original Post

10/21/2010 - 12:17pm

By Lenny Goldberg
California Tax Reform Association

California appropriately treats all income the same for tax purposes, whether earned by wages, salaries, interest, dividends, rent or capital gains. Meg Whitman would continue to tax all income except capital gains. Her proposal to eliminate the tax on capital gains says, in effect, that your income is taxed and mine is not.

By not taxing her income and those of other wealthy investors, of course, the state loses between $4 and $5 billion yearly. 82% of that would go to the top 1% of taxpayers, and 95% to the top 5%, according to Citizens for Tax Justice.

We estimated, using proxies for her wealth and her investments, that she would save between $8 million and $40 million by eliminating the tax on her capital income over four years. That’s a wide range but her failure to release her tax returns means that we can only estimate the savings, of which $8 million is a very low end. That report is available here.

Her response: Why would I spend $140 million running for Governor to save $15 million? Good question.

And the answer lies directly in her form 700, which details her investments. Bain Capital Management, run by Mitt Romney. Goldman Sachs. Carlyle Group. Blackstone. Hedge funds, private equity firms, venture capital, partnerships—all seeking capital gains.

So, no, it’s not just for her. It’s for the entire private equity industry, which buys and sells companies and seeks tax advantage every where it goes. Remember the hedge fund fight in Congress? The poor hedge fund managers wanted to count their income as capital gains, to be taxed at a lower rate. Eliminating tax on capital gains as ordinary income is just another tax break the private equity and hedge fund industry is seeking through their champion, Meg Whitman.

These investments have nothing to do with California—many of her partnerships are global investments. That’s what investors do, they invest globally—but to claim that this leads to jobs in California has no analytical or empirical basis whatsoever.

Does it drive millionaires and entrepreneurs from the state to pay state tax on their global gains? California has more of the Forbes 400 than no-tax Texas, Florida and Nevada combined, with smaller population. Millionaires grow in California with the economy, and take advantage of our entrepreneurial climate. 

Should a discussion take place about the best ways to improve California’s economy? Absolutely. But rewarding global investment by very wealthy Californians, at a cost of billions to the budget, is not a credible part of that important discussion.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Lenny Goldberg is Executive Director of The California Tax Reform Association (CTRA) is a small non-profit organization based in Sacramento, California. CTRA has advocated for many years for fair taxes in the context of a healthy public sector.

Inside U.S. Trade: U.S.-Panama Business Group Gears Up For Washington FTA Lobbying Push

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(See original post)

October 21, 2010

A U.S.-Panama business group is planning a new push to lobby the Obama administration and Congress to secure the approval of the long-stalled U.S.-Panama free trade agreement, according to a Panamanian private-sector source.

The U.S.-Panama Business Council will hold meetings in Washington on Nov. 18-19 with U.S. lawmakers, State Department officials and members of the U.S. private sector, this source said. He did not provide further information on what the group planned to discuss during these meetings.

Panamanian sources said the primary obstacle to the passage of the U.S.-Panama FTA remains the demand by the U.S. that Panama sign a tax information exchange agreement (TIEA) with the U.S.

Panamanian Vice President Juan Carlos Varela and U.S. Trade Representative Ron Kirk discussed the tax transparency issue during a Sept. 30 meeting in Washington, according to USTR spokeswoman Nkenge Harmon.

The two officials also discussed U.S. concerns with "certain aspects of Panama's labor regime," Harmon said in an e-mailed statement.

One Panamanian source said during this meeting the U.S. sought to entice Panama into signing a TIEA by saying that in exchange it would allow a tax deduction for U.S. business travelers who visit Panama for conventions, seminars or other meetings.

Such a deduction is currently available for domestic travel, as well as travel to Canada, Mexico, Costa Rica, Guyana, Honduras and some Caribbean destinations, according to Rebecca Wilkins, senior counsel for federal tax policy at Citizens for Tax Justice. However, this deduction is not available if such meetings are held on cruise ships, Wilkins said.

Such an agreement would require the Panamanian government to hand over information on Panamanian bank accounts used by U.S. persons upon request by the U.S. government, which goes against current bank secrecy laws in Panama, they said.

Panama is currently listed on the Organization for Economic Co-operation and Development's "gray list" because of its status as a tax haven. In order to secure removal from the list, a country needs to implement 12 TIEAs or Double Taxation Treaties (DTTs) with full tax information exchange provisions (Inside U.S. Trade, June 11).

As of Oct. 20, Panama had signed nine such DTTs, according to a press release from the office of Panamanian President Ricardo Martinelli. Panamanian sources said three additional DTTs have already been negotiated and their signing is expected before the end of the year.

According to one Panamanian source who opposes the signing of a TIEA with the U.S., a recently passed U.S. law already would require some Panamanian banks to report information automatically on U.S. account holders.

The Hiring Incentives to Restore Employment (HIRE) Act, which President Obama signed on March 18 and is slated to go into effect on Jan. 1, 2013, includes provisions that will require foreign banks that do business with U.S. banks to report information on U.S. account holders in one of two ways, according to Wilkins.

The first option is for these banks to submit a Form 1099 to the Internal Revenue Service that would report the income earned on the U.S. account. The second option is for these banks to fulfill more stringent reporting requirements contained in the HIRE Act, under which the banks would not have to report the total income on the account but would have to provide information on the maximum amount in the account and the aggregate amount of transactions on the account.

In both cases, the banks would have to report the name, address and taxpayer identification number of the U.S. account holder.

Asked if these reporting requirements would make information exchange provisions in the TIEA redundant, Wilkins said this would not be the case. While the HIRE Act provisions would be helpful because they could aid the U.S. in identifying tax evaders by name, the TIEA provisions are also necessary because they allow U.S. authorities to request Panamanian authorities hand over any information about U.S. account holders upon request, Wilkins said.

One Panamanian source said the government had recently implemented a change to its law that would allow Panama's tax agency to gather information on account holders if such information is requested by a foreign government under the DTTs Panama is signing with other countries. He explained that this change was necessary in order to implement the tax information exchange provisions chapters of these DTTs.

TIEAs spell out in great detail the procedure for exchanging tax information between two governments. For example, the TIEA between the U.S. and the Cayman Islands consists of 13 detailed articles in information exchange.

By contrast, the OECD Model Tax Convention Article 26 Panama wants in a DTT with the U.S. is comprised only of five sections outlining basic commitments (Inside U.S. Trade, June 11).

Panamanian sources this week acknowledged it was unlikely Congress would approve the FTA during a post-election lame duck session due to lack of sufficient time. However, one of these sources said the chances for passage would be better next year based on the assumption that the incoming Congress, which is polls indicate will have more Republican members, will be more in favor of free trade.

This source also said he thought Congress would approve the Panama FTA before the U.S.-Korea FTA despite the fact that President Obama has set a timeline for resolving outstanding issues with the Korea FTA by mid-November, and has said he would look to submit the South Korea agreement to Congress in the months following that.

This source based this impression on the fact that the U.S.-Panama FTA is less controversial than the Korea FTA because Panamanian producers do not compete with U.S. producers in any major industries, and because the Panama agreement was signed before the South Korea agreement.

Tax.com: Measuring the Public Benefits From Taxes

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(See original post)

David Cay Johnston

Oct. 20, 2010

Who benefits from the taxes we pay seldom gets examined, but two reports on the redistributive effects of taxes and transfers shed some revealing light on this issue. One report deals with the United States and the other with Canada.

In America, taxes and transfers have a significant impact on income inequality, which has been rising since 1980, according to a report by Thomas L. Hungerford of the Congressional Research Service. You can see the report here.

Hungerford warns that new tax policies, aimed at bringing what we levy in line with what we spend, need to be evaluated in terms of the redistributive effects to avoid unintended consequences.

But for taxes and transfers, America would be the 19th most unequal nation in the world, if you apply Hungerford's data to the annual CIA World Fact Book report on income inequality.

Inequality, keep in mind, is the result of many factors, including how government rules shape economic outcomes. Policies that artificially raise prices, for example, or that favor some with quality education affect how much money individuals can save, make in profits, and earn in the labor market.

Hungerford's report uses the standard Gini index to examine equality. If everyone had equal income, the Gini number would be zero, while if one person had all the income, it would be 100, at least for the few minutes before hunger prompted us all to revolt.

Hungerford's report shows that before taxes and transfers, American household income has a Gini figure of 51. That would put us in the same economic equality neighborhood as El Salvador, Papua New Guinea, Zambia, and Niger -- not exactly the kinds of countries we imagine being akin to American values or economic success.

After taking into account taxes and transfers, like Social Security, the Gini index drops to 43. That puts us in the hardly more desirable neighborhood of Nicaragua, Cambodia, Kenya, Thailand, Russia, and Senegal, all with Gini indexes from 43 down to 41.

The CIA, by the way, puts the United States Gini at 45, slightly higher than Hungerford's analysis for Congress. (For the CIA report, see https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html.)

And what of those countries most like America in terms of culture, economics, and wealth? What of those countries we think of as modern industrial societies, the ones we compete with in the global economy? Japan comes in at 38. Much more equal are Canada, Spain, Italy, and the European Union as a whole, which are all around 31 or 32. Germany is at 27, while we find Norway, Sweden, and Denmark between 23 and 25.

Hungerford goes on to detail how nine tax law provisions have redistributive effects, five of them decreasing inequality and four of them increasing it.

In order of significance, the progressive effects come from the child tax credit, the earned income tax credit, the exclusion of all or some Social Security income from taxable income, the alternative minimum tax, and the phaseout of personal exemptions and itemized deductions for higher-income taxpayers.

The regressive results come from reduced rates on capital gains, itemized deductions, reduced tax rates enacted during the Bush administration, and tax-exempt interest on municipal bonds.

Amazingly, the four regressive items are significantly larger than the progressive ones. In fact, they are 43 percent larger.

Hungerford's analysis also shows that transfers have a greater redistributive effect than taxes.

This brings us to the Canadian study, "Canada's Quiet Bargain: The Benefits of Public Spending," which asks the audacious question, "Are taxes saving you money?" (For the Canadian report, see http://www.growinggap.ca/files/Benefits%20From%20Public%20Spending.pdf.)

The authors of the study, which was based on Statistics Canada's data and simulation models, say that it "adds a dimension that has been missing to the public debate over taxes and public spending in Canada. It weighs the benefits of public services provided by federal, provincial, and municipal governments against the benefits of recent tax cuts."

That issue is also largely missing from American debates -- what are the losses in public benefits because of tax cuts, and how do the benefits of public spending stack up against the benefits of reduced taxes?

The study comes from the Canadian Centre for Policy Alternatives in Toronto and is designed to build public support for government spending and weaken support for tax cuts, which is not surprising given that public employee and other unions are behind it.

Authors Hugh Mackenzie, a union economist, and Richard Shillington, a statistician, assert, "Tax cuts implemented by federal and provincial governments over the past 15 years have reduced the living standards of the majority of Canadians. The majority of Canadians would be better off if their governments had invested in improving and expanding local public services instead of cutting taxes."

Mackenzie said, "It's amazing how often you see 'analyses' of the tax system from economists that talk about every purpose and potential impact of the tax system except the most important one -- raising money to pay for public services."

He is right. But what I also found fascinating, from my own reanalysis of the study data for the chart accompanying this column, is that except for those making less than C $30,000 -- the poor and the near poor -- the distribution of benefits per person comes remarkably close to what people would get with zero redistribution.

At C $40,000 to C $50,000, government benefits equal 95 percent of what this group would get with a 1:1 distribution ratio, as shown by the line marked "Ratio: Share of Benefits to Share of Population." Just below this, at C $30,000 to C $40,000, benefits are 105 percent of what that group would get based only on its share of the Canadian population.

The top 3 percent, who make C $200,000 or more, get 88 percent of the benefits they could expect with no redistributive effects.

The fine details of the report show that healthcare, which Canada provides through a universal one-payer system that frees businesses from this burden, declines as a benefit with income.

The greatest benefit goes to those making C $10,000 to C $20,000, who on average receive a health benefit worth $5,364 each. But when you consider that 23 percent of those in this income group are retirees, the number does not seem out of line.

Indeed, this income group gets 1.82 times the benefits that it would under a formula that had no redistributive effects. Why such a large figure? It's the result of the costs of old age.

Canada, like the United States, has a national government retirement income system. It is more generous than the American Social Security system. Combined with provincial plans, government old-age retirement checks provide two-thirds of the income of retirees.

Of the 2.2 million Canadians in this C $10,000 to C $20,000 income category, the study shows that 23 percent are senior citizens. So a half-million Canadians, who for decades paid taxes so that others could have a guaranteed income in their old age, and who made larger incomes when they were working, are now getting paid back. On average, income transfers to those in this income group are C $12,484, more than twice the overall average of just under C $6,000 per person.

Add in the somewhat higher cost of healthcare for this group with its high concentration of older Canadians, and you explain most of the redistribution effect.

But is this redistribution the way politicians talk about it in the United States? Or is this a timing transfer, rather than an income transfer?

Societies by their nature engage in all sorts of transfers based on timing. Children get free educations, with adults paying taxes so that the next generation can create economic activity in the future. This is, in effect, an investment of some of today's resources in the future. This investment pays a societal dividend as children mature and go to work, the degree of rigor introduced into the gray matter between their ears playing a major role in their ability to earn and, thus, the government's ability to tax so that the next generation of children can be educated.

On entering life, people get subsidies, and they get the same on the way out, but in between they finance benefits for those who come before and after. It's the cycle of taxes and benefits.

Look closely at the chart and you will also notice that in Canada, like the United States, it is the affluent who get hit harder than the rich. Those Canadians making C $100,000 to C $120,000 get back in government benefits just 81 percent of what they would receive under a nonredistributive model -- much less than the richest Canadians, who get back 88 percent.

Looked at another way, the bottom line in the chart shows that the poorest Canadians get by far the greatest benefit from government. Their benefits equal 642 percent of their own incomes. This should not be surprising.

The poorest Canadians are largely disabled, sick, or otherwise unproductive in the measurements used in modern cash economies. We do not expect the few people in iron lungs to make a living, so taxes sustain them, and their benefits vastly exceed any income they earn. That kind of support is very costly, but what is the alternative?

We need solid, detailed, and competing analyses of how the American tax system produces benefits and distributes them. What we have now is piecemeal and freighted with ideology.

We have reports on this or that specific benefit or cost. We know how much military spending, for example, contributes to incomes in each state, county, and, most significantly, congressional district. We know how much is paid in subsidies to farmers, including those with Park Avenue addresses. We know how much the George W. Bush, Bill Clinton, and Ronald Reagan tax cuts saved the richest Americans, but too little about what each cost so we can weigh both sides.

A detailed, systematic examination of benefits that matches what the Canadian study did would be a good start. So would understanding how the American tax system, seen as a whole, results in what is pretty much a flat tax, the latest evidence for which is in a report by Citizens for Tax Justice. (For the report, see: http://www.ctj.org/pdf/taxday2009.pdf.)

That report shows that the top 1 percent made 22.2 percent of all reported income and paid 23 percent of all taxes, hardly an unfair burden, especially because their average income was more than $1.4 million last year. At the other end, the poorest 60 million Americans made 3.2 percent of all income and paid 2 percent of all taxes, according to the report's economic model.

America needs research that goes much deeper than the Canadian study. We need to look beyond transfers alone, as the Canadian study did, and to examine them in the context of time so that we can measure what are really investments and what are giveaways. That research would add enormously to the quality of our debate on the costs and burdens of government.


Distribution of Public Benefits in Canada
Source: "Canada's Quiet Bargain: The Benefits of Public Spending,"
 Canadian Centre for Policy Alternatives, available at
 http://www.growinggap.ca/node/170.


It would also help us recognize the costs of tax cuts and not just the immediate benefits to those who receive them. It would help to know whether a dollar saved by the richest Americans through a tax cut benefits society or costs us several dollars in lost productivity because of inadequate education of the young, as well as inadequate infrastructure to move goods and services and maintain public health.
And what of the effect of tax cuts, and the design of the tax system, on crime?

Is a 10 percent tax cut worth the price if it results in a 1 percent increase in murders? Would you trade an extra $50 a week in your pocket after taxes for a 1 in 50,000 chance that a criminal will shoot your spouse or child or you? How about one in a thousand -- or a million? What is the tax price point?

With more information, we would determine what role, if any, taxes play in these facts:

Canada's murder rate is one-third that of America's.
Canada's homeownership rate is virtually the same as America's even though mortgage interest is not deductible in Canada.
Canada has not had to bail out its banks or investment houses.
Canadian business owners do not have to divert any time from making a profit to dealing with healthcare for themselves and their workers, giving them a competitive edge.

Could a redesign of our tax system to encourage more investment and more labor income lower crime rates, reduce drunk driving and other social pathologies, and make us a more productive and healthier society?
We cannot begin to answer these questions until we have information that enables us to take a comprehensive look at tax policy that goes beyond the burden of taxes to understand public benefits across income classes and across time.

 

Daily Kos: Corporate Looting of America Redux: The "Repatriation" Scam

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Jon Tasini

Tue Oct 19, 2010

  The raid on our country's treasury has been underway for 30 years (and more). The corporate leaders have successfully drained our common wealth, shifting money away from the community and, instead, diverting it into the hands of a few. And now the din is growing for another robbery of the people to the tune of tens of billions of dollars.
 
  It's called "repatriation" of profits. It goes something like this: "we (meaning, big corporations) made a whole bunch of money overseas and we've parked it over there because we didn't want to pay our fair share of taxes. But, out of the goodness of our hearts, if you give us a tax break, then, we will bring the money back to help all our poor citizens". Instead of paying the 35 percent corporate tax rate, these corporate evaders want to pay 5.25 percent--which is almost free money.

  The Financial Times reports today that the campaign is gathering steam:

US multinational companies are clamouring for a tax holiday to repatriate billions of dollars "trapped" overseas but are being rebuffed by Barack Obama’s administration.

JPMorgan research estimates that 30-40 per cent of the almost $1,000bn in cash held by non-financial S&P 500 companies is in foreign jurisdictions...

"We do have overseas cash and we would be very supportive of a repatriation holiday," said Keith Sherin, chief financial officer of General Electric. "If you think about it, there is a lot of cash trapped overseas. If companies could bring that back at more competitive tax rates, I think it would be good for the US economy."[emphasis added]

  This is a scam. And the Obama Administration should be applauded for, at least for now, opposing the corporate welfare gift.

  It's a scam at so many levels.

  First, courtesy of Citizens for Tax Justice:

Many U.S.-based corporations currently engage in convoluted tax accounting schemes in order to pretend that they make their profits in tax-haven countries—thus avoiding U.S. taxes on those profits. For example, an American corporation might make sure that some asset, say a logo or a patent, is held by its foreign subsidiary in a country with low or no corporation taxes. The American parent company then "pays" an inflated price to the foreign subsidiary for the use of that asset, and tells the IRS that this expense (the payment for the use of the logo or patent or whatever) greatly reduced or wiped out its gross income, leaving it with no taxable income.

Meanwhile, the foreign subsidiary (which actually might only consist of a post office box) is the alleged recipient of all or most of the profits. Thanks to the rule that lets corporations defer federal taxes on their foreign profits, the parent corporation generally gets to defer paying taxes indefinitely.

  Second, cleverly, the corporate lobbyists pushing this idea of free money are trying to use the economic crisis to hold the Congress and the government hostage--an economic crisis caused by some of the very financial firms begging for this taxpayer-sponsored gift. It will be "good for the U.S. economy", they say, because corporations will have a whole lot of cash to then invest in the economy.

  But, they already are sitting on a pile of cash--and it isn't going to create new jobs. In fact, we know already that corporations cut hundreds of thousands of jobs and have no intention of bringing back many of those jobs--they've decided to operate with fewer workers.

   Moreover, there is nothing in the proposals that has any strings attached to any money brought back: They could easily divert the additional cash to shareholder dividends or--I know we would find this shocking because it would never cross the minds of CEOs--to CEO pay and benefits.

  How do we know this? Because we've seen this movie before. CTJ:

Under the amnesty provision enacted as part of the so-called American Jobs Creation Act of 2004, profits were repatriated typically through a dividend made to a U.S. company from its offshore subsidiary, and the U.S. parent company then paid a tax of 5.25 percent on that dividend. About $312 billion of overseas profits were repatriated this way, but this did not have the stimulative effect that lawmakers promised.

Only a small number of companies actually benefitted. Of the estimated 9,700 companies with controlled foreign corporations, only 843 took advantage of the repatriation tax break.

Congress utterly failed to ensure that this select group of companies used their repatriated profits to create jobs. The statute required that the repatriated funds be used for "the reinvestment of such dividend in the United States (other than as payment for executive compensation), including as a source for the funding of worker hiring and training, infrastructure, research and development, capital investments, or the financial stabilization of the corporation for the purposes of job retention or creation."

A 2008 study found that there was no positive correlation between a company’s repatriated earnings and an increase in the permitted uses, but did find a positive correlation between the repatriation and increased repurchases of stock (effectively putting the money in the hands of the shareholders) which was NOT a permitted use under the bill.[emphasis added]

 
  A better approach comes from Business and Investors Against Tax Haven Abuse:

End the tax dodging that occurs when a business incorporates in a tax haven, pretending to be a foreign corporation for U.S. tax purposes while, in reality, being managed and controlled from the United States, and taking advantage of all the commercial, educational and other infrastructure financed by U.S. taxpayers.

End financial gimmickry that allows hedge funds to engage in transactions designed for the sole purpose of avoiding taxes on dividends.

Put the "economic substance doctrine," eliminating tax benefits for transactions that have no real business purpose apart from avoiding taxes, in the Internal Revenue Code.

Impose restrictions on foreign jurisdictions, financial institutions or international transactions that are of primary money laundering concern or that impede U.S. tax enforcement.

Increase disclosure of offshore accounts and close foreign trust, equity swap and other loopholes used to avoid or evade taxes.

  Do not let them raid the Treasury again.

 

Vacaville Reporter: Tax Cuts for the Rich Proving Disastrous

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By Doug Ford

10/18/2010

As we approach the expiration date at the end of the year for the worst of the Bush Administration tax cuts for the rich, the misinformation mills are operating at full blast.

An enormous amount of money is being spent to try to convince us that the rich pay more than their share in taxes while we lazy folks down below reap all the benefits. They would have us extend the tax benefits that have produced the greatest redistribution of income and concentration of wealth in our history

But investigative reporter David Cay Johnston provides some facts that tell the real story in "Tax Rates for Top 400 Earners Fall as Income Soars, IRS Data," available at TAX.com. In his chart summarizing IRS data from 1992 to 2007, he shows that in 2001, the 400 highest income Americans had an average income of $158,812,000 on which they paid an effective tax rate of 22.85 percent. In the same year, the average gross income for the bottom 90 percent of Americans was $34,000.

Six years later, in 2007 after the Bush tax cuts, the average income of the top 400 had more than doubled to $356,722,000, but their effective tax rate had been cut to 16.62 percent. In the same six years, the average gross income of the bottom 90 percent had decreased to $33,546. While the lower 90 percent enjoyed a very modest reduction in their income taxes over the period, Social Security, Medicare and unemployment taxes combined, added up to more than their income taxes, so they

paid a much larger proportion of their income to the federal government than did the 400 highest income Americans, who pay only a tiny fraction of their income for these other taxes.

One result of the Bush tax policies was the near collapse of our entire economic system in 2008. To continue the current tax system, that so greatly benefits the ultra-wealthy at the expense of the rest of us, would ensure the breakdown of our economy and could produce the darkest times ever in world history -- even worse than the wars and revolutions of the past century.

Our tax picture in California is similarly hazardous to our economic health. According to Robert S. McIntyre of the Citizens for Tax Justice in a presentation to the California Commission on the 21st Century Economy Regarding Tax Fairness and Economic Growth, the lowest income 20 percent of Californians pay 11.1 percent of their income in state taxes while the top 1 percent pay only 7.8 percent (after federal tax offsets).

Most of the Republicans that I know of, who are running for state and federal offices in the coming election, would have us continue or accelerate our movement down the road to disaster. Although I was a Republican for more than 35 years, I'll be voting for Democrats this year.

The author is retired from the U.S. Air Force, lives in Dixon and serves on the Solano County Board of Education.


 

Pekin Daily Times: Shall Tax Cuts Enrich the Rich or Help the Rest?

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By Bill Knight

GateHouse News Service

Oct 04, 2010

Republicans hope to give $10 trillion to the rich in the next decade, including making permanent Bush’s tax cuts, set to expire this year. President Obama favors returning tax rates for the wealthiest Americans to what they were in the 1990s. Specifically, Obama would restore the tax rates for the top 1.9 percent — for individuals with $200,000 annual income and households with $250,000 annual income, which could generate $238 billion more next year alone.

For the top rate, the rates would go back from 35 to 39.6 percent. The next highest bracket, 33 percent, would revert to 36 percent.

Republicans claim their tax package, typically misnamed “The Economic Freedom Act” (HR 5029), will create jobs. The bill would hand out $6.9 trillion in tax cuts for the rich and big business over 10 years, when the beneficiaries also would get an additional $3.1 trillion from extending Bush’s temporary tax cuts. Of all that money, 62 percent would go to the top 1 percent of earners, according to an analysis by Citizens for Tax Justice.

The “trickle-down” theory isn’t new. It’s been around since Ronald Reagan — and decades before.

In 1896, Democratic presidential contender William Jennings Bryan said, “There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous, their prosperity will find its way up and through every class that rests upon it.”

On Sept. 23, what passes for Democrats today postponed a pre-election showdown over Republicans squawking about budget deficits and national debt while worsening them with tax breaks for the rich, and over the GOP directly defending gifts for about 5 million wealthy Americans while leaving out the other 300 million of us.

Jack Metzgar of the Chicago Center for Working Class Studies explains the GOP’s tortured rationale for helping those who don’t need help: “Their theory is that rich people create jobs by investing in companies: little ones they own themselves or big ones they own stock in.”

The problem, of course, is that they haven’t and they aren’t — even though they could.

The 3,000 largest publicly traded U.S. companies are sitting on “$2.9 trillion in cash and short-term investments,” according to Business Week magazine. Meanwhile, workers, consumers and most state governments are struggling to pay bills and provide for basics.

The nonpartisan Congressional Budget Office (CBO) analyzed 11 options for stimulating the economy and concluded that extending Bush’s tax cuts was the worst — the lowest “return on investment” of any option. Besides being inefficient, the Republican scheme would shake investor confidence in the economy, House Majority Leader Steny Hoyer (D-Md.) told Press Associates — especially in the government’s ability to control its deficit. Hoyer said the GOP’s new tax cuts — including eliminating capital-gains taxes and allowing businesses to immediately write off the total cost of new equipment — would make a bad situation worse.         

Bush’s tax cuts for the rich “are expensive for the economy,” Hoyer added.

Even Republican Alan Greenspan, former chairman of the Federal Reserve, argues for letting the temporary tax cuts expire — all of them.

Democrats propose increasing aid to the unemployed for about $34 billion, creating 300,000 to 600,000 jobs in the next 15 months, and also increasing aid to the states for some $26 billion, adding another 80,000 to 180,000 jobs next year.

Compare that to Republicans’ cutting taxes for the elite, costing $70 billion and creating — in the rosiest of scenarios — 70,000 to 210,000 jobs.

Exactly! The GOP’s tax cut for the rich would cost twice as much and — at best — create one-sixth or one-eighth the number of jobs.

If the government wants to help the economy, the CBO says, it would be better to spend the money building roads and bridges, cutting payroll taxes, or helping states. Tax Policy Center co-director William Gale says the Bush tax cuts were never intended to be assistance for a bad economy anyway. When they passed in 2001, the economy was booming and the federal government was running a surplus.

Now, it’s GOP politics. U.S. Sen. Dick Durbin (D-Ill.) said, “We are not going to pass what needs to be passed to change this either in the Senate or in the House before the election.

“There’s no evidence of any bipartisan spirit to deal with the bigger issues,” he added.

Bryan, the great populist, more than 100 years ago framed the fight as one between “the idle holders of idle capital and the struggling masses who produce the wealth and pay the taxes of the country. Which side shall the Democratic Party fight: upon the side of the idle holders of idle capital, or upon the side of the struggling masses?”

Contact Bill at bill.knight@hotmail.com.
 

 

 

Springfield News-Leader: Repeal Would Affect Few Small Businesses

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Jane Whitesides Glasgow

October 3, 2010

John Boehner and Mitch McConnell are using spurious estimates to argue over the Bush tax cuts. One is always entitled to one's own opinion, but not to one's own facts.

Repealing the tax cuts for those earning over $250,000 would not affect 50 percent of small businesses -- unless, you include people who make a lot of money, but have few employees, such as hedge fund managers, the president, John Grisham, Tiger Woods and sole-practice trial lawyers. Estimates from Citizens for Tax Justice are that 2-3 percent of small business owners would be affected.

According to the Center on Budget and Policy Priorities, by extending the 2001 and 2003 tax cuts for those earning over 250,000, only the top 3 percent of people with any business income would benefit. Businesses don't hire because of tax cuts: they hire based on demand. Businesses are hurt by a lagging economy. Extending the tax cuts and adding a trillion dollars to deficits and debt over the next decade will deter robust growth, and truly hurt all businesses.

The Congressional Budget Office found that the cost of legislation enacted 2001-7 resulted in the tax cuts being responsible for 48 percent of the deficit. While we may argue over what we spend on, starving essential services is inefficient and raises costs over time.

Fiscal responsibility and revenue enhancement are needed to put our financial house in order. While extending the tax cuts for the top 2 percent of earners doesn't make good business sense, it also doesn't make sense in terms of fairness.

The Tax Policy Center found in 2007 that the effective tax rate for the top 400 families was 16.6 percent. Not exactly usury rates.

The Hill: Groups Call for Ban on Tax Patents by Year End

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By Jay Heflin

10/01/10 
 
Organizations representing a wide array of constituencies have called on Congress to ban tax patents before the end of the year, warning that a failure to do so will inhibit tax preparers from using strategies that could save their clients money.

"Tax advisors, who generally are not patent experts, have the burden to be aware of such patents, and either provide tax advice that complies with the patent holders' requirements, risk a lawsuit for themselves and their client, or potentially not provide the most advantageous advice to clients," the group stated in a letter to lawmakers. "Not surprisingly, these patents create a highly burdensome level of cost ultimately borne by taxpayers."

To date, 117 tax strategy patents have been issued by the U.S. Patent and Trademark Office, and about 151 are pending.

This means a tax preparer must search the patent database before recommending a strategy to a client or risk being fined for improperly employing the strategy.

"A legislative solution must be pursued immediately if we are to provide taxpayers with equal access to all available avenues of federal tax compliance," the letter states.

Existing patents already affect tax decisions on retirement plans, real-estate transaction and estate planning.

Patents that are pending would "affect taxpayers' ability to create a financial plan for funding college education; utilize incentive programs for health care saving account cards; insure against tax liabilities, and use life insurance to generate income," the letter states.

Legislation banning these patents have been introduced in both chambers but has failed to gain traction in the Senate.

The letter was signed by U.S. PIRG, the AICPA, the American Association of Attorney-Certified Public Accountants, the American College of Tax Counsel and Citizens for Tax Justice.

 

Toledo Free Press: Crocodile Tears Over Taxes

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Don Burnard

September 23, 2010

We’ve been discussing the extension of the Bush tax cuts and the deficit hawks’ counterintuitive love of extending the tax cuts for the billionaires who make up their base, even at the cost of $700 billion during the next decade. The same old claptrap and fear that they’ve been peddling, along with the outright lies and revisionist history seem to be the only thing they have going in answer to our plight.

They’ve been peddling this crap since the FDR years to try to stifle any innovation in the way we do things in America.

The betterment of the better off is their only concern and the rest of us can pound sand as far as they are concerned. Unfortunately, too many people seem to be buying into this against their own self-interest. They scream about how we need to get back to the Founding Fathers’ view in our country. I would humbly point out that the major belief behind the American Revolution, which everyone seems to forget, was that every American was equal, and that there should be no ruling class in this country. Evidently, they didn’t get the memo in the GOP and corporate world.

These days, the constant drumbeat on the right is that the only way to create jobs is by giving the richest of our citizens the lion’s share of the economic pie. This started with the discredited trickle-down economics of the Reagan administration and culminated with the Bush tax cuts, which were introduced against the advice of his top economic advisers and led to the no growth, no jobs, economic-imploding decade that we’ve experienced and continue to experience.

None of the promises that were made have come to pass for anyone other than the very top of the economic food chain. Their answer to this conundrum? More of the same!

The main effect that the Bush tax cuts had was to reduce government revenue and to double the deficit that they are now crying crocodile tears over. If you need further proof that they have learned nothing in the past 10 years, look no further than Ohio’s John Kasich, whose “plan” to deal with the hardships in our state is to do away with the state income tax and to cut regulations for businesses, including the financial sector that made him a multimillionaire under some nebulous plan that he refuses to release (like his tax returns). Instead, we’re given the same patented, vague GOP promises, couched in sound bites about how our well-being is their No. 1 concern.

How long are we going to keep falling for this people?

I’ve been called a Socialist, Communist, and lots of other cutesy buzzwords by tea partiers and wealth managers who cry that Obama and I want to redistribute wealth in this country.

Let’s take a look at some more of those pesky facts. President Obama’s tax cuts benefited more than 95 percent of Americans, and the average taxpayer will receive a nearly $3,000 tax cut this year, up nearly $1,000 from last year. According to the Citizens for Tax Justice, the lower 20 percent of income earners (up to $19,972 in 2009) received an average of $604.

Under the Bush tax cuts, they received an average tax cut of $22, according to the Center for Tax Policy. The next 20 percent (up to $38,000 in 2009) got an average tax cut of $628 as compared to $360 under the Bush tax cuts. Ninety-seven percent of small business owners receive tax cuts under the Obama plan. Yes, the same small business owners that Mitch McConnell loses sleep over. Except under the figures that Mitch uses, these include movie stars, athletes, law firms and many others that the average person doesn’t think of as small businesses.

The Center for Budget and Policy Priorities says that a family of four in the exact center of the income spectrum will pay 4.6 percent of their income in taxes this year under Obama’s tax cuts, and will average a 10 percent increase in their refund. Under Bush, in 2005, 66.7 percent of all U.S. corporations paid no income tax. Didn’t the Supreme Court decide that corporations are people? How come you and I didn’t get that deal? And we want to go back to this? Perhaps in the next column we should look at where the real wealth distribution is going. It might surprise some of you tea and Kool-Aid drinkers.

E-mail columnist Don Burnard at letters@toledofreepress.com.

 

Arkansas Times: Sound Bites v. Issues

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Ernest Dumas

September 23, 2010

If you distilled the congressional elections in Arkansas down to their essence, it would be this: Republicans own the sound bites and Democrats own the issues.

But that is not how it looks, is it? Republicans utter their sound bites, all variations of the theme that Democrats want to tax and spend while they want to cut and save. Even Rep. John Boozman, the Senate candidate, can make it sound plausible.

The Democrats meantime are afflicted by the old disease of Democrats, at least in this region: terminal timidity. Voters would love their issues, but the Democrats temporize, apologize and offer a halfhearted defense of their and their party's stand on the big issues. They don't sound like they are terribly more knowledgeable about the issues than the Republicans. Well, state Sen. Joyce Elliott in the Second District sounds pretty sure of things, but that's it.

Sen. Blanche Lincoln has found her voice on a few things like Social Security and the goofy plan embraced by Arkansas Republicans to shift taxes dramatically from the rich and corporations to the middle class through something hilariously named the Fair Tax. But she doesn't take Boozman on energetically on the big issues.

If she and the Democratic House candidates did take them on and found the simple and effective way to do it, Boozman, Tim Griffin, Steve Womack, Rick Crawford and Beth Anne Rankin would get the votes of diehard Republicans and no more.

Let's take the two big issues — health-care reform and the permanent extension of the Bush tax cuts. The Republicans — I think all five stand united on this — say that on both issues the Democrats are just out to raise people's taxes during bad times. Great sound bites, and the evidence is that they have worked. But let's see who is right on the facts.

First, extension of the Bush tax cuts, which expire on Dec. 31: Congress may act by then but if it does not it will be the urgent first thing on the agenda when the new Congress is sworn in with all these Republicans. The tax cuts, which went mostly to people with very high incomes, define the Republicans. They were the signal achievement of the six-year Republican reign in Washington — that and two wars.

The Democrats support, though timidly, President Obama's plan to extend the reduced tax rates from the Bush years and Obama's own tax cuts that were included in the 2009 recovery act except for single people earning more than $200,000 a year and couples earning more than $250,000. Those taxpayers would continue to get all the tax cuts enjoyed by the other 98 percent of Americans but not the extra tax cut of about 3 percent that Bush and the Republican Congress gave them in 2001 and 2003.

All five Republicans, as best as I can tell, support the Republican plan embodied in SB 3773. It would continue the extra tax cut on the rich and virtually eliminate the tax on great estates, but it would not continue the Obama tax cuts for middle- and low-income working families that were embodied in the earned income and child tax credits.

So how will each of those work out for Arkansas families? Boozman, Griffin, Womack, Rankin and Crawford would force more than 98 percent of Arkansans to pay more taxes than they would pay under the Obama/Democratic plan. (Congressman Mike Ross of the Fourth District supports both plans.) Citizens for Tax Justice applied the tax rates under each plan to the latest Treasury Department summary of the filings of the roughly 1.2 million Arkansans who filed income tax returns.

Here is how much more or less in taxes a family in each category of Arkansas tax filers will pay on average under the Republican plan than under the Obama/Democratic plan:

Lowest 20%: $178 more

Second 20%: $120 more

Middle 20%: $165 more

Fourth 20%: $39 more

Next 15%: $0

Next 4%: $27 less

Richest 1%: $22,048 less

Only the richest 5 percent would fare better under the Republicans, a whopping $22,048 for the average millionaire. Nearly everyone else fares better under the Democrats.

See how Boozman and the rest defend that? All that they can truthfully say is, those are the people we represent. They couch it differently. Those richest 5 percent are small businessmen who create the jobs for everyone else, they say. But that is simply and provably not true.

Oh, yes, what about those high taxes under the new health-care reform law?

