Author: Alex Welch

February 8, 2008 02:05 PM | Permalink |

President Bush’s proposed budget plan for fiscal years 2009 through 2013 envisions huge cuts in education, health, environmental and other programs. Most observers believe that such budget cuts are too draconian to ever be implemented. After all, Congress has rejected many of them before. However, they should be taken very seriously in one important sense: They are exactly the sort of public service reductions that would be necessary if the Bush tax cuts are extended.

The Bush administration concedes that the budget deficit will top $400 billion for fiscal year 2009, but claims the deficit will be reduced thereafter. The President continues to assert, as he did last year, that following his plans will lead to a balanced budget in fiscal year 2012. It is therefore informative to examine how public services would be different in 2012 if Congress followed his advice.

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February 4, 2008 02:58 PM | Permalink |

The Wall Street Journal’s editorial board is at it again. Their latest riposte in their ongoing duel with mainstream economics is an attempt to cast a normal upswing in a particular type of revenue, which always occurs in an economic cycle, as proof that cutting taxes actually increases revenues. The Journal ignores the fact that this revenue is well below the peak it reached during the Clinton era — when taxes were higher.

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January 30, 2008 03:00 PM | Permalink |

During his State of the Union Address on January 28, President Bush claimed that if his tax cuts are not made permanent, families everywhere will lose tax cuts worth an average of $1,800. This statement is highly misleading.

In 2010, when all of the Bush tax cuts are finally in effect, only 16 percent of families will have income tax cuts as large as $1,800. In other words, 84 percent of Americans will see a tax cut smaller than the “average” touted by the President.

For most people, the tax cut will actually be less than a third of that amount. In 2010, more than half of families will have income tax cuts totaling less than $600.

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January 16, 2008 03:02 PM | Permalink |

Several Presidential candidates have proposed allowing the Bush tax cuts to expire for wealthy Americans. For Senators Hillary Clinton and Barack Obama, “wealthy” means those with income above $250,000, while for former Senator John Edwards, this means those who make more than $200,000.

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December 13, 2007 12:40 PM | Permalink |

On Wednesday, December 12, the U.S. House of Representatives passed a bill, H.R. 4351, that would extend the exemptions that keep the Alternative Minimum Tax (AMT) from affecting most Americans and would replace the $53 billion in revenue that the AMT would otherwise collect. The revenue would be replaced partly by restricting offshore tax avoidance schemes by wealthy individuals. Another provision that would help replace the AMT revenue would delay the implementation of an unnecessary tax break for multinational businesses which hasn’t even gone into effect yet.

Dropped from this bill is a provision that would end the tax subsidy for “carried interest,” a type of compensation paid to wealthy fund managers. Carried interest is currently taxed at a special, low rate of15 percent rate, lower than the tax rate paid by many middle-class families. Last week, Republicans in the Senate blocked a similar House-passed bill that would have ended this tax subsidy because they were committed to defending this break for millionaire fund managers. So, in the spirit of compromise, the House passed H.R. 4351 on Wednesday without the carried interest provision.

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December 12, 2007 12:46 PM | Permalink |

Letter from House Members to Leadership Demanding AMT Relief Cost be Offset, Citing CTJ Figures

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December 7, 2007 12:48 PM | Permalink |

On Thursday, December 6, Republicans in the Senate voted en masse against consideration of a bill (H.R. 3996) passed last month by the House of Representatives to provide relief from the Alternative Minimum Tax (AMT) and offset the cost by closing loopholes for extremely wealthy financial managers. Instead, Republican leaders demanded that the federal government borrow the $50 billion. They got their way later in the evening, when the chamber passed a bill simply extending AMT relief without paying for it.

This sets the stage for a standoff with the House, where Democratic leaders are adamant that no laws be enacted to increase the federal deficit, in keeping with the pay-as-you-go (PAYGO) rules that were reinstated when the Democrats took control of Congress earlier this year. But in the Senate, because 60 votes are needed to pass most legislation, the Republicans were able to block the fiscally responsible approach even though it was supported by every member of the majority party.

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November 15, 2007 12:50 PM | Permalink |

Washington lawmakers are at loggerheads about how to pay for a “patch” to the Alternative Minimum Tax that would curb or eliminate the impact of the AMT on almost 23 million taxpayers in 2007. The debate has broken down almost entirely on party lines.

On one side, Democrats have already passed a bill in the House that would pay for AMT relief by closing tax loopholes that allow a tiny group of extremely wealthy investment managers to pay lower tax rates than average working families, and by narrowing loopholes that now allow multinational corporations to shift their U.S. profits offshore to avoid taxes.

On the other side, Republicans argue that the one-year AMT patch should be paid for by adding another $50 billion to the national debt. President George W. Bush is the leading advocate of this position, having promised to veto any AMT relief that is not financed by borrowing. Similarly, Bush’s allies in Congress have refused to offer any alternative other than borrowing to pay for AMT relief, even though congressional budget rules require that tax reductions be financed by offsetting tax or spending changes.

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November 7, 2007 03:07 PM | Permalink |

On November 1, the House Ways and Means Committee approved a bill (H.R. 3996) that would close the tax loophole for “carried interest” earned by buyout-fund managers. Closing this unwarranted loophole will raise $25 billion over ten years, offsetting half the cost of providing AMT relief for 2007.

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November 7, 2007 03:05 PM | Permalink |

The Hill newspaper reported today that the Real Estate Roundtable, a trade association for real estate developers, has hired Douglas Holtz-Eakin to defend the tax loophole for “carried interest.” Holtz-Eakin was the Chief Economist on President Bush’s Council of Economic Advisors and later the director of the Congressional Budget Office.

Carried interest is the share of profits that investors pay to their fund managers to compensate them for managing the investors’ money. But fund managers have been allowed to pretend that this compensation represents profits on money they have invested themselves, thus entitling them to pay taxes at the low capital gains rate of 15 percent rather than the regular rate of 35 percent that other highly compensated workers pay.

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