Most Arkansans will pay neither higher nor lower taxes. But some 280,000 families will be eligible for substantial tax cuts — the tax credits for families that earn less than 400 percent of the poverty line (roughly $88,000 this year for a family of four). Some 130,000 families who have no insurance now will claim the tax credits, which will be applied directly to their insurance premiums, when they or their employers purchase insurance under the low-cost state exchanges. Another 150,000 who are insured now will have their taxes lowered to help pay for their insurance when they enter the exchange. Families USA calls it the biggest middle-class tax cut in history. Republicans are committed to repealing it.

The real tax increases? Fewer than 18,000 of the richest Arkansans will pay a higher Medicare tax — less than 1 percent — and also pay the little Medicare tax on their unearned income for the first time. They are the taxpayers who now enjoy the lowest effective tax rates of everyone.

How would you like to defend that posture? You would stick with the sound bite and hope the other side lies doggo.

Congress Daily: Economists Warn Of Consequences If Cuts Not Extended

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Economists Warn Of Consequences If Cuts Not Extended

 

September 22, 2010 Wednesday
By Katy O'Donnell

More than 300 economists are sending Congress a letter today in support of extending the 2001 and 2003 income tax cuts for all taxpayers "in order to prevent a devastating blow to America's fragile economic recovery."

The letter, sent under the auspices of the National Taxpayers Union, features economists from a wide range of colleges and research centers throughout the country, in addition to experts from conservative groups such as the American Enterprise Institute and the Reason Foundation.

The Bush tax cuts, set to expire at the end of this year, have become a hot-button issue for the midterm elections, dominated by voter anger over both a weak economy and burgeoning deficits.

The economists call failure to extend the cuts an "anti-stimulus," asserting that allowing marginal tax rates to rise would place "heavier burdens on the working class and wealthy alike" and handicap an already tentative economic recovery. The letter also demands legislation to keep the estate tax from returning next year at a 55 percent top rate, which would happen if Congress takes no action.

The letter warns that "even confining tax hikes to wealthier individuals will have deleterious effects, as households earning more than $210,000 account for one of every three dollars in consumer outlays."

The plea also factors in one issue rarely raised in the current tax cut debate: the time Americans expend simply complying with an already tedious, paperwork-heavy code, pegged at 2.4 billion hours for individual taxpayers this year by the National Taxpayers Union. The letter declares that "this loss of time and associated costs (estimated at more than $100 billion) would only be made worse" by Obama's proposals on the estate tax, limitations on itemized deductions, and phasing out personal exemptions.

Meanwhile, the liberal policy group Citizens for Tax Justice tried to counter a letter toSpeaker Pelosi signed by 31 House Democrats who called for an extension of all the Bush tax cuts. In a release, the group challenges the letter's claim that the taxpayers who would lose their cuts under Obama's plan "are responsible for 25 percent of national consumer spending." These taxpayers' share of pretax income, the group asserts, is only 21 percent, and much of that is saved, not spent. In other words, the math "doesn't really pan out," according to Steve Wamhoff, legislative director of CTJ, who said he hopes the group's report causes some of those Democrats to change their position.

Huffington Post: House Dems Supporting Bush Tax Cuts Represent Few Rich People: Report

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09-21-10

By Arthur Delaney

Most House Democrats who want to keep the soon-to-expire Bush tax cuts for the wealthy represent districts where the share of taxpayers rich enough to pay higher taxes under President Obama's tax plan is below the national average.

Obama wants to keep the cuts for all but the top income brackets -- individuals and families making more than $200,000 and $250,000 a year, respectively. Of 31 Democrats who signed a letter supporting the tax cuts, 22 represent districts where less than 2.1 percent of residents would see higher taxes under Obama's proposal, according to a new report by Citizens for Tax Justice.

"They don't seem to be coming from particularly rich districts, so it makes you wonder, 'Who are they representing?'" said CTJ's Steve Wamhoff in an interview with HuffPost. "Why are they doing this? The polls are against them. It's not poll-driven. It's not in the interest of their constituents. It's baffling."

Supporters of the tax cuts have said they're just looking out for the economy. "Given the continued fragility of our economy and slow pace of recovery, we share their concerns," wrote the 31 Democrats in their letter. "While those in the highest income brackets comprise only two to three percent of American taxpayers, economists estimate that they are responsible for 25 percent of national consumer spending."

The CTJ report takes aim at the 25 percent claim: "This assertion is not only wrong; it is impossible. The richest 2.1 percent of taxpayers account for about 21 percent of total pretax cash income. But their share of total personal consumption is certainly not higher than their share of total income. In fact, it is considerably lower, because they save a much higher portion of their after-tax income than less well-off Americans."

Many of the House Democrats who support extending the tax cuts, all of which will expire after December if Congress does nothing, opposed reauthorizing extended unemployment benefits back in May, when they said the economy was too strong to justify adding to the deficit. HuffPost asked one such Tax Cut Democrat about the apparent contradiction over deficit spending, since the cuts would add billions to the deficit.

"The economy was growing at the end of December 5.6 percent. It's now growing at 1.6 percent," said Rep. Gerry Connolly of Virginia (who supports the cuts but has not signed the letter). "Many economists say that if you raise taxes on the upper-income brackets, it will shave half a point off of GDP."

Lancaster Intelligencer Journal: Follow the Money

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Editorial

September 15, 2010

If this year's election is about the economy, voters would be wise to listen to a congressman who's been there.

Republican Pat Toomey.

The former congressman has spoken and written extensively about Social Security and corporate taxes.

His solution: End both.

Toomey recently came in for criticism when he told the Pennsylvania Press Club "I've never said I favor privatizing Social Security."

He may never have used those exact words, but Toomey is a proponent of ending Social Security as it now stands by allowing younger workers to invest part of their Social Security contribution in private markets. He has written and spoken about it extensively.

In his book "The Road to Prosperity," Toomey wrote that he would allow older workers to keep their Social Security accounts while having younger workers switch a portion of their Social Security payments to private accounts.

Toomey said privatization, which President George W. Bush unsuccessfully pushed in 2005, would provide a dramatic improvement on Social Security's low investment return, and would offer today's workers "the promise of more retirement income in the decades to come."

Sounds wonderful on paper, but removing any money from Social Security jeopardizes a system that, with a few minor tweaks — increasing the earnings cap, phasing in a higher retirement age and incorporating means testing — could be self-sustaining for another 75 years.

And given today's markets —investors lost an average of 40 percent of their retirement savings based on 2008 returns alone — the private markets argument is hard to make.

Toomey also has said he favors eliminating corporate taxes — a view that was the focal point of Congressman Joe Sestak's first commercial. The commercial uses a film clip from a July 20, 2007, CNBC broadcast in which Toomey said, "Let's not tax corporations. ... I think the solution is to eliminate corporate taxes altogether."

PolitiFact, the agency that checks the veracity of political ads, found the ad to be "mostly true." PolitiFact also said it gave the Toomey camp "the opportunity to say the candidate opposes zero corporate taxation, but the campaign did not do so."

Toomey spokeswoman Nachama Soloveichik, has said Toomey favors lowering business taxes, but recognizes that a zero corporate tax rate is "impractical."

He has, however, written that he favors a zero corporate tax rate.

Corporations already use loopholes to avoid paying taxes. If corporate taxes were eliminated completely, it would add $225 billion to the national debt every year.

And who would pick up that tax burden? The middle class.

According to Citizens for Tax Justice, Toomey's preference for a 17 percent Flat Tax would allow CEOs at bailed-out banks to pay nothing on Wall Street earnings "while 95 percent of workers would see a tax hike of roughly $3,000."

That's an impractical approach to fixing the economy.

Read more: http://articles.lancasteronline.com/local/4/289695#ixzz10CmKNw63

NPR: Tax Code Works To Some Companies' Advantage

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By Jim Zarolli

September 8, 2010

At least on paper, U.S. companies pay some of the highest corporate taxes in the industrialized world, and some members of Congress say cutting them is a sure way to jump-start the ailing economy.

But as with so many things about the tax code, the truth is a bit elusive.

The federal corporate tax rate is now 35 percent, and when state and local taxes are included, it rises to nearly 40 percent, according to the Organization for Economic Cooperation and Development. That’s higher than any other industrialized country but Japan.

In the 1960s, the United States boasted some of the lowest corporate tax rates in the world. But over time, more and more countries have cut business taxes as a way of helping their companies compete in a global economy, says Douglas Shackelford, professor of accounting and taxation at the University of North Carolina.

"If you want to create jobs here by attracting companies from overseas to invest here, and we want our American companies to expand here, then we should have a tax law that incentivizes them to do that," says Republican Sen. Judd Gregg of New Hampshire.

Gregg and Democratic Sen. Ron Wyden of Oregon this year sponsored a bill that would, among other things, cut the corporate tax rate to 25 percent.

But Steve Wamhoff, legislative director at Citizens for Tax Justice, says the tax burden on U.S. companies has been greatly exaggerated.

While the statutory tax rate is 35 percent, corporations benefit from numerous tax breaks, exemptions and deductions that bring their effective rate down to about 29 percent, Wamhoff says. That's about the median for OECD countries, he says.

For instance, companies get a huge deduction for domestic manufacturing expenses. "And they define manufacturing to include all sorts of crazy things like producing hamburgers for fast-food restaurants, writing software, extracting oil — things that we would not really call 'manufacturing,'" he says.

Globalization has given multinational companies a lot of new opportunities to cut their taxes. They can set up offshore subsidiaries to shift profits into low-tax countries. They can borrow money in the United States, take a tax deduction and then shift the money they borrow to a foreign division, Shackelford says.

"So you're incented to, you know, sign up advisers and structure a Cayman Islands entity and do all sorts of different things, and basically you could keep going and going and really get to a point where the tail is wagging the dog, in terms of really having your tax advantages alter how you might otherwise do business," says Larry Harding, president and founder of High Street Partners, which advises companies doing business overseas.

To Brad Miller, chief financial officer of Emptoris, a software company based in Burlington, Mass., the complexity of the tax code puts an enormous burden on companies. Take employee expenses: "So for example, your typical hotel room would be deductible. [But] to the extent they do something that's viewed by the IRS as entertainment, that's not deductible," Miller says. "I have to have a way of keeping track of those things and making sure that there's integrity to the way that each one of those different sets of costs are tracked."

Navigating through the tax code requires good tax lawyers and advisers, which can be beyond the reach of some companies, especially smaller ones.

The maze of exemptions and deductions has been built into the tax code over many years by Congress, Gregg says.

"If you're in a certain type of business, you feel you have a unique situation, you come to Congress, you make your case. And if you're successful the tax laws are often adjusted to reflect your position," he says.

The bill proposed by Wyden and Gregg would strip away most of these special provisions, in exchange for cutting the corporate tax rate.

At a time of rising public concern about the deficit, however, any move that would cut the tax rate would likely face plenty of scrutiny in Congress.

 

San Jose Mercury News: R&D Tax Credit Prized by Tech Firms Held Hostage in Washington

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By Mike Zapler
mzapler@mercurynews.com
09/05/2010

WASHINGTON - News that President Barack Obama wants to make permanent a tax credit for research and development was met with a mix of hope and skepticism among advocates for Silicon Valley tech companies, who see it as a vital driver of innovation but have watched with frustration as lawmakers allowed it to lapse time and again.

Economists, business leaders and politicians have long warned that the U.S. is at risk of losing its status as the world's leading innovation hub - and that the country needs to act swiftly lest it lose out to global competitors like China and India.

Despite those fears, Congress allowed the R&D tax credit - one of the most basic ways the government can encourage the creation of new technologies - to expire at the end of 2009. It was the 13th time since the credit was established in 1981 that lawmakers and the president allowed it to lapse. White House officials say that Obama on Wednesday will ask that it be expanded and made permanent.

"It does get caught up in politics, which is not unusual for something that has to be renewed every year," said Betsy Mullins, a senior vice president for TechNet, a high-tech lobbying group. "I think there is a desire to get it done; it just comes down to how you pay for it."

The tax credit currently costs the Treasury an estimated $7 billion a year - not much compared with the $814 billion spent on the economic stimulus bill, but enough for it to get ensnared in budget politics. In addition to those cost concerns, this time the tax credit must overcome the contentious politics of the fall election season, in which Republicans are seen as reluctant to hand Obama and the Democrats a victory on anything that might aid their election prospects.

The credit includes several different formulas, but Obama would expand the most popular and simple one from 14 percent to 17 percent. The cost, according to news reports, would be about $100 billion over 10 years.

Even after such an expansion, the United States would lag behind many countries in the incentives it offers for research and development, said Robert Atkinson of the Information Technology and Innovation Foundation, a nonpartisan think tank. A recent report by the group found that the U.S. credit, before it expired, was less generous than the incentives in at least 23 other countries, among them India, Brazil and China. France's R&D tax credit is six time more generous than the U.S. credit.

Atkinson argued that Obama - who speaks frequently about the need to revamp the economy by fostering cutting-edge industries - should be proposing a major expansion of the credit. The president is reportedly considering the R&D proposal as part of a broader package of business tax cuts to boost the economy and encourage hiring.

"It's nice that the president is talking about making it permanent, but that's like playing yesterday's game," Atkinson said. The R&D credit has been allowed to lapse repeatedly, even though it has broad bipartisan support on Capitol Hill. Sens. Max Baucus, D-Mont., and Orrin Hatch, R-Utah, the top members of the Senate Finance Committee, have proposed increasing the tax credit from 14 percent to 20 percent of R&D spending above a base amount under the provision's most widely used formula.

A similar bipartisan measure was introduced in the House, and Rep. Anna Eshoo, D-Palo Alto, earlier this year collected 120 signatures from members of both parties for a letter calling for renewal, or preferably expansion, of the credit.

In California's U.S. Senate race, both Democratic Sen. Barbara Boxer and her Republican opponent, former Hewlett-Packard CEO Carly Fiorina, have endorsed making the R&D credit permanent.

Still, some critics call the credit a giveaway to big business and charge that it subsidizes R&D spending that would happen anyway. Half of the $6 billion in credits claimed in 2005 were by 549 corporations with sales over $1 billion, according to a report last year by the Government Accountability Office, an investigative arm of Congress.

Steve Wamhoff, legislative director for the liberal advocacy group Citizens for Tax Justice, told Reuters that the tax credit gives large, powerful companies "a windfall for things they already do." The GAO called for the credit to be revamped to encourage more research and development that would not have occurred otherwise. Some senators have said it should be realigned to benefit more small businesses.

Whatever its flaws, Atkinson said extensive economic research shows the credit works. His own group estimates that the credit spurs about $2 in private research and development spending for every dollar it costs the government, and about 70 percent of the spending goes to paying workers, making it an effective job creation tool. Noting that the U.S. has one of the highest corporate tax rates in the world, 35 percent, Atkinson said: "It's pretty clear we need to do something about our corporate taxes if we want to remain competitive," and he said expanding the R&D credit is one way to lower the tax burden on businesses. "Other countries wake up every morning asking how they can win this fight. We do not."

 

Huntington (WV) Herald-Dispatch: Renewing Bush Tax Cuts Will Cost

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August 29, 2010

Letter to the editor by Pete Wilmoth, West Virginia Center on Budget & Policy

 

Recent media coverage of the Bush tax cuts has misrepresented Obama's policies.

Obama wants to renew tax cuts for all but the wealthiest 1 percent of West Virginians, those with incomes of more than $250,000. Eighty-nine percent of full-time workers in the state earn less than $75,000. The median household income is under $38,000.

According to Citizens for Tax Justice, if all of Bush's cuts are made permanent, the bottom 60 percent of West Virginians will pay $117 more, while the richest 1 percent pays $18,069 less than Obama's alternative.

Increasing taxes for most of West Virginia while trimming taxes for a select, wealthy few is ineffective economic policy, since the working class is likely to spend their tax cuts immediately, while the wealthiest 1 percent is more likely to save.

Renewing the Bush tax cuts for the rich will increase the national debt by $1 trillion over the next 10 years, according to the national Center on Budget and Policy Priorities. A temporary jobs credit that reduces payroll taxes for new hires, increased state fiscal assistance, and unemployment benefits all provide greater economic "bang" for the taxpayer "buck," according to the nonpartisan Congressional Budget Office.

Obama's plan would create nearly $90 billion in revenue over the next two years that, if invested in unemployment benefits, would yield five times the economic stimulus of renewing Bush's tax cuts for the wealthy.

West Virginia needs tax policies that promote economic growth by looking out for working class people.

Pete Wilmoth
Research Associate
West Virginia Center on Budget & Policy
Charleston , West Virginia

Huffington Post: Buyout Firms In 'Grassroots' Lobbying Effort To Preserve Tax Loophole

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Arthur Delaney

08-19-10

The private equity industry is lobbying hard to convince members of Congress to lay off the tax scheme that allows investment fund managers to pay a lower tax rate than their secretaries.

The Private Equity Council, a lobbying group for private equity, is mobilizing fund managers to get members of Congress to come visit PE-owned companies in their districts to "showcase some of the industry's success stories," the New York Post reported Monday. (Private equity is arguably better known for buyouts and layoffs than creating jobs.)

At stake is the taxation of "carried interest," the 20 percent of a fund's investment profits that its managers take in on top of a fixed fee. Carried interest is currently taxed as capital gains at a top rate of 15 percent. House Democrats have long sought to tax carried interest like income, which has a top rate of 35 percent, only to see their proposals fail in the upper chamber.

But the Senate nearly closed the carried interest loophole this summer by attaching carried interest clampdowns to a series of bills reauthorizing extended unemployment benefits -- efforts that fell just short of overcoming a Republican filibuster. Senate Democrats have not signaled their plans but the carried interest piece is still out there, having been negotiated and tweaked several times, and theoretically they could pick it up to offset the cost of an upcoming spending bill.

"I think it will come back," said Nicole Tichon, a lobbyist for the U.S. Public Interest Research Group. "I found it interesting the [Private Equity Council] is allegedly having these grassroots meetings. It's one thing to make your case to the congressman, I think the harder sell is going to be to convince the rest of the taxpayers that fund managers deserve a tax break."

The Private Equity Council refuses to comment on its lobbying, but says "what has become clear is that more and more independent voices like KPMG and Ernst & Young are pointing out the unintended consequences of proposed carried interest and enterprise value taxation, which in turn are triggering broader opposition and concerns from small businesses, family partnerships, and corporations."

Experts say the attempt to point to small businesses is misdirected.

"Raising the tax rate on the fund managers won't impact the amount of activity in the sector in a meaningful way," said Victor Fleischer, a law professor at the University of Colorado who has written about the loophole. "The people who put up money -- the investors, the endowments, pension funds -- their tax rate will remain unchanged."

The group also launched a website earlier this year detailing the number of private equity-owned companies in every state and the number of workers employed.

"For every success story, there's a failure story which isn't being told," said Fleischer. "Private equity has done a reasonably good job with the companies they manage, but it's not like they're magical managers who do no wrong. Sometimes it's part of the strategy of the PE firm when they take over companies and want to improve efficiency, which is code for firing people."

Democrats have argued among themselves and extensively reworked their carried interest legislation. In Obama's first budget, raising taxes on carried interest was estimated to generate $23.89 billion in revenue over 10 years. When it landed in the Senate back in May, Democrats closed the loophole by only 75 percent, which would have raised $18.685 billion. In the next draft of the domestic aid bill, Democrats watered it down further by decreasing the amount of carried interest that would be taxed as income from 75 percent to 65 percent, and the bill raised $14.157 billion. Subsequent tweaks took it from there to $13.905 billion, and at last glance it raised $13.594 billion.

Steve Wamhoff, a lobbyist with Citizens for Tax Justice, is less optimistic that the carried interest change will happen. "The problem is these fund managers have such unbelievable power over senators, including Democratic senators," he said. The private equity, hedge fund, and venture capital industries solidly favor Democrats over Republicans with campaign contributions.

Instead of using the carried interest measure to offset the cost of a recent state aid bill, Democrats cut future funding for food stamps.

"I would also say there's not a lot of time left for this Congress to do anything," Wamhoff added.

Doing nothing would please the private equity crowd. Newsweek reported this week that Stephen Schwarzman, chairman of the Blackstone Group, said the proposal to tax investment fund managers like regular rich people is "like when Hitler invaded Poland in 1939."


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The International Times: Will Rolling Back Tax Breaks for US Oil and Gas Companies Necessarily Affect Output?

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Wednesday, August 18, 2010


By Jijo Jacob

Energy Intelligence said in a report on Wednesday U.S. domestic oil output could fall as much as 10 percent over the next ten years if Obama administration’s proposals to roll back tax breaks for oil and gas companies get through.

President Obama had proposed tax increases to the tune of $31 billion on oil companies in his first budget, and he raised tax proposals to $37 billion in last year’s budget.

The issue of rolling back tax breaks resurfaced in the backdrop of the Gulf of Mexico oil spill which President Obama used as a window of opportunity to push his case against Big Oil.

In a speech made at Carnegie Mellon University in June Obama pitched for tax overhaul in the oil sector.

"The votes may not be there right now, but I intend to find them in the coming months," he said. "I will continue to make the case for a clean energy future wherever and whenever I can, and I will work with anyone to get this done. And we will get it done."

Congressional Joint Committee on Taxation for the 2011-2020 period has estimated that a proposal to bar Big Oil from using the deduction for domestic manufacturing will raise $14.8 billion over ten years.

Again, a plan to stop oil companies from immediately writing off intangible expenses related to oil exploration, such as wages, machinery and materials, will fetch $10.9 billion over a period of ten years.

Another proposal by President Obama will plug a loophole whereby oil companies save a lot of money by flatly deducting a certain percentage of gross revenue under the 'property depletion' head. This proposal, if accepted, will bring in another 9.6 billion to the exchequer.
There have been proposals also for modifying rules for 'dual capacity' taxpayers, and to reduce the break for amortization of geological and geophysical expenses.

Oil companies argue that rolling back of the tax breaks will hit profitability and thereby hurt exploration and investment, leading to output cuts and price rises.

However, there are analysts who think otherwise.

In an article published in Citizens for Tax Justice last month, Jeff Hooke and Steve Wamhoff contended that among the largest five oil companies, less than 10 percent of profit goes to exploration for new oil fields. "High profits do not encourage exploration," they say, suggesting that a clampdown on oil tax breaks doesn’t necessarily mean output reduction and price rise at least in the near term.

"In fact, in the top five oil companies, managers direct most of their excess cash to dividends and stock repurchases, both of which drive up the companies' share prices and the executives' stock option values," they argue, citing SEC filings made by the companies.

"The percentage of net profits directed towards dividends and stock repurchases for the top five oil companies was 58 percent in 2005, 73 percent in 2006, and 72 percent in 2007, 71 percent in 2008 and 89 percent in 2009.

These figures are high in comparison to other industries. To the extent that tax loopholes targeting the oil and gas industry boost their profits, there is no evidence that the additional profits lead the companies to explore for more oil so that they can increase the supply."

The Energy Intelligence report says oil firms are fast-tracking lobbying efforts to scuttle the President’s proposals. According to data from the Center for Responsive Politics, oil industry spent a whopping $44.5 million for lobbying in the first three months of the year, surpassing the previous year's record.

Providence Journal: The GOP's Great Wealth Shift to the Rich

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Letter to the Editor by Brian O’Donoghue

Tuesday, August 17, 2010


FORT LAUDERDALE

This article is in response to the July 28 column by Travis Rowley, “Patriots can save Rhode Island yet.”

“Patriots can save Rhode Island yet.” This is about the only truth in this whole article. But it begs the question: “How do you define a patriot?” Travis is apparently an angry young man. He managed to regurgitate just about every tired piece of Republican propaganda that one could think of in a single column. I’ll try to tell the truth in less space.

First, unions are not to blame. Think back to when they were strong; before Ronald Reagan ruined this country with his anti-worker, smaller-government mantra. Back when mothers did not have to work and when the American dream was attainable to a much greater portion of our working class than it is today.

Back in the ’70s I worked in Rhode Island in a non-union shop. Our salaries were comparable to union shops because my firm had to compete with the union shops for the best labor.

Yes, in those days unions helped everyone, even those who did not belong to a union. Over the last 30 years salaries (adjusted for inflation) of non-college educated workers have dropped. They have remained about the same for college-educated workers. This all occurred while the Republican Party ran amok with our economy and managed to weaken unions to the point that they could no longer help the wages of the rest of us because union workers became a smaller part of our work force — killing a major factor in allowing working folks to stay above water.

The Republicans often use Europe as an example of failed socialist policy. It only takes a trip to Europe to see how false that premise is. Yes, people may pay a higher percentage of their higher salaries in taxes, but a much higher proportion of those taxes go directly back to the people and not to unnecessary wars, military spending and tax breaks for the rich.

Have you noticed Europeans visiting this country for weeks on end? This is because they have laws that guarantee mandatory vacation time for all workers. Large portions of our work force do not receive any vacation — or sick leave, for that matter. What does that say about the greatest country in history?

Deficits: Republicans, during the “W” years would often say that deficits are not necessarily a bad thing. During periods of high deficits, entitlements are easier to eliminate. Over that last 30 years Republican presidents have increased our country’s deficit many times more than the few Democratic presidents. Reagan spent more than all previous presidents combined. Then Clinton came alone and balanced the budget and actually left office with a surplus. Then George W. Bush came along and spent more than Reagan did on two ridiculous unfunded wars, one of which was waged for fictitious reasons, and huge unfunded tax cuts for the wealthiest citizens.

Republicans do a masterful job in dividing the middle and lower class against each other. They have also done a great job in dividing the middle class between liberal and conservative. This is all a ploy to keep us weak against the real enemy — the corporate elite.

As long as they succeed with this strategy, they still have a chance to control us. Without this they go the way of the “Know Nothings.” They drive home the idea that the poor are driving us all to the poorhouse with all these entitlements.

That’s while the facts clearly show that it is the wealthy that benefited the most from our domestic economic policies of the last 30 years.

Bob McIntyre, an economist and director of the Washington-based Citizens for Tax Justice, found that in 2007 the bottom 60 percent of American households (with income of less than $50,000) benefited from government programs to a tune of $445 billion.

The top 20 percent (with income of over $85,000 per year) got a striking $539 billion in tax breaks. And the top 1 percent (with incomes above $450,000 a year) received $298 billion. This sheds new light on the welfare queens that they are always talking about.

Until the working class finally realizes what is really going on and unites against the real enemy, nothing will change.

The greatest redistribution of wealth in history took place over the last 30 years. When Ronald Reagan took office in 1981, the wealthiest 10 percent owned the same amount of wealth as the bottom 40 percent. As of 2008 the wealthiest 1 percent owned the same amount of wealth as the bottom 90 percent. What kind of conservative patriot would want to defend that kind of shift of wealth?

But they try.

Yes, this young man is no doubt dedicated to his ideology. And he does have an excellent grasp of right-wing talking points. It’s too bad that he hadn’t done his homework.

Brian O’Donoghue lives in Fort Lauderdale, Fla.

The News & Observer: Tax Cuts at the Top and Other Priorities

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Mon, Aug 16, 2010
By Gene Nichol

CHAPEL HILL To the surprise of none, another fight looms in Washington. Having locked horns on health care, financial reform, economic stimulus, the Supreme Court and (almost) war, now it's time for taxes.

President George W. Bush's defining tax cuts are set to expire in 2011. President Barack Obama and most of the Democrats would retain the reduced rates for all but the top 2 percent - those making over $250,000 a year ($200,000 for single filers). Obama explains that, given our "fiscal situation," we "simply can't afford" cuts of this magnitude for the very wealthiest Americans. Reportedly over $710 billion in revenue would be lost in the next decade.

Republicans, of course, disagree. But their rationale has been murky. They fought mightily against recent efforts to extend unemployment compensation, to aid cash-strapped state governments and to further boost an anemic recovery because the proposals would add to a daunting federal deficit. But tax cuts for the richest among us are apparently copacetic; even if we have to borrow boatloads to pay for them.

When pressed, recently, to explain the contradiction, House Minority Leader John Boehner stumbled. He refused, repeatedly, to answer whether the proposed cuts would "be paid for" or would "pay for themselves." He offered only that the lowered rates were necessary "for job creation" and "getting the economy moving again."

Those claims were rendered less compelling, though, by a recent study from the nonpartisan Congressional Budget Office. It examined 11 options to stimulate growth and job creation. The report found not only that that making the tax cuts permanent would dramatically increase the long-term deficit; it was the worst proffered option to nudge the economy forward. Extending unemployment benefits, staunching state budget cuts and providing job-creating tax credits would generate at least three times as much additional economic activity as retaining the top tax rates.

Alan Blinder, former Federal Reserve vice-chair, put it this way in The Wall Street Journal: "Paying more in unemployment benefits offers the most spending 'bang' for the budgetary 'buck'. Extending the Bush tax cuts for the wealthy offers the least."

The poor and near-poor will spend every cent they can get hold of. Those making over $250,000 will be far more apt to save the proceeds. If the rationale is job creation, the Republicans seem to have it backwards.

Of course it's not implausible to surmise that something else is going on.

Why ditch, completely and enthusiastically, the central tenets of deficit reduction? Why opt for the most demonstrably inefficient means of stimulating recovery, while rejecting, under potent party discipline, long-proven, more effective measures? And when pressed to explain the tortured path, why the studied non-responses?

My own sense of it is the national Republicans are now saying, clearly, even if by indirection, "We're the party of the 2 percent." We're willing to further bust the budget, to countenance massive teacher and first-responder layoffs, to leave millions out of work, to permit our beyond-frayed social safety net to crumble, to increase what is already the steepest income inequality in the Western industrial world and to flatly discard the concerns of "the least of these" in order to bolster the economic prospects of a relative handful of the wealthiest people in the United States. Some mission that.

It's worth wondering how, in a majoritarian democracy, this happens to a political party - especially one poised to make large gains in the upcoming congressional elections. The impact of money on our politics is part of it, to be sure. But not all. Americans, after three decades, undoubtedly know what they're getting. A complex cauldron of distaste for government and the public sector; derision for those needing a helping hand; obsession with guns, gays and abortion; and, perhaps, a yearning for forgone privilege seems to leave large numbers of us willing to opt, against all odds, for government by and for the wealthy.

And it shows in the North Carolina numbers. Citizens For Tax Justice reports that the bottom 60 percent of Tar Heels would pay, on average, $167 less under the Obama plan than the Republican alternative (because of changes to the Earned Income and child tax credits). Under the Republican version, though, the richest 1 percent would pay $33,644 less annually. And that fortunate 1 percent would receive 30 percent of the entire relief package benefits. Here's to government for the common man.


Gene Nichol, a professor of law at the UNC School of Law, is director of UNC-Chapel Hill's Center on Poverty, Work & Opportunity.

NorthJersey.com: The Bloomfield Public Square: Dialogue for the 21st Century

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Thursday, August 12, 2010
Last updated: Thursday August 12, 2010, 1:21 AM
Bloomfield Life

Bloomfield and towns across America are starving for funds. In previous articles in this column, we have shown how the wars in Iraq and Afghanistan and paying for the upkeep of over 700 military bases around the world have drained our communities of over $1 trillion.

What I wanted to learn more about this time was how the tax system that funds our national, state and local governments operates and whom it benefits the most. This led me to research what percentage of our tax dollars comes from corporations, wealthy families, the middle class and the poor. Most news programs and newspapers never talk about this, but I was determined to find out.

I searched the Internet, read articles and a book. Although I had some idea that our tax laws favored the wealthy, I was very surprised at the glaring statistics showing the huge tax breaks given to corporations and the rich and not to the middle class or to the poor. Here is some information that I found:

• Most large corporations, including the vast majority of foreign companies doing business in the U.S., pay no income taxes, according to a Government Accountability Office report release in August 2008.

• I looked for some specifics. I learned that Microsoft paid no taxes at all in 1999, despite $12.3 billion in reported U.S. profits. In 2009, Bank of America took in $4.4 billion in income and paid no taxes.

Would you and I get away with not paying any taxes?

• Oil and gas companies have for years received a bonanza of unjustified tax breaks that serve only to add to profits for their shareholders – not to lower prices to consumers. Neither do these tax breaks result in meaningful investment into clean energy sources such as solar and wind, nor for environmental clean-ups for their oil and gas disasters.

Here is an example of such a tax break: U.S. manufacturing industries have been allowed to take a deduction called the Section 199 Deduction. The oil and gas companies lobbied Congress to have this benefit apply to oil and gas production even though they manufacture nothing. If this loophole were closed, the U.S. could collect an additional $14.8 billion over 10 years.

• The share of federal taxes paid by corporations declined from 40 percent in the 1940s to 9.2 percent in 2001. State and local taxes paid by corporations have also declined. In 1957, they provided 45 percent of local property tax revenues in the states, but by 2002, they paid only 2.9 percent.

• During the 1950s, the richest one percent of families paid 85.5 percent of the top slice of their income in taxes, which still left them with millions, and in some cases, billions. Today the tax rate on the top dollar of the richest one percent who make an average of $1.5 million is only 30.9 percent.

• In contrast, during the 1980s the effective tax rate on middle class families steadily increased from 5.3 percent in 1948 to 24.63 percent in 1990. Their payroll taxes also rose dramatically from 6.9 percent in 1950 to 31 percent in 2000, as money collected from wealthy companies and the rich dwindled drastically.

• The working poor pay a greater percentage of their income in taxes than the rich. According to one researcher, about three-fourths of all working poor and middle class American households pay more in payroll taxes, which go toward Medicare and Social Security, than in income taxes!

• The most unfair of all taxes is the sales tax, which everyone pays. Because it is a flat rate based on the item you are buying and not your income level, this tax hits the poor the hardest. The rich, unlike the poor and much of the middle class, can invest much of their money in stocks and bonds, and thus are able to make more money to make up the small percentage they pay in taxes.

So as life has gotten harder for town governments, middle class and poor families to balance their budgets, it has gotten better for the tiny class of rich people and large corporations who are reaping billions from the benefits of a tax code skewed in their favor. We see the result of this flawed policy as U.S., state and local governments cut back spending on services that we depend on such as mass transportation, schools, libraries, repairing roads and bridges and cleaning up toxic waste sites.

We see this sad state of affairs reflected in New Jersey newspaper headlines such as "$10.5 billion budget shortfall looms for state" and "NJ Millionaire's Tax Plan Fails" (Governor Christie's veto of a two percent added tax for one year on the 16,000 wealthiest, which would have netted $600 million).

Bloomfield is facing a $3.8 million budget gap. We could have used some of that Millionaire's Tax to cover our town's expenses.

A solution to our country's budget crisis is to pressure our local, state and federal representatives to speak out against the many tax loopholes for the wealthy and for companies and to advocate for a more just tax system. We don't need a set of laws and regulations that provide welfare for the rich while the rest of us faithfully pay our taxes and reap few benefits.

How would you propose to change the current unfair system?

(Sources used for this article: Citizens for Tax Justice; Radical Possibilities, Public Policy, Urban Education and a New Social Movement by Jean Anyon, Routledge Press, 2005; "Most Corporations Don't Pay Income Taxes" by Richard Rubin, Aug. 12, 2008, Congressional Quarterly; "Do the Poor Really Pay No Taxes?" by Ezra Klein, Washington Post, April 14, 2010; "Yes, 47% of Households Owe No Taxes. Look Closer" by David Leonhardt, The NY Times, April 13, 2010; "NJ Millionaires Tax Plan Fails," MYFOXNY.COM/AP; "The Working Poor Do Pay Taxes," www.999ideas.com.)

— The writer, Jane Califf, is a member of the Essex/Passaic Green Party and secretary to the Township of Bloomfield Recycling Committee.

Bloomfield and towns across America are starving for funds. In previous articles in this column, we have shown how the wars in Iraq and Afghanistan and paying for the upkeep of over 700 military bases around the world have drained our communities of over $1 trillion.

What I wanted to learn more about this time was how the tax system that funds our national, state and local governments operates and whom it benefits the most. This led me to research what percentage of our tax dollars comes from corporations, wealthy families, the middle class and the poor. Most news programs and newspapers never talk about this, but I was determined to find out.

I searched the Internet, read articles and a book. Although I had some idea that our tax laws favored the wealthy, I was very surprised at the glaring statistics showing the huge tax breaks given to corporations and the rich and not to the middle class or to the poor. Here is some information that I found:

• Most large corporations, including the vast majority of foreign companies doing business in the U.S., pay no income taxes, according to a Government Accountability Office report release in August 2008.

• I looked for some specifics. I learned that Microsoft paid no taxes at all in 1999, despite $12.3 billion in reported U.S. profits. In 2009, Bank of America took in $4.4 billion in income and paid no taxes.

Would you and I get away with not paying any taxes?

• Oil and gas companies have for years received a bonanza of unjustified tax breaks that serve only to add to profits for their shareholders – not to lower prices to consumers. Neither do these tax breaks result in meaningful investment into clean energy sources such as solar and wind, nor for environmental clean-ups for their oil and gas disasters.

Here is an example of such a tax break: U.S. manufacturing industries have been allowed to take a deduction called the Section 199 Deduction. The oil and gas companies lobbied Congress to have this benefit apply to oil and gas production even though they manufacture nothing. If this loophole were closed, the U.S. could collect an additional $14.8 billion over 10 years.

• The share of federal taxes paid by corporations declined from 40 percent in the 1940s to 9.2 percent in 2001. State and local taxes paid by corporations have also declined. In 1957, they provided 45 percent of local property tax revenues in the states, but by 2002, they paid only 2.9 percent.

• During the 1950s, the richest one percent of families paid 85.5 percent of the top slice of their income in taxes, which still left them with millions, and in some cases, billions. Today the tax rate on the top dollar of the richest one percent who make an average of $1.5 million is only 30.9 percent.

• In contrast, during the 1980s the effective tax rate on middle class families steadily increased from 5.3 percent in 1948 to 24.63 percent in 1990. Their payroll taxes also rose dramatically from 6.9 percent in 1950 to 31 percent in 2000, as money collected from wealthy companies and the rich dwindled drastically.

• The working poor pay a greater percentage of their income in taxes than the rich. According to one researcher, about three-fourths of all working poor and middle class American households pay more in payroll taxes, which go toward Medicare and Social Security, than in income taxes!

• The most unfair of all taxes is the sales tax, which everyone pays. Because it is a flat rate based on the item you are buying and not your income level, this tax hits the poor the hardest. The rich, unlike the poor and much of the middle class, can invest much of their money in stocks and bonds, and thus are able to make more money to make up the small percentage they pay in taxes.

So as life has gotten harder for town governments, middle class and poor families to balance their budgets, it has gotten better for the tiny class of rich people and large corporations who are reaping billions from the benefits of a tax code skewed in their favor. We see the result of this flawed policy as U.S., state and local governments cut back spending on services that we depend on such as mass transportation, schools, libraries, repairing roads and bridges and cleaning up toxic waste sites.

We see this sad state of affairs reflected in New Jersey newspaper headlines such as "$10.5 billion budget shortfall looms for state" and "NJ Millionaire's Tax Plan Fails" (Governor Christie's veto of a two percent added tax for one year on the 16,000 wealthiest, which would have netted $600 million).

Bloomfield is facing a $3.8 million budget gap. We could have used some of that Millionaire's Tax to cover our town's expenses.

A solution to our country's budget crisis is to pressure our local, state and federal representatives to speak out against the many tax loopholes for the wealthy and for companies and to advocate for a more just tax system. We don't need a set of laws and regulations that provide welfare for the rich while the rest of us faithfully pay our taxes and reap few benefits.

How would you propose to change the current unfair system?

(Sources used for this article: Citizens for Tax Justice; Radical Possibilities, Public Policy, Urban Education and a New Social Movement by Jean Anyon, Routledge Press, 2005; "Most Corporations Don't Pay Income Taxes" by Richard Rubin, Aug. 12, 2008, Congressional Quarterly; "Do the Poor Really Pay No Taxes?" by Ezra Klein, Washington Post, April 14, 2010; "Yes, 47% of Households Owe No Taxes. Look Closer" by David Leonhardt, The NY Times, April 13, 2010; "NJ Millionaires Tax Plan Fails," MYFOXNY.COM/AP; "The Working Poor Do Pay Taxes," www.999ideas.com.)

— The writer, Jane Califf, is a member of the Essex/Passaic Green Party and secretary to the Township of Bloomfield Recycling Committee.

The State Journal: Estate Tax on Its Way Back in 2011

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Posted Wednesday, August 11, 2010 ; 10:15 AM | View Comments | Post Comment
Updated Wednesday, August 11, 2010; 02:55 PM

The federal policy will apply to estates valued at $1 million or more.

By Walt Williams
Email | Other Stories by Walt Williams

If you’re very wealthy and want your children to inherit your belongings without paying taxes, here’s a tip: Die now.

The federal estate tax – more infamously known as the “death tax” – was suspended at the beginning of the year and is currently on hiatus.

That means any transfer of property through inheritance currently isn’t taxed, but it won’t stay that way. The tax will come back next year at a higher rate than it was before the temporary repeal went into effect.

President Barack Obama has instead proposed freezing the tax at its 2009 level, when estates were taxed at 45 percent of their value. However, many liberal groups want a tiered system where the richer you are, the more you’re taxed.

They argue the rich couldn’t have enjoyed their wealth if it weren’t for the services that government provides, from the security of a strong military to a robust infrastructure that allowed them to do business.

“We firmly believe the people who have these enormous estates are the people who benefit the most,” said Steve Wamhoff, legislative director for Citizens for Tax Justice.

The estate tax generates a lot of anger for a tax that few people actually pay. When it was suspended at the end of 2009, only estates valued at $3.5 million or more were taxed.

It has slowly phased out since 2001 thanks to tax cuts pushed through Congress by President George W. Bush. The year before he took office, individuals had to pay a maximum 55 percent tax rate on the value of their estates above $675,000.

Bush’s tax cut gradually increased the exemption while lowering the maximum tax rate. The exemption jumped to $1 million and then to $2 million. At the same time, the tax rate dropped below 50 percent.

The tax will come back in 2011 at the 55 percent rate if Congress does nothing, but it will apply to estates with a value of at least $1 million per individual.

A report by Congressional Budget Office found that 108,000 estates nationwide filed to pay the tax in 2000, but only 9,800 of them would have had to pay under the 2009 level. In West Virginia, the number of estates pay the tax has shrunk from 245 in 2000 to 60 in 2008, according to Citizens for Justice.

The suspension of the tax means the federal government has missed out on some potential windfalls. One of the more famous examples is George Steinbrenner, owner of the New York Yankees, who died earlier this year. Another is Dan L. Duncan, a Texas businessman whose personal wealth was valued at $9 billion at the time he died, according to The New York Times.

Critics of the tax see little reason Congress should keep it. The Tax Foundation, a nonprofit organization that generally advocates against tax increases, noted in a recent report that the tax generates about $25 billion a year, which is distributed widely among federal government coffers and therefore has a small impact on the overall budget.

The authors also said the tax was absurdly complex, making it difficult for individuals to plan their estates.

The conservative Heritage Foundation argues that the tax discourages savings and investment and therefore undermines job creation.

“Because it is a tax on capital, it is destroying some 1.5 million jobs that the economy desperately needs as it struggles to recover,” Curtis Dubay, a senior tax policy analyst for the foundation, wrote in a July 20 report.

Many federal lawmakers note government needs the money given the looming budget deficit. Obama has proposed letting many of Bush’s tax cuts for the wealthy expire while retaining those aimed at the middle class.

Still, the compromise touted by Obama isn’t satisfactory for Citizens for Tax Justice and more than 70 other organizations that think lawmakers could do better. They want a “responsible estate tax” that bases the percentage of the tax on the value of an estate.

Their proposal would tax estates above $3.5 million but less than $10 million at 45 percent; between $10 million and $50 million at 50 percent; and estates above $50 million at 55 percent.

There also would be a surtax of 10 percent on taxable estates worth more than $500 million.

Citizens for Tax Justice noted the estate tax they back wouldn’t tax 99.75 percent of estates.

Miami Herald (Op-Ed by CTJ): Hypocritical Senators Choose Tax Cuts for Rich Over Job Creation

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July 30, 2010

BY STEVE WAMHOFF
www.ctj.org

More than 40 U.S. senators have voted several times this year to block extensions of programs that -- according to mainstream economists -- are the most effective ways to boost consumer demand and create jobs. This minority of senators filibustered a package of extended unemployment benefits, Medicaid funding for states and other vital measures because it would have increased the budget deficit by more than $100 billion, which these senators claimed was unacceptable. They later stopped action on several smaller jobs bills until the Senate (just barely) approved a pared-down $34 billion extension of unemployment benefits.

Yet almost all of these supposedly anti-deficit senators also want to add about a trillion dollars to the deficit over the next decade by making permanent the Bush tax cuts that benefit the very richest taxpayers. While the relatively small, temporary job measures that these senators blocked would have little or no impact on the long-term budget deficit, making permanent the Bush tax cuts for the rich would drastically increase the deficit and reduce our ability to invest in America's future.

There are three parts to the debate over the Bush tax cuts. The first involves the cuts enacted under President Bush in the federal income tax. Under President Obama's proposal, the 98 percent of taxpayers with adjusted gross income less than $200,000 (or $250,000 for married couples) would retain all of these income tax cuts. That leaves in dispute only whether the richest 2 percent will also continue to enjoy fully these income tax cuts, as congressional Republicans propose.

The second involves the federal tax on the estates of millionaires, which President Bush temporarily repealed. While congressional Republicans want to make this repeal permanent, President Obama would meet Bush halfway by cutting the estate tax in half (compared to what it would be if Congress simply allowed the Bush repeal to expire).

Under Obama's proposal, fewer than half of 1 percent of deaths would result in estate tax liability. This means that the federal estate tax would only affect the very richest families -- whose fortunes could only have been made because of the roads that facilitate commerce, the public education that creates a productive workforce and the stability that government provides and which taxes make possible.

The third part of this debate involves modifications to the Bush tax cuts that were included as part of the economic recovery act enacted last year. These provisions, which modestly expanded the Child Tax Credit and the Earned Income Tax Credit, expire at the end of this year, just like the Bush tax cuts. President Obama would make these provisions permanent, while congressional Republicans would not. The result is that the poorest three-fifths of taxpayers would actually pay more in taxes under the Republican approach than under Obama's plan.

How do Republicans (and conservative Democrats who agree with them) justify their position? One argument they make is that the tax system unfairly burdens the rich and lets the poor off too easily. For example, conservatives have lately fixated on the fact that many people don't owe any federal income taxes. Many cite this fact to explain their opposition to the Earned Income Tax Credit and the Child Tax Credit and their support for more tax cuts for the rich.

But the fact that some people do not owe income taxes is a red herring. Everyone who works pays federal payroll taxes, even if they do not earn enough to owe federal income taxes. Everyone pays state and local taxes, which tend to be very regressive, meaning they eat up a larger fraction of a poor family's budget than a rich family's budget. The progressive aspects of the federal income tax just barely offset the regressive features of all these other taxes.

Conservative lawmakers also like to argue that if the rich lose their tax cuts, the small businesses they own won't be able to grow and create jobs. This is also a red herring. Only 3 percent to 5 percent of taxpayers with business income would lose any of their income tax cuts under Obama's plan. And even for these taxpayers, there is no connection between income tax rates and hiring decisions. Businesses are not taxed on money they pay to their employees as wages, and small business owners are not taxed on income they reinvest in their businesses.

Congressional Republicans want to add a trillion dollars to deficits over the next decade by extending Bush tax cuts for the very rich. At the same time, they claim we can't afford programs and tax breaks to help the economy and working families that cost a tiny fraction of their proposed giveaway to the wealthy. Their approach is both hypocritical and irresponsible.

Steve Wamhoff is the legislative director for Citizens for Tax Justice.

The Globe and Mail: Death is Certain. Taxes, Maybe Not

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(Original Post)

The Globe and Mail (Canada)

February 4, 2009 Wednesday

Death is Certain. Taxes, Maybe Not

by TU THANH HA

INTERNATIONAL NEWS; Pg. A15

The fiscal foibles of three of Barack Obama's cabinet nominees reflect a broader problem in a country where each year there is an estimated tax gap of $350-billion (U.S.) between what is owed and what is paid to the Internal Revenue Service.

"Are we a nation of tax cheats? Basically no. But the answer is nuanced," said Howard Chernick, a specialist on public-sector economics at Hunter College in New York.

While most Americans are wage earners whose income taxes are deducted at the source, small businesses and independent workers are turning into the biggest source of tax avoidance in the United States, Dr. Chernick said.

The widening income inequality in the United States makes non-wage income more prominent and contributes to tax evasion because non-wage transactions are less visible, a 2003 paper by IRS senior economist Kim Bloomquist says.

"The tax code makes it awfully easy for people who are in business to not pay their taxes as they should. Sometimes it's by confusion, sometimes they think they can get away with it," said Robert McIntyre, director of the Citizens for Tax Justice advocacy group.

The optics were particular bad for former Senate Democratic leader Tom Daschle, who dropped out of contention for the post of health and human services secretary over his failure to pay taxes on the use of a luxury car and driver while working as a consultant.

"We've gotten into a culture in the United States where the acceptance of aggressive tax evasion has grown and I fear that Daschle was subject to that culture," Dr. Chernick said. "It's infected everyone. ... Very few people are immune to the culture of tax avoidance."

Among red-meat Republicans bristling at Mr. Obama's honeymoon, the developments were a source of bons mots.

"One good thing about electing a Democrat as president is that, as he nominates fellow Democrats to senior positions in the executive branch, millions of dollars in unpaid tax liabilities come to light and are belatedly paid," wrote conservative blogger John Hinderaker.

"Liberals don't mind tax rates going up because they're not going to pay anyway," Republican Senator Jim DeMint said on a TV panel.

In fact, both Dr. Chernick and Mr. McIntyre said, IRS enforcement diminished under the Bush presidency and during past Republican-led Congresses.

During that time, U.S. media stories reported how IRS auditors spent less time scrutinizing corporations, investors in real-estate partnerships evaded billions of dollars in taxes each year and the ranks of IRS auditing lawyers were trimmed.

"Any time the government tried to crack down on cheating, the Republicans in particular stood up and said 'You're persecuting small businesses,' " Mr. McIntyre said.

Mr. Bloomquist's IRS paper noted that wealthier Americans had "greater antipathy towards taxation."

The paper even cited as the most notorious example the hotel tycoon Leona Helmsley who famously said that "only the little people pay taxes."

Stateline: Sales Tax Holidays: Easy to Sell But Hard to Justify

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Monday, July 26, 2010

By Joey Peters, Special to Stateline

Starting late this week and continuing through mid-August, some 16 states will kick off an event that has become a ritual of back-to-school season. They will temporarily suspend sales taxes on pens, pencils, binders and bookbags, as well as moderately-priced clothes, and in some cases, computers.

For Illinois, it will be the first time ever that a sales tax “holiday” has been declared. From August 6 to August 15, shoppers can buy school supplies or clothes and shoes worth up to $100 without paying the 5 percent state sales tax. The move is expected to cost state coffers $60 million, even as Illinois wrestles with a $5 billion backlog of unpaid bills.

On the other hand, in Georgia, where tax breaks on back-to-school products have been a staple since 2002, the Legislature decided to forgo it this year, much to the dismay of retailers. Lawmakers didn’t want to be subsidizing clothes for children to wear to school at a time when they were cutting back spending on the schools themselves.

Sales tax holidays have been around since New York passed the first one 15 years ago. According to the Federation of Tax Administrators, states have found lots of excuses to declare the holidays. Louisiana and South Carolina kick off hunting season with a tax break on guns. Louisiana and Virginia begin hurricane season with a tax break on preparedness items such as flashlights, batteries and generators. And six states, including Maryland, Missouri and West Virginia, offer temporary sales tax breaks on Energy Star appliances.

The holidays are popular with shoppers who like getting a deal, retailers who like getting a flood of customers, and politicians who like getting credit for making it all happen. But critics on both sides of the political spectrum say sales tax holidays are an ineffective gimmick.

The Tax Foundation, a conservative research organization, argues that sales tax holidays don't actually encourage shoppers to buy anything. Instead, shoppers purchase things they would've bought anyway, but on a different day. Retailers still benefit from the arrangement, says Mark Robyn, an economist with the nonpartisan group. “It's sort of like advertising a sale,” Robyn says, “but they don't have anything to give up.”
Meanwhile, Citizens for Tax Justice disputes a common claim that the holidays help poor families save money on essential items. Matt Gardner, a policy analyst for the liberal group, says the tax breaks actually are geared toward upper-income families. “It’s a real question of who’s best positioned to take advantage of them,” he says. “Low-income people are less likely to shift the timing of their purchases.”

One point that both the Tax Foundation and Citizens for Tax Justice agree on is that since the holidays only include special items — school items during back-to-school season, guns and ammunition during hunting season — they still unfairly impose sales taxes on everything else. In other words, they discriminate against consumers who don’t go hunting every fall and don’t have to buy their children notebooks and pencils.

2010 SALES TAX HOLIDAYS FOR BACK-TO-SCHOOL ITEMS
•    Alabama: August 6-8
•    Connecticut: August 15-21
•    Florida: August 13-15
•    Illinois: August 6-15
•    Iowa: August 6-7
•    Louisiana: August 6-7
•    Maryland: August 8-14
•    Mississippi: July 30-31
•    Missouri: August 6-8
•    New Mexico: August 6-8
•    North Carolina: August 6-8
•    Oklahoma: August 6-8
•    South Carolina: August 6-8
•    Tennessee: August 6-8
•    Texas: August 20-22
•    Virginia: August 6-8
Source: Federation of Tax Administrators


Retail psychology

Retailers have their own studies to point to, showing positive impacts from sales tax holidays. One they like came from the Texas, where the state comptroller found that sales tax holidays saved shoppers $442 million from 1999 to 2008. In Florida, which is reinstating a back-to-school tax holiday after a two-year hiatus, the state retail federation sponsored a study that concluded that gross sales increased by about 8 percent during the month the school tax holiday was last held in 2007.

“The consumer loves it,” says Rick McAllister, president of the Florida Retail Federation. “It’s psychological. It’s hard to explain.”

But other studies support what the critics of sales tax holidays have to say. A 2009 University of Michigan study said as much as 90 percent of increased sales during a sales tax holiday could be attributed to consumers merely shifting their buying from one time to another. And a 2001 study from the University of West Florida suggests that retailers raise prices during sales tax holidays, helping themselves to some of the savings intended for consumers. However, this kind of profit padding can be difficult to measure.

One thing most tax experts agree on is that a few days of tax breaks on selected items doesn't do much to stimulate a state's economy. The amount of money involved is too small, and the event is over too quickly. That was one reason why Georgia was quick to get rid of its back-to-school tax break this year. Typically, according to Alan Essig, executive director of the Georgia Policy and Budget Institute, the event would cost the state around $15 million.

On the scale of Georgia's $17 billion budget, that’s not much. But during a budget crisis, every penny counts — especially in a state that's had to make significant cuts in education. As Essig puts it, “the idea of having a school tax holiday while laying off teachers and cutting school hours didn’t make sense.”

—Contact Joey Peters at jpeters-temp@pewtrusts.org

 

BNA, Inc., Daily Tax Report: Stakeholders Urge Congress to Close Tax Loopholes for Oil and Gas Companies

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July 20, 2010

137 DTR G-5

By Christine Grimaldi and Alison Bennett

Citizens for Tax Justice, along with several other groups, July 19 urged the bipartisan leadership of the House Ways and Means Committee to close a tax code loophole allowing companies to change their address—both within the United States and offshore—to circumvent tax liability.

In a July 19 letter to Chairman Sander Levin (D-Mich.) and ranking member Dave Camp (R-Mich.), the groups said BP oil rig owner Transocean shifted addresses from Texas to Delaware to the Cayman Islands to Switzerland.

Transocean reportedly “has shaved 15 percentage points and billions of dollars off of its U.S. tax bill over the past decade by strategically locating ‘headquarters’ to no- and low- tax jurisdictions,” according to the letter. “In fact, Transocean is one of at least six oil drilling companies to pick up shop and move their addresses overseas to work the system,” the letter added.

Inverted Companies Criticized

“These companies, known as inverted corporations, grow their business in the United States and establish a nominal presence in a foreign country for tax purposes. Right now remaining loopholes within our law permits profitable companies to legally skip out on their taxes and shift their tax burden to taxpayers and responsible businesses already facing tough times in this economy,” the letter added.

The call for closing the loophole comes as Ways and Means is expected shortly to drop energy tax legislation. “Companies that use our roads, are protected by our military and access our markets should pay their share of U.S. taxes,” the letter said.

The letter came the same day that CTJ unveiled two additional reports criticizing the tax structure surrounding the oil and gas industry and highlighting problems with the U.S. international tax system in the wake of the BP disaster.

CTJ Calls for Tax Incentive Shutdown

In the first report, What Oil and Gas Companies Extract—From the American Public, CTJ asserted, “The truth is that oil and gas companies have for years received a bonanza of unjustified tax breaks that serve only to boost profits for their shareholders,” and urged shutdown of the tax incentives.

CTJ said in its view, “these subsidies do not spur the exploration of new reserves nor stimulate alternative energy investment,” noting that in the top five oil companies, “managers direct most of their excess cash to dividends and stock repurchases.”

According to the report, the percentage of net profits directed at these areas for the top five oil companies was 58 percent in 2005, 73 percent in 2006, 72 percent in 2007, 71 percent in 2008, and 89 percent in 2009.

Generous tax treatment also does not encourage the companies to develop alternative energy, CTJ said, noting that reviews of oil company press releases, Securities and Exchange Commission filings, and published articles suggest that alternative energy investments approximate less than 5 percent of profits for the top five firms.

Section 199 Deduction Targeted

The group said Congress should:
• bar large oil and gas companies from using the deduction for domestic manufacturing under tax code Section 199;
• repeal the deduction for intangible costs of exploring and developing oil and gas sources;
• repeal percentage depletion for oil and gas products;
• reduce the break for amortization of geological and geophysical expenditures; and
• modify rules for dual-capacity taxpayers.

In its second report, Offshore Drilling and Taxes: Gulf Oil Spill Highlights Problems With the U.S. International Tax System, CTJ noted the relocations of Transocean, the owner and operator of the BP Deepwater Horizon Drilling Rig, and said the company has saved an estimated $2 billion in taxes because of its corporate inversion.

International Tax System Attacked

Although in 2004 Congress passed legislation to stop tax breaks for such inversions on a going-forward basis, “it did nothing to stop the tax breaks from continuing to be available to companies that had already pretended to move,” CTJ said.

Another area of weakness in the U.S. international tax system is its transfer pricing rules, the group said. It noted that Transocean is “one of many companies that is in trouble with [the U.S. Internal Revenue Service] and tax authorities in other countries over the way it accounts for those transfers.” The company's financial statements indicate a potential liability of $1 billion in additional taxes related to its transfer pricing methods, CTJ said.

The group said that although some have called for a complete overhaul of the international tax regime, there is no reason to delay addressing what it called “egregious abuses.”

Text of the CTJ report on tax treatment for oil and gas companies is online at http://ctj.org/pdf/energy20100709.pdf.
Text of the CTJ report on the U.S. international tax system can be found at http://ctj.org/pdf/drillingoffshore.pdf.

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July 16, 2010

By Christopher Moraff

As the saying goes, two things in life are certain: death and taxes. Unless you’re a multinational corporation.

In that case, if you’re on the brink of death—and “too big to fail”—the government might bail you out. As for taxes, the federal code is designed to help you avoid paying your fair share to the U.S. Treasury.

A bill introduced by Rep. Charles Rangel (D-N.Y.) that would chip away at some of these tax loopholes passed in the House on May 28, only to collapse less than a month later in the Senate under the weight of a GOP filibuster. Republicans say the legislation was too expensive. While boosting unemployment benefits and extending certain expiring tax credits, the American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213) would have eliminated $14 billion of foreign tax credit loopholes, its drafters say.

Corporate tax avoidance is a costly problem. Last year, General Electric—which is divided into an industrial business, and a financial services business, GE Capital—paid no U.S. taxes, despite reporting consolidated profits of $11 billion. That’s because GE shifted its profits overseas, thereby incurring a U.S. loss of $498 million. “Over the last two years, GE Capital has displayed an uncanny ability to lose lots of money in the U.S. and make lots of money overseas,” Forbes reported in April.

GE is not alone. In 2008, the U.S. Government Accountability Office (GAO) reported that nearly two-thirds of U.S.-domiciled corporations had not been paying federal income tax.

How much such “legal” tax avoidance schemes cost the Treasury is unknown since corporate tax documents, like personal returns, are not public. Estimates vary from $20 to $120 billion annually.

As a result, U.S. corporate income taxes now rank near the bottom among all developed countries. According to the White House, in 2004 U.S. multinational corporations paid $16 billion in U.S. taxes on $700 billion of foreign active earnings—an effective U.S. tax rate of 2.3 percent.

Among the techniques companies use to avoid paying U.S. taxes is what’s known as “transfer pricing.” Transfer pricing involves the fees subsidiaries of a corporation charge each other for intercompany exchanges. Firms abuse transfer pricing by shifting costly assets from places like the United States to low or no-tax jurisdictions, say, Luxembourg or the Bahamas. Intangible assets like patents and trademarks are especially attractive for income-shifting schemes since their value is arbitrary and therefore more open to distortion.

For example, a pharmaceutical company might transfer a drug patent to an overseas subsidiary in a low-tax jurisdiction (Ireland is a current favorite). It then charges its U.S. divisions, which account for the bulk of distribution, a hefty licensing fee for use of the patent. Thus, income is shifted to the patent-holding subsidiary, while the U.S. subsidiary records a loss.

Of the 100 largest U.S. corporations, 83 have subsidiaries in low-tax countries, according to President Barack Obama.

Rebecca Wilkins, a senior counsel of federal tax policy at the nonprofit Citizens for Tax Justice, says that corporate America has pushed tax avoidance schemes to the “brink of illegality.” “They’ve gotten incredibly creative at it and have many highly paid consultants helping them do it,” Wilkins says.

Take Goldman Sachs, which had an effective tax rate of 34 percent in 2007 on record profits of $11.6 billion. Yet a year later, the company’s tax rate had fallen to 1 percent.

How’d they do it? “If you look at their financials for that year, they pretty much tell you that it was due to the way they restructured the company and that they moved a lot of business offshore,” Wilkins says.

Lawmakers have long been aware of the abuses, but Wilkins doubts Capitol Hill has the “appetite” to address them.

In an e-mail sent to In These Times, Sen. Byron Dorgan (D-N.D.), who with Sen. Carl Levin (D-Mich.) commissioned the 2008 GAO study, called transfer-pricing abuse a “major problem.” “We must give the IRS new tools to help combat transfer-pricing schemes,” Dorgan writes. “It’s essential that we put the brakes on U.S. multinational companies that are moving profits offshore to avoid paying U.S. taxes they rightfully owe.”

Separately, on May 19, Rep. Lloyd Doggett (D-Texas), who sits on the tax-writing House Ways & Means Committee, introduced the International Tax Competitiveness Act, which limits the transfer of intangible assets to overseas subsidiaries.

“We need to be doing much more to combat international tax abuses,” Doggett said via e-mail. “It is particularly galling that some of the biggest recipients of the massive taxpayer bailout have subsidiaries in tax-haven countries.”

Doggett’s bill was assigned to the Tax Subcommittee of the House Ways & Means Committee, where it is being considered.

Yet one must wonder if a corporate power base with enough leverage to nearly take down the global economy and still finagle a $700 billion bailout from the federal government will ever be effectively reined in. While a handful of legislators cries foul, savvy corporations continue to play a game of hide-and-seek with the IRS. And all the while the U.S. Treasury bleeds.

Gannett News Service: Failed Boxer amendment could have helped H-P

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Gannett News Service

July 9, 2010 Friday

Failed Boxer amendment could have helped H-P

By PETER URBAN

WASHINGTON - Republican challenger and former Hewlett-Packard CEO Carly Fiorina says Sen. Barbara Boxer has little to show for her 18 years in office, but at least one legislative victory paid off for HP.

The company was able to bring $14.5 billion in offshore earnings back home without owing Uncle Sam as much as 35 percent in corporate taxes, thanks to a 2004 law championed by Boxer and Sen. John Ensign, R-Nev.

Boxer and Sen. Dianne Feinstein,  D-Calif., voted for the proposal to offer a one-year tax amnesty to U.S. multinationals that repatriate their offshore earnings.

At the time, Boxer and Feinstein argued that U.S. multinational companies "have significant earnings from overseas that could be used to invest in the economic recovery, but the current tax structure gives them more incentive to leave those earnings overseas."
The proposal had been heavily lobbied by pharmaceutical and high-tech firms that stood to gain the most from the tax break, according to a 2003 report from the Center for Responsive Politics.

The Homeland Investment Coalition - representing 63 companies including Hewlett-Packard - lobbied for the tax break. Executives from those companies contributed $191,000 to members of the Senate Finance Committee and $154,000 to members of the House Ways and Means Committee, according to the nonprofit center, which tracks federal lobbying and campaign finances.Hewlett-Packard had about $14.5 billion in foreign earnings that qualified for the temporary deduction, according to company financial statements. Fiorina served as CEO of HP from July 1999 to February 2005.

In February 2009, Boxer made a similar plea for a temporary tax break as a way to help the economy. The new proposal would have cut the 35 percent top rate down to 5.25 percent for income repatriated in 2009 or 2010.

The measure was defeated 42-55 despite heavy lobbying from the high-tech industry and others with large cash holdings overseas. It was one of the 20 roll calls taken so far in the 111th Congress in which California's two senators sided with the Republican minority over their fellow Democrats.
The week before the Senate considered Boxer's amendment, Citizens for Tax Justice criticized what it described as a "lobbying blitz by multinational corporations" to promote a "scandalous lobbying proposal."

It noted that there was little evidence to suggest that the program produced any economic benefit to the nation, even as the U.S. companies had to pay only $8 billion in corporate taxes on $312 billion in repatriated earnings.

"Money is fungible," said Robert McIntyre, director of Citizens for Tax Justice. "You take it from one pot; you put it in another. Congress says you can't use repatriated profits for a prohibited purpose, but of course you can free up some other money and use that for the prohibited purpose."

A Congressional Research Service analysis published in January 2009 found that 10 of the top dozen companies that took advantage of the 2004 break cut jobs. Hewlett-Packard repatriated $14.5 billion and laid off 14,500. Pfizer repatriated $37 billion and cut 9,000 jobs in 2005.
California-based Oracle and Intel also repatriated foreign earnings. The money helped Oracle acquire two U.S. companies and helped Intel build a new factory.

The Business Roundtable, an organization of corporate chief executives that's supporting Fiorina's Senate campaign, lobbied in favor of Boxer's latest proposal. It commissioned economist Allen Sinai of Decision Economics to make a study promising that a repatriation tax holiday would have miraculous economic effects.

Sinai argued that amnesty did benefit the U.S. economy, according to a survey of several hundred of the businesses that took advantage of the program. The businesses reported that 25 percent of the money went to capital investments and 23 percent to hiring and training new workers.
Sinai said that a similar injection of offshore earnings into the U.S. economy would net about 614,000 new jobs and add $110 billion to the gross domestic product in 2010.

"A private-sector stimulus could be a win-win for government and U.S. businesses, without further straining an already overextended Federal Reserve balance sheet," he wrote.

Senate Democrats who opposed the Boxer measure said it would reward outsourcing of jobs.

"If we allow U.S. corporations to once again send the money they earn abroad back to the U.S. at a discounted tax rate, it will only lead to more companies moving their profits offshore," said Sen. Byron Dorgan, D-N.D.

Tax Notes: Weakened Carried Interest Provision Upsets Some Observers

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June 28, 2010

By Sam Goldfarb — sgoldfar@tax.org

As the Senate has steadily weakened a tax increase on carried interest income over the last couple of weeks, some policy observers have become steadily more frustrated.

For decades, some managers of investment businesses that are structured as partnerships have been able to claim a portion of their firm's profits as capital gains instead of ordinary income. Those earnings -- commonly referred to as carried interests and associated with hedge fund and private equity managers -- have drawn the ire of some progressives, who consider them to be among the most blatant examples of unfairness in the tax code.

Since Democrats took control of the House in 2006, Congress has been taking a close look at carried interests, and the House has voted twice to change their tax treatment entirely from capital gains to ordinary income. Although that legislation has repeatedly stalled in the Senate, things were looking different in 2010 -- at least until recently.

On May 20 the chairs of the House and Senate taxwriting committees announced that they had reached agreement on a tax extenders bill containing extensions of tax breaks and safety-net spending programs that were about to expire or had already expired at the end of 2009. One of the offsets for the American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213) was a proposal to treat carried interests as a combination of capital gains and ordinary income. The provision would be phased in over time, but by 2013, 75 percent of carried interests would be taxed as ordinary income and 25 percent would be taxed as capital gains. (For the legislation, see Doc 2010-11323 or 2010 TNT 98-32 2010 TNT 98-32: Proposed Legislation. For prior coverage, see Tax Notes, May 24, 2010, p. 846.)

For House Democrats like acting Ways and Means Committee Chair Sander M. Levin, D-Mich., the proposal was a compromise, but its full endorsement from Senate Finance Committee Chair Max Baucus, D-Mont., seemed to bode well for its prospects.

Since then, however, the carried interest provision has been consistently diminished. Before passing H.R. 4213 on May 28, the House delayed the provision's enactment date from the start of 2010 to 2011. Shortly thereafter, Baucus introduced a substitute amendment to H.R. 4213 that would treat carried interests differently depending on how they were earned. Income derived from assets held for a longer period would be taxed at a lower rate than income tied to assets held for a shorter period. That approach was pushed further in a second substitute amendment in which carried interest income tied to assets held for at least five years would be taxed as 50 percent capital gains and 50 percent ordinary income, while income associated with assets held for less than that amount would be taxed at the originally proposed 75/25 split. (For the first Baucus substitute, see Doc 2010-12595 or 2010 TNT 110-35 2010 TNT 110-35: Proposed Legislation. For the second Baucus substitute, see Doc 2010- 13400 or 2010 TNT 116-23 2010 TNT 116-23: Proposed Legislation. For prior coverage, see Tax Notes, June 21, 2010, p. 1307.)

A third Baucus substitute amendment, introduced last week, made so-called technical corrections and clarifications to the carried interest provision. Like the other substitute amendments introduced before it, the latest substitute failed to overcome a procedural vote in the Senate, and the bill remained stalled on the Senate floor. (For related coverage, see p. 1416. News Stories For the latest Baucus substitute, see Doc 2010-14037 or 2010 TNT 122-19 2010 TNT 122-19: Proposed Legislation. For a Finance Committee summary, see Doc 2010-14029 or 2010 TNT 122-21 2010 TNT 122-21: Congressional News Releases.)

According to the Finance Committee, the carried interest provision in the newest Baucus substitute would raise $13.6 billion over 10 years. That compares with an estimated $18.7 billion that would be raised by the proposal put forward on May 20 and $28.6 billion that would be raised by the proposal in President Obama's fiscal 2011 budget, which would tax carried interests as 100 percent ordinary income. (For the Joint Committee on Taxation's revenue estimate of Obama's budget proposal, see Doc 2010-5625 or 2010 TNT 50-13 2010 TNT 50-13: Congressional Joint Committee Prints.)

Economic Effects Questioned

For some, the development of the carried interest provision has been dispiriting, if not altogether unexpected. It is "just the clearest example that the people with money can make their voices heard most clearly," said Steve Wamhoff, legislative director at Citizens for Tax Justice.

Although industry groups such as the Private Equity Council have been arguing that a tax increase on carried interests would lead to less investment and fewer jobs, those claims are "completely ridiculous," Wamhoff said. He noted that the capital gains tax has been reduced twice in the past 15 years without any noticeable increase in the number of private equity managers, who could take advantage of the tax benefit.

Even some conservatives have suggested that the incentive provided by the tax treatment of carried interests may be minimal. In a recent paper, Kevin Hassett and Alan Viard of the American Enterprise Institute wrote that the carried interest form of compensation would "likely be used even if it offered no tax savings" because managers of investment funds would still have plenty to gain by linking their earnings with the success of their funds. (For the paper, see Doc 2010-12491 or 2010 TNT 109-33 2010 TNT 109-33: Washington Roundup.)

In the opinion of Hassett and Viard, changing the tax treatment of carried interests would still be misguided. The "managers to whom the gains and dividends are allocated helped generate the gains and dividends," they wrote. If Congress believes in providing a special tax break for capital gains, the managers of investment funds deserve to benefit from it and can even help contribute to its effectiveness, they added.

For the most part, lawmakers who have been concerned about increasing taxes on carried interests have not been making technical arguments about tax policy. Rather, they have publicly worried about the economic impact of the tax increase, particularly on venture capitalists, who they have characterized as important job creators.

Fear is a driving force behind maintaining the tax-favored treatment of carried interests, said Sima J. Gandhi, a senior policy analyst at the Center for American Progress. Senators are afraid that changing the law would have the effect that lobbyists say it would have, even though the arguments that lobbyists are making are "very tenuous," she said.

Inside U.S. Trade: Bond, Thune Spearhead Efforts To Gut Foreign Tax Provisions From Bill

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Inside U.S. Trade

June 18, 2010

Bond, Thune Spearhead Efforts To Gut Foreign Tax Provisions From Bill

Vol. 28 No. 24

by Erik Wasson

Sens. Kit Bond  (R-MO) and John Thune  (R-SD) have emerged as champions of multinational firms in their fight to remove tax provisions from a bill now being considered by the Senate, which supporters say would close loopholes for U.S. firms doing business overseas and opponents claim would place them at a disadvantage to foreign competitors and thereby reduce U.S. exports.

The tax loopholes at issue relate to underlying provisions in the U.S. tax code designed to help U.S. firms doing business overseas avoid double taxation.

Proponents of closing the loopholes argue that the provisions in question are perverting the original tax exemptions by allowing multinationals to avoid U.S. taxes to a greater degree than they have been taxed abroad. Opponents of the bill's provisions say that the loopholes are needed enhancements to U.S. competitiveness in the global marketplace.

The eight foreign tax loophole provisions were passed by the House on May 28 as part of the American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213).

They are also included in a Senate amendment in the nature of a substitute to the H.R. 4213 unveiled by Sen. Max Baucus  (D-MT) on June 16. The tax provisions were once again included in a revised Baucus amendment, which was changed to reduce spending, in the nature of a substitute introduced on June 17. That bill failed to win a cloture vote on the Senate floor on the evening of June 17 but could once again be revised.

They would raise $14.5 billion over ten years to pay for other provisions in the bill, such as the funding of Medicare reimbursements for doctors.

An amendment sponsored by Thune that included the elimination of the foreign tax provisions in addition to other controversial provisions was defeated on a procedural vote on the Senate floor on June 17. Thune's amendment 4376 would have also capped total federal employment and cut off remaining stimulus funds among other things.

Bond introduced amendment 4357 to strike the group of eight foreign tax provisions and another "carried interest" provision, which would force income for fund managers to be counted as ordinary income rather than capital gains that face lower taxes.

Sources said that the carried interest provision is opposed by key Democrats. In addition, swing vote Republican Sen. Olympia Snowe (R-ME) has come out against the bill's other revenue raiser which would affect the ability of services firms filing taxes as S Corporations to claim personal income as corporate income.

Bond did not offer his amendment on June 16 because that day's version of the Baucus substitute amendment was defeated on a procedural vote. But Bond expects to offer the amendment to the June 17 version of the Baucus bill, according to an aide.

Until Bond emerged with his amendment, opponents were fearful that they would lose the fight over the tax provisions. One opponent said a key lobbying challenge has been explaining the mind-numbing detail of the foreign tax provisions to senators.

Opponents are especially angered that the provisions would be retroactive to the date of introduction of the bill in May, thereby jeopardizing existing business deals, they say.

On June 14, major business organizations forming the Promote America's Competitive Edge, urged all members of the Senate in a letter to defeat the foreign tax provisions. The letter charged that these provisions will disadvantage U.S. firms vis a vis their foreign competitors and reduce American jobs generated by U.S. multinationals.

The letter was signed by the American Chemistry Council, the Association For Manufacturing Technology, the Association of Equipment Manufacturers, the Business Roundtable, the Business Software Alliance, the Emergency Committee for American Trade (ECAT), the Financial Executives International's (FEI) Committee on Taxation, the Information Technology Industry Council, the National Association of Manufacturers, the National Foreign Trade Council, the Retail Industry Leaders Association, the Silicon Valley Leadership Group, the Software Finance and Tax Executives Council, the Software & Information Industry Association, TechAmerica, TechNet, Technology CEO Council, U.S. Chamber of Commerce and the United States Council for International Business.

In a paper prepared for the Peterson Institute for International Economics, Gary Hufbauer and Theodore Moran argue that the provisions would spur U.S. multinationals to divest from the U.S. and move headquarters abroad. They argue that because of this the bill would actually reduce exports because these companies would suffer.

They cite a study showing that 10 percent increases in foreign investment result in a 2.2. percent increase in additional domestic investment, spurred by the increased profits earned abroad.

Rejecting these arguments is Steven Wamhoff of Citizens for Tax Justice, who says this logic is flawed. He said the 2.2 percent increase in domestic investment should be compared negatively to a 10 percent increase in domestic investment which the firm may be prompted to seek if it did not have the tax loophole for overseas operations.

He took issue with the Peterson Institute's conclusion that the tax credits are needed because the U.S. combined state and federal corporate tax rate of 39 percent is one of the highest in the world. Wamhoff argues that "corporate taxes in the U.S., as a percentage of GDP, are not particularly burdensome, compared to those of other industrialized nations." He states that U.S. companies should simply petition Congress for a lower corporate tax rate rather than abusing tax credits.

"These corporations are really using foreign tax credits to reduce their U.S. taxes on their U.S. income," he said. "Surely we should all agree that this is not the purpose of the foreign tax credit."

The U.S. taxes corporations on worldwide income while most other nations have a territorial taxation system that only taxes what is earned in their jurisdiction. U.S. firms would be at a disadvantage compared to foreign competitors if the U.S. did not allow them to deduct foreign taxes from their U.S. taxes.

Under current law, U.S. firms generally pay only the foreign tax on their foreign earnings and a small additional tax when repatriating the profits back to the U.S.

One of the provisions related to the "splitting" for foreign income was included in President Obama's 2011 Budget Proposal. This provision is opposed by some organizations such as the National Foreign Trade Council but other business representatives such as the Chamber of Commerce are neutral on it.

The splitting provision would specify that U.S. tax credits can only be granted on income when it is taxable in the U.S. It is targeted to firms which defer U.S. taxation indefinitely by never repatriating their profits and reinvesting it abroad while claiming a credit for future taxes on those profits.

A key provision out of the eight foreign tax loophole closers involves one allowing companies to characterize stock acquisitions as "asset acquisitions" for purposes for receiving a tax credit. Proponents say this loophole generates credits on income that is not taxable in the U.S. and therefore exceeds the mandate to prevent double taxation.

Opponents, such as the U.S. Chamber, say the provision encourages acquisitions by U.S. firms of foreign competitors and should be maintained.

Another key provision addresses the so-called "hop-scotch" rule which involves how dividends paid by foreign subsidiaries are granted foreign tax credits. Many multinationals, according to a House Ways and Means Committee summary of the bill, set up multiple tiers including subsidiaries located in tax havens.

The hop-scotch rule allows foreign dividends to be "deemed" as U.S. dividends and companies can claim higher tax credits than taxes actually paid, according to the Ways and Means summary. According to the U.S. Chamber, without the hop-scotch tax planning tool, multinationals would choose simply not to repatriate profits since they would not be given the tax credit any longer. -- Erik Wasson

New York Times Economix: Pete Peterson and the Deficit

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June 17, 2010, 2:12 pm
Pete Peterson and the Deficit
By DAVID LEONHARDT

Some commentators have vilified Peter Peterson, the investor and former Commerce secretary, for raising alarms about the deficit. They argue that Mr. Peterson is really trying to shred the American safety net. I’m not among the vilifiers. We should be taking the deficit more seriously, and Mr. Peterson is trying to make that happen.

But it’s certainly true that he and his foundation would help their case by supporting more deficit-reduction measures that hurt wealthy investors like him. Landon Thomas Jr. of The Times wrote a good article in 2008 explaining Mr. Peterson’s support for a special tax provision for investment income, and now the group Citizens for Tax Justice points out the following:

The Peter G. Peterson Institute, which is ostensibly concerned about the U.S. fiscal imbalance, has come out against provisions in [a Senate bill] that would prevent multinational corporations from abusing foreign tax credits…. [T]he credit is really being used by corporations to reduce their U.S. taxes on their U.S. income. Or, put another way, it’s being used to subsidize foreign countries by helping U.S. corporations pay their foreign taxes.

I’m not suggesting that anybody in favor of reducing the deficit needs to be in favor of every proposal to reduce the deficit. But it’s symptomatic of the larger problem if you’re opposed to too many deficit-reduction proposals that would actually affect you.

To quote Robert Choate, as I’ve done before here:

The public has a sort of sense that there’s a problem … They’re not daft. They realize that there’s a significant adjustment to come, but they tend to think it can be solved by increasing taxes that they don’t pay and cutting spending that they don’t benefit from.

(See Original Post)

The Fine Print

June 3, 2010 Thursday

The Carried Interest Loophole-Closer is the Kitty and Congress is trying to put it in the Microwave

by gtherkildsen

Citizens for Tax Justice (CTJ) released an important call to action along with a report this afternoon about carried interest, the loophole that allows multimillionaire investment fund managers to subject their income to lower tax rates than the average citizen. The "extenders" tax package, which is currently before the Senate, includes a carried interest loophole-closer, but it seems that senators are listening to the fund managers' well-heeled lobbyists and their ridiculous claims against this commonsense policy change.

CTJ is urging everyone to call their senators and tell them that the "extenders" bill “ which includes badly needed unemployment insurance and COBRA health benefits, Temporary Assistance for Needy Families (TANF) jobs and emergency funding, and Medicaid funding for states “ must be passed.

To do so, call the Capitol switchboard at (202) 224-3121 and ask the operator to connect you to the senators from your state.

Additionally, CTJ released a report debunking the outrageous arguments that lobbyists, and unfortunately even some senators, are making in defense of the carried interest loophole. To justify this canard of a subsidy, lobbyists are claiming that if Congress taxes carried interest as regular income, instead of the at the lower capital gains rate, they will hurt everyone from minorities and low-income neighborhoods to small business entrepreneurs and cancer patients.

Read the CTJ report to get the outlandish rationale behind these arguments, but, not surprisingly, they don't hold much water. Indeed, "The only question left," as CTJ puts it, "is why exactly senators and their staffs are willing to parrot these arguments" rather than act on "a bill to provide jobs and relief for struggling Americans during a difficult time." Senators holding up the "extenders" bill because of their objection to the carried interest loophole-closer need to answer that question for every single one of their constituents.

Image by Flickr user paida70 used under a Creative Commons license.

Colorado Springs Gazette: Radical Republican Agenda Ignores Real-World Realities

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2010-06-03 17:45:06

By Hal Bidlack

It would be funny if it were not so darn sad: The Radical Republicans are insisting not that they have a plan to deal with real issues, but rather, that what everyone else sees as reality is, in fact, not actually happening. In the Radical Republican world, up is down, wrong is right, and lies are not lies if you say them loud and often enough.

The radicals that have seized control of the party of Lincoln, Barry Goldwater and Ronald Reagan have steered a course so far to the right that they have left the actual world and have entered Crazytown, and they want you to come along for the ride. The party that was, in theory, the party of small government, and respect for the individual has become the party of “No” in so many ways: No to looking out for the regular guy, No to even a hint of bipartisanship in Washington, No to the will of the people on health care, on the real science of climate change, on real Wall Street reform, and on over 200 bills passed by the House that the Senate cannot even talk about.

But now the Radical Republicans, with a straight face, demand not only that they be allowed to forget the ruinous eight years of President George W. Bush, but now they demand that the American public adopt this convenient amnesia as well. They would have us forget that Bush took a budget surplus of $236.2 billion (Congressional Budget Office) and turned it into a trillion-dollar deficit just eight years later. They would have us forget that there were no weapons of mass destruction in Iraq, that only the richest .03 percent of families actually pay the estate tax, and that they said it was OK for oil companies to not bother installing acoustic switches on deep-sea oil rigs.

Recently Coloradans have been treated to two different and remarkable demonstrations of Radical Republican Revisionist Rethinking (I call it the “pirate strategy” of “RRRR!”). You may have seen the television ads put out by the Republican Governors Association, desperately tossing buckets of mud at Denver Mayor John Hickenlooper. The RGA prattles on about job loss, conveniently ignoring the recession ushered in by the failed politics and Wall Street buddies of Bush and eight years of Republican control of the government.

Revisionist history in Radical Republican ads is not surprising, but getting caught in an outright lie can raise a few eyebrows, eh? You may recall in the ad, the RGA tossed a bucket of mud at Mayor Hickenlooper over Frontier Airline’s decision to supposedly move 340 jobs out of state because of “Hickenlooper tax hikes.” Only problem? Not true, according to Frontier, which took the unusual step of actually issuing a press release to object to the RGA’s false statements.

The simple facts are that Hickenlooper is a superb example of the “can do” spirit. He started out as a geologist in the oil business, started very successful small businesses, gives generously of his time and money, and was re-elected with a staggering 87 percent of the vote.

A second remarkable example of the way Radical Republicans look at the world came from Colorado Springs Mayor Lionel Rivera. By all accounts, Rivera is a nice man, and after my 25 years of military service, I have great respect for folks like Rivera who have served in uniform. But his comments show how truly out of touch with regular folks the Radical Republicans are. Rivera  recently said (after turning down $42.8 million in federal job money to help the unemployed find work) that the city didn’t want the money, and that, apparently losing your home and your dignity really is not a problem because, “Some people want a homeless life. Some people, they really do.” Wow.

And so here we are. The Radical Republicans are asking everyone to forget that they are at the lowest total tax rate since 1950 (USA Today) and that 99 percent of American families got tax cuts from President Barack Obama (Citizens for Tax Justice). They ask us to forget the cozy relationship that existed between Wall Street and Republicans. They ask us to forget that it was Bush that blew the budget out of the water. And they want you to think that Hickenlooper was the cause of job loss in Denver. As a small-business man, Hickenlooper created jobs, and during the recent financial crisis, he steered a course that kept Denver from feeling the worst of the effects of the Republican recession.

The RGA hopes that you are too worried about losing your job and your home to remember whose fault it was. But that tactic will fail. Coloradans are too smart for such blatantly false tactics, and they are too compassionate to accept Rivera’s world view. We choose to live our lives based on the real world, not the fantasy the Radical Republicans offer up. I guess we are lucky that the RGA wasn’t talking about the problem of hunger in America; they’d likely just say “let them eat cake.”

Virginian-Pilot: A tarnished Golden State

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The Virginian-Pilot(Norfolk, VA.)

June 1, 2009 Monday
The Virginian-Pilot Edition

A tarnished Golden State

LOCAL; Pg. B9

By HAROLD MEYERSON

TO UNDERSTAND why the woes of California's economy threaten the nation's, we must understand the state's road to insolvency. The Age of Reagan did not commence with the Great Communicator's inauguration in 1981. For its real beginning, go back to June 1978, when Californians went to the polls and enacted Proposition 13. By passing Howard Jarvis' initiative, California voters reduced the Golden State to baser metal.

Under Republican Gov. Earl Warren and Democratic Gov. Pat Brown, California epitomized the postwar American dream. Its public schools, from kindergarten through Berkeley and UCLA, were the nation's finest, its roads and aqueducts the most efficient at moving cars and water to their destinations. All this was funded by some of the nation's highest taxes, which fell in good measure on the state's flourishing banks and corporations.

Amid the inflation of the late 1970s, however, the California model began to crumple. As incomes and property values rose, Sacramento's tax revenue soared -- but the parsimonious Democratic governor, Jerry Brown, neither spent those funds nor rebated them. With the state sitting on a $5 billion surplus, frustrated Californians passed Proposition 13, which rolled back and then froze property taxes -- effectively destroying the funding base of local governments and school districts, which thereafter depended largely on Sacramento for their revenue. Ranked fifth among the states in per-pupil spending during the 1950s and '60s, California sank to the mid-40s by the 1990s.

Since 1978, state and local government in California has been funded chiefly by personal income taxes. Bank and corporation taxes have been steadily reduced. In the current recession, with state unemployment at 11 percent, tax revenue has fallen off a cliff.

Another problem with Proposition 13 was that it made it very difficult to increase revenue. Raising taxes now requires a two-thirds vote of the legislature, though in 47 other states a simple majority suffices. California has become overwhelmingly Democratic in the past two decades, but Republicans have managed to retain footholds -- representing just over one-third of the districts -- in both houses of the legislature.

The conservative backlash of 1978 also swept into the legislature a new, proto-Reaganistic generation of Republicans, who dubbed themselves "the Neanderthals." The current Republican crop has refused in good times as well as bad to raise business or other taxes (increasing the tobacco tax, for instance, has failed each of the past 14 times it has come up for a vote). They protest that the state already has the nation's highest taxes. In fact, California ranks 18th among the states in percentage of personal income paid to state government, and its presumably beleaguered wealthiest 1 percent, according to Citizens for Tax Justice, pay just 7.4 percent of their income to the state, while the poorest Californians pay 10.2 percent.

But the myth of soak-the-rich high taxation persists among Republicans -- so much so that the GOP front-runner to succeed Arnold Schwarzenegger in next year's gubernatorial election, former eBay CEO Meg Whitman, is calling for cuts in business tax rates even though the state is staring at a $21 billion deficit that it must close. Unless the federal government steps in with a bridge loan, the state will throw 940,000 poor children off its health-care rolls and lay off tens of thousands of teachers.

Because California is so much larger than any other state, and its unemployment rate among the nation's highest, the collapse of its capacity to spend will counteract some of the effect of the federal stimulus and retard the nation's recovery . The Obama administration ignores California's plight at its own -- and the nation's -- peril. The nation's banks are stuck with so much bad paper from California mortgages gone awry that a huge contraction in state spending would make their assets even more toxic.

A more permanent, homegrown solution to California's woes (and it may take a state constitutional convention to get it) would require the state to eliminate the two-thirds threshold for enacting taxes, to repeal Proposition 13's freeze on the value of commercial properties (some of which are still assessed at their 1978 levels) and to end the process of ballot-box budgeting through the initiative process, which is now more dominated by monied interests than the legislature ever was.

Harold Meyerson is editor at large of American Prospect and the L.A. Weekly. This column appeared earlier in The Washington Post.

Right Vision News: Virginia: Perriello Reports to the 5th District of Virginia

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Right Vision News

May 30, 2010 Sunday

Virginia: Perriello Reports to the 5th District of Virginia

Richmond, May 30 -- The State Of Virginia has issued following press release:

One of my top priorities in Congress has been reducing financial burden on middle- and working-class families during these tough economic times. Last week, USA TODAY reported that Americans paid their lowest level of taxes in 2009 since Harry Truman's presidency. The news story reported: "Federal, state and local taxes - including income, property, sales and other taxes - consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century."

These findings bring more good news on top of a report released last month by Citizens for Tax Justice, which showed that 98% of working families and individuals in Virginia benefited from at least one of the tax cuts enacted by this Congress and signed into law. Most of these tax cuts are a result of the American Recovery or Reinvestment Act, or stimulus bill, which I supported. The report found that working individuals and families in Virginia received, on average, $1,229 from four tax breaks enacted by Congress.

In all, this Congress has enacted more than $800 billion of tax cuts. The major tax cuts fell into four major categories:

# Tax Cuts for American Families ($232 billion over 10 years): includes the Making Work Pay Tax Credit, a refundable tax credit of up to $400 per worker ($800 per couple filing jointly) and the American Opportunity Tax Credit, which I wrote, that covers up to $2,500 for the cost of college tuition and related expenses.

# Business Tax Incentives to Create Jobs ($10 billion over 10 years): includes extending the increased bonus depreciation for businesses making investments in new plants and equipment in 2009, and extending small business expensing, doubling the amount small businesses can immediately write off their taxes for capital investments and purchases of new equipment made in 2009.

# Tax Incentives for State and Local Job Creation ($26 billion over 10 years): for critical activities like school construction, low-income housing, and infrastructure development.

# Largest Health Care Tax Cut in History (Over $500 billion): the health insurance reform law contains the largest middle-class tax cut for health care in history, providing 40 million middle-class families with incomes up to $88,000 for a family of four with tax credits to help pay for health care coverage in the exchange. For a family of four making $50,000, the average tax credit will be approximately $5,800. Also provides $40 billion in tax credits for 4 million small businesses to help them offer coverage to their employees if they choose, starting this year.

I'm proud to have supported the largest middle-class tax cut in American history, which will not only allow Virginians to keep more of their hard-earned money, but give a much-needed boost to our small businesses as they rebound from the recession. We are on the path to economic recovery, but the unemployment rate remains unacceptably high. Our own region was hit with a devastating blow last week as Stanley Furniture announced its closing of its Henry County plant, resulting in the loss of more than 500 jobs. That's why I remain laser-focused on job creation and rebuilding America's competitive advantage, and reject an economic strategy centered on Wall Street. We won't rebound from this crisis overnight, but I have no doubt that America can lead the way in the industries of tomorrow if we make the right investments today.

For more information please contact plusnewspk@gmail.c Published by HT Syndication with permission from Right Vision News. For more information on news feed please contact Sarabjit Jagirdar at htsyndication@hindustantimes.com

Roll Call: Business Groups Lukewarm on New Jobs Bill

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By Bennett Roth , Roll Call
Wednesday, May 26, 2010 8:05 am

For months, the Information Technology Industry Council, a trade group that represents high-tech companies, has lobbied lawmakers to approve the extension of expired tax credits for areas such as research and development.

But now that Congress is moving to consider an economic package with those tax extenders, many business groups, including the technology council, aren’t rejoicing.

The reason is that the Democratic leadership, under pressure to offset costs, has tacked on revenue-raising tax changes that business leaders complain could cut their bottom lines.

“Some of the easiest pay-fors have been used up,” said Ralph Hellmann, senior vice president of government relations for the technology council. “Now you are hitting the bone. You are making changes that hurt companies’ competitiveness.”

This week, Hellmann’s group joined other prominent business organizations, including the National Foreign Trade Council and the Business Roundtable, in sending a letter to lawmakers opposing a crackdown on the use of foreign tax credits.

Their action was part of a round of furious lobbying on Capitol Hill this week over the jobs legislation that Congressional leaders say they want to complete before they leave for their Memorial Day break.

The bill, which was unveiled last week by House Ways and Means Chairman Sander Levin (D-Mich.) and Senate Finance Chairman Max Baucus (D-Mont.), is a mishmash of tax and spending measures. It includes extending unemployment benefits and health insurance subsidies, prevents Medicare reimbursement cuts for physicians and provides funding for a range of programs, including infrastructure bonds and summer jobs for young people.

The legislation also would raise the excise tax on oil production from 8 cents a barrel to 32 cents to fund the oil spill liability trust fund, which is expected to be depleted because of the massive BP oil spill in the Gulf of Mexico. Oil industry leaders said they were analyzing the increase, which they anticipated because of the spill.

House Democratic leaders spent Tuesday trying to corral their Members into supporting the $200 billion measure, which has drawn resistance from some fiscally conservative lawmakers in the Caucus. It is also unclear whether the Senate can muster the 60 votes necessary to approve the bill.

Meanwhile, outside groups have been trying to influence the final outcome, with much of the focus on the Senate, which is more likely to consider amendments to the legislation.

Among business groups, the U.S. Chamber of Commerce has taken the toughest stance against the measure, threatening to include votes on the bill in its evaluation of lawmakers’ records.

In a letter to House Members, chamber Vice President Bruce Josten said his group supported a number of elements in the bill, including extending the expired tax breaks, the Build America Bonds and pension relief.

But he said the benefits were outweighed by onerous tax provisions, including limiting corporations’ ability to use foreign tax credits and requiring that “carried interest” earned by venture capitalists and other investors be taxed at a higher rate.

“Many of these provisions would make significant changes to long-standing aspects of U.S. tax law and policy and have never been considered in hearings or other bills,” Josten said. He wrapped up the letter with a warning that the chamber may consider votes on the legislation in the chamber’s annual “How They Voted” scorecard.

The carried interest tax measure, in particular, has drawn fire from private equity firms and real estate investors who are alarmed that it would mean higher taxes for investment fund managers.

Currently, certain fund managers’ compensation is taxed as capital gains, which is a lower rate than if it were taxed as income. Under the bill, three-quarters of those earnings would be taxed at the higher rate.

The Private Equity Council, whose members include Bain Capital Partners, the Blackstone Group and the Carlyle Group, said the provision would change 50 years of partnership tax laws.

“This punitive 157 percent tax hike on growth investment by real estate venture, private equity and other firms will hurt those companies that are most desperately in need of capital to sustain or create jobs and drive growth,” Douglas Lowenstein, president of the Private Equity Council, said in a statement.

An official with the trade group would not discuss its lobbying strategy. But the organization has high-powered help in Washington. The council spent $4.2 million in lobbying from January 2009 through the first quarter of this year, according to lobbying disclosure filings with Congress. To assist in buttonholing lawmakers, the group hired four outside firms, Capitol Tax Partners and the law firms of Akin Gump Strauss Hauer & Feld, Brownstein Hyatt Farber Schreck and Sullivan & Cromwell.

Real estate groups, which have also funded multimillion-dollar lobbying efforts, sent a letter to lawmakers last week opposing the “carried interest” changes, arguing they would hurt the commercial real estate investment.

Public interest groups and unions, however, have applauded what they see as an effort to close tax loopholes they argue unfairly benefit hedge fund managers and companies that distort their foreign income to reduce the U.S. taxes they pay.

Citizens for Tax Justice, a liberal advocacy group, is urging its members to call lawmakers and tell them to support the legislation. The group maintained that investment fund managers are currently getting preferential treatment because their compensation is being treated as capital gains.

“The result is that investment fund managers who sometimes earn hundreds of millions of dollars a year pay at lower rates than their secretaries,” stated a summary of the bill on the group’s website.

Organized labor, led by the AFL-CIO, is also galvanizing its members to support the legislation. AFL-CIO spokesman Josh Goldstein said lawmakers who vote against the measure risk having the unions work against them in upcoming elections. He said union members were also working Capitol Hill this week.

“We’re definitely in full force out there,” he said.

Spring Grove Herald: Minnesota Business Taxes 15th Lowest in the Nation

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By Niel Ritchie, League Rural Voters

Minnesota's taxes on businesses are the 15th lowest in the nation. That is the finding in the annual study conducted by Ernst & Young and the Council on State Taxation (COST), a national association of corporate tax attorneys.

"The claims often made by Governor Tim Pawlenty that Minnesota has an uncompetitive tax structure for businesses are false, and this study proves it," said Wayne Cox, executive director of Minnesota Citizens for Tax Justice.

The study, Total State and Local Business Taxes 2009, also found:

• Minnesota's annual business taxes would have to be $940 million higher in order to reach the national average of the states.

• Minnesota's total state and local taxes on businesses in 2009 was 4.3% of the state's private sector Gross State Product. The national average for the states was 4.7 percent.

• Minnesota's state and local taxes on businesses grew at a much smaller rate over the past four years than the national average for the states.

In an earlier finding, COST said, because of deductions, Minnesota actually only collects 30 cents on the dollar of the 9.8 percent corporate income tax rate. COST said credits and exemptions under the Minnesota corporate net income tax totaled 70 percent.

COST also gave Minnesota the second highest score in the nation for fair, efficient tax administration.

"Pawlenty's claims have been false for quite some time," Cox said. "Last year, the study ranked Minnesota 13th lowest overall -yet time and time again in the past year, Gov. Pawlenty has claimed Minnesota is uncompetitive.

"Last year the market value of the top 100 Minnesota corporations grew by $138 billion, or 46 percent, yet Gov. Pawlenty proposed $800 million in business tax cuts for next biennium - when the state faces a projected deficit of $6 to $7 billion.

"The legislature took a much wiser course for jobs now and for the future. It rejected Pawlenty's request for massive tax cuts for successful businesses. Instead it approved construction estimated to produce over 20,000 jobs, and it targeted investment in innovative new companies."

About COST

COST, an association of 600 corporate tax attorneys, commissions Ernst & Young to conduct the study each year. It tallies all state and local taxes imposed on businesses, including corporate income taxes and the extent that the individual income tax falls on business owners. The study measures the taxes paid as a portion of private business activity in the state, and then ranks each state.

Carroll County Times: Federal Taxes Continue to Decline

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Posted: Wednesday, April 28, 2010 1:00 am | Updated: 9:51 am, Tue May 25, 2010.

By Tom Zirpoli

This may come as a big surprise to many Americans, but 95 percent of us paid fewer federal taxes in 2009, the first year of President Barack Obama's administration, compared with 2008, the last year of President George W. Bush's administration.

In fact, most people paid fewer taxes during the Bush administration than they did during President Bill Clinton's administration.

Federal tax rates have been decreasing, not increasing as many Americans incorrectly believe.

According to the Center for Budget and Policy Priorities, middle-income Americans with a family of four, on average, are now paying 4.6 percent of their income in federal income taxes. This is the second lowest rate in 50 years.

Why were taxes so low in 2009?

Bush cut taxes a couple of times during his administration. Obama's stimulus package added another $200 billion in cuts to middle and lower-income families. Obama's Recovery Act also provided tax breaks and credits for many home buyers and for home energy improvements. Add it all up and, according to the Citizens for Tax Justice, the federal tax bill decreased for 98 percent of Americans in 2009.

So when you hear Tea Party members crying about their taxes going up, remember the facts: Federal income taxes have been going down for most Americans. And when you hear them crying about Obama raising your taxes, listen to Chris Edwards, Director of Tax Policy Studies at the conservative Cato Institute: "The only tax I think that has been put in place so far is an increase in federal cigarette tax."

While most Americans celebrate decreasing federal taxes, there is a negative side to decreasing federal revenues. For one, our federal deficit is soaring. While revenue is decreasing, expenses are increasing. After all, those tax cuts and wars in Iraq and Afghanistan cost a lot of money!

In addition, there are fewer federal dollars available to assist state and local governments. As a result, states like Maryland and cities like Westminster must cut services and raise taxes to balance their budgets.

We all want lower taxes. But we also want the snow to be plowed off our streets in a timely manner and clean water flowing out of our faucets. We want a strong military to defend us and a reliable air traffic control system to protect us. We don't want poison in our food or terrorists on our next flight to New York. We want Social Security to be there for our parents, Medicare and Medicaid to support our sibling with developmental disabilities and health care for our children even when we are unemployed.

Tea Party members send their kids to public schools and organize their protests in public parks, all supported by a combination of federal, state and local government funding. Most Tea Party members will collect more Social Security and other federal benefits than they paid in to the system.

After the Bush tax cuts, which costs more than the wars in Iraq and Afghanistan, we all watched as our national deficit ballooned from about $5.5 trillion the day Bush took office to about $10 trillion the day he gave the keys to the White House to Obama.

It is a good thing to have local and national conversations about taxes and the services we expect from our local, state and national governments. But when we are discussing taxes, we need to get our facts straight: Federal taxes have gone down, not up.

And one way or another, now or later, here in Westminster or over there in Washington, this steady decrease has a cost.

Tom Zirpoli writes from Westminster. His column appears Wednesdays. E-mail him at tzirpoli@mcdaniel.edu

 

Tom Zirpoli: Federal taxes continue to decline

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Posted: Wednesday, April 28, 2010 1:00 am | Updated: 9:51 am, Tue May 25, 2010.

This may come as a big surprise to many Americans, but 95 percent of us paid fewer federal taxes in 2009, the first year of President Barack Obama's administration, compared with 2008, the last year of President George W. Bush's administration.

In fact, most people paid fewer taxes during the Bush administration than they did during President Bill Clinton's administration.

Federal tax rates have been decreasing, not increasing as many Americans incorrectly believe.

According to the Center for Budget and Policy Priorities, middle-income Americans with a family of four, on average, are now paying 4.6 percent of their income in federal income taxes. This is the second lowest rate in 50 years.

Why were taxes so low in 2009?

Bush cut taxes a couple of times during his administration. Obama's stimulus package added another $200 billion in cuts to middle and lower-income families. Obama's Recovery Act also provided tax breaks and credits for many home buyers and for home energy improvements. Add it all up and, according to the Citizens for Tax Justice, the federal tax bill decreased for 98 percent of Americans in 2009.

So when you hear Tea Party members crying about their taxes going up, remember the facts: Federal income taxes have been going down for most Americans. And when you hear them crying about Obama raising your taxes, listen to Chris Edwards, Director of Tax Policy Studies at the conservative Cato Institute: "The only tax I think that has been put in place so far is an increase in federal cigarette tax."

While most Americans celebrate decreasing federal taxes, there is a negative side to decreasing federal revenues. For one, our federal deficit is soaring. While revenue is decreasing, expenses are increasing. After all, those tax cuts and wars in Iraq and Afghanistan cost a lot of money!

In addition, there are fewer federal dollars available to assist state and local governments. As a result, states like Maryland and cities like Westminster must cut services and raise taxes to balance their budgets.

We all want lower taxes. But we also want the snow to be plowed off our streets in a timely manner and clean water flowing out of our faucets. We want a strong military to defend us and a reliable air traffic control system to protect us. We don't want poison in our food or terrorists on our next flight to New York. We want Social Security to be there for our parents, Medicare and Medicaid to support our sibling with developmental disabilities and health care for our children even when we are unemployed.

Tea Party members send their kids to public schools and organize their protests in public parks, all supported by a combination of federal, state and local government funding. Most Tea Party members will collect more Social Security and other federal benefits than they paid in to the system.

After the Bush tax cuts, which costs more than the wars in Iraq and Afghanistan, we all watched as our national deficit ballooned from about $5.5 trillion the day Bush took office to about $10 trillion the day he gave the keys to the White House to Obama.

It is a good thing to have local and national conversations about taxes and the services we expect from our local, state and national governments. But when we are discussing taxes, we need to get our facts straight: Federal taxes have gone down, not up.

And one way or another, now or later, here in Westminster or over there in Washington, this steady decrease has a cost.

Tom Zirpoli writes from Westminster. His column appears Wednesdays. E-mail him at tzirpoli@mcdaniel.edu

Mankato Free Press: Session left much unsettled

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May 23, 2010

Session left much unsettled

State budget only 'fixed' short term

By Mark Fischenich Free Press Staff Writer

The Minnesota Legislature often adjourns with more than a few loose ends left hanging from their freshly printed budget, especially in election years.

In 2010, there were plenty.

The biggest is a monstrous deficit looming for the two-year budget cycle beginning in 13 months, the budget that the next governor and Legislature will be wrestling with starting on Jan. 2.

There are also unresolved issues around whether Minnesota should leverage over $1.4 billion in federal funds by enrolling early in a Medical Assistance program, how to repay billions of dollars the state is essentially borrowing from local schools, and whether Gov. Tim Pawlenty will be doing any more unallotments of aid to cities and other funding.

Red ink on the horizon

The shortfall projected for the next biennium — starting July 1 of next year — is $5.8 billion, or $7 billion if the impact of inflation is included. It’s a daunting number in relation to the state’s two-year budget of a little more than $30 billion.

On top of that, Democratic lawmakers and Republican Gov. Tim Pawlenty — who’s not seeking re-election — used nearly $2 billion in delayed payments to schools to eliminate a $3 billion shortfall in the current budget cycle.

“When the new governor first enters the governor’s office, it will be like entering a hoarder’s home — crammed to the gills with unpaid bills, warning notices from bond rating agencies, and crumpled up Supreme Court rulings,” wrote Wayne Cox, executive director of Minnesota Citizens for Tax Justice. “The new governor’s first job won’t be measuring the drapes. It will be figuring out how to head off the sheriff’s sale.”

Conservatives placed the blame on Democrats, saying they insisted on making temporary spending cuts of about $1 billion rather permanent reductions which would have reduced the size of the $5.8 billion shortfall for the upcoming budget cycle.

“Their unwillingness to make long-term cuts is driven by their desire to raise taxes next year when I’m not here to stop them ...,” Pawlenty said in a statement after the session ended.

Federal funds fight

The final budget deal contained a provision allowing Pawlenty, or the next governor, to enroll early in a federal Medical Assistance program that would cost the state $188 million but bring in more than seven times that much in federal funds.

With Pawlenty all but certain to opt not to opt in, the provision still matters, according to Sen. Linda Berglin, a Minneapolis Democrat who’s the Legislature’s top voice on health and human services funding.

“Not only is it in state law, it’s paid for,” Berglin said.

That means the new governor could sign up for the plan on Jan. 2 and probably have the federal money — which would total $1.4 billion to cover the cost of health care for low-income adults — flowing to the state by sometime in February, she said.

Rep. Tom Emmer, a Delano Republican and his party’s endorsee to replace Pawlenty, said he will not allow Minnesota to take the money if he wins on Nov. 2. Emmer predicted the state’s economic recovery “will be stopped in its tracks if the next governor opts in to Obamacare.”

Democrats said they were baffled by attempts to tie the issue to the health care reform bill pushed by President Obama and passed by Congress this year. Sen. Kathy Sheran, DFL-Mankato, said not accepting the federal money would be a huge mistake.

“We give up claiming money we have already given the federal government that will now be given to other states who opt in to early enrollment,” Sheran wrote in an e-mail to constituents. “The Medicaid program is not a new program. The new development is that early enrollment has been offered to about 11 states who have demonstrated cost efficiency and reform in their health care delivery system.”

Schools, can you spare a dime?

Pawlenty, using gubernatorial unallotment powers in an unprecedented way a year ago, attempted to delay $1.7 billion in payments to Minnesota schools to address a budget shortfall. Earlier this month, the Minnesota Supreme Court ruled that Pawlenty abused his power and that unallotment can be used to address budget shortfalls only after a balanced budget is negotiated with the Legislature.

The negotiations happened this year, but lawmakers upped the ante on the school borrowing after Pawlenty rejected proposed tax increases. Schools are now facing nearly $2 billion in delayed payments.

“Our local schools are going to be in the position of borrowing money to see themselves through, and there is a cost to doing that,” said Rep. Terry Morrow, a former St. Peter School Board member.

Area school officials preferred that to outright cuts in state aid, according to Morrow and Rep. Kathy Brynaert, who served on the Mankato school board before being elected to the House. But they would prefer to be paid what they’re owed, something that won’t happen soon if there isn’t substantial growth in state tax revenue, Brynaert said.

“I do think we’ll do our best to target money, but I understand that it could be 12 or 13 years (to entirely repay the shift) and that’s a long time,” the Mankato Democrat said.

A parting unallotment?

While Pawlenty was out of the unallotment business for a couple of weeks after the Supreme Court ruling, the passage of the budget agreement restores that authority if a couple of conditions are met.

First, an unanticipated drop in state revenue would need to be officially identified by the state’s finance commissioner. Second, red ink would still need to exist after the state’s remaining reserves have been depleted.

That could still happen if the economic recovery stalls during Pawlenty’s final seven months in office, a concern for cities because Local Government Aid has been a favorite target for the governor’s previous unallotments.

North Mankato Mayor Gary Zellmer, a board member of the Coalition of Greater Minnesota Cities, is hopeful that some federal funding will help spare cities this year even if the state’s budget condition worsens.

A federal jobs bill which passed the U.S. House would provide $408 million to Minnesota if the Senate concurs. Most of that money would end up in the state’s reserve accounts and would have to be depleted before Pawlenty could unallot. State Senate Majority Leader Larry Pogemiller put the odds at 50-50 that the federal dollars would arrive, but Zellmer is hopeful.

“It seems like things are stable right now as far as funding,”  Zellmer said.

By “stable right now,” he meant “right now.” The situation in 2011 and beyond is anything but, even with the legislative session complete.

“It doesn’t solve anything,” Zellmer said.

Minnesota Progressive Project: Tough Times Just Got Tougher

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Tough Times Just Got Tougher

Tue May 18, 2010

By Wayne Cox

Governor Tim Pawlenty and Republican leader Rep. Kurt Zellers gave one of their "black is white" press briefings after Pawlenty agreed to a budget deal Sunday night. They claimed the principle they followed in the budget deal was "do no harm."

That must mean no harm to Governor Pawlenty's hope of gaining the Republican  nomination for President.  Most Minnesotans, however, will find tough times just got tougher--for vulnerable people, for businesses, for hospitals, for cities, for school children, for jobs and for taxpayers.

By rejecting the Medicaid option, Governor Pawlenty blocked efforts to do right by the tens of thousands of Minnesotans he had placed in health care limbo. He rejected a plan that would have returned financial stability to health care and hospital services.  He rejected the 20,000 private sector jobs that the plan the DFL sought would have provided. He turned his back on $1.4 billion of desperately needed federal dollars.  He seems to think federal aid is tainted money. He's right. It's money that taint coming here.

The budget cuts will take thousands of paychecks off of Main Street.  Small businesses need many more customers to keep their head above water. Now they will have fewer. Minnesota has 10 jobseekers for every job opening. That ratio just got worse.  Cutting jobs is the last thing one should do in tough times, but that is what Pawlenty insisted on--again. Minnesota has fewer jobs today than when Pawlenty became governor. He has been the job-killingest governor in recent history.  

To Pawlenty, there is nothing about a bad economy that fewer police officers, teachers, and university professors can't cure. In the last two years, the University of Minnesota has had to cut 1,200 positions.  Pawlenty has instituted a state-sponsored brain drain.

Tim Pawlenty doesn't want to be Ronald Reagan. He wants to be Herbert Hoover.

The Pawlenty-imposed budget deal added another $200 million to the amount of state payments to schools that will be postponed. Yet Pawlenty would not agree with the DFL plan on providing a plan for repayment. That is a job Pawlenty said he will leave for the next governor--along with a massive projected deficit and countless IOUs.

When the new governor first enters the governor's office, it will be like entering a hoarder's home-crammed to the gills with unpaid bills, warning notices from bond rating agencies, and crumpled up Supreme Court rulings.  The new governor's first job won't be measuring the drapes. It will be figuring out how to head off a sheriff's sale.

Pawlenty said the deal means no new taxes.  No new taxes, that is, unless one owns a home or rents an apartment. Under Pawlenty, property taxes have gone up 68%. Rather than removing the income tax cuts at the top that after 10 years still have produced no jobs, he slashed the renters credit. The $350 million in cuts to local government aid means property tax increases--again.

Unemployment is highest in greater Minnesota. Yet Pawlenty rejected the advice of Republican mayors and local Chambers of Commerce around the state to keep the jobs they have and instead Pawlenty made the job-killling cuts to local aid. Thanks to the backing Pawlenty got from Minority Leader Kurt Zellers and House Republicans, the cuts stuck.

Zellers said his caucus's approach was "do no harm." Republicans certainly did no harm to those at the top. Everyone else pretty much got creamed.

Wayne Cox is executive director of Minnesota Citizens for Tax Justice.  

Reuters: Fate of Dividend Tax Leaves Companies and Investors Guessing

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Tue, May 18 2010

By Kim Dixon - Analysis

WASHINGTON (Reuters) - Companies and investors can only guess whether dividend taxes for high-income Americans will skyrocket next year, a distinct possibility.

If the U.S. Congress fails to take action, taxes on dividends will more than double to about 40 percent next year for individuals earning more than $200,000 and couples with annual incomes of more than $250,000.

The Obama administration favors preventing the tax rate from skyrocketing, but the need for revenue may make that position irrelevant.

The key sticking point is that unlike most of the Bush-era tax cuts expiring at year-end, Congress must dig up tens of billions of dollars in new funds to prevent the dividend levy from spiking.

Last month the Senate passed its budget "resolution," which sets parameters on spending in different categories and special rules on votes required to pass certain items. For example, it was a budget resolution provision that allowed Senate Democrats to pass the healthcare overhaul with a simple majority vote in March.

House lawmakers have not yet decided whether to adopt their own resolution. In an election year, putting such numbers -- including the current budget deficit -- on paper could be dangerous.

"No budget means bad news on dividends," analyst Jim Lucier of Capital Alpha Partners in Washington said in a note this week. "No budget resolution means the 40 percent rate could be effectively baked in."

President Barack Obama, for his part, backs a less severe increase that would lift the rate to 20 percent from the current 15 percent for upper-income households.

Meanwhile, companies issuing dividends are watching.

Last week Ingersoll-Rand Chief Executive Officer Michael Lamach said he was inclined to boost the dividend, but was waiting for a signal from Washington.

If future dividends are taxed at a higher rate, he told the Reuters Manufacturing and Transportation Summit, the company may instead use its cash for a stock buyback or acquisition.

BLENDED RATE

The possible changes are part of the broader expiration of tax cuts enacted under former President George W. Bush earlier in the decade. Obama and most of his fellow Democrats want to extend the personal income tax cuts for all those making under $200,000, but let them expire for those making more, about 3 percent of the population.

One option under discussion is a higher "blended" rate, an increase for both capital gains and dividend taxes, to soften the impact on shareholder payouts, according to analysts.

Goldman Sachs estimates that lawmakers could boost both rates to 25 percent and stay within budget rules. Capital gains, like dividends, are currently taxed at a 15 percent rate.

"To keep the rates equal without affecting the budget balance, the most obvious option is to set both rates at some equilibrium level," Alec Phillips, the firm's Washington analyst, wrote recently.

With or without a budget resolution, lawmakers could find a way to keep the dividend tax rate lower if the political will exists, said Mark Bloomfield, president of the American Council for Capital Formation, a group backed by companies that oppose higher investment taxes.

Business groups have hired Jim McCrery, a former top Republican on the tax-writing Ways and Means Committee, to lobby on their behalf.

"We're putting the issue on the radar screen," McCrery said, adding that he believes Congress is still "quite a ways away" from making decisions about the Bush-era tax cuts.

Backers of keeping the rate lower argue a dividend tax increase could spur companies to take on more debt and hurt the economy.

The consumer group Citizens for Tax Justice backs taxing investment income on par with ordinary income. The highest marginal tax bracket is now 35 percent.

The group argues that the economy did just fine under former President Bill Clinton, when dividends were taxed at nearly 40 percent.

"I don't think anyone would say the economy was crashing then," said Steve Wamhoff, the group's legislative director.

American Council for Capital Formation President Bloomfield said he has been meeting with lawmakers to press his case for lower taxes, but has not seen congressional leaders make a serious push.

"Somebody in a position of power needs to decide," he said.

But for at least another month, investors will remain in suspense as lawmakers slog through financial reform and other matters.

(Reporting by Kim Dixon; Editing by Lisa Von Ahn)

The Hill: Report - Extending Tax Cuts onUpper Rates Won't Help Create Jobs

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By Jay Heflin - 05/17/10 04:26 PM ET

The left-leaning Citizens for Tax Justice issued a report stating that extending the top tax rate reductions enacted under President George W. Bush would do little to help job growth.

Democrats are expected to extend the Bush tax cuts for individuals earning less than $200,000 and joint filers earning less than $250,000 annually. That basically means that the top two rate cuts will return to their higher, pre-2001 levels in January.

Lawmakers on both sides of the aisle have claimed a tax increase on the upper brackets will hurt small business that are taxed as individuals and hinder their ability to hire additional workers.

The CTJ report, issued last Thursday, states that only 3 percent to 5 percent of small businesses earn enough of a profit to qualify for the top tax rates. It also claims that hiring decisions are normally based on demand and generating more of a profit, not on tax savings.

"Lawmakers who have supported the Bush tax cuts in their entirety are going to continue to support making all of these tax cuts, even for the very richest Americans, permanent," the report states. "They will use whatever argument they believe the public will be receptive to in the current economic and political environment."

Some lawmakers have also floated the idea of carving out small businesses from the coming rate hike on the upper brackets. But the CTJ argues a special tax break for companies will encourage wealthy taxpayers to disguise their income as coming from a business to qualify for the carve-out.

Absent congressional action on the upper brackets, the 33 and 35 percent rates will increase to 36 and 39.6 percent in January, respectively.

Minneapolis Star-Tribune: Minnesota's Corporate Tax? Not a Problem

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Minneapolis Star-Tribune

Wayne Cox (CTJ Board President): Minnesota's corporate tax? Not a problem

Calculate it honestly, and it isn't high. Yet some wish to manipulate that fact.

By WAYNE COX

April 26, 2010 - 6:48 PM

The Twin Cities needs to get better at producing jobs, mostly by taxing business less. That was the call to arms issued recently by the Itasca Project, a group of CEOs with a track record of sound civic guidance. It invited others to pitch in.

I have a solution, a guaranteed way to make Minnesota one of the 15 states with the lowest amount of taxes on business and to reduce corporate income tax payments to a third of the 9.8 percent corporate tax rate. It would ensure that jobs performance in Minnesota leads the nation, and it would make Minnesota's venture capital investment 10 times greater than Wisconsin's.

The secret? Do nothing.

Ernst & Young and an association of 600 corporate tax attorneys decided a few years ago to tally up business taxes honestly. In each state, they add up all state and local taxes imposed on business, including the corporate income tax and the extent to which the individual income tax falls on business owners. They measure all those taxes paid as a portion of private business activity in the state. Then they rank each state.

The association, called the Council on State Taxation (COST), found last month that Minnesota had the 15th-lowest amount of business taxes paid as a portion of business activity, about the same as the year before.

But isn't Minnesota's corporate tax rate at 9.8 percent the second-highest in the nation, or, as Gov. Tim Pawlenty likes to say, "third-highest in the world"? COST, in one of its earlier findings, said that, because of various deductions, Minnesota businesses actually pay on average only about 30 cents on the dollar of that 9.8 percent rate. It's like going into Macy's and getting a little sticker shock at the manufacturer's suggested retail price until you notice the sign over the rack that says "70 percent off the marked price."

Didn't Minnesota just lose more jobs last month? It did. But the federal Bureau of Labor Statistics also found that Minnesota and the Twin Cities each led the nation in decline in unemployment rate over the last year.

Minnesota has 10 times more venture capital than Wisconsin? Exactly, says Price Waterhouse, the bible for these figures.

The Itasca Project said Minnesota has an "uncompetitive tax structure." It doesn't. It wouldn't have succeeded so well over the years if it did.

But sadly, the Itasca Project, a group that does much good, has elected to throw its lot in with those who run down the street yelling, "Don't buy at Macy's. Their manufacturer's suggested retail prices are horrible."

I have often wondered how much better the state's jobs performance might have been in recent years had it had a governor and a business lobby a little less obsessed with badmouthing Minnesota.

So how does the project make its argument? Same as always -- by referencing the usual suspect suspects. The antitax lobby has set up a number of groups such as the Tax Foundation and the Small Business Survival Council that exist almost solely to produce "rankings" to punish states that use a corporate income tax or an individual income tax. In these rankings, South Dakota, with no corporate income or individual income tax, is almost always No. 1. Minnesota is always near the bottom.

This is a longstanding con. I reviewed one of these "rankings" 25 years ago in a CitiBusiness article. Then, as now, South Dakota was No. 1 and Minnesota was near the bottom. I found that high rankings were not associated with high job growth. I wrote: "Welcome to the Alice in Wonderland world of state business climate rankings, where the states that get the rankings seldom get the jobs."

Twenty-five years later, South Dakota is still No. 1, and it isn't much closer to Minnesota economically than it ever was.

It's all there on Minnesota's state website. Just Google "compare Minnesota." Use the interactive feature to see how Minnesota's business taxes are lower than Florida's. Learn all the things about Minnesota's great business climate that Pawlenty and the Itasca Project apparently don't want you to know.

The business leaders are correct that Minnesota needs to deal with a perception that Minnesota taxes businesses highly. They need to become part of the solution instead of part of the problem. And by closing deductions and credits, Minnesota could have a lower corporate income tax rate that mirrored more closely its actual collected rate.

What should the Itasca Project do? Easy. Acknowledge that actual taxes aren't the underlying problem. Then work a whole lot harder to find what really is depressing Minnesota's jobs and wages -- because something is.

Wayne Cox, of St. Paul, is executive director of Minnesota Citizens for Tax Justice.

Dayton Daily News: April 15 Not Such a Nightmare for Most

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Dayton Daily News

By Martin Gottlieb | Wednesday, April 21, 2010, 09:56 AM

April is said to put dread in the hearts of the American people, taxing them in more ways than one. The anger and frustration associated with April 15 used to be expressed by comedians and in social settings. Now it’s done in political demonstrations. This year, from Cincinnati to Dayton to Columbus, lots of Ohioans went to hear speakers decry the effect of taxes on freedom, on the American ideal. Complaints about taxes are the only thing more certain than death and taxes.

Here, however, after all the complaints have been heard again and again, are a few other points about how the federal income tax — and the process of paying it —Â affects actual Americans:

About 47 percent of households don’t even have enough income to owe federal income taxes. This point, too, has come in for a fair share of attention lately.

Somehow, though, its existence doesn’t dent the consciousness of those who portray April 15 as a universally shared nightmare.

The exclusion of low-income people from this tax makes the overall tax burden fairer. Low-income people do pay state and local taxes, which can hit the poor hardest.

Think about sales taxes, for example. If you have to spend every dime you make, you pay the sales taxes on a bigger percentage of your income than if you can afford to put some money away. (And you hope to see that latter money grow.)

Or look at state and local income taxes. When Ohio “reformed” its tax code in 2005, the main idea was reduction in the income tax and in its progressivity. Progressivity — the degree to which rates are higher on those with more income — is considered a bad thing at the state level. That makes the progressivity of federal income taxes all the more important.

Low-income people also pay Social Security taxes, starting with the first dollar they earn. This hits them harder than the very affluent, who don’t pay on income above a certain point.

So, bottom line, those who don’t pay federal income taxes do pay as much of their income in taxes as any other class. (Citizen for Tax Justice, among others, has run the numbers.)

A lot of people are trying to sell the notion that the federal income tax is out of control. Baloney. The stimulus that was passed last year entailed cuts for most people. The George W. Bush years saw repeated cuts. Even before that, the burden was falling as a percentage of income. Reported the Center on Budget and Policy Priorities, “The Treasury data show that in 1999, the typical family of four with two children was paying a smaller percentage of its income in federal income taxes than at any time since 1966.”

For 2008, out of 155 million individual returns filed, 90 million were done online. The IRS says more than 70 percent of those were done by professionals doing people’s taxes.

It’s a shame the code is so complex that professionals are necessary. Still, these stats dispose of the image of a people burning midnight oil in a desperate effort to understand incomprehensible forms and bureaucratic rules.

Of those filing for themselves, many use simple forms. Software programs have made even moderately complex returns easy, allowing people to fill in the same blanks every year. And many people simply have confidence in their ability to handle situations involving math and rules.

As April 15 was approaching, the IRS reported that 80 million Americans — about half of those filing personal returns — had received tax refunds. The average refund was almost $3,000.

That doesn’t tell you how much people are paying, of course. But it is another does big dent in the notion that April 15 is universally experienced as hell.

Let’s end with a couple of polls, which are best used only as supporting material. At a time when public frustration with Washington is at a high, the IRS is an exception. A Pew study finds the IRS has a favorable rating, 47 percent, that’s up 9 points, more than any agency since 1997. For a tax agency, that’s remarkably high.

Sixty-two percent of Americans say they are treated fairly by the tax code, another remarkable number, when you contemplate the special insight we all have into the universe’s tendency to victimize us more than others.

The same CBS/New York Times poll put the question to 881 people who describe themselves as Tea Party tax protesters. Even 50 percent of them say they’re treated fairly; 42 percent said no; 6 percent didn’t know. Surprising.

The New Republic - Jonathan Chait Blog: Why Republicans Love Tax Cheats

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Jonathan Chait April 19, 2010 | 4:04 pm

Good column by Ezra Klein on the Republican war on the Internal Revenue Service:

    In the late '90s, the Republican-controlled Senate Finance Committee held a series of dramatic hearings in which individuals sat behind screens and haltingly, tearfully, told stories of IRS persecution. Some of the stories featured genuine misdeeds. Others fell apart upon later examination (Robert McIntyre, the director of Citizens for Tax Justice, remembers one in particular where it turned out the witness was living off his employee's payroll taxes).

    But the trials worked to demonize the IRS. The result was the IRS Restructuring and Reform Act of 1998, which made enforcement more difficult and began a long cut in the IRS's collection resources.

    A report released by Citizens for Tax Justice shows that between 1995 and 2005, the IRS's budget was slashed by a fifth. Between 1995 and 2003, its enforcement division lost 36 percent of its staff. They were barred from conducting research on tax evasion, which meant they lost the ability to keep up with new tricks that accountants had discovered to game the tax code. More bizarrely, audits of the poor increased, through a special program meant to ferret out Earned Income Tax Credit fraud, but audits of people making more than $100,000 fell from 210,000 in 1996 to 92,000 in 2001—despite the fact that there were 80 percent more income filings over $100,000.

I suppose this behavior flows naturally from an ideological premise that deems anything that decreases tax revenue a positive good. But of course, decreasing tax revenue by creating a deterioration in tax compliance is insane. Why not make the IRS more effective and use the offsetting revenue to cut tax rates? At some point political ideology becomes incompatible with the the effective working of a modern administrative state.

The Times-Standard: North Coast Congressman Mike Thompson Applauds Federal Tax Cuts

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The Times-Standard
Posted: 04/17/2010 02:06:53 AM PDT

With most Americans having filed tax returns this week, North Coast Congressman Mike Thompson, D-St. Helena, reminded his constituents of 25 different tax cuts totaling more than $800 billion passed by this Congress.

”We have focused on cutting taxes for ordinary Americans,” Thompson said in a press release. “And, it's worked. According to IRS figures, the average tax refund this year is $3,000, which is nearly 9.4 percent larger than last year's average. The Recovery Act was the largest tax cut in history, and it's making a difference for working families.”

A report released this week by the Citizens for Tax Justice shows that since January 2009, 98 percent of American families have seen their taxes cut, according to the release from Thompson's office. The cuts saved working families and individuals an average of $1,158 on their tax returns, according to the release.

Bruce Bartlett, President Ronald Reagan's domestic policy advisor, stated that “federal taxes are very considerably lower by every measure since Obama became president,” according to the release.

Thompson highlighted several tax cuts he thought were making a particularly important impact on local communities:

* The Making Work Pay tax credit -- Ninety-five percent of working families received this credit of $400 for an individual or $800 for married couples filing jointly in 2009, and will continue to see these benefits in 2010, according
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to the release. In Thompson's congressional district, almost 250,000 families are benefiting from the credit.

* Tax credits for college expenses -- Provides eligible families and students with up to $2,500 in tax savings.

* Tax credits for energy efficient renovations -- Taxpayers are now eligible for up to $1,500 in tax credits for making energy-efficient improvements to their homes, such as adding insulation and installing energy-efficient windows.

* Alternative Minimum Tax -- Some 26 million middle-class families are protected from the alternative minimum tax, including 45,000 filers in the 1st Congressional District. The tax was originally designed to affect only the very wealthy, but has not been adjusted for inflation since it was originally written.

The Lexington Herald-Leader: Commentary - Why Are People Rebelling Against Lower Taxes?

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The Lexington Herald-Leader

An old political maxim, that voters never notice a tax reduction and never forget a tax increase, is at least half borne out by a new poll.

Most Americans don't know they got a tax cut last year, according to a New York Times/CBS News poll.

Seventy-nine percent said the Obama administration had raised taxes or kept them the same.

Only 12 percent knew that most Americans are paying less in federal income taxes.

The tax cuts are a result of the stimulus package enacted early last year to pump more cash into the economy.

Ninety-eight percent of working families and individuals got a tax cut, saving them an average $1,158 on the tax returns that were due this week, according to Citizens for Tax Justice, a research group that advocates for fair taxes for middle- and low-income families and for reducing the federal debt.

In Kentucky, the lowest 20 percent of earners (average income $9,110) got an average tax cut of $502, mainly because of new or expanded tax credits.

The top 1 percent in Kentucky (average income $769,270) got an average tax cut of $3,644 mainly because of relief from the alternative minimum tax.

It's probably a safe bet that most Americans also don't know that federal taxes are lower now than they have been in most of our lifetimes.

This year's tax-deadline day inspired Tea Party rallies, named for the famous colonial tax rebellion, including gatherings in Lexington and Louisville at which Republican Senate candidate Rand Paul was the star.

William G. Gale, a senior fellow at the Brookings Institute and co-director of Urban-Brookings Tax Policy Center, said "it is ironic if not bizarre that the Tea Party got going during a time when federal taxes were at their lowest in about 60 years."

In the Times/CBS poll, 62 percent of those who identified themselves as Tea Party supporters also said they think that Social Security and Medicare are worth the cost to taxpayers.

Social Security, Medicare and national defense are by far the biggest items in the federal budget. If we're going to keep paying for them and balance the budget, tax increases are inevitable.

For all the conservatives out there who can't bear the thought of anyone paying more to the federal government, perhaps another widely forgotten fact will provide some solace: President Ronald Reagan raised taxes several times in the early 1980s to tame a spiraling deficit. He still became the patron saint of free marketeers everywhere.

Read more: http://www.kentucky.com/2010/04/16/1226417/rebelling-against-lower-taxes.html#ixzz0qw2HbYl8

Rock Hill Herald: Commentary - Quit Whining About Taxes

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James Werrell - The Rock Hill Herald

It's the day after April 15 — Tax Day! — and we're all destitute, our pockets picked clean by Uncle Sam. Right?

Naw! Quit your whining. It's almost certain you got a tax cut this year.

Why? Because the federal stimulus bill that the Tea Partiers hate so much reduced federal income taxes for 98 percent of all working families and individuals, according the Citizens for Tax Justice, a nonpartisan think tank.

Ninety five percent of working families got a tax credit of $400 for an individual or $800 for a married couple. And they will get that same credit in 2010.

The Tax Foundation, another nonpartisan think tank, analyzed the tax burden for the average American and found that it was lower than it has been at any point since 1971.

In all, the stimulus package included $300 billion in tax cuts, one of the largest tax cuts in history. And, instead of going to the wealthiest 3 percent of Americans, as the Bush tax cuts did, this time the money was spread among nearly all middle-class families nationwide.

Read more: http://www.kentucky.com/2010/04/16/1227123/commentary-quit-whining-about.html#ixzz0qvradF3q

Wyoming Tribune Eagle: Wyo. Tea Party Lets Off Steam

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The movement bashed health-care reform and taxes on the steps of the State Capitol Thursday. But critics say it's misinformed.

By Bill McCarthy
bmccarthy@wyomingnews.com

Moses Lee, organizer for the Tax Day Tea Party rally, address a large group of at a rally held at the Wyoming State Capitol on Thursday. Andy Carpenean/Boomerang photographer

CHEYENNE -- Trustin Hasenauer announced at the Tax Day Tea Party protest here Thursday that he is a candidate for U.S. president.

He won't be on the ballot for some time, though.

You have to be at least 35 to run, and he is 6. But as soon as he is 18, he said, "I'm going to register and vote them out," drawing a roar from the about 300 people who attended.

Trustin's dad, M. Lee Hasenauer, organized the protest in front of the State Capitol on the day federal taxes were due.

Hasenauer said he called his son to the podium that "no politician has ever stood on" because the rally is supposed to be fun and educational for old and young alike.

To that end, the podium held copies of the Constitution, the Declaration of Independence and the Bible.

Julie Cantrell also brought her four children, ages 2 to 13, to the rally. Two held signs that when combined said: "A dollar is a dollar, no matter how small."

She said she is concerned about the new health-care reform law, the deficit and inflating prices on necessities such as food.

Cantrell said she is teaching her children that there are consequences to actions, and her family will suffer the consequences of government spending too much money.

Like tea party protests across the nation, people with conservative values voiced concerns about health-care reform, the national deficit and what they say is a growing tax burden.

But Bill Luckett, executive director of the Wyoming Democratic Party, said the protesters are educating their children and followers with fiction.

"These people were nowhere to be found when George W. Bush and the Republican Congress turned a balanced budget into a record deficit so they could give tax cuts to the rich," Luckett said.

When the Democrats won the presidency and Congress, "these people started rallying, supposedly to complain that they are, 'Taxed enough already,' although (President Barack) Obama and the Democratic Congress gave tax cuts to 98 percent of working families."

Luckett cites a study by Citizens for Tax Justice and separate analysis by William Gale, head of the Tax Policy Center at the Brookings Institution.

He said Republican partisans are putting out bad information.

"It is very frustrating to see so many people misinformed" about taxes, Luckett said.

Tea party protesters said their movement is nonpartisan, however.

"If this were a Republican event, I wouldn't be here," said Frank Smith of Cheyenne.

He held a sign calling for nullification of health-care reform and calling on the Wyoming Legislature to hold a special session to join states suing the federal government over the new law.

Gov. Dave Freudenthal, a Democrat, has said joining the lawsuit would be an expensive gamble, and Wyoming will be bound by the result without having to pony up.

Several speakers urged the crowd to call the governor's office to try to change his mind.

Smith said he is an independent and there were many other independents and Libertarians in the crowd.

Local radio conservative talk-show host Dave Chaffin said tea party attendees are unfairly painted as a bunch of right-wingers and out-of-touch Republicans who only want to "bash Democrats."

"They're not," Chaffin said. "They're Americans."

Luckett sees partisanship, though.

"Like so many of their other claims, the facts dispel the notion that they're nonpartisan. They are, in fact, primarily right-wing Republican activists," he said.

He cites a New York Times/CBS poll released Thursday saying that of the 18 percent of Americans who say they are tea party supporters, 54 percent are registered Republicans, and only 5 percent are registered Democrats.

Maureen Hurley sees the underlying problem stirring the protests as erosion of respect for traditional and patriotic values that are no longer being taught to American children.

An important case in point, she said, is that local schools from elementary to colleges do not teach history on Veterans Day.

"Veterans Day is a recognized holiday in the state of Wyoming," she said. School districts show it as only a "planning day," she said, with kids getting half of a day off.

National Journal's Under the Influence: Pundits Sound Off On 'Tea Parties'

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Wednesday, April 15, 2009

As thousands take part in "tea party" rallies across the country, newspaper and blog commentators are already sounding off -- and the reviews are mixed. The purpose of the parties -- organized via the Internet by former House Speaker Newt Gingrich's American Solutions and former House Majority Leader Dick Armey's FreedomWorks, among other groups and individuals -- is to protest against what organizers perceive as high taxes and excessive federal spending.

The effort's online hub -- Tax Day Tea Party -- has video of the ongoing parties. Left-leaning Think Progress, a wing of the Center For American Progress Political Action Fund, has a list of GOP lawmakers who have signed on to speak at the "radical anti-Obama" events.

So is there a surge in voter anger over taxes? Gallup recently published a poll showing that 61 percent of Americans think they will be paying their "fair" share in taxes this year, according to the progressive group Citizens for Tax Justice. But 39 percent of those who make less than $30,000 think their federal income taxes are "too high," though many of them don't actually pay federal taxes, according to Citizens for Tax Justice. See report here.

After the jump, also see a sampling of what the pundits and bloggers are saying.
-- Amy Harder

• "The tea partiers' stance on the issues is a little mysterious," scoffs Thomas Frank in the Wall Street Journal. "But outrage is outrage, the party organizers probably figure; who will know the difference?"

• Marc Cooper of USC also expresses bewilderment and derision in the Los Angeles Times: "The Tea Party movement, more than anything else, is a rather garish display of a Republican right that seems to have lost not only the national elections but also any semblance of political bearings."

• The Atlantic's Chris Good points out that House Minority Leader John Boehner, R-Ohio, and NRCC chairman Pete Sessions, R-Texas, have already issued statements applauding the protests. "Perhaps [the lawmakers are] seeking to ride the wave of media attention and purported grassroots conservative economic populism."

• In another Journal op-ed, author Glenn Harlan Reynolds (who's covering the protests for the organizers) speculates that "the tea-party movement will have an impact on the 2010 and 2012 elections, and perhaps beyond" -- possibly even resulting in "a new third party that may replace the GOP."

• Rick Moran, a blogger at Right Wing Nuthouse, is concerned that "the rhetoric about what the tea parties will accomplish will not match the reality of what actually occurs."

• Hot Air's Ed Morrissey picks apart a new poll that suggests Americans are actually more satisfied today than in the past about taxes.

• The American Spectator's Andrew Cline opines that "of all the outrages that led to Americans organizing 'tea parties' today," the greatest is "Washington's gradual convincing of the American people that giving so much of their income to the government is just and fair."

• The NextRight's Patrick Ruffini applauds the online organization showcased by these events: "The messier, more unpredictable, and more freewheeling examples of online activism -- from the Ron Paul campaign to tea parties -- have been on the right. The right's is a different model. One that the left -- and many of our friends [on] the right -- do not completely understand yet."

Newsweek: The Tax Man Should Cometh

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The Tax Man Should Cometh

April 15, 2010

by Ezra Klein

How I learned to stop worrying and love audits.

I come not to bury IRS agents but to praise them. That's not a popular argument coming so soon after tax day. In fact, it's not a popular argument in American politics, period. But I'm not here to win friends. I just want to pay less in taxes.

You can generally judge exactly how unpopular something is by a political party's desire to tie the opposition to it. So it's telling that the GOP is now attacking Obama's health-care law because it will … create jobs at the IRS (and I thought they were worried about unemployment?). "You can't run," warned the grim announcer on a recent RNC advertisement. "There is no place to hide. Over the next few years, IRS agents will begin to multiply." Newt Gingrich was kind enough to offer up numbers. "One of the things in the health bill is 16,000 additional IRS agents," he warned.

As FactCheck.org exhaustively showed, that's not "one of the things in the health bill." Actually, there's virtually nothing in Gingrich's statement that's true. The bill does not say the IRS should hire 16,000 new agents. That's from a press release from the Republican staff on the House Ways and Means Committee that was a misleading extrapolation from a Congressional Budget Office report. The CBO report said that the IRS would need $5 billion to $10 billion to administer the bill. Republicans took $10 billion, divided by the cost of an agent's salary, and said the bill would employ that many agents. Apparently, none of these people need desks. Or office space. Or special IRS badges.

In reality, the bill won't require hiring many new agents. Most of the new work will be administering tax credits to low-income individuals and small businesses. That's a job done by IRS employees, not "agents." But misleading math aside, it's worth challenging our apparent consensus that IRS agents should be viewed with the same fearful contempt we normally reserve for bookies and investment bankers.

Every year the IRS collects data on "the tax gap." The tax gap is the difference between the taxes the agency knows it's owed and the taxes the agency has actually been paid. In fiscal year 2008, the tax gap was $345 billion. That's about 14 percent of the total taxes collected that year. And you know who makes up that shortfall: those of us who didn't dodge our taxes.

As long as we're going to have a tax system, we may as well make sure we're all paying our share. But the GOP has conducted a long campaign to defang the IRS's ability to do that. In the late '90s, the Republican-controlled Senate Finance Committee held a series of dramatic hearings in which individuals sat behind screens and haltingly, tearfully, told stories of IRS persecution. Some of the stories featured genuine misdeeds. Others fell apart upon later examination (Robert McIntyre, the director of Citizens for Tax Justice, remembers one in particular where it turned out the witness was living off his employee's payroll taxes).

But the trials worked to demonize the IRS. The result was the IRS Restructuring and Reform Act of 1998, which made enforcement more difficult and began a long cut in the IRS's collection resources.

A report released by Citizens for Tax Justice shows that between 1995 and 2005, the IRS's budget was slashed by a fifth. Between 1995 and 2003, its enforcement division lost 36 percent of its staff. They were barred from conducting research on tax evasion, which meant they lost the ability to keep up with new tricks that accountants had discovered to game the tax code. More bizarrely, audits of the poor increased, through a special program meant to ferret out Earned Income Tax Credit fraud, but audits of people making more than $100,000 fell from 210,000 in 1996 to 92,000 in 2001—despite the fact that there were 80 percent more income filings over $100,000.

No one likes being audited, of course. But no one likes paying unnecessarily high taxes, either. And enforcement does work. Eric Toder, a tax-policy expert at the Urban Institute, says that each dollar spent on IRS agents returns about four or five dollars in recovered taxes.

There's a good argument to be had over whether taxes should be higher or lower. But everyone agrees they should be fair. When they're not, it raises taxes for those willing to pay them and increases the sense that the system is rigged. We can do better, but first we'll need some agents.

Huffington Post: Tax Day Fact Check - Most Americans Got A Tax Cut This Year

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04-15-10

On Thursday, a wave of protesters, upset with overly-burdensome taxation by the federal government, are descending on the nation's capital to express their displeasure.

But does their anger reflect the truth about today's tax rates?

After all, neutral economists insist that, under the Obama administration, the overwhelming likelihood is that your tax burden has gone down, not up. Even conservative economic analysts acknowledge that there really is no basis for middle- and working-class Americans to believe that they're suddenly paying more.

"The only tax I think that has been put in place so far is an increase in the federal cigarette tax. I can't think of another Obama tax that has gone in place so far," said Chris Edwards, Director of Tax Policy Studies at the conservative Cato Institute. "I would say that people are angry because big taxes are coming down the road because of the gigantic deficit built up under Bush and continued under Obama."

And yet, Thursday is expected to bring a range of hotly-charged rhetoric over the damage this 'tax-and-spend' president has done to the general public's bottom line.

A look at the numbers tells a different story. For starters: the non-partisan Center for Budget and Policy Priorities reported on Wednesday that "Middle-income Americans are now paying federal taxes at or near historically low levels." How low? The average family of four right now is paying 4.6 percent of its income in federal income taxes -- the second lowest percentage in 50 years.

A report from the White House Council of Economic Advisers, meanwhile, asserts that the president's economic stimulus package has sent more than $200 billion in tax relief and other benefits to mainly middle- and lower-income families since its passage.

Citizens for Tax Justice, a self-described non-partisan organization, released a report on Tuesday that read: "The 2009 economic stimulus bill actually reduced federal income taxes for tax year 2009 for 98 percent of all working families and individuals." This total includes the 95 percent of working families that will or have received tax credits in the range of $400 to $800.

The health care bill passed by the administration, meanwhile, includes a tax credit that could cover up to 35 percent of the premiums a small business pays to insure its workers. The Recovery Act, meanwhile, included such tax breaks as a $1,500 credit for home energy improvements, and an $8,000 credit for first-time home buyers.

It has been a buffet of tax breaks and credits offered by this administration (occasionally to the chagrin of progressive economists, who want more focus on stimulative federal spending).

Yet polling numbers indicate that Americans are barely aware of these developments. Indeed, a good chunk of the country believes it has been saddled by this administration with tax hikes. Back in mid-February, a full 24 percent of respondents to a CBS News/New York Times poll said that their taxes had increased under Obama. Fifty-three percent said they had stayed the same. Only 12 percent thought their taxes had gone down.

"Belief is triumphing over reality," explained Bob McIntyre, director of Citizens for Tax Justice. "Part of it is they watch the wrong television shows and believe it. Part of it is the tax cut that went to almost everybody, the making work pay credit, was dribbled out... people didn't get a check. They paid lower taxes and might not have noticed it.

"It is like arguing whether Jesus rose from the dead," McIntyre concluded. "If you believe it, you believe it."

On Thursday, those who don't believe it will be making their voices heard. At least four separate demonstrations are being planned around the capital in honor of tax day, including two protests next to Congress, an online broadcast "tax revolt" and another rally at the Washington Monument. They will, however, be countered by a start-up group called "The Other 95%," which will descend on D.C. on Thursday to protest "right across from Tea Party rally." It should be an interesting, if not occasionally wonky, show-down.

"Obama passed 25 separate tax cuts," Sheryl Stein, founding member of "The Other 95%" said in a statement announcing the group's plans, "including $300 billion in middle class tax cuts -- one of the largest in history - as part of the stimulus package. Unlike President Bush's 2001 tax cuts, which went to the wealthiest 2.2%, President Obama's tax cuts overwhelmingly benefit working and middle class families -- in fact, 95% of all Americans."

And there is some indication that Americans are satisfied, generally speaking, with the current trade-off between their tax burden and the benefits that government provides. "Just ahead of Tax Day, a new New York Times/CBS News poll finds that most Americans regard the income taxes that they will have to pay this year as fair, regardless of political partisanship, ideology or income level," the Times reported.

Perhaps even more surprising, though, is that even among the 18 percent of Americans who say they support the Tea Party movement, more than half call their own income tax fair. Sentiment turns more sour, however, among the smaller group of Tea Party supporters who are active in the movement. Most of them, 55 percent, regard the income tax they have to pay as unfair. Thousands of Tea Party supporters gathered in Boston today for a rally near the original site of the Boston Tea Party.

American Prospect: Three Cheers for Tax Day!

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Around this time every year, people start making all kinds of ideologically motivated claims about taxes. So I thought it might be worthwhile to diffuse a few myths. Let's get right to it:

We're taxed to death! Well, no. In fact, when you look at American tax rates compared to those of other countries, we have extremely low taxes. This graph, using data from the Organization for Economic Co-operation and Development, shows that among industrialized countries, we rank near the bottom in taxes paid. It's a little hard to see, but the U.S. is over there on the right, with only the Japanese, Turkish, and Mexicans paying less in taxes than us:



But the hard-working rich are paying all the taxes! Again, no. The rich pay much more in federal income taxes, which are actually progressive. But federal income taxes are only one of the many taxes we pay. Add in payroll taxes, sales taxes, excise taxes, and property taxes, and you get a very different picture, one in which the poor pay a little less, but once you move into the middle class, every income group pays about the same proportion in taxes. The good folks at Citizens for Tax Justice made a picture:

But Barack Obama is killing us with his taxes! Wrong. In fact, through the stimulus bill, Obama cut, repeat, cut taxes for 98 percent of working families. While the health-care bill includes some tax increases on the wealthy, those haven't taken effect yet, and won't affect most Americans. But most Americans have already gotten their Obama tax cuts. Here's how much they got, again courtesy of CTJ:



So to sum up: Americans pay much less in taxes than citizens of similar countries; people at all income levels pay about the same amount in taxes, except for the poor who pay slightly less; and Obama cut your taxes.

But there's one other thing to keep in mind on tax day: Your tax dollars buy stuff. Some of it is stuff you may not like, but a lot of it is stuff you like a lot. Like police, and firefighters, and roads, and bridges, and schools, and food inspectors, and health care for your grandmother, and veterans' benefits, and cancer research, and all the other stuff that makes us a civilized society and gives the future an opportunity to be better than the past. So instead of grumbling on tax day, why not take the opportunity to say, "This is a day to celebrate. I am a proud American, and I'm doing my part."

-- Paul Waldman

Posted by Paul Waldman on April 15, 2010 12:48 PM

Santa Fe New Mexican: Tax Day Tea Party to Be Held Today on the Santa Fe Plaza

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Wednesday, April 14, 2010 - 4/15/10

Santa Fe is among cities across the country where a Tax Day tea party is planned today, the federal income-tax filing deadline.

Local speakers are expected during the event, set for 5 to 7 p.m. on the Santa Fe Plaza, an announcement said.

"The Santa Fe T.E.A. (Taxed Enough Already) Party is a local nonpartisan grass-roots group of citizens who are giving concerned voters throughout Northern New Mexico an opportunity to voice their concerns about lack of fiscal responsibility at all levels of government, wasteful spending of the voters' tax dollars, the expanding and unsustainable debt, and the unconstitutional expansion of the Federal Government into areas delegated to the states, and individuals," said a news release issued by Shelyl Bohlander.

Organizers are encouraging participants to bring donations for the Food Depot. For more information, visit www.santafeteaparty.blogspot.com.

Meanwhile, U.S. Rep. Ben Ray Luján, D-N.M., on Wednesday issued a statement in advance of Tax Day highlighting a study by Citizens for Tax Justice, that says 99 percent of working families in New Mexico received a tax cut in 2009 through the American Recovery and Reinvestment Act, which the Northern New Mexico congressman supported.

He noted that among the tax cuts was a "Making Work Pay" tax credit that gave more than 94 percent of working individuals a $400 refundable tax credit.

Insight New Mexico: Tea Party Tax Criticisms Not Supported by Economic Analysis

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April 14, 2010

Santa Fe - A new report finds 99 percent of New Mexicans received some tax relief in 2009, leading some analysts to wonder where Tea Party activists' claims of tax tyranny are coming from. Tax Day protests are planned in New Mexico and around the country Thursday, April 15. Analysts say the common claim associated with the group - that the Obama administration is raising taxes as part of a socialist agenda - doesn't square with reality.

Gerry Bradley is a research director for New Mexico Voices for Children, which does tax policy work through its Fiscal Policy Project. He says the fact is that 99 percent of New Mexicans have actually received tax cuts through last year's stimulus package,  "Just take the middle 20 percent of the taxpayers in New Mexico. They're getting an average tax cut of about $650 dollars a year. So, it's a significant amount of tax relief."  Bradley says nearly every working New Mexican received some benefit on their 2009 income taxes, with the overall average amount being about a thousand dollars. The figures on tax relief in the stimulus package come from a new report by Citizens for Tax Justice, a Washington, D.C.-based think tank.

Bradley says many economists agree that the administration took steps that were necessary given the economic situation,  "Possibly what the Tea Party people don't understand is that in a recession, it's a good thing to increase government spending and cut taxes on consumers. And the Obama administration has increased government expenditures and cut taxes."

Bradley points out that the study shows that New Mexicans across a wide spectrum of income levels received tax relief in 2009, from tax credits for low-income households to alternative minimum tax benefits for higher-income earners.

The report is available at http://www.ctj.org/obamastaxcuts.php

New Mexico Independent: Americans Fear Tax Hikes--Despite Tax Breaks

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By Matthew Reichbach 4/14/10

Tomorrow is the deadline to file federal income taxes and taxes are on the minds of many Americans. A recent national poll shows that six-in-ten Americans expect their taxes to go up. Also comes the news of a study that found that 99 percent New Mexicans benefited from tax cuts related to the stimulus package.

The Gallup poll found that 74 percent of Republicans believed that their taxes would go up over the next 12 months while 49 percent of Democrats believed their taxes would be raised.

Just four percent of all Americans thought that their taxes would be lowered.

“President Obama cut federal income taxes for low- and middle-income Americans in the economic stimulus plan, and is looking to extend the Bush-era tax cuts on middle-income families in his 2011 budget,” Gallup wrote in discussing the poll. “Still, a majority of people in low- and middle-income households expect their taxes to be raised over the next 12 months.”

Gallup offered one possible reason for the widespread belief that taxes would go up. “Americans may perceive that the federal government will need to raise taxes to pay for its greater spending and rising deficits since Obama took office, including the recently passed healthcare legislation, with its price tag of just under $1 trillion.”

The head of the Congressional Budget Office, the non-partisan organization that makes budget estimates on legislation in front of Congress, still believes that the health care reform bill will cut the federal deficit. However, a USA Today/Gallup poll from late last month found that most believed it would increase the federal deficit.

The study by the DC-based public policy organization Citizens for Tax Justice examined the tax breaks in legislation passed by Congress and signed by President Barack Obama. CTJ found that the average tax benefit from the American Recovery and Reinvestment Act, or the federal stimulus package, was a cut of $1,012.

“The 2009 federal income taxes that come due on April 15 have been cut for nearly all working Americans, including Americans at all income levels, by the Recovery Act signed by President Obama last year,” the report states. “No legislation enacted during the Obama administration increased taxes for 2009.”

KTVO3: Iowa Tax Cuts in 2009

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(See original post)

by Matt Buhrman 04.14.2010

We spoke with Congressman Dave Loebsack regarding a report from Citizens for Tax Justice.

OTTUMWA, IOWA -- Tax Thursday is upon us. Federal income taxes are due each April 15th.

According to a new report from Citizens for Tax Justice, President Obama cut taxes with the American Recovery and Reinvestment Act. The report shows that in Iowa, taxes were cut for 99 percent of working families last year...including the top one percent. The breakdown by income level can be found in the CTJ report.

On Wednesday, we spoke with U.S. Congressman Dave Loebsack (D-Iowa) by phone from the U.S. Capital.

"Folks are hurting. The recession has taken its toll. I think we've got to continue to enact tax credits when we have the opportunity to do it. And we can strengthen Iowa pocketbooks and also make sure that we can inject demands back into the economy. We've got to get the economy moving. And certainly this is one way we can do it," Representative Loebsack said.

Working people in Iowa received over $1,100 on average from these tax breaks, according to the CTJ report.

The Congressman said that these cuts, in addition to the Making Work Pay Credit, should help to mitigate the economic downturn.

"In the middle of all this other discussion going on out there, keep in mind that in the Second District of Iowa, 221,000 families alone are benefiting from this Making Work Pay tax credit that we passed last year. It's very, very important," Representative Loebsack said.

Loebsack is scheduled to host a "Telephone Townhall" next Monday, April 19th, at 7 PM to hear your feedback on issues of concern. Citizens are encouraged to sign up at the website for Congressman Loebsack.

Texas Insider: Cuellar: Lower Taxes, Larger refunds this Tax Day

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April 14, 2010

Tax Refunds Up Ten Percent Compared to Last Year

Washington, DC – Congressman Henry Cuellar (TX-28) today announced that this tax day, April 15, 2010, millions of American families, businesses and hard-working Texans will see lower taxes and larger refunds thanks to the economic stimulus package passed by Congress in 2009, and the health care reform and jobs bills signed into law this year.

“These are record-setting tax cuts for 95 percent of the nation’s hard-working families,” said Congressman Cuellar. “For the majority of Americans, tax refunds are up an average of ten percent thanks to the unprecedented action we’ve taken to lower taxes. This puts hard-earned money back into the pockets of everyday people.”
The American Recovery and Reinvestment Act, also know as the “stimulus” package, has already provided over $160 billion in tax relief for families and businesses as a result of over 25 new tax cuts for individuals, homebuyers, small businesses and the self-employed.

The non-partisan organization Citizens for Tax Justice estimates these tax cuts saved individuals and families an average of $1,158 on taxes this year. The “Making Work Pay” tax cut, passed by Congress, reduced withholding on wages in 2009 for most individuals by $400 and $800 for married couples. The Recovery Act also provided the “American Opportunity Credit” of up to $2,500 for college tuition, plus first-time home buyer credits worth $8,000.

Health care reform included immediate tax cuts for the nation’s small businesses with fewer than 25 employees. If these businesses purchase health insurance for their workers and have average annual wages of $50,000 or less, they immediately qualify for tax credits of up to 35 percent of their employees’ premiums. Beginning in 2014, this increases to 50 percent of those premiums and it’s estimated that 60 percent of the nation’s small businesses will qualify for these tax cuts.

“Health care reform was the single largest health care tax cut in American history,” said Congressman Cuellar. “Beginning in 2014, 40 million families, including thousands in my district, will benefit from tax credits making health insurance affordable. This is unparalleled action for hard-working families.”

The Hiring Incentives to Restore Employment (HIRE) Act also provides a payroll tax holiday to businesses that hire unemployed workers and an income tax credit of $1,000 for businesses that retain those employees. Signed by the President this year, HIRE also includes small business capital expenditure tax credits of up to $250,000, letting small businesses benefit from tax cuts in these tough economic times.

“When you add up the benefits, there are more tax cuts for average Americans and small businesses,” said Congressman Cuellar. “This is good for our families and for those hard-working people at home.”

For a list of tax cuts included in the Recovery Act, health care reform, the HIRE Act and other legislation, please visit: http://majorityleader.gov/docUploads/TaxBreaks2010.pdf

To see the Citizens for Tax Justice report, please visit: http://ctj.org/pdf/truthaboutobamataxcuts.pdf

Washington Post: Do the Poor Really Pay No Taxes?

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(See original post)

By Ezra Klein  |  April 14, 2010; 2:26 PM ET

As Jon Stewart details in the clip above, some in the media have fastened on a Tax Policy Center report saying that 47 percent of Americans pay no federal income tax. Is it true? In a very limited sense, yes, about 47 percent of households are owed more in federal help than they pay in federal income tax. But it's not because they don't owe federal income tax. It's because they're owed other money that runs through the tax code.

The Earned Income Tax Credit, for instance, is an income-support program created by Richard Nixon and expanded by both Ronald Reagan and Bill Clinton. The underlying idea came from legendary conservative economist Milton Friedman. So this is bipartisan stuff. And it was designed to run through the tax code rather than just send recipients a separate check. So if your income is low, you may (1) owe very little in income taxes, and (2) get a check through the EITC. The result isn't that you don't owe anything in federal income taxes, but that your income tax liability is wiped out by your EITC check. The critics of the tax code don't seem to know this, but their problem is with programs like the EITC -- of which there are many, some of which help the middle class -- not income tax brackets.

That accounts for a lot of the people who don't owe federal income taxes. But it doesn't account for the bigger dodge here: Why are we talking about federal income taxes at all?

I'm going to be charitable on this and assume that people are biased toward their own experiences rather than playing loose with the data. For upper-income folks -- journalists, television executives, congressmen, think tank employees -- the big hit is on income taxes, so they get pretty annoyed when they hear that lots of Americans don't pay any income tax. But their experience is not typical. Most people's tax burden has a very different composition. As David Leonhardt points out in a typically excellent column today, "about three-quarters of all American households pay more in payroll taxes, which go toward Medicare and Social Security, than in income taxes." And that doesn't even mention state and local income taxes.

So let's mention them. The following graph comes from a report (pdf) by Citizens for Tax Justice. It compares the share of the total tax burden -- that means income taxes, payroll taxes, state and local taxes, capital gains taxes, and so forth -- with the share of the total income for different groups. It's the single most important graph to understand our tax system.



Doesn't look so disproportionate now, huh?

By Ezra Klein  |  April 14, 2010; 2:26 PM ET

Washington Independent: With VAT Tax on the Table, Progressives Sound Alarm

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(See Original Post)

With VAT Tax on the Table, Progressives Sound Alarm

Volcker's Remarks Heighten Concern About VAT and the Working Poor

By Martha C. White 4/13/10 6:00 AM

When House Speaker Nancy Pelosi told Charlie Rose last October that a value-added tax was “on the table” as a possible way to solve the nation’s fiscal woes, the remark didn’t generate much interest. But as recent budget figures have put the depth of America’s problem into black and white, and with former Federal Reserve Chairman and White House adviser Paul Volcker nearly seconding Pelosi’s view recently, the idea of a VAT — already in use in nearly 160 countries — is gaining traction. And some progressives are sounding an alarm.

The prospect of a VAT is likely to be discussed by the fiscal commission established by President Obama. The Wall Street Journal’s opinion page has already sarcastically labeled the consortium the “VAT Commission.” At a recent event organized by the Scholars Strategy Network, a left-leaning think tank, an MIT political scientist floated the prospect of VAT as a solution to the federal revenue crunch. Volcker just last week fueled the fire even more, noting that a VAT tax was not as toxic an idea as it once had been. (Sen. Charles Grassley, R-Iowa, responded this week by coming out against the tax.) All the attention has not been welcomed by progressive groups, who worry that a VAT would unfairly burden the already-struggling working poor. “It crushes the low-income and the elderly,” said Robert McIntyre, director of Citizens for Tax Justice.

Since VAT is a tax on consumption rather than income or investments, it’s considered a regressive tax. Poor people, who tend to spend a higher percentage of their income than wealthier ones, are disproportionately affected by consumption-based taxes. In the U.S., regressive sales taxes are balanced out by a progressive income tax structure.

Proponents of a VAT, though, contend that it wouldn’t hurt lower-income Americans if implemented properly, and that the additional revenue it generates would prevent cuts to social-service and welfare programs.

Left-leaning think tanks such as the Center for American Progress express concern that adding a VAT to the country’s existing tax code or using it to replace the majority of the income tax, as Michael Graetz, Columbia University School of Law professor and author of “100 Million Unnecessary Returns: A Simple Fair and Competitive Tax Plan for the United States,” proposed to the Senate Finance Committee in 2008, would tip the balance in favor of the rich and drop a staggering weight on an already-struggling demographic.

While value-added taxes are common throughout the rest of the world (including Europe, Canada and Australia), many Americans are still fuzzy about what exactly this tax is and how it works. A VAT is essentially a tax on all or nearly all goods and services. Many European countries exempt certain items such as groceries from VAT collection — a mistake, according to economists who counter that a laundry list of exemptions only serves to make the rate higher. What makes a VAT different from a sales tax is the way it’s collected.

The tax is levied on every company that participates in the development of a product, but each participant gets credit for the VAT that has already been paid. If a retailer in a country with a 10 percent VAT buys goods from a vendor, they pay an extra 10 percent on those goods. That retailer is then responsible for collecting 10 percent VAT on sales to customers. When each company in the supply chain pays taxes, though, they get to deduct the VAT they paid from what their customers paid. These somewhat complicated mechanics create a lengthy paper trail that thwarts would-be evaders. Since each company in a supply chain has to collect the tax, there’s also a certain degree of self-policing.

Although right-leaning lawmakers tend to favor regressive tax policies, some conservatives dislike the concept of a VAT because they worry it would inflate the size of the government. “Conservatives think VAT is a hidden tax and therefore a money machine,” said Gilbert Metcalf, professor of economics at Tufts University. In reality, analysts say that concern is overblown. The U.S. debt load has mushroomed so substantially that even adding a new revenue stream in the form of a VAT wouldn’t generate huge surpluses.

The cost of Social Security, Medicare and other entitlement programs is predicted to skyrocket in the coming decades. “The largest programs in the budget support older people,” said Eric Toder, a fellow at the Urban Institute and the Tax Policy Center.

For the nation’s working poor, that’s bad news, says Will Marshall, president of the Progressive Policy Institute. “What’s happening now is the automatic growth of entitlement spending is squeezing out space in the budget for everything else, which includes programs for low-income families.”

Toder and others dismiss the notion that ratcheting up existing taxes will be enough to fill the revenue gap. “You’re running against how high you can squeeze income tax. You don’t want to push it too much further. If you tax investment income too high, we’ll start seeing capital fleeing the U.S.”

If the administration and Congress do consider a value-added tax, some experts do hold out hope that it can be levied in such a way that doesn’t disproportionately impact the disadvantaged. While a VAT itself will never be progressive, there are ways to offset its burden on the poor. “There’s no reason low-income people should bear the burden of getting our nation’s finances in order,” said Columbia’s Michael Graetz. “There’s no inherent reason a VAT has to disproportionately burden low-income people,” he said.

Offering refundable tax credits for Americans living below a certain income threshold, for instance, would help equalize the burden. Graetz also proposed distributing debit cards similar to those on which food stamps are issued to lower-income consumers that would exempt a certain dollar amount of purchases from value-added taxation.

While many of the European VAT structures exclude necessities like food and clothing in the name of making the tax more progressive, many analysts say this just makes administration harder. Exempting certain categories of purchases also means that the rate on everything else is pushed higher. For instance, some European countries have VATs of up to 20 percent, a rate that can be attributed to numerous exemptions.

One of the most sweeping proposals is that put forth by Graetz, who suggests implementing a VAT of 10 to 14 percent and eliminating income taxes for households making less than $100,000 annually. Graetz, who also co-authored a book lambasting the 2001 repeal of the estate tax, maintains that his plan would simplify the tax process for 150 million Americans, and a combination of credits and offsets for lower-income people would keep them from bearing the brunt of the new tax.

While Graetz’s plan is revenue-neutral, he says it offers a better way to tackle the revenue crunch because a VAT is easier to increase than the current income tax. It would also relieve many current taxpayers of the annual burden of preparing and filing their returns. “Americans feel better about taxes that they feel they can pay without undue burden,” Andrea Louise Campbell, a political science professor at the Massachusetts Institute of Technology, wrote in a recent paper. “Easing payment not only helps public acceptance but also encourages compliance.” There’s also no way for the wealthy to avoid paying their share via tax shelters or accounting tricks, since the tax is collected at the point of purchase. This still isn’t convincing for some progressives. Yes, credits could offset the burden on America’s poor. But, they argue, those credits could be rescinded at the whim of a right-leaning Congress. “One concern has to be, will there be political pressure to eliminate those kinds of credits?” said Michael Linden, associate director of tax and budget policy at the Center for American Progress. “Having a VAT replace income tax entirely is a terrible idea,” he said. “If VAT becomes a solution it will have to be part of a larger tax system, ideally part of a larger tax reform effort.”

Graetz argues that draconian spending cuts in social and support programs would hurt low-income people more than an incremental tax increase. “You’ve got to look not just at the way revenues are collected but at the way those benefits are distributed,” he said. Credits or exemptions for the poorest Americans would protect them from paying a higher percentage of their income towards a VAT, and the revenues raised could keep social-service programs off the chopping block.

 

Daily Kos: CTJ Report - 98% of Families Getting A Tax Break in 2009

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(See original post)

by Joan McCarter

Tue Apr 13, 2010 at 04:30:04 PM PDT

In time for tax day, Citizen for Tax Justice releases a new fact sheet [pdf] on your federal tax bill for 2009. It's good news, for 98% of working families.

    According to a recent CBS News/New York Times poll, the vast majority of Americans do not perceive that they have received a tax cut from President Obama. Asked if the President “has already raised taxes this past year,” 53 percent of those polled said that the President has “kept taxes the same,” and 24 percent think that the President has “raised taxes.” A mere 12 percent believe that the President has cut their taxes.

    This is an astonishing level of misunderstanding. The truth is that the major tax cuts enacted in the 2009 economic stimulus bill actually reduced federal income taxes for tax year 2009 for 98 percent of all working families and individuals. These tax cuts saved working families and individuals an average of $1,158 on the tax returns they will file by April 15. (The median tax cut was approximately $600.) [emphasis in original]

An astonishing level of people believe any lie the Republican party tells them. A sizable chunk of them probably still believe that Saddam Hussein was responsible for the 9/11 attacks. Turning around the "tax and spend" stereotype for Democrats is going to take a long time to dislodge. Even more important to dislodge will be the persistent idea that taxes somehow aren't critical to the functioning of government, of society.

At any rate, if you've been procrastinating on completing that return, get to it. You might very well have a better outcome than you've been expecting.

    * ::

Houston Chronicle: 2 top banks likely to be spared from federal taxes

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2 top banks likely to be spared from federal taxes

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

By CHRISTINA REXRODE

MCCLATCHY NEWSPAPERS

March 28, 2010, 7:54PM

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

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

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

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

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

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

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

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

Confidential returns

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

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

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

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

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

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

‘Arbitrary' time period

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

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

Help from Congress

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

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

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

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

St. Paul Pioneer Press: Pawlenty slashes bonding bill

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St. Paul Pioneer Press (Minnesota)

March 15, 2010 Monday

Pawlenty slashes bonding bill

By Bill Salisbury bsalisbury@pioneerpress.com

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In addition, he cut:

  • $53 million for civic centers in Mankato, Rochester and St. Cloud.
  • $5 million for an Asian-Pacific Cultural Center in St. Paul.
  • $3 million for a regional fire training center in Maplewood.
  • $2 million for the Minneapolis Sculpture Garden.
  • $1 million for renovating Phalen-Keller Regional Park.
  • $1 million for a winter Olympic training center in Minneapolis.

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

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

  • $91 million from Minnesota State Colleges and Universities (leaving $88 million for construction projects)
  • $43.5 million from the Met Council transit construction program
  • $25 million from the Reinvest in Minnesota land conservation program
  • $21 million from state trail acquisition and development
  • $28 million from Rochester to expand the Mayo Civic Center
  • $13 million from St. Cloud's civic center expansion
  • $12 million from Mankato's civic center expansion
  • $5 million from an Asian-Pacific Cultural Center in St. Paul
  • $3 million from an east metro regional fire training center in Maplewood
  • $2 million from the Minneapolis Sculpture Garden
  • $1 million from renovating Phalen-Keller Regional Park
  • $1 million from the Theodore Wirth Winter Recreation Center in Minneapolis

Washington Post: Congress is long overdue for serious effort at tax reform

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(See Original Post)

Congress is long overdue for serious effort at tax reform

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

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

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

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

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

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

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

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

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

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

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

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

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

It's about time.

Star Tribune: In DFL proposal, schools face a nearly $1 billion cut

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(Original Post)

Star Tribune (Minneapolis, MN)

March 13, 2009 Friday
Metro Edition

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

BYLINE: Mike Kaszuba, Patricia Lopez, staff Writers

SECTION: NEWS; Pg. 1A

LENGTH: 985 words

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

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

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

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

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

Unlikely allies

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

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

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

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

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

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

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

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

Tax aversion questioned

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

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

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

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

SENATE DFL PLAN

$2 billion increase in taxes

$1 billion cut to public education

7 percent cut to nearly every part of state budget

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

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

David Corn, Columnist

03/10/10

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

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

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

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

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

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


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

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

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

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

 

Slate: The Unbarking Dog

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The Unbarking Dog

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

By Timothy Noah

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

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

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

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

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

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

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

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

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

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

Global Post: Lessons from eastern Europe's flat tax

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Lessons from eastern Europe's flat tax

By John Dyer

March 8, 2010 07:51

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

By John Dyer

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Morning Call: Specter hasn't switched his support for flat tax

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Specter hasn't switched his support for flat tax

March 07, 2010

By Colby Itkowitz

CALL WASHINGTON BUREAU

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Austin American-Statesman: McCaul pressing to renew tax perk for high-tech R&D

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Austin American-Statesman (Texas)

March 6, 2010 Saturday

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

by Tim Eaton AMERICAN-STATESMAN STAFF

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

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

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

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

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

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

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

But not everyone supports the measure.

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

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

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

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

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

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

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

teaton@statesman.com; 445-3631

St. Paul Pioneer Press: Minnesota clothes tax? DFLer says it's time

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St. Paul Pioneer Press (Minnesota)

March 4, 2010 Thursday

Minnesota clothes tax? DFLer says it's time

By Jason Hoppin jhoppin@pioneerpress.com

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

This report includes information from the Associated Press.

Philadelphia Inquirer: Senator Specter's Tax: Flat, or Bent?

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(See original post)

By Joseph N. DiStefano

Thursday, March 4, 2010

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

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

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

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

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

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

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

 

 

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

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(See Original Post)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Stark is a different story.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Silla Brush contributed to this article.

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

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(See Original Post)


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


By Alexander Bolton

03/01/10

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CongressDaily: Wyden, Gregg Release Overhaul Details

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National Journal's CongressDaily

February 23, 2010 Tuesday

Wyden, Gregg Release Overhaul Details

by Peter Cohn

Sen.Ron Wyden, D-Ore., and Senate Budget ranking memberJudd Greggtoday unveiled their bipartisan overhaul of the tax code that takes aim at numerous corporate sacred cows in exchange for a dramatically reduced overall corporate tax rate.

Their proposal would cut the corporate rate from a maximum of 35 percent to a single flat rate of 24 percent, which is highly sought after by the business community, particularly multinationals. But that move comes at a high price, including the elimination of numerous deductions and other tax preferences corporations have enjoyed for years, including deferral of tax on overseas profits until they are brought back to the United States and a deduction for domestic manufacturing activities.

Individuals would see a maximum tax rate of 35 percent, down from what is expected to rise nearly 5 percentage points when the 2001 tax cuts expire at the end of this year. There would only be three tax rates under the Wyden-Gregg plan: 15 percent, 25 percent and 35 percent. That means some individuals and families will see tax increases, although the average taxpayer with $200,000 or less in annual adjusted gross income would benefit, according to the Congressional Research Service.

The alternative minimum tax, which hits more middle-class families each year because it was never indexed for inflation, would be eliminated.

Some tax breaks for individuals would be repealed, including numerous exclusions from tax such as for income earned abroad; health benefits under cafeteria plans; employee meals and lodging; and moving expenses. But the standard deduction would nearly triple, while many common itemized deductions would remain in effect.

Some additional revenue-raising proposals are included as well, such as applying the Medicare payroll tax to all state and local government employees and legalizing, regulating and taxing Internet gambling.

"By simplifying the tax code and scaling back tax breaks for special interests, we can give everyone an opportunity to get ahead. Businesses of all sizes will be in a better position to compete and grow jobs. Working families will keep more of their hard-earned dollars, and everyone will spend a lot less time filling out tax forms," Wyden said.

The plan drew praise from groups ranging from the anti-tax Americans for Tax Reform to the progressive Citizens for Tax Justice. But business groups representing multinational firms were wary about the elimination of so many existing tax breaks, including those that bring down the effective tax rate they pay to less than 24 percent in the case of some companies.

"There are winners and losers: oil companies -- losers, for example. Worldwide companies would get a hit, manufacturers would get a hit; it's very problematic and would cause a lot of concern among our members," said Dorothy Coleman, vice president of tax and domestic economic policy at the National Association of Manufacturers.

Official cost estimates were unavailable. But according to a rough analysis provided by CRS, the Wyden-Gregg plan would cost nearly $900 billion more over a decade than the tax proposals outlined in President Obama's budget plan. All but about $230 billion would be offset by eliminating various deductions and credits, with the remainder offset through cutting back on corporate subsidies.

CongressDaily: Obama Health Plan Contains S Corporation Carve-Out

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National Journal's CongressDaily

February 23, 2010 Tuesday

AM Edition

Obama Health Plan Contains S Corporation Carve-Out

by Peter Cohn

President Obama's $950 billion healthcare reform plan released Monday exempts income derived from running a small, closely held business from a proposed new payroll tax on investments.

The carve-out is a concession to a range of business groups and advocates for the self-employed. But critics charge it could open the floodgates to a raft of companies re-structuring their businesses as subchapter S corporations in order to avoid the tax.

To help pay for his healthcare plan, Obama  would raise the portion of the Medicare payroll tax paid by employees earning more than $200,000 a year, or $250,000 in household income, to 2.35 percent. That 0.9 percent bump would be supplemented by applying the existing 2.9 percent payroll tax -- split evenly between employers and employees -- to unearned income, defined as capital gains, interest, dividends, annuities, royalties and rents. The tax would also apply to the upper-income category.

Looking for more? ForCongressDailyarticles and markup reports, see our Healthcare Reform page.For more healthcare articles as well as blogs, videos and related materials, see the National Journal Group's expanded health page.

Unlike previous iterations of the plan, such as one advocated by the progressive group Citizens for Tax Justice, the Obama proposal exempts active income earned from shares in an S corporation, which are generally small, privately owned firms.

Critics argue structuring a firm as an S corporation enables shareholders to avoid paying Social Security and Medicare payroll taxes. One famous example is that of former Sen.John Edwards, D-N.C., whose fees from work as a trial attorney ran into the tens of millions of dollars, but he only paid payroll taxes on the much smaller portion of his income derived from wages.

The Obama  plan draws on an earlier Senate plan to hike the employer portion of the Medicare payroll tax on wages. Congressional tax staff later determined that would lead to many businesses simply converting to S corporation status, thus converting their salaries into dividends, to skirt the tax. That in part drove a re-thinking of the tax to also apply it to unearned income.

After the small business lobby weighed in against the tax, Senate staff floated the idea of exempting active participation in S corporations, arguing taxing that income would hinder job-creation and investment. Twenty trade groups ranging from the American Council of Engineering Companies to the U.S. Chamber of Commerce wrote to congressional leaders Jan. 28 urging them to reconsider the tax altogether.

Under the Obama proposal, only passive investment income associated with an S corporation, such as dividends and interest from stock and bond holdings, would be subject to the tax, as well as the income of non-active shareholders. Income from active participation in such a business, which the IRS defines as "making decisions involving the operation or management of the activity, performing services for the activity, and hiring and discharging employees," would not be taxed.

"Factors that indicate a lack of active participation include lack of control in managing and operating the activity, having authority only to discharge the manager of the activity, and having a manager of the activity who is an independent contractor rather than an employee," the IRS guidance continues. The determination can be subjective, however, as the IRS notes that active participation "depends on all the facts and circumstances."

Industry officials said the Obama  plan contains some inconsistencies. For example, passive S corporation shareholders who earn more than $200,000 at another job could be hit with up to 3.8 percent added tax, after factoring in the 0.9 percent payroll tax increase on wages combined with the 2.9 percent tax on investment. At the same time, an active S corporation shareholder making more than $200,000 would only pay the 0.9 percent tax on wages.

Officials said that would unfairly penalize passive shareholders, since income from that S corporation by definition could not be considered wages -- and thus could not be construed as avoiding the payroll tax.

The Star-Ledger: Do tax breaks work? Does anyone care

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The Star-Ledger (Newark, New Jersey)

February 10, 2010 Wednesday

Do tax breaks work? Does anyone care

By Carl Davis

McCLATCHY-TRIBUNE NEWS SERVICE

EDITORIAL/OPINION; Pg. 015

Despite all the attention paid to President Obama's  recent budget proposal, at least one important section has gone largely unnoticed.

Buried within an appendix, and blandly titled "Performance Measures and the Economic Effects of Tax Expenditures," this section is supposed to explain the administration's efforts at figuring out whether the $1 trillion doled out through special tax breaks each year are worth their cost. Unfortunately, for the second year in a row, the Obama administration has chosen to simply copy-and-paste the Bush administration's language on this issue, complete with all the same promises about what will be done at some point over the "next few years."

Do capital gains tax breaks encourage economic growth? Does the research tax credit result in additional research? Are charitable deductions an effective way to encourage giving? Questions such as these have not been studied in a systematic way by our government, despite numerous promises having been made in this section of the president's budget for over a decade.

Each year the government effectively "spends" more on special tax breaks, or "tax expenditures," than it does on the entire discretionary spending budget (i.e. the part of the budget not devoted to Social Security, Medicare, Medicaid, etc). These tax breaks are usually enacted with the same goals as spending programs, such as promoting education, housing or renewable energy. But they receive only a small fraction of the scrutiny directed at regular spending.

With deficit-reduction quickly climbing the list of legislative priorities in Washington, the need to take a closer look at tax expenditures is growing. The House of Representatives has already shown interest, having passed legislation that extends 50 expiring tax breaks only on the condition that each be subject to a nonpartisan study. The administration, however, is in better position to conduct such studies on a comprehensive basis, and the increasingly bleak budgetary outlook demands that it do so.

During more favorable budgetary times, both political parties were more than willing to enact new tax expenditures (and to continue existing ones) at every opportunity. But with the budgetary outlook continuing to sour, policymakers will soon have to acknowledge that fiscal sustainability requires a close re-examination of the nation's priorities.

To its credit, the Obama administration has begun to turn its attention toward some tax expenditures; more than three dozen, mostly benefiting corporations, were singled out for elimination or reduction in its Feb. 1 budget proposal. This, however, is only the tip of the iceberg. Pushing forward with tax expenditure review could identify numerous additional tax expenditures that should be brought to the chopping block.

Carl Davis is a senior analyst with Citizens for Tax Justice. This article was distributed by McClatchy-Tribune News Service.

Gannett News Service: Payroll tax credit could to key to Senate jobs bill

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Gannett News Service

February 4, 2010 Thursday

Payroll tax credit could to key to Senate jobs bill

Note: Update adds comments from the National Federation of Independent Business in 13th and 14th grafs

By BRIAN TUMULTY

WASHINGTON - A tax credit for hiring unemployed workers is a central feature of a yet-to-be-unveiled $81 billion jobs bill that Senate Democrats are hoping will receive Republican support when it reaches the floor for a vote next week.

The tax credit would offset the employer's 6.2 percent share of Social Security payroll taxes through the end of this year for workers who were previously unemployed for at least 60 days.

Republican Sen. Orrin Hatch  of Utah is a sponsor of the measure, along with Democratic Sen. Chuck Schumer of New York.

Hatch and Sen. Charles Grassley, the ranking Republican on the Senate Finance Committee, are seen by Democrats as the key to building bipartisan support the legislation, which is still a work in progress and subject to change.

The two Republican senators decided Thursday to discuss the legislation with their GOP colleagues before publicly endorsing it.

Unlike the $154 billion jobs bill that passed the House in December, which focused on infrastructure and public sector jobs, a key element of the Senate bill is private sector job creation.

The Senate would renew a $250,000 deduction for business equipment purchases that was in effect last year, but the House chose not to address.

Both bills would provide an extension of long-term unemployment benefits and an employer tax credit to lower the cost of COBRA health insurance to laid-off workers. Those two provisions cover $30 billion of the bill's total cost over 10 years.

The Senate bill, as currently envisioned, also would contain a one-year extension of the highway trust fund.

The employer tax credit for new hires, which accounts for $10 billion of the package, is seen as a way to boost private sector hiring at a time when payroll employment has not yet begun to grow.

Employers are often reluctant to hire new workers early in an economic recovery, said Len Burman, a professor of public affairs at Syracuse University's Maxwell School. The proposed tax credit, Burman said, "would lower the cost of bringing on more people."

Michael Lind of the liberal-leaning New America Foundation said the simplicity of the proposed payroll tax credit would make it easy for employers to understand. "I think it's preferable to some of the other tax credits that are being proposed because it's simpler," he said.

At the National Federation of Independent Business, tax counsel Bill Rys was skeptical whether the payroll tax credit would provide much of an incentive to hire workers.

"Most of the businesses that are going to be using it would be hiring a worker anyway," he said.

Rys indicated it would help small businesses with their cash flow, but added, "The challenge small business has is having customers come through the doors. That's a real challenge."

Some tax experts across the political spectrum also doubt the tax credit would have its intended effect of spurring new hires and boosting economic growth.

"It's a horrible micromanaging of the economy, in my view," said Chris Edwards, director of tax policy studies for the Cato Institute, a free-market think tank. "The decision to hire workers and what to pay them is central to a market economy. It's abhorrent that the federal government wants to get inside businesses."

Edwards described the proposed tax credit as "a social welfare program."

At the liberal-leaning Citizens for Tax Justice, Bob McIntyre also doubted the tax credit would produce its intended effect. "It will work in the sense that they are throwing out money into the economy," he said. "It will go into the pockets of some businesses and they will spend some of it."

McIntyre favors a jobs bill along the lines of the House-passed legislation, which would spend billions of dollars more on infrastructure and trying to help state and local governments retain workers.

"You'd end up with a bridge maybe, which would be something nice," he said.

---

Contact Brian Tumulty at btumulty@gannett.com

Pittsburgh Tribune Review: Union health care exemption bill under microscope

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(Original Post)

Pittsburgh Tribune Review

January 31, 2010 Sunday


Union health care exemption bill under microscope

by Joe Napsha

The political deal that would give labor union members a five-year exemption from paying taxes on more-expensive health care coverage — as proposed under a Senate health care reform bill — is catching flak from all sides.

The White House, in a political compromise to win passage, recently reached an agreement with labor leaders and Senate Democrats to consider revisions in the Senate bill to exempt union members until 2018 from paying a 40 percent tax on the value of any health insurance plan.

Other workers would have to pay the excise tax beginning in 2013 on the value of any health coverage premiums above a certain level.

"It's a tremendously bad proposal. You should not give a kickback to one group," said James Sherk, a labor expert with the conservative Heritage Foundation in Washington.

The health insurance tax, which the Citizens for Tax Justice predicts will affect 58 million people by 2019, is being proposed to fund health care reform provisions. Exempting union members for five years might cost about $30 million.

Giving labor unions a one-year window to renegotiate existing labor contracts to alter health insurance plans might be fair, but there is no need for five years of tax-free benefits, he added.

The United Steelworkers union, which has about 850,000 members, is supports efforts to lessen the blow of health care costs to its members, but it does not favor a tax on any worker's insurance, said Connie Mabin, a spokeswoman for the Pittsburgh-based union.

"Our union prefers that no benefits are taxed. We continue to fight for real reform that includes those principles and doesn't hurt the middle class," Mabin said.

The Kaiser Family Foundation estimated that average annual premiums in 2008 were far below the taxable threshold for both single and family coverage for both union and nonunion workers. The foundation estimated that single coverage for a union member averaged $4,836, just $200 more than the nonunion worker; and $13,009 for union members, just $500 more than for nonunion workers.

The USW has conducted research on the cost of health care for its members, but is keeping those results in-house as the debate unfolds, Mabin said.

Health insurer Highmark Inc. in Pittsburgh has not determined the potential impact of proposed health care reform on premiums, or average costs of plans for union and non-union employers because there are so many variables, spokesman Michael Weinstein said.

"It would be impossible at this point," because each plan in different, Weinstein said.

The tax on the benefits is being considered as a method of paying for the health care reform, said Paul Fronstin, director of the health care program at the non-profit Employee Benefit Research Institute. The institute, based in Washington, is nonpartisan and supported by businesses, unions, benefit consultants and health insurance companies.

One of the reasons the issue of taxing health benefits has arisen is because health care insurance provided by employers is considered "a tax-free benefit without limit," Fronstin said.

As distasteful as taxation is, Sherk said that if the government needs to raise money to fund health care reform, the Senate's plan is a much better than the House's proposal to levy a 5 percent tax on small businesses offering health insurance.

"That's a disincentive to create jobs," and that will do greater harm to the economy, Sherk said.

Taxing all employees on the value of their health insurance would be a more fair method, and may even lead to better use of the health care system, Sherk said.

That may motivate employers in nonunion businesses to keep insurance premiums below taxable levels, said Lorin Lacey, principal for the health and productivity practice at Buck Consultants LLC, a human resources consultant in Pittsburgh.

CongressDaily: S Corp. Proposal Draws Interest, Ire

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National Journal's CongressDaily

January 29, 2010 Friday

S Corp. Proposal Draws Interest, Ire

by Peter Cohn

Charges of "tax-dodging" that dogged former Sen.John Edwards, D-N.C., during the 2004 presidential campaign have emerged as a behind-the-scenes issue as Democratic leaders attempt to revive a fully paid-for healthcare bill.

The Edwards comparison is a result of a proposal to raise money by applying the Medicare payroll tax, which currently only applies to wages, to investment income as well. The tax would hit individuals making more than $200,000 or households above $250,000.

House-Senate negotiators are debating whether the tax should apply to income that is passed through to shareholders in a business structure formed under subchapter S of the tax code. Seemingly an arcane accounting issue, the answer could mean the loss or gain of as much as $40 billion in revenues to pay for subsidies to help low-income individuals and families buy health insurance.

S corporations are generally privately owned businesses with a small number of shareholders, whose income is taxed at the individual level in the form of dividends, not wages.

Senate negotiators want to keep active S corporation income -- other than income from passive investments -- exempt from the payroll tax, fearing their chamber's fragile voting math can ill afford what could be seen as a new small business tax, aides said. House lawmakers disagree, citing the revenue loss, relatively few actual small-business employers that would be affected, and potential to game the system -- such as opting for S corporation status simply to avoid the tax.

That's where Edwards comes in: When he earned $26.9 million as a trial attorney in 1995, his firm's S corporation status enabled him to avoid paying $591,000 in payroll taxes for Social Security and Medicare over the next four years. As a partner in his firm, Edwards paid himself a salary of $360,000 a year, which was subject to payroll taxes -- but the remaining $25.5 million he earned was not. TheWall Street Journaleditorial page called it the "Liberal Loophole," and progressives have argued for years that S corporations enable the rich to dodge their fair share of social insurance taxes.

The Joint Committee on Taxation recommended tightening S corporation rules in 2005. Earlier this month, GAO found that underreporting of S corporation income has led to billions of dollars a year in lost revenues. Given that report, "a special carve-out for them here would seem to move in the wrong direction," said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities.

"This is one of the biggest loopholes we have," added Citizens for Tax Justice Director Robert McIntyre, whose group put the investment tax idea on the radar. "If you set up a subchapter S corporation, you can argue that you are really not worth that much, and only pay yourself a small salary. Look atJohn Edwards... this is a notorious problem in the tax code and it ought to be fixed."

Small business advocates argue the tax will not just hit the Edwards types. Dena Battle, director of tax policy at the National Association of Manufacturers, said S corporations are employers and provide much of the job-creation, if any, that is taking place.

"When you run a business, it's never quite that simple; you're not just paying yourself, you're raising capital, making investments and hiring," she said. "They're literally putting their homes on the line. The level of risk is really amazing. ... That's exactly what we need in this economy, people who are willing to take those kinds of risks."

Typically, investment income is defined as capital gains, taxable interest, dividends, estate and trust income, and income from rents, royalties, partnerships and S corporations.

According to preliminary estimates, dropping active S corporation income from the tax would sacrifice about $40 billion in revenues, although it would still raise $84 billion over a decade. Including pass-through income earned by lawyers, physicians and others who have opted for S corporation status -- but not small-business owners in the traditional sense -- could raise $104 billion. Including all S corporation income would bring the total to about $125 billion, revenues that House progressives are eyeing.

Small-business advocates don't like the idea of a new tax on S corporations and would like to knock out the investment tax altogether. Several trade groups, including NAM, the S Corporation Association and National Federation of Independent Business, penned a letter to congressional leaders Thursday arguing their case.

"As organizations representing Main Street businesses with millions of middle-class workers, we are writing to express our intense opposition to any effort by Congress to apply payroll taxes to non-wage income," they wrote. "[T]his new tax increase would strike at the heart of the employers who are struggling to increase savings and productivity, hire new workers and reduce double-digit unemployment, and help lead us out of this recession."

The letter argues that the proposal undermines the concept of social insurance taxes, which are based on the premise that workers' wages earned over a lifetime will go toward an entitlement when they retire. If nonwage income is taxed, Medicare would become just another "welfare" program, the letter states. They also said it would undermine the Medicare trust fund by diverting money to other purposes.

Advocates for closely held businesses on both sides of the Capitol are wary of the proposal, including S corporation boosters like Rep.Ron Kind, D-Wis., a New Democrat and member of the Ways and Means Committee.

"I just think there are better pay-fors than going after investment income, things that we need to be able to grow the economy right now," Kind said. "But at the end of the day, it's got to be paid-for. And that's the hard part ... I wish my Republican colleagues had lived under that philosophy for the previous eight years when they were passing huge spending bills, unpaid-for and driving us further and further into debt."

CongressDaily: Dems Eye Investment Income As Pay-For

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National Journal's CongressDaily


January 6, 2010 Wednesday


Dems Eye Investment Income As Pay-For

by Peter Cohn

Democrats are taking a second look at subjecting investment income earned by wealthy Americans to the Medicare payroll tax, as they hunt for healthcare revenues to whittle down an excise tax on high-cost insurance plans in the Senate version.

The Senate proposal has come under fire from labor unions and progressive groups. Robert Reich, who was Labor secretary in the Clinton administration, came out against the tax plan today in a conference call.

"The choice here is very clear: Congress should put the cost of healthcare reform on the wealthiest Americans ... rather than working Americans who are struggling harder than ever," Reich said.


The Senate provision in its current form would raise taxes on millions of middle-class Americans by 2019, according to the Joint Committee on Taxation, breaking pledge President Obama said at the time he would leave individuals earning less than $200,000, or households with less than $250,000 in annual income, untouched. He also said he would not tax health benefits to pay for reform, as his opponent Sen.John McCain, R-Ariz., proposed.


But Obama  in recent days has forcefully advocated for the excise tax as among the best options for holding down healthcare cost-growth over the long term.

The idea of applying the Medicare payroll tax to investment gains and other "unearned income," as advocates of the plan call it, has been circulating for months. It was put forward by Citizens for Tax Justice, a progressive group, over the summer, and Sen.Debbie Stabenow, D-Mich., raised it in initial Senate Finance Committee deliberations. It came up again in early November as Senate Majority Leader Reid was cobbling together a combined Senate bill.

Reid eventually settled on a straight increase in the 1.45 percent tax paid by employees to 2.35 percent on individuals with more than $200,000 in adjusted gross income and families making more than $250,000.

Rep.Chris Van Hollen, D-Md., assistant to House Speaker Pelosi, said a similar approach could be taken in final House-Senate negotiations, while other sources said the House also may be willing to sign off on a version of Stabenow's plan.

Currently, the wealthiest earners contribute a much smaller percentage of their income to payroll taxes for Medicare and Social Security -- about 1.6 percent in 2006 versus 9.4 percent for the middle class, according to CBO.

Stabenow obtained a score of her plan in early December that gave some indication of how much revenue may be available. According to JCT, applying the existing 1.45 percent payroll tax to investment income, including capital gains, taxable interest, dividends, estate and trust income and income from rents, royalties, S corporations and passive partnership income, to those earning above the $200,000/$250,000 thresholds would raise $111 billion over a decade.

It would be phased in over the first $40,000 of investment income, and begin Jan. 15. Arguably that date would have to be moved back, decreasing the amount of revenue gained. But increasing the overall tax by 0.9 percent, as the Senate bill would do, could make up some lost ground. Simply increasing the tax on current income, applied only to wages and beginning in 2013 as in the Senate bill, would raise about $87 billion.

Rep.Joe Courtney, D-Conn., who has led the charge in the House against the excise tax, declined to handicap the outcome on the call with Reich but pledged to keep up the fight. "The Obama campaign was not bashful at all about going after McCain's throat on that issue," he said, adding "this is a plan that has great political risk for the Democrats."

Christian Science Monitor: Four Ways to Tax Wall Street's Rich

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(Original Post)

Four ways to tax Wall Street’s rich

As a first step, Congress may extend the estate tax. There are faster methods, too.

With the House voting Dec. 3 to extend the estate tax at current rates, the fate of the tax now lies with the US Senate. At least 14 multimillionaire senators – and possibly far more – could be directly affected by the measure.

By David R. Francis
posted December 28, 2009 at 10:22 am EST

Before America had state sales taxes or a federal income tax, this sentiment echoed through the halls of Congress: Hit the "bloodsuckers of Wall Street." The federal estate tax was born – in 1913.

In the recent debate on the fate of that tax in the House, the language was usually tamer. The sentiment, though, was often similar: How can the United States tax more substantially the billionaires and multimillionaires of the financial industry, people often blamed for the market crisis and the "great recession"?

"They kind of owe us," says Michael Linden, a tax and budget expert at the Center for American Progress in Washington.

Britain is levying a one-time "supertax" on large bonuses for bankers. Other nations may follow. But these moves may not raise much revenue. A steadier, slower way would be to tax the heirs of the very rich with a solid estate tax.

On Dec. 3, the House voted to make permanent this year’s rates – 45 percent on estates over $3.5 million for individuals and $7 million for couples. Now the future of the estate tax lies with the Senate. Its members need to act quickly. Under the 2001 Bush tax cuts the estate tax will disappear entirely for 2010, and then reappear in 2011 at a higher rate – 55 percent for estates of more than $1 million.

But with 46 to 68 millionaires in the Senate (the count hangs on whether one uses minimum or maximum net-worth numbers), will the chamber vote to maintain a tax that could damage its members’ own estates? Because 22 senators own at least $3.5 million and 14 own at least $7 million, should they recuse themselves from a vote that so directly affects their interests? The Center for Responsive Politics calculates the average wealth of US senators in 2008 at $13.9 million.

Possibly the Senate will extend the 2009 rate a year by amending an urgent bill soon. Then the issue could be deliberated more leisurely in 2010. At stake are hundreds of billions of tax revenues that might shrink looming budget deficits over the next 10 years.There are faster ways to tax Wall Street’s rich:

1. Raise the tax rate on capital gains and dividends.

Instead of the 15 percent put in place in 2003, it could rise to the 28 percent rate in 1986 under President Reagan or the 20 percent rate in 1997 under President Clinton. A middle-income person typically pays 25 percent plus payroll taxes.

"If you go out and sweat" to earn income, you pay normal income tax rates, says Robert McIntyre, director of the liberal Citizens for Tax Justice. "If you sit around and wait for the dividend checks to come in," you pay the low capital-gains rate.

2. Apply the Medicare tax to investment income.

Now, it only applies to wages and salary.

3. Close a carried interest loophole.

Successful managers of hedge funds and private equity funds currently cut their taxes by classifying income as capital gains rather than regular income.

As for the estate tax, it is expected to raise $27 billion for Uncle Sam this year. The House bill would raise a similar amount in 2010. But if the pre-Bush tax rate was restored, the federal government would raise another $230 billion over the next 10 years.

The House bill "is more than generous" to the wealthy, complains Chuck Marr, an expert at the Center on Budget and Policy Priorities in Washington. The 1 in 500 estates subject to the tax will pay 18.9 percent of the estate’s value on average, he notes.

Slate: Let the Amending Begin!

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(Original Post)


Slate Magazine


November 22, 2009 Sunday


Let the Amending Begin!

by Timothy Noah


Click here for a guide to following the health care reform story online.

Health care reform limped to the Senate floor on a party-line vote, 60-39, after Democratic Sens. Blanche Lincoln of Arkansas, Mary Landrieu of Louisiana, and Ben Nelson of Nebraska gave their reluctant consent. (Republican Sen. George Voinovich of Ohio, who opposes the bill, was not present.) Statistically, the Congressional Research Service has found that 97.6 percent of all Senate bills that cleared this procedural hurdle during the past 10 years eventually won final Senate passage (though some would surely argue that unique circumstances make health reform an excellent candidate to become one of the 2.4 percent of all such bills that do not). Senate Democrats now risk finding themselves in the position of a dog that, after chasing a car, finally overtakes it. When the Senate returns from a Thanksgiving recess, it will be to reform health care in the United States. Er, how?

A few suggestions:

Keep the public option. On ABC News' This Week on Nov. 22, Nelson said, "[W]e could negotiate a public option of some sort that I might look at, but I don't want a big government, Washington-run operation that would undermine the private insurance that 200 million Americans now have." (In her statement explaining her vote to proceed with debate, Lincoln said she, too, would not abide a "new government-run health care plan.") What sort of public option was Nelson talking about? Possibly he had in mind a convoluted plan by Sen. Tom Carper, D-Del., to require states that fail to meet an affordability standard to include a nonprofit public option over which the president, the Senate, and the Health and Human Services Department would have some vaguely defined control.

At its worst, the Carper option would combine the lame "trigger" scheme of Sen. Olympia Snowe, R-Maine, which Landrieu has signaled she might support, with the lame "health cooperatives" scheme of Sen. Kent Conrad, D-N.D. At its best, the Carper option might serve as a Trojan horse for creation of a more robust public option down the road. But if that's the case, won't Nelson, Landrieu, Lincoln, and the redoubtable Sen. Joe Lieberman, Connecticut independent, sniff that out? Better to just leave the public option as it is, which is a pretty sad and withered thing already.

I don't actually believe that will happen. I think the Senate will end up stripping out the public option altogether. But it shouldn't.

Leave the abortion language as is. Another deal-killer for Nelson. The Senate bill basically revives a compromise reached in the House before Rep. Bart Stupak, D-Mich., and the U.S. Conference of Bishops inserted tougher language virtually forcing private insurers operating in the newly established exchange not to cover abortion. The Senate language requires any plan offered in the exchanges to establish elaborate procedures to segregate federal funds, which may not pay for abortions, from funds raised from premiums, which may do so. It's analogous to a compromise that 17 states have enacted in allowing the state-federal Medicaid program to cover abortions with specially segregated state funds rather than federal funds. The Health and Human Services Department, which funds Medicaid, is forbidden to pay for abortions under the 1976 Hyde amendment.

I don't expect to get my way on this one, either.

Tweak the Medicare tax. The Senate bill raises the Medicare tax, which currently is a flat 1.45 percent for everybody, to 1.95 percent for families earning more than $250,000. Henry Aaron of the Brookings Institution points out that this could distort compensation by encouraging a shift to nonsalaried forms of pay like stock options. "I would rather see Congress rely on broad tax instruments like the income tax," he told the Wall Street Journal. The House bill already does that by imposing a 5.4 percent surtax on family incomes above $1 million. That remains the best option of all. But assuming it's unsellable in the Senate, then perhaps Reid could extend that 1.95 percent Medicare tax for families earning more than $250,000 to cover investment income, too. Merely extending the current 1.45 percent tax to cover investment income would raise $160 billion through 2019, according to Citizens for Tax Justice, a labor-affiliated nonprofit. That's more than three times the $54 billion that the current Medicare tax proposal would raise. Add in that $54 billion and the difference between 1.45 percent and 1.95 percent, and the new Medicare tax could raise well over $200 billion.

A political problem with what I suggest is that it risks riling the elderly, who are likelier to depend more on unearned income than the non-elderly and are already edgy about any savings in the bill that include the word Medicare. But as I've noted before, elderly people earning more than $250,000 are pretty well off, especially if most of that $250,000 is earned from investments.

Tweak the tax on "Cadillac" health insurance plans. Reid accommodated labor unions by raising the threshold on the value of health insurance subject to taxation from $21,000 to $23,000. That doesn't address an objection raised against the provision when it was added to the Senate finance bill-i.e., that some people have expensive health insurance policies because they perform dangerous work. To accommodate this possibility, the Senate finance bill raised the threshold for such people. But it defined the "dangerous work" group too narrowly, and the Reid bill is similarly narrow, including those engaged in police work, firefighting, emergency medicine, construction, mining, agriculture, forestry, and fishing, but not, for instance, in heavy industry. That needs to be remedied.

Fix the "employer responsibility" provision. The House bill has a straight-ahead "employer mandate," requiring all except the smallest businesses (defined as those with payrolls under $250,000) to offer health insurance for their workers or pay a penalty up to 8 percent of payroll. The Senate finance committee flinched at imposing an employer mandate and instead concocted an elaborate workaround requiring employers to reimburse the government up to $4,000 or more for any subsidies their employees might receive to purchase health insurance in the exchanges.

A big problem with that approach was that it gave employers a powerful disincentive to hire low-income people. The Reid bill mostly fixes that problem by saying that if even one full-time employee receives such a subsidy, then the company must pay a fine equivalent to $750 for every one of its full-time employees, whether they receive subsidies or not. That's a powerful club to force employers to provide health insurance coverage. But the Center on Budget and Policy Priorities, a nonprofit that specializes on how the federal budget affects low-income people, notes a couple of (admittedly smaller) problems. Firms might evade or minimize the penalty by making full-time employees part-time employees instead. (If an employee works fewer than 30 hours per week, he isn't included in the head count for the fine.) This could be fixed by making the fine equivalent to $750 for every employee, full-time or part-time.

Another problem noted by CBPP is that the Senate bill retains a finance committee provision allowing some employees to purchase health insurance on the exchange, even if their employers already offer health coverage, if it's a crap plan (i.e., one that requires the employee to pay more than 10 percent of his income in premiums or fails to meet a minimum coverage standard). If an employee chooses to bypass his crap employer-sponsored plan and receives a federal subsidy to purchase insurance on the exchange instead, then the employer is fined $3,000. But this scheme creates a disincentive for firms offering crap health insurance to hire low-income people who might be eligible for the exchange subsidy. The solution proposed by CBPP is to impose basic standards on the quality and cost of all employer-sponsored health insurance, as the House bill and the version of health reform passed by the Senate health committee both do. No more crap plans!

Adopt the Wyden amendment. I've been skeptical about Sen. Ron Wyden's voucher solution to the health care crisis, mainly because I think it puts too much faith in private health insurance. But he's right that if you're going to create a health insurance exchange, you want it to serve as many people as possible. Currently under Reid's bill, some families' employer-sponsored premiums would be high, but not quite high enough to qualify them to buy health insurance on the exchange (i.e., their premiums would be 8 percent to 9.8 percent of their income, not 10 percent). Reid has agreed to support an amendment that would allow those families (provided their incomes are less than $88,000 for a family of four) to convert the federal tax subsidies they would receive for their almost-crap employer-sponsored health insurance into vouchers to purchase health insurance on the exchange. This would work a lot better if a public option were included in the final bill. But even if it isn't, it's worth trying.

Increase subsidies. Remember all that revenue that could be generated by altering Reid's Medicare tax? Some of those proceeds should be used to increase subsidies to lower-income people to purchase health insurance on the exchanges. The subsidies in the Reid bill are less stingy than in the Senate finance committee bill, but they're still inadequate. For example, CBPP notes that a family of three living on $25,000 a year would pay more than $1,000 in premiums under the Reid bill; under the House bill, it would instead be made eligible for Medicaid. One particular problem is that, compared with the House bill, the Reid bill shifts subsidies from low-income people to middle-income people who are likelier to vote. Subsidies ought to be brought up to the levels in the House bill. This isn't simply a matter of being more compassionate. If Congress makes people purchase health insurance and then doesn't give them enough money to do so, a lot of Democrats will be turned out of office.

I'm sure there are more changes that ought to be made, but these are the ones that come to mind immediately.

Slate: Will Reid Tax the Rich?

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(Original Post)


Slate Magazine


November 12, 2009 Thursday
Correction Appended


Will Reid Tax the Rich?

by Timothy Noah

Senate Majority Leader Harry Reid  is reportedly reconsidering tax options for health care reform. According to the Associated Press, Reid is thinking about raising the part of the payroll tax that pays for Medicare on families whose incomes exceed $250,000, the magic number below which President Obama has promised not to raise taxes. According to Bloomberg, Reid is also considering an alternative proposal that, rather than raise the Medicare tax, would apply it to investment income (currently exempt) for families earning more than $250,000.

Apparently Reid has woken up to the fact that the Senate finance committee's excise tax on so-called "Cadillac" health insurance plans (i.e., family plans worth more than $21,000) has a couple of serious drawbacks. These should be familiar to regular readers of this column:

- It raises only $201 billion over 10 years. That's less than half the $460 billion that the House bill would raise through a 5.4 percent surtax on incomes above $500,000 for individuals and $1 million for families.

- The finance committee-at the prodding of Sen. Jay Rockefeller, D-W.Va.-acknowledged that many people have expensive health insurance not because they're pampered by their bosses but because their jobs put them at higher risk of physical injury. Consequently, it raised the threshold for the untaxed portion of these people's plans by $5,000. But the committee was pretty stingy in defining what these high-risk professions were. The threshold was raised for law enforcement, firefighting, rescue work, ambulance services, construction, mining, agriculture, forestry, and fishing. It was not raised for anyone who works in heavy manufacturing. If this tax is to be maintained in the final bill, it will have to be whittled down further. According to the Dow Jones newswire, Reid has already raised the family threshold by $2,000 for everybody.

Policy wonks tout the Cadillac-plan excise tax-which taxes every dollar above the designated value ($21,000 under the finance committee bill, $23,000 under Reid) at a hefty 40 percent-mainly as measure to reduce medical spending. The thinking goes that since insurers really won't want to pay that 40 percent tax (or pass it along to their customers), they'll work very hard to keep their policies below the threshold. But to whatever extent that proves true, the tax's value as a revenue-raiser will be diminished. If all insurerskeep the value of their policies below the threshold, the tax will raise no money at all.

And so it's back to the drawing board. The two Medicare taxes under consideration are a bit more progressive than the Cadillac-plan excise tax. The current Medicare tax is 2.9 percent, of which half is paid by the employer and half by the employee.It is therefore not progressive at all-rich and poor pay the same percentage-though not outright regressive, as is the Social Security part of the payroll tax, which stops at incomes above $106,800.* It isn't known how high Reid is considering raising the Medicare tax, but Citizens for Tax Justice, a labor-affiliated nonprofit, has calculated that raising the employee half from 1.45 percent to 2.5 percent for families earning more than $250,000 would raise $7.2 billion in 2012, the year the tax would likely take effect.

The second tax under consideration would keep the Medicare tax at 1.45 percent for employers and employees but would subject investment income to the tax for families earning more than $250,000. According to Bloomberg, White House Budget Director Peter Orszag says this proposal is the one that's "in play." One likely reason is that it's a little harder for opponents to peg it as a tax increase because it isn't a rate increase. Another likely reason is that it raises a lot more money: $19 billion in 2012, according to Citizens for Tax Justice, and $160 billion through 2019.

Raising or (ahem) extending the Medicare tax is not without peril. With many senior citizens already up in arms about health reform's proposed cuts to the Medicare program, adding a tax-rate increase that has the word Medicare in it might pour gasoline on the fire, even if the tax increase doesn't target the elderly. (Indeed, it would largely exempt them, since a high proportion of the elderly are retired, and pensions would be exempt.) Choosing the Medicare tax on investment income instead would likely rile the elderly still further because (as Citizens for Tax Justice notes scrupulously) "people age 65 and older are more likely to have unearned income that would be newly subject to the Medicare tax." On the other hand, the group observes, elderly people earning more than $250,000 annually, most if not all of it through their investments, aren't exactly poor.

A wiser course would be simply to adopt the House's millionaire tax. Senate moderates who sputter about "class warfare" might perhaps be reminded that over the past 30 years this group saw its inflation-adjusted income increase by 226 percent while the share of its income that it paid in taxes fell from 37 percent to 31 percent. If that doesn't do the job, Reid could promise to maintain the tax on Cadillac health plans, too-for a lot of moderates it's a badge of seriousness-but if he does so he must the threshold for a lot more professions. Universal health insurance ain't free.

Update, 8:50 p.m.: The Wall Street Journal reports that the Medicare-tax increase Reid is considering for incomes above $250,000 is not to 2.5 percent, as contemplated by Citizens For Tax Justice, but to 1.75 percent.

Update, 5 p.m.: Jonathan Gruber, the MIT health care economist, informs me by e-mail that I'm wrong to conclude that the treasury will lose revenue under the finance committee's proposed excise tax on Cadillac plans to the precise extent that insurers keep the value of their health plans under the threshold. I'm wrong "because when employers spend less on health they spend more on wages--and those are taxed." Such "wage shifting," Gruber says, was in fact assumed by both the Congressional Budget Office and the Joint Committee on Taxation when they scored the finance bill. The JCT assumed that fully 80 percent of the revenues raised by the excise tax would come not from the excise tax itself but rather from income tax on the dollars that employers divert from health insurance into wages. Gruber has the details here.

I'm glad to hear it. But it remains true that the excise tax raises less than half as much revenue as the House's millionaire tax.

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

National Journal: The Debt Problem Is Worse Than You Think

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(Original Post)

The National Journal

November 7, 2009

The Debt Problem Is Worse Than You Think

by John Maggs

It is hard to imagine, but not long from now the epic fight over health care reform and the looming battles over climate change and banking regulation could seem like footnotes to the Obama presidency. The jury is still out on whether the economic stimulus bill and corporate bailouts helped pull the United States out of the worst recession since the Depression, but these too will fade in importance once the true challenge faced by the U.S. government comes into focus.

Sometime in the next few years -- possibly before the 2012 presidential election and probably by 2016 -- it is likely that two huge challenges will come to dominate government and politics. Either of them alone would be daunting enough to overwhelm the unreliable machinery for making hard decisions in Washington. Together, they will demand a degree of consensus, acumen, and political bravery that hasn't been seen here for a long, long time.

The first task is to confront the reality that the budget process is out of control and that deficits and government debt are headed much higher than anyone can remember. The tripling of the deficit in 2009 has been much noted in Washington, but the implications of the longer-term path of the budget are not fully appreciated by many policy makers. Simply put, even alarmists may be underestimating the size of the problem, how quickly it will become unbearable, and how poorly prepared our political system is to deal with it.

There is a sense in Washington that the budget problem is merely one of several challenges that Obama would face in a two-term presidency, just a nettlesome complication for him as he pursues climate change, entitlement reform, and other priorities. Yet dealing with the budget and the debt is likely to dominate, one way or another, most of Obama's domestic policy agenda, whatever his hopes and intentions. Republicans tend to portray the budget woes as the product of the nine-month-old Obama  presidency and the $787 billion stimulus plan. Democrats blame the Bush tax cuts and reckless spending on the wrong war. Such posturing obscures the consensus that underlies the fiscal expansion, over many years, that has brought us to this perilous moment.

The second challenge is monetary policy, as set by the Federal Reserve Board. The Fed uses interest rates and other tools to influence inflation, employment, and economic growth. In the same way that fiscal policy will need to make a sharp U-turn from expansion to contraction, monetary policy must do so as well. The switch isn't on the radar screen of nearly as many decision makers as the budget, but it is probably just as important and daunting a task.

In normal times, this monetary about-face is a delicate operation, but these are not normal times. Ordinarily, the Fed gradually raises interest rates during an economic recovery to tamp down inflation but not so much as to throttle growth. During this recession, it cut rates to zero to combat the near collapse of the banking system, and raising them will risk reigniting that crisis.

Just as the economy begins to strengthen, the Fed will have the added job of selling off upward of $2 trillion in assets from its efforts to rescue banks. It will need to do so because, as with the banks it saved, the Fed has become over-leveraged. As Fed Chairman Ben Bernanke has noted, the Fed has acted in ways and on a scale that it never has before. To reduce its holdings, the Fed will need to engage in many kinds of transactions that it has done only on a limited basis -- this time on an unprecedented scale. Part of Bernanke's job is to project an easy confidence about this enormous task, but Fed experts know that he is in uncharted waters.

Mishandled, these efforts to rein in the money supply could revive the financial crisis, kill off a recovery, or unleash ruinous inflation that would wreak havoc with the economy for years, as it did in the 1970s. As much as the budget or any other issue, the tightening of monetary policy is likely to shape history's view of the Obama era.

What unites these two challenges is that they are ultimately about how government will manage its debts. The financial crisis that began in 2007 was driven by the excessive debt of businesses and consumers. Government stepped in to effectively assume some of those private debts, saving many companies and families from bankruptcy. But now the U.S. government is starting to have debt problems of its own.

Unusual among developed countries, the United States has always escaped the temptation to pile up too much debt, even while fighting wars and building a welfare state. Part of the reason is the unique blessing of cheap resources and a productive free-enterprise system that allowed the country to grow its way out debt, as it did after World War II when government debt was greater than 100 percent of the country's yearly output. Since 1950, it has fallen to an average of 40 percent.

But that legacy of thrift is under siege as never before. Economists Kenneth Rogoff and Carmen Reinhart have written a dense analysis of financial crises through 800 years of world history, full of scatter charts and equations with Greek symbols. Their book,This Time Is Different,is a surprise best-seller, outpacing cookbooks and celebrity memoirs. Rogoff and Reinhart document every financial predicament back to 1300 to show the great consistency with which these crises come about and what happens afterward. The book doesn't deal with the recent U.S. crisis, but it is an implicit critique of American exceptionalism in economics -- the idea that we can avoid the fate of other nations.

The influx of foreign capital, the bubbles in housing and stocks, and the run-up in borrowing and commodity prices that preceded the meltdown that began in mid-2007 were typical signals of an impending crash. Financial crises tend to yield weak recoveries, the authors found. Both poor and rich countries spend hugely on bailouts and stimulus and fail to rein in spending, leading to crushing debt problems. Even more than the cost of bailouts, however, weak revenues from sluggish recoveries strangle governments as they maintain spending levels to soften the downturn.

In one comparison of 14 major financial crises involving a mix of developed and developing countries, Rogoff and Reinhart find that within three years of the onset of the problem, debt rose by an average of 86 percent. In the best of circumstances, the United States will blow through this number. According to an estimate by the Office of Management and Budget (which excludes many likely developments, such as an extension of the Bush tax cuts), the net federal debt will nearly double from $5 trillion at the end of 2007 to $9.9 trillion at the end of 2010. (This is the number that matters to investors. Gross debt, including federal trust funds, is now close to $12 trillion.)

A debt default -- a form of bankruptcy -- seems unthinkable for the United States, but Rogoff reminds us that it happened in 1933, when President Franklin Roosevelt revalued the dollar by seizing gold supplies. A default would wipe out wealth and retirement savings and do long-term damage to the economy. No one knows how much debt America would have to incur to risk a default, but one thing is certain: Without a drastic fiscal U-turn soon, debt is going to reach the point where some kind of default is likely.

The Thermostat

As the charts on pp. 21-24 show, spending and taxes collected by the federal government have been remarkably steady until recently, despite popular belief. Since 1969, federal spending has stayed within a narrow band, running between 19 and 22 percent of gross domestic product, with only brief periods when it was higher or lower. During the 1980s, spending was mostly above 20 percent, and from 1995 to 2007, it was mostly below 20 percent. The average over 40 years is 20.6 percent.

Revenue is even more stable. Despite tax cuts, recessions, and major tax increases, the amount of tax revenue from 1969 through 2008 was amazingly constant, varying by just a couple of percentage points. The average for revenue was 18.3 percent, yielding a long-term average deficit of about 2.4 percent.

Looking more closely at spending and revenue together, it seems that the largest swings in one direction are almost immediately followed by a move back toward the average.

The metaphor of a thermostat nicely describes how Washington responds to changes in the political climate. This idea of a set point for spending and taxes is consistent with what economists think of as "dynamic equilibrium." Whenever policy moves taxes or spending very far from the set point, other forces -- some economic, some political -- emerge to move it back toward the average.

For example, when taxes get too high and government does not lower them, slower economic activity comes along to reduce revenues. When tax revenue drops, often reflecting a tax cut, the economy responds with higher growth that boosts revenue, reversing the trend.

Likewise, when spending gets too high, government eventually acts to rein it in. In the popular view of history, Ronald Reagan cut taxes sharply and backed a defense buildup that boosted overall spending. The truth is that spending, as a share of the economy, peaked in 1983 and fell gradually for the rest of Reagan's presidency. By 1982, in the face of rapidly rising deficits, Reagan endorsed a series of tax increases after it became clear that "business tax cuts had gone way too far," recalled Bob McIntyre, director of Citizens for Tax Justice, which has targeted the decline in corporate taxes. After tax cuts and a deep recession drove down revenues in the Reagan administration's early years, tax increases and a recovering economy brought revenue back to the set point, almost exactly.

Repairs Are Needed

Based on recent events and future plans, however, this thermostat seems to be on the fritz. According to the Obama budget's baseline, if current policies stand, spending that jumped to a postwar peak of 26 percent of GDP in 2009 will settle in at a new set point of 24 percent for the next 10 years. But revenues -- with or without Obama's proposed tax increase on high-income earners -- will continue to average about 18 percent of GDP, which is right around their 40-year norm.

In other words, spending will bump up to a new, higher set point, but taxes will not. The resulting gap would produce deficits in the range of 5 to 6 percent over the next 10 years -- more than twice as large as the 40-year norm.

Even this is probably too optimistic. Obama's budget, by all measures, undercounts some likely expenses, such as the continued cost of the Afghanistan war, and leaves out the extension of some likely tax breaks. The budget hawks at the nonpartisan Concord Coalition propose their own scenario to account for these likelihoods, dubbed the "plausible baseline." It finds a new 10-year set point of 24.6 percent for spending and 16.3 percent for revenue, an average deficit of 8.3 percent.

 

What are the sources of this long-term shift? Despite the sense that Washington has never been more divided ideologically, in practice there is a surprising amount of agreement about taxes and spending. Unlike the 1980s, when Republicans were associated with the idea of smaller government, and the 1990s, when a Democratic president and a Republican Congress achieved the biggest reduction in the relative size of government since the 1940s, neither party is much identified now with the idea of limited government -- nor with fiscal prudence. Republicans may be fighting tooth and nail over the Obama  

health care proposal, but they aren't willing to challenge popular spending programs such as Medicare, as they once did. Democrats, meanwhile, have embraced tax cuts as a political bonanza.

 

As an example, Obama  recently proposed a $250 per person payment to Social Security recipients because recent deflation means that they won't be getting the customary bump in their monthly checks to account for inflation. Economists condemned the rebate as political pandering to seniors, who as a group don't need the money as much as others and are less likely to spend it. But there was hardly a peep from Democrats or Republicans in Congress.

The new tolerance for high deficits comes at a time when government badly needs to address the long-term cost of entitlements. As a presidential candidate, Obama complained that Bush had squandered his opportunity to deal with the looming funding shortfall for Social Security and Medicare. But now Obama proposes to jettison what truly does appear to be the last chance to "bend the curve" of runaway costs. According to a comparable "plausible" scenario from the Congressional Budget Office, entitlement costs will start to rise steeply near the end of the 10-year budget cycle in 2019. Government spending is projected to ascend even more sharply -- past 30 percent of GDP around 2030, and 40 percent around 2050. Unless Obama does something to rein in spending in the next few years, solving this problem seems much more improbable than it did even a year ago.

The effect would be a frightening accumulation of debt much sooner than Obama's economic team is acknowledging. According to the White House's baseline projections, federal debt is expected to rise from 40 percent of GDP in 2008 to 53 percent in 2009 and top out at 65.9 percent in 2013, and then come down slightly until 2019. But the more realistic alternative scenario from CBO sees debt rising steadily through that period to 87 percent of GDP in 2020. Thereafter, it takes off like a rocket, jumping to 181 percent by 2035 and 321 percent by 2050. In today's dollars, this would be enough money to fight three wars the size of World War II.

Too Much Money

The threat of accumulating public debt is also a problem for the Federal Reserve in managing the dollar and interest rates. Even in calmer times, knowing when to cut rates and when to raise them is tricky. Increase rates too soon after a recession, and you can squelch the recovery. Hike them too late, and you can unleash inflation. Since it was created in 1913, the Fed has mishandled the timing of interest-rate changes many times, according to John Taylor, a former Bush Treasury official and one of the foremost experts on the Fed.

This time, the job for the Fed is going to be much more complicated, according to Rogoff, a Harvard economist. In addition to interest-rate cuts, the Fed has effectively lent $1.5 trillion to banks, with about $500 billion more in loans planned by early next year. This doesn't count guarantees to banks and other financial institutions that could potentially add trillions more to the money supply if some aspect of the financial crisis returns.

Sometime in the next year or two, the Fed must start selling off its assets. Like any bank, it will need to do this to bolster confidence that it has the means to deal with future problems -- akin to the "stress tests" that the Treasury Department is using to determine whether private banks are healthy. Put another way, the Fed will have to sell assets to soak up the extra trillions in the money supply. In times of normal growth, when banks are more willing to lend their own money, this extra money could fuel inflation.

Meanwhile, the Fed will do its customary about-face on interest rates, but this too will be more complicated than usual. For starters, the Fed will be raising short-term rates after effectively cutting them to zero last December (the actual rate is between zero and 0.25 percent, which is more or less a transaction fee). It will do this in a financial system that has depended on virtually free money to maintain its lending to businesses and consumers.

Both actions are a way for the Fed to reduce the money supply, which has grown more and faster than at any time in its history. The risk is that even modest economic growth could trigger inflation that will be hard to control. Bernanke projects great confidence in the Fed's capacity to manage this complex switch on debt and interest rates, but again "we are in new territory," Rogoff said.

The damage could be deep and lasting: If rates are raised too soon or too steeply, a recession would return, threatening companies and consumers already weakened by the Great Recession. That's what happened in 1937, when the Fed boosted rates too soon and extended the Great Depression by a year. On the other hand, if the Fed waits too long to raise rates and moves too slowly to sell off its assets, inflation would ensue, a problem that could take years -- and perhaps another recession -- to correct.

The Fed Is Part Of The Government

Because of the Fed's unique independence, it is tempting to view these crucial decisions by the board as fundamentally different from the budget and debt problems outlined earlier. Unlike the very public process by which Congress writes a budget and votes to raise the federal debt limit, the Fed makes its decisions privately and then announces them in press releases. But that doesn't mean that the Fed is not accountable for its actions, as Bernanke is learning in hearing after hearing about his handling of the bank bailouts. Even routine decisions on interest rates are the subject of intense scrutiny in Washington and on Wall Street, and politics has always influenced Fed chairmen.

Consider Arthur Burns, a close political adviser of President Nixon's who was rewarded with the Fed chairmanship in 1970. According to former Nixon aide William Safire, Burns was pressured to lower interest rates before the 1972 presidential election, through Nixonian leaks to the media about Burns's possible replacement. The Fed chairman relented, unleashing nearly a decade of ruinous inflation and one of the worst eras of economic turmoil in the 20th century.

Bernanke has already been renominated, but Fed chairmen still face pressures. Alan Greenspan, generally considered to have been above such suasion, has been at pains to explain how he came to unequivocally support the Bush tax cuts, something that he now says he never intended to do. Paul Volcker was vilified at the time for engineering the 1981-82 recession to help throttle inflation, and only years later received the credit he deserved.

Like the president and congressional leaders, who will face intense pressure and agonizing choices about the budget, Bernanke will encounter the same forces in his complicated series of decisions on reducing the money supply. And like those leaders, he must find consensus among the Fed's other board members and the sometimes very independent presidents of the Fed's regional banks. In the same way that Volcker's recession helped shape the view of Reagan's presidency, Bernanke and the Fed will influence whether Obama's stimulus and bailouts are seen as a success.

A large part of the Fed's lending involves short-term debt, or gaining control of assets that will be relatively easy to dispose of, Rogoff says, but that doesn't include mortgage-backed securities. By next spring, the Fed will have purchased $1.3 trillion of these bonds -- $1.3 trillion more than it owned before the crisis, when its total assets were $860 billion. Rogoff is among those who think that it is going to be tricky to unload these securities without destabilizing the credit markets. After the Fed's unusually close coordination with the executive branch of late, its image as an independent agency would probably be helped if ownership of those mortgage securities were transferred to the Treasury Department, Rogoff says (as originally envisioned under the Troubled Asset Relief Program). But he acknowledged that Congress is unlikely to embrace the optics of boosting the debt limit by another trillion dollars, even though it makes no difference to the true size of the public debt.

Borrowing by the Fed may not show up in the budget as an expenditure by taxpayers, but as Rogoff points out, the economic effect is the same: Until the Fed is able to successfully unwind its trillions of dollars in commitments, the board is adding to a growing Everest of debt.

Banana Republic

Debt is rising so fast that it seems reasonable to wonder why long-term interest rates remain so low, suggesting that Wall Street isn't worried. Consider the conditions that led to public debt harming the economy the last time. This was 1990 to '92, when economists concluded that growing deficits and debt were keeping long-term interest rates higher than they otherwise might be. Deficits had risen from about 3.8 percent of GDP in the late 1980s to 5.5 percent in 1992, which in turn helped drive up debt from its long-term average of 40 percent of GDP to 48 percent that year.

There is little doubt that the picture is much worse now, as outlined earlier -- debt has already risen more and faster, and deficits and debt are on a path to continue rising far higher. Economist Simon Johnson, among others, has warned that the United States is headed for the kind of debt crisis that has often plagued developing countries. In such cases, nations see interest rates climb, currency values plunge, and inflation soar out of control. Investment flees, confidence in the economy suffers, and long-term damage is done to the country's finances. That has been the experience of Japan, which once appeared to have eclipsed the United States in productivity and living standards but since 1990 has been mired in slow growth. Depressed about the three-year slump in home prices? In Japan, home prices fell for 17 straight years.

Still, Washington seems far from grappling with the financial crisis. William Gale of the Brookings Institution has been trying for years to interest policy makers in budget problems that looked scary before the crisis. "If you had told me two years ago that the housing market was going to collapse by 50 percent, that there was going to be a credit crisis that put the economy in free fall, that the world economy would collapse, that the deficit would be 10 percent of GDP, and that Congress would do nothing about the budget, I would have said you were crazy."

During the last budget crisis in Washington, an important factor moving the political system to action was the perception on Wall Street that the process was out of control. This was reflected in high long-term interest rates, slow growth, and, by some accounts, a heightened volatility in stock and bond markets. The financial situation helped Robert Rubin, as director of the newly created National Economic Council, to persuade President Clinton in 1993 to focus his efforts on deficit reduction.

Don Marron, a former top CBO official, is one economist who wonders why the markets haven't registered more concern recently. One possibility, he said, is that investors believe that the budget crunch will fade, presumably through some combination of vibrant economic growth and fiscal conservatism in Washington.

On the first point, last week's surprisingly strong report on economic growth in the third quarter of 2009 is encouraging those who think that a robust, "V-shaped" recovery will follow the sharp downturn of the Great Recession. The economy grew at a 3.5 percent annual rate in the third quarter, after contracting in each quarter of the previous 12 months. About 1 percentage point of that gain came from retailers replenishing their inventories, a signal of confidence in the months ahead. Viewed another way, however, about two-thirds of the gains were tied directly to temporary stimulus from the government -- extended unemployment benefits, the "cash-for-clunkers' rebate to boost car sales, and a tax credit for first-time homebuyers. After rising through the spring, consumer confidence has returned to levels normally associated with a recession.

A Slow Recovery

Rogoff is hoping that the economy will rebound strongly, but his research indicates that recessions caused by financial crises result in unusually slow and shallow recoveries. On average, he said, housing markets contract for five years, unemployment doesn't turn around for almost that long, and stock markets take three and half years to recover. In Rogoff's compendium of crises, the story for other nations is pretty much what has been the story for the U.S. so far: asset bubbles, inflow of foreign capital, huge borrowing by consumers, business, and government. As the accompanying charts show, in the best of conditions, deficits and debt in the United States follow the same script.

For their part, the Obama administration and CBO are counting on an unusually strong recovery. As sobering as OMB's long-term "plausible baseline" is, the agency is still expecting sluggish growth of 1.7 percent in 2011 and meteoric growth beyond -- an average of 4.7 percent a year for 2012 and 2013. That would be a more robust expansion than for any two yearsduring the 1990s boom, and the fastest for any two years since 1983-84. If growth is slower, and especially if there is another recession, the deficit and debt picture gets much worse, very fast.

Another lesson of Rogoff's book is that rich countries' experiences with debt crises are very similar to that of poor nations. Other countries have been hit by crises with public debt levels as low as 70 percent of GDP, or avoided them with debt as high as 150 percent, but none of those nations had the advantage of America's dominant role in the global economy and its control of the dollar, the "reserve" currency for most of the world. One paradox of the recent recession is that, as bad as it was here, it was more severe in most of Europe and Japan, prompting a surge in foreign purchases of U.S. Treasury bills just when the government needed to sell them. Since the crisis hit, the share of worldwide wealth held in U.S. dollars has risen from about 65 percent to 70 percent.

Marron is skeptical that low long-term rates reflect confidence in Washington's ability to solve the debt problem. "I don't know what the evidence would be for that." It could be, he speculated, that investors are engaging in the kind of wishful thinking that brought about the financial crisis. Based on recent experience, Marron said, "we know that is a possibility."

It may also simply be a matter of what gets investors' attention. In 1992, one of the larger components of federal spending was servicing the national debt. In the past year, the debt has increased by more than 30 percent, but the projected cost of servicing it actually went down, Marron notes, because of the sharp cut in interest rates. Money is nearly free for big banks at the moment, and running up the national debt is nearly free, too.

This is where the two policy challenges of the budget and the money supply converge. Once interest rates start rising, the cost of government debt will climb sharply; at the same time, investors are going to notice thattheirborrowing costs are also higher. That's what happened from 1990 to '92, when Wall Street and Washington suddenly decided that the budget and debt were an emergency. If interest rates were to rise 2 percentage points, Rogoff said, a national debt that will be close to $10 trillion in 2011 would cost an extra $100 billion to service.

Taylor, Rogoff, Marron, and Gale all think that it will be a year or two before the recovery is strong enough to trigger the inflationary signals that lead the Fed to start raising rates. But all four also say that a shift in investor confidence could come suddenly and sharply. When the shift does arrive, the need for drastic action in Washington will be greater than it was in the 1990s, when Republicans and Democrats put aside their differences to reach comprehensive budget deals that ushered in an era of lower deficits and the only balanced budgets since 1969. Given the pressure of dealing with entitlements, Marron says, "the job will be much bigger" than what Washington faced in that earlier era.(See "What to Do?" p. 28.)

Not coincidentally, 1990 to '92 was a time when difficult decisions on fiscal and monetary policy converged. While Congress and President George H.W. Bush were reaching a budget deal in 1990, Fed Chairman Greenspan was resisting pressure from the White House to lower interest rates. Greenspan sensed inflationary pressure in the pipeline, and he held off. The result was a recession that surely cost Bush a second term. Likewise, tougher stances on fiscal policy can have electoral consequences. Voters then were also angry that in reaching a budget deal in 1990, Bush broke his vow of no tax hikes. Gale says that Obama  

will similarly have to go back on his promise to protect the middle class from tax increases, if he is to have any chance of getting a handle on the deficit. "Do I expect that [soon]? No."

The Hill: Dem leaders, lobbyists still at odds on systemic risk regulator

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(Original Post)

The Hill

November 3, 2009 Tuesday

Dem leaders, lobbyists still at odds on systemic risk regulator

By Silla Brush and Kevin Bogardus

Pg. 18

The House Financial Services Committee is slated this week to mark up several contentious pieces of the broader financial regulatory overhaul that have drawn significant opposition from Republicans, Democrats and lobbying interests.

Some financial industry associations are pushing for the markup to be delayed until next week.

The panel is slated to mark up legislation regulating “systemic risk” that would create a new system for providing aid to failing financial firms. The Obama administration has strongly pushed for the new “resolution authority” powers that would let the government take over the ailing firms, break them up and sell their assets.

The goal is to grant new powers to the government so future administrations facing financial crises don’t need to rush to Congress for emergency bailout funds. Republican and Democratic critics of the measure counter that it perpetuates the notion of “too big to fail” that forced the government’s hand into propping up American International Group (AIG) with $180 billion.

Committee Chairman Barney Frank (D-Mass.) on Friday shifted his position in favor of firms paying into a standalone fund that could be tapped by regulators when a firm fails. The Obama administration and Frank earlier had proposed a measure that would levy a fee on firms with greater than $10 billion in assets, but only after a firm fails.

Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation (FDIC), opposed the earlier position.

Among the concerns is that the $10 billion threshold may harm large yet non-systemically risky firms. There are roughly 120 banks that have assets of at least $10 billion. The fund is intended to cover the costs of the breakup of systemically important firms that fail.

The committee is also trying to resolve differences in a much lower-profile bill that creates a new Federal Insurance Office.

The insurance lobby is divided over whether the new office should be able to coordinate and negotiate international insurance agreements on prudential matters. Insurance groups that favor the existing state-based system of insurance regulation, such as the National Association of Insurance Commissioners, argue that the new office would infringe on state rights and consumer protection statutes.

Industry groups representing large insurers and re-insurers that traditionally have supported a federal office that pre-empts state laws support the new language.

Consumer groups caution that the proposed language, backed by Rep. Paul Kanjorski (D-Pa.), is too broad and would set a ceiling on insurance regulation that could hurt insurance policyholders.

“The way that thing is written, it would basically be authorizing the Treasury Department to go become judge, jury and executioner of U.S. state insurance regulation,” said Lori Wallach of Public Citizen.

Opponents of the measure argue that Democratic lawmakers are directly contradicting the aim of an earlier bill that passed the committee. The earlier
Consumer Financial Protection Agency bill preserved the power of state officials to pursue stronger standards than the federal minimum.

“It’s like two ships passing in the night,” Michael Bird, federal counsel at the National Conference on State Legislatures, said of the two bills.

Estate tax expiration in 2010 means more lobbying now

With the estate tax set to expire next year, lobbying on both sides of the debate is picking up on Capitol Hill.

Liberal advocacy groups are getting behind a bill authored by Rep. Jim McDermott (D-Wash.) that would keep the tax in place at a lower exemption rate for estates than would legislation favored by lobbyists for farmers and small businesses.

Lee Farris, the senior organizer for estate tax policy for United for a Fair Economy, said her group supports the McDermott bill.

Farris said “it is a very different ballgame since Bush first came into the office.”

“We have just spent a huge amount bailing out Wall Street,” Farris said. “Now, it would be a lousy time to send even more money to the wealthy.”
Other organizations, such as Citizens for Tax Justice and Results, an anti-poverty group, are also behind McDermott’s bill.

While the estate tax would lapse in 2010, it would return the following year to what it was before the Bush administration passed its first round of tax cuts in 2001 — a tax rate of 55 percent and an exemption for those with assets valued at $1 million or below at the time of their death. Current law has the tax rate at 45 percent and those with assets valued at or below $3.5 million earning an exemption.

If passed before Congress leaves this year, McDermott’s bill would permanently set up a $2 million exemption level and progressive tax rates for assets valued higher than that level. Farris believes the bill would yield the most government revenue, which could be used for healthcare reform and other federal programs.

Meanwhile, business associations have begun to shift their support for full repeal of the estate tax to a compromise bill offered by Rep. Shelley Berkley (D-Nev.), which would set the exemption level at $5 million and the tax rate at 35 percent. Other Ways and Means members are also co-sponsoring the bill, including Reps. Kevin Brady (R-Texas), Artur Davis (D-Ala.) and Devin Nunes (R-Calif.).

The American Farm Bureau Federation and the National Federation of Independent Business were quick to endorse the bill when it was introduced more than a week ago. Since then, the National Cattlemen’s Beef Association has come out in support of the bill as well. Most of the trade groups’ members would go untaxed if Berkley’s bill became law.

Despite the pick-up in lobbying, Congress may just pass a one-year extension of current law. Farris said she could get behind that if there is enough time to address estate tax reform later in 2010.

“This tax cut looks like one that should be reversed,” Farris said.

More lobbyists terminating registrations, study finds

A joint report by two watchdog groups has found lobbyists are terminating their registrations at a faster rate than last year.

The study by OMB Watch and the Center for Responsive Politics found that there were more than 1,400 de-registrations during 2009’s second quarter — a marked increase for any reporting period during this year or last.

The finding seems to back up anecdotal evidence that lobbyists are either themselves planning or know colleagues who plan to terminate their registrations in the wake of President Barack Obama’s efforts to minimize K Street’s influence.

Obama signed an executive order on his first full day in office to close the revolving door between the private and public sectors. He has also restricted lobbying on the stimulus package and has asked federal agencies not to appoint lobbyists to their advisory committees.

Those actions by the administration could lead lobbyists to terminate their registrations under the Lobbying Disclosure Act (LDA). Consequently, some public interest groups are concerned that transparency may suffer as lobbyists still lobby but end their LDA registrations and take on new titles, such as “senior adviser,” at their firms.

“While we can’t draw a direct link between the president’s executive order and the increased pace of terminations during the second quarter of 2009, we can say that they came at a most controversial time,” Lee Mason, OMB Watch’s director of nonprofit speech rights, said in a statement.

Inside Health Reform: Controversy Surronding Excise Tax Suggests Compromise Likely

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Inside Health Reform


October 21, 2009


CONTROVERSY SURROUNDING EXCISE TAX SUGGESTS COMPROMISE LIKELY

Vol. 1 No. 37

by Amy Lotven

Although a majority of unions have attacked the Senate Finance Committee's plan to tax high-cost insurance plans, one group has indicated it is willing to compromise should the current threshold increase. A source for a labor group that did not wish to go on record tells Inside Health Policy that Sen. John Kerry's (D-MA) goal of increasing the threshold to $25,000 for a family plan is "much, much better" than the current policy. However, another labor source said his group remains steadfast against the tax at this juncture.

Asked if the union would find an increase in the threshold or perhaps a policy that would only apply the excise tax to workers making a higher wages -- as the first source suggested -- more acceptable, Chuck Loveless, director of legislative policy for the American Federation of State, County and Municipal Employees (AFSCME) said that the union is "not discussing a compromise at this point."

AFSCME is one of 27 union groups who reportedly defied a request from White House Chief of Staff Rahm Emanuel to stay quiet on the subject and instead ran an ad attacking the Senate Finance Committee bill for its failure to include a public insurance option and for including the tax. AFSCME says that the tax, which would be applied to plans with premiums more than $8,000 per individual or $21,000 for families, will disproportionately affect those who are older and sicker and employed by smaller firms. "That's not the change America voted for," the ad says. "A new tax on the middle class is unacceptable."

Conservative members have also attacked the tax, as have more than 150 House members who recently sent a letter to House Speaker Nancy Pelosi (D-CA) in opposition to the proposal. Critics from both sides have compared the concept to the alternative minimum tax, which was originally meant to impact the wealthy but over the years has affected more and more middle class taxpayers.

Complicating the issue, however, is that the tax is not only one of the largest revenue raisers in the Senate Finance bill but, as Senate Finance Chair Max Baucus (D-MT) reaffirmed in a teleconference Monday, the Congressional Budget Office has determined that the policy is one of the best cost-controlling mechanisms in the health reform legislation.

Emanuel also made that point. Speaking on CNN's "Face the Nation"on Sunday, Emanuel said that "one of the most effective ways of putting downward pressure on health-care premium increases is a disincentive to ever-expansive and expensive plans. And that was seen by the Congressional Budget Office as an important piece of controlling health-care costs."

"There is a very important way you can design this to protect working families, but it is important to do it in a way that you also achieve the objective that disincentivize health insurance industries from continuing to offer plans that basically just run up costs and premiums," he added.

The White House did not respond to a query by press time regarding how Emanuel wanted to design the tax so that it bypassed working class families.

Although Kerry helped initiate the idea of taxing the high-cost insurance plans after the White House shot down the concept of raising revenue to pay for health reform by capping the tax exclusion on health benefits, the Massachusetts senator has consistently said that threshold produced by the committee is too low.

Prior to the Finance committee's vote last Tuesday, Kerry acknowledged that he may not reach his goal, but he and several other liberal senators continue to work on the issue. Senate health committee Chair Tom Harkin (D-IA) told reporters during a Friday (Oct. 16) teleconference that he believes the threshold will ultimately increase. "I think it starts too low and there's going to have to be some modifications," he said. It will have to be increased, how far, I don't know. He also said that there may have to be a "carve out" for people who have more costly policies due to the the fact that they're dealing with long-term chronic illnesses that requires a lot of care.

In those cases, the insurance is a "lifesaving," not a "Cadillac" plan, Harkin said.

Currently, the legislation would impose a 40 percent excise tax on single plans that exceed a premium of $8,000 for singles and $21,000 for families. The threshold is increased by $1,850 for single and $5,000 for families plans for people engaged in certain "high-risk" professions and for retirees over the age of 55; the legislation also provides relief for people living in the 17 highest cost areas of the country. The tax would be indexed to the Urban Consumer Price Index plus one.

Finance members Charles Schumer (D-NY), Jay Rockefeller (D-WV), Debbie Stabenow(D-MI), Robert Menendez (D-NJ) and Kerry all said in an alternative view of the legislation posted by the committee Monday that they hope to work with Baucus to mitigate the impact of the tax. Kerry has suggested increasing it to $9,800 for singles and $25,000 for families.

Democratic House members have also expressed deep concerns with the proposal, as have GOP lawmakers. Many have argued that the tax could ultimately result turn into something akin to the alternative minimum tax (AMT) which was originally designed to affect higher income people, but eventually encompassed more and more middle-class taxpayers.

The Joint Committee on Taxation (JCT) says that the excise tax would raise approximately $200 billion over a decade. The majority of the revenue is not necessarily expected to come from the tax itself, but rather from an increase in taxable wages that analysts foresee as a result of the tax policy.

Loveless, of AFSCME, argues that there are several "more progressive" ways to raise revenue than the tax. Ideas currently on the table include the House health reform bill's surtax, as well as reforming the Medicare tax to cover unearned income or using the president's original idea of increasing the cap for itemized deductions. In addition, Loveless said, House Speaker Nancy Pelosi has been talking about including a new "windfall" tax on insurance companies.

Liberal public policy analysts at Citizens for Tax Justice suggested the idea of reforming the Medicare tax in a July 7 paper. CTJ said that extending the Medicare tax to unearned income and making several other reform could bring in about $500 billion over 10 years. The president's concept, which has been roundly rejected by Congress, would bring in more than $300 billion over 10 years. -- Amy Lotven

Virginian-Pilot: Why keep playing Reagan's game?

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(Original Post)

The Virginian-Pilot(Norfolk, VA.)

September 24, 2009 Thursday
The Virginian-Pilot Edition


Why keep playing Reagan's game?

LOCAL; Pg. B7

By JOHN YOUNG

SCANNING THE ranks of the noble Tea Party protesters -- exiles of conscience, taxed into penury without representation -- it's hard to ignore one impression:

For oppressed people, they must have had their attentions distracted throughout the Bush administration.

They certainly weren't protesting when a Republican administration and Republican Congress drove up the deficit without a care in the world.

Granted, that regime had a care: "global war on terrorism," it was. But the deficit? No.

Now, by George, the Tea Partiers are right. Regardless of ideology, anybody should be concerned -- OK, alarmed to the point of hair loss -- by the deficits facing this nation.

And so we ponder the number $900 billion.

That's the rough cost of the principal health-coverage bills in Congress. President Barack Obama and Democrats have said they will find a way to make the initiative deficit-neutral, largely through cuts in Medicare and new fees on insurance companies that offer so-called Cadillac health plans.

Whether an income tax hike for the wealthiest Americans is in the mix seems clearly in doubt after Obama's speech to Congress. That's unfortunate.

It should be in the mix -- just as the tinkerers press on with the very cuts and economies the system needs.

Simply, tax hikes should be pressed. The biggest reason we are in our current hole is tax cuts without any means of mitigating the fiscal crevice created for pure political expediency.

Citizens for Tax Justice points out that the cost of the Bush tax cuts was more than 2½ times the cost of the health reforms Obama proposes. The loss of $2.1 trillion over 10 years from the Bush tax cuts includes $379 billion in interest on the national debt.

And while Obama seeks to help working Americans without insurance, the Bush tax cuts saw 52.5 percent of the benefits go to the top 5 percent of taxpayers.

For this price tag, we got ... a killer recession.

We didn't use the money to improve our infrastructure. We didn't use it to match federalized "accountability" hyperbole for K-12 education. We didn't treat a college education like the investment of a nation on the move. Instead we found more ways to stick college students with crippling debt.

It's time to address the cost dimensions necessary for health care reform and to raise the money needed to pay for what we need.

This nation has missed many opportunities to raise revenue to pay off its debts. The biggest missed opportunity was when, under Ronald Reagan's urging, Congress streamlined the income tax. It resulted in a better system with fewer loopholes.

So, what did we do with the money that a better system could raise to wipe out burgeoning Reagan-era deficits? Nothing. The Gipper demanded a "revenue-neutral" plan.

Since then, except for a brief moment during the Clinton years, we have refrained from raising income taxes, trying to find arcane means of paying for what we need -- like user fees, stealing from trust funds, and, of course, borrowing from the Chinese.

We built a sleek, progressive revenue superhighway, then placed orange cones at its ramps to keep traffic off it.

Invest in what it takes so that Americans aren't taking hangnails and migraines to emergency rooms? "Outrageous," say the Tea Partiers.

What were they saying when we were spending billions on the hospitals and general infrastructures of Iraq and Afghanistan without any means of paying for it?

By the way, the cost of those wars combined has reached an oddly familiar figure -- $900 billion. That sum, advises costofwar.com, would pay the salaries of nearly 15 million elementary school teachers for one year.

Or, based on what Congress is saying, it could make sure that no American goes without health insurance.

John Young writes for Cox Newspapers. E-mail him at jyoungcolumn@gmail.com

Slate: Write Your Own Health Reform Bill!

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(Original Post)

Slate Magazine

September 22, 2009 Tuesday

Write Your Own Health Reform Bill!

by Timothy Noah and Chris Wilson

The health reform bill (text, summary) introduced last week by Sen. Max Baucus, D- Mont., chairman of the Senate finance committee, is kind of a dog. The product of many months of negotiation among a bipartisan seven-member "coalition of the willing" (reduced to six after the defection of Sen. Orrin Hatch, R-Utah), it includes so many concessions to the GOP that at least three Democrats (Sen. Jay Rockefeller of West Virginia, Sen. Ron Wyden of Oregon, and Sen. Maria Cantwell of Washington) are threatening not to vote for it. Yet the bill has not won the support of a single Republican.

Even so, Congressional Budget Office Director Douglas Elmendorf speaks well of the Baucus bill (blog, report). So does Ronald Brownstein at the Atlantic. They like it because it's projected to reduce Medicare spending more drastically than the other versions of the bill passed by three House committees and the Senate's health committee. But Princeton economist Uwe Reinhardt speaks ill of it. He dislikes the bill because it does a terrible job of curbing private sector health costs. Indeed, Reinhardt argues, private-insurance premiums may rise so fast after the bill's passage that it could provoke a populist revolt.

Not Elmendorf nor Brownstein nor Reinhardt has a vote on the Senate finance committee. Can the Baucus bill be fixed by those who do? That's the assumption behind 564 amendments to be offered as the committee takes up health reform this week.

The amendments are all described on the Senate finance committee's Web site. Unfortunately, they're scattered among six PDF files, and navigating them is a nightmare. Slate's Chris Wilson, who sees opportunity where others see an ungainly data dump, assembled all these amendments into a single spreadsheet that can be sorted according to sponsor, party, budgetary offset, and whether the amendment in question addresses insurance coverage, reform of "delivery systems" (i.e., doctors and hospitals), or financing (taxes). (Some readers may need to log in to Gmail to view the sortable version. A low-fi version is available here.)

Here are three problems I would especially like the committee to fix:

Stingy premium subsidies. Like the other health reform bills, the Baucus bill contains an "individual mandate" requiring virtually all Americans to obtain health insurance or pay a tax penalty. All four bills extend government subsidies to low- and moderate-income purchasers. But according to the nonprofit Center on Budget and Policy Priorities, low- and moderate-income people would pay three times as much under the Baucus bill as they would under the House bill (text, summary) and nearly five times as much as under the Senate health committee bill (text, summary). A family of three earning $46,000 per year would have to spend $4,800, or more than 10 percent of its income. And that's just for premiums; if a family member actually used this insurance to go to the doctor, there would be additional expenses such as co-payments and deductibles.

Wyden will introduce an amendment (249) that would increase subsidies for those earning between 200 percent and 400 percent of the poverty level. Wyden would pay for the added subsidies with a sin tax on Internet gambling. Sens. John Kerry, D-Mass.; Jeff Bingaman, D-N.M.; and Chuck Schumer, D-N.Y., have a slightly different amendment (300) to increase the subsidy that's also worth considering. It would be paid for with a tax on health insurers. Baucus has signaled he will support some sort of increase in subsidies.

"Free rider" tax. Another problem with Baucus' bill is the way it taxes businesses to pay for health insurance. I sympathize with Baucus' desire not to rely too heavily on an employer tax to pay for health reform-better to get employers out of the health-insurance business altogether. Baucus' substitute for a straight-up "pay or play" requirement is for employers to make the federal government whole for the (relatively meager) subsidies it provides to low- and moderate-income employees who purchase private health insurance in newly created health-insurance exchanges. But as the Center on Budget and Policy Priorities points out, this creates a strong disincentive for employers to hire low- and moderate-income employees, especially if they have families.

Citizens for Tax Justice, a labor-affiliated nonprofit, has recommended a variety of alternative means to pay for health reform and points out that President George W. Bush's tax cuts cost two-and-a-half times as much as the supposedly spendthrift House health reform bill.

Kerry and Schumer propose an amendment (226) to eliminate the free-rider tax and replace it with a "pay or play" tax. Cantwell has an amendment (295) that would let employers reduce their "free rider" tax to whatever extent they contribute to a medical account for the employee in question. I don't see how that would make much of a practical difference from the employer's point of view. Sen. John Cornyn, R.-Texas, has an amendment that would require the secretary of labor to certify that a "free rider" tax won't result in lower wages or higher employment. This seems mainly an attempt to embarrass the Obama administration. Cornyn has no offset for this but says he'll bring one to markup. My guess is that his offset is "Don't pass this bill."

No public option. The biggest problem with Baucus' bill is that it lacks a "public option," a government-created health insurance program that would compete with private health plans in the health exchanges, thereby exerting downward pressure on private-sector premiums (and more broadly provide a safe harbor should the bill's new regulations fail to end chicanery by private insurers). Instead, the Baucus bill creates nonprofit health cooperatives to do the same thing.

These are a poor substitute, Sen. Rockefeller argues in a Sept. 16 letter to Baucus. Rockefeller points out that in the United States, health co-ops are "a dying business model," having enjoyed a brief vogue during the early 20th century and subsequently dwindled in number to somewhere between five and seven. They "function just like private health insurance companies," Rockefeller continues, and therefore wouldn't likely create much in the way of price competition for private for-profit insurers.

Schumer and Cantwell have an amendment (261) to create the same public option described in the Senate health committee bill. Rockefeller has a slightly different public-option amendment (187). I'd be delighted to see either one pass.

I have some other problems with Baucus' bill, but these three are the most important. You don't like my bill as amended? Consult Wilson'sspreadsheet and amend it yourself.

E-mail Timothy Noah at chatterbox@slate.com

Sunday Oregonian: TAXING THE RICH It's not class warfare, it's just common sense

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(Original Post)

The Sunday Oregonian (Portland, Oregon)

September 20, 2009 Sunday
Sunrise Edition

TAXING THE RICH It's not class warfare, it's just common sense

NEAL PEIRCE

In a dramatic break from tax trends of recent decades, eight states have voted this year to push up the percentages of income that their wealthiest citizens must pay.

Connecticut is the latest to take this step, following Delaware, Hawaii, New Jersey, New York, North Carolina, Oregon and Wisconsin, according to a Stateline roundup.

What's going on here? Are these moves simply desperate, last-minute attempts to balance budgets that have been hit deeply by the recession? Since virtually all the increases have been muscled through by Democratic legislative majorities, are they just partisan maneuvers?

Or do tax boosts for the richest among us signal a tidal shift?

There's no question that the Wall Street meltdown cut the ground out from under the argument that the wealthy are so much wiser and ingenious that we should touch their earnings lightly or else risk killing off the sacred cow of capitalist growth.

AIG-sized bonuses, ridiculously overpaid corporate executives, careers of financial "wizards" built on moving money around with zero net gain for the economy --all have cut away at "don't overtax the rich" theories. The shift is underscored by a recognition of how many millions of jobs were destroyed by the money moguls' machinations.

But not everything has changed. America's political right wing has spent much of this year staging colorful anti-tax "tea parties" that play on Americans' legitimate fears of an expansive federal government building up fearsome levels of public debt.

And in the legislatures, Republican legislators have garnered attention by accusing the tax-raising Democrats of "class warfare." The standard warning is that taxing the wealthy more heavily will prompt them to flee to lower-tax states.

OK, class warfare may be a canard --who really believes it? But will the flight of the rich to low-tax havens be a torrent or a trickle?

"Not even a trickle," Robert McIntyre of the advocacy group Citizens for Tax Justice replied when I asked. "If you live in Malibu, would you want to move to Omaha? Rich people like climate, amenities and lots of other rich people to talk to." Increased rates, he said, would prompt precious few to move.

But what's the general picture of state taxes today? Are they fair to all income groups, all classes? Can we reasonably shake the theory we should protect the rich against higher taxes because we believe, like Joe the Plumber of the last election season, that we're all "rich people in waiting"?

The reformers have a mountain of evidence to justify a shift to more progressive tax structures. And the new climate may be ideal to hear their case.

By overwhelming margins, states tax their middle- and low-income families more heavily than the wealthy, the Institute on Taxation and Economic Policy reported in its last comprehensive national review, in 2003.

The group added together all state and local taxes that individuals pay --income, sales, property and other --to reach its conclusions. It found the best-off 1 percent of families paid taxes on just 7.3 percent of their total income, and after the federal income tax offset, just 5.2 percent.

Families in the middle 20 percent of the income spectrum paid 9.9 percent before the federal offset, 9.6 percent after --almost twice as much as the very wealthy. A major reason: so many states lack a broad-based income tax, or if they have one, set it at a flat rate.

And the 20 percent of lowest income families? They were found to pay the most of all --11.4 percent of their incomes. The prime reason: sales taxes consume such larger shares of their meager pay levels.

The disparities have continued and deepened, say observers. A highly detailed study in Minnesota, a fairly liberal state, found the top 5 percent of taxpayers there have an effective tax rate of 9.7 percent, and the less-affluent about 12 percent.

Meanwhile, in conservative Mississippi, families making $18,000 or less pay 12.1 percent of their total incomes while those making more than $224,000 pay just 5.4 percent. The Legislature this year tried to remedy the situation with a bill including reduced taxes on groceries and more on tobacco, but Republican Gov. Haley Barbour vetoed it.

A 50-state move to progressive taxes, and adequate overall levels, could serve our national future. Smoothly running state and local governments are vital in every arena from schools to universities, basic infrastructure to law enforcement --crucial factors for our quality of life and our economy.

Helping low-income families through lesser tax burdens means less poverty, more self-sufficiency, brighter futures. Against all that, the idea of asking high-income families to pay as great a share of their earnings as the rest of us isn't radical --it's just common sense.

2009, The Washington Post Writers Group

Reach Neal Peirce at nrp@citistates.com

Business Insider: Reforming Healthcare Is Way Cheaper Than Bush Tax Cuts

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(Original Post)

The Business Insider

September 9, 2009 Wednesday 10:21 AM EST

Reforming Healthcare Is Way Cheaper Than Bush Tax Cuts

by Lawrence Delevingne

Sep. 9, 2009 (The Business Insider delivered by Newstex) --

Where were Republican deficit-hawks when the Bush Adminstration cut taxes, costing as much as $2.5 trillion?

According to left-leaning Citizens For Tax Justice, the Bush tax cuts cost two and a half times as much as the House Democrats' health care proposal:

CTJ: Newly revised estimates from Citizens for Tax Justice show that the Bush tax cuts cost almost $2.5 trillion over the decade after they were first enacted (2001-2010). Preliminary estimates from the non-partisan Congressional Budget Office show that the House Democrats health care reform legislation is projected to cost $1 trillion over the decade after it would be enacted (2010-2019).

Conservatives, of course, argue tax cuts have a stimulative effect.

But even they seem to concede the basic math here. For example, as Huffington Post notes, the Heritage Foundation agreed with Paul Krugman's June estimate that even high estimates of the health care plan are "less than the $1.8 trillion cost of the Bush tax cuts." That's even less than the $2.5 trillion figure used by CTJ.

Here's the report:

Citizens For Tax Justice: The Bush Tax Cuts Cost Two and a Half Times as Much as the House Democrats' Healt...

Politico: Durbin says no to August deadline

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(Original Post)

Politico.com

July 22, 2009 Wednesday 5:52 PM EST

Durbin says no to August deadline

by Carrie Budoff Brown, Patrick O'Connor

President Barack Obama's goal for action on health care reform before the August recess suffered what appeared to be a fatal blow when Senate Majority Whip Dick Durbin declared the deadline unworkable in the Senate.

Durbin's comments were bad news for Obama in both chambers. House negotiators had hoped to have a Senate bill in place to help break their deadlock with skittish moderates. Democrats in the House don't want to vote for such a contentious bill unless they're sure the Senate plans to act as well.

Earlier in the day, Speaker Nancy Pelosi (D-Calif.) said she had the votes to pass a health reform bill on the House floor, despite the resistance of Blue Dog fiscal conservatives.

But with Durbin's comments putting an end to Obama's August deadline, Democrats in both chambers are moving toward a new target for victory: a bipartisan bill in the Senate Finance Committee and a vote before the House Energy and Commerce panel.

The Senate Finance Committee is still days, if not a week, away from reaching an agreement. And Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) remains deadlocked with centrist Democrats on his panel.

In the Senate, the timeline makes it almost impossible to hold a markup, merge the bill with one approved by the health committee and schedule a floor vote - unless the recess was significantly delayed or a confirmation vote on Supreme Court nominee Sonia Sotomayor was pushed back to September.

The new Democratic thinking is that Obama can legitimately claim progress if two Senate committees and three in the House approve bills by the August break. But even this goal is still not a foregone conclusion, as lawmakers continue to grapple over major issues.

"I've always thought it was just unlikely, given the enormous complexity," Sen. Kent Conrad (D-N.D.) said of the August deadline for passing a Senate bill. "This is not like typical legislation."

But moving the bill out of the Finance Committee by August is a realistic goal, Conrad said: "I think that is."

In the House, Democrats are casting about for a bill that's just right.

The minute authors make a concession to appease one group of restive Democrats, they roil another subset of their rank and file.

A tax on the wealthy is too hot for some, too cold for others. Likewise, an outside commission to trim health care costs appeased the most cost-conscious among them while angering party elders who worry about ceding their constitutional authority to set Medicare rates.

"You can't have both ends of the teeter-totter in the air at the same time," said California Rep. Pete Stark, chairman of the the Committee on Ways and Means' health subcommittee.

In other words, it's time to start making decisions.

Late Wednesday afternoon, Waxman suggested his panel could resume its consideration of the health care bill by Thursday afternoon, with the prospect of clearing the committee by the end of the week.

"We want to reach agreement and go to markup in our committee," Waxman said.

Despite significant hand-wringing by Ways and Means Committee Chairman Charles Rangel (D-N.Y.), Democrats on the tax-writing panel seemed more resigned Wednesday to increasing the income level of a surtax on the wealthy to help fund the package.

The initial bill sought to impose a surtax on individuals who make more than $280,000 a year and couples who earn more than $350,000. But the speaker would be willing to raise those income levels to $500,000 for individuals and $1 million for couples.

Raising the income level wouldn't significantly undermine the money generated for the government; according to an analysis by the Tax Policy Center, 90 percent of the revenue would be generated from taxpayers whose income exceeds $1 million. 

In addition, the surtax would hit only 1.2 percent of the taxpayers in this country, according to the Committee on Joint Taxation. That includes somewhere between 4 percent and 5 percent of taxpayers who make more than half of their income from small businesses, according to estimates from the Committee on Joint Taxation and Citizens for Tax Justice.

Durbin's comments were first reported in The Hill. Obama had pushed the deadline in hopes of forcing the two houses of Congress to act before they head home for August recess - where members and senators are sure to hear from constituents anxious over Obama's plan for a sweeping overhaul of the health system. That could make it even tougher to get a deal when they get back in September.

But in recent days, Obama himself seemed to be backing away from a hard-and-fast August deadline to get bills out of both houses - a bow to the political reality that it simply wasn't going to happen in the Senate, where negotiations are bogged down on making sure the $1 trillion plan does not add to the deficit and can lower the cost of health care over time. Obama has dropped any mention of the August deadline in his appearances to discuss health care since Friday.

The comments last Thursday from Congressional Budget Office Director Doug Elmendorf that the House and Senate health committee bills would not improve the long-term fiscal outlook have slowed the negotiations, according to senators and staff.

After those remarks, the bipartisan group of six Finance Committee senators decided to comb through the entire bill, looking at every piece through the lens of trying to find cost savings. Baucus brought in actuaries, as well as staff from the Joint Committee on Taxation on Tuesday. Wednesday, they submitted more proposals to CBO for cost estimates and focused on making sure the insurance plans available in the exchange were affordable.

"We are actually moving ahead, actually will have an agreement," Baucus said he told the president during a call Wednesday.

"Although we have made a lot of headway, we still have a long ways to go."

And moderates continued to plead for more time.

Pelosi told reporters that she thinks she already has the votes to approve the legislation on the House floor - even if Waxman doesn't have enough to clear his committee - and later told The Huffington Post that she would keep the House in session an extra week if she thought she could pass the bill.

But developments in the Senate will only give reluctant moderates more cover to avoid such a politically volatile vote.

"The president said he wanted it this year," said Louisiana Rep. Charlie Melancon, a spokesman for the Democrats' Blue Dog Coalition and a member of the Energy and Commerce panel who is not yet ready to support the health care bill. "He didn't say he wanted it before the August break."

And Melancon disputed Pelosi's vote count, telling reporters, "I don't see the votes being there to pass this thing."

Negotiators seemed to make the most progress on a White House proposal to grant an outside body the authority to cut government-funded health care costs, despite significant concerns from some powerful Democrats.

"The administration feels that this is a game changer that will hold down cost," said Waxman, who initially opposed the idea