Tag Archives: taxes

Let’s Try That Again

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Joe Rosenberg, Loews Corp Chief Investment Strategist, has suggested that large, rich corporations should bailout a spendthrift, debt-ridden Federal government.  After all, he says, since the Federal government had bailed out some big businesses in the Panic of 2008, it’s only proper to return the favor.  As if two wrongs would make a right.

Rosenberg’s proposal is this in its essence:

Companies like Apple, J&J, Microsoft, and other US multinationals are major vendors to the federal government.  Instead of the deficit-ridden government borrowing money to buy their products, let the companies offer the government long-term, no-interest financing in lieu of cash.

In return for this no-interest loan, the companies—which would be required to source the government-purchased products in the US—would be allowed to repatriate 75 cents of every dollar they lend without incurring income tax.  The repatriated cash would pay US workers and US suppliers, increasing employment in this country.

Sadly, no.  The present problem is government spending too much, not being short of money to spend.  Moreover, the demanded vig—paying a 25% tax on the repatriated funds instead of the current 35%, and that only if the money is turned over to the government, anyway—is a money loser for the companies.  On top of which, requiring the government to buy only from American sources means denying the government the lowest prices available for the goods and services it thinks it needs—more wasteful government spending.

Here’s my proposal: companies like Apple, J&J, Microsoft, and other US multinationals should stop being major vendors to the federal government.  Since the government is so addicted to spending it can’t control itself, it’s time for an intervention: stop selling to the government and thereby force it to reduce spending.  These companies will take a hit to their bottom lines from the loss of revenue, but a) the government is paying them with soon to be depreciated—heavily—dollars (that Bernanke Inflation that’s just around the corner from all of his money printing), and b) the hit will be temporary as the companies find other buyers with which to replace the government.

ObamaTaxes

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Compiled by the good folks at Americans for Tax Reform.  Se the link below for details.

President Barack Obama, in a cynical Mothers’ Day “defense” of Obamacare, actually called these taxes the

largest health care tax cut for working families and small businesses in our history.

Here’s an excerpt of the list.

  • $123 Billion: 3.8% Surtax on Investment Income (Took effect Jan. 2013).  This tax hits capital gains and dividends (think about the impact on your 401(k)s; this doesn’t only hit the evil rich).  It also taxes “other” income—things like interest, annuities, and royalties.  Think this only hits the rich?  Your 401(k) mutual funds also invest in interest-paying instruments—bonds, for instance.  Many of our seniors live on annuities.  Our farmers are making beneficial use of the royalties oil and gas producers pay them for access to these energy sources that lie below their land.
  • $86 Billion: Hike in Medicare Payroll Tax (Took effect Jan. 2013).  This isn’t the end of the payroll tax holiday, this is an Obamacare tax increase: a bump from the present employer tax of 1.45% per paycheck (2.9% for the self-employed) to 2.35% for the employer to pay (3.8% for the self employed).
  • $65 Billion: Individual Mandate Excise Tax and Employer Mandate Tax (Both take effect Jan. 2014).  Employers with 50 or more employees must offer government-approved health insurance if a single employee qualifies for a tax subsidy to buy insurance.  If they do not, they must pay a tax of $2000 for all full-time employees [emphasis added].  It gets higher under certain circumstances.
  • $60.1 Billion: Tax on Health Insurers (Takes effect Jan. 2014).  No particular reason for this one; it’s just an excuse to squeeze the insurance companies for more money.
  • $32 Billion: Excise Tax on Comprehensive Health Insurance Plans (Takes effect Jan. 2018).  These are the Cadillac plans that unions and evil rich get, and they’re pretty good policies.  But since the government doesn’t offer them, you have to pay even more extra to keep them.  Pay up, sucker.
  • $23.6 Billion: “Black liquor” tax hike (Took effect in 2010) This is a tax increase on a type of biofuel.  Because biofuels are unhealthy, so if you’re going to use them, you must pay the resulting health costs.  Never mind that the government requires you to use them.
  • $22.2 Billion: Tax on Innovator Drug Companies (Took effect in 2010): Because the innovators innovate too successfully.  Pay up, sucker.
  • $20 Billion: Tax on Medical Device Manufacturers (Takes effect Jan. 2013): A 2.3% excise tax.  Because these producers produce too successfully.  Pay up, sucker.
  • $15.2 Billion: High Medical Bills Tax (Took effect Jan 1. 2013).  Because if you can afford to get that sick, you can afford to give Uncle Sugar an extra taste.

And so on.  We’re seeing what’s in this…Act…now that it’s been passed, and it’s still incomprehensible.  Except the enormous tax increase—that’s clear to everyone but Obama.

IRS and Politics

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Recall that in the last election season, the Internal Revenue Service demanded of a number of nonprofit organizations information about the nature of their politics, who their contributors were, even asking about family members.  The IRS intended to use this information to challenge the organizations’ nonprofit status.  That this was a biased request is demonstrated by the fact that only conservative nonprofits were targeted, and they were targeted on the basis of the presence of terms like “patriot” and “tea party” in their organizational names.

The then-IRS commissioner, of course, denied this.  Douglas Shulman told Congress in March 2012,

There’s absolutely no targeting.  This is the kind of back and forth that happens to people….

Turns out he was lying.  Lois Lerner, head of the IRS division that oversees tax-exempt groups, said,

That [demand] was wrong.  That was absolutely incorrect, it was insensitive, and it was inappropriate.  That’s not how we go about selecting cases for further review[.]

Then she said,

The IRS would like to apologize for that[.]

Well, Madam, when will the IRS apologize for that, instead of just talk about wanting to?  And what assurances are you or Steven Miller, the acting IRS Commissioner, going to provide that guarantee this politicization of the IRS’ function has been erased and will not recur?  When will we see IRS action on these assurances?

This…behavior…makes me wonder if David Axelrod has gone to work for the IRS.  Or whether Janet Napolitano, DHS Secretary, is directing the IRS’ oversight function.

A Thought on Wealth Redistribution

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The Heritage Foundation has released their study on a potential cost to existing US taxpayers of legalizing existing illegal aliens under the Gang of Eight’s immigration reform program.  Andrew Stiles, writing for National Review Online, has provided a useful summary of that 100-page document.

Rather than commenting on the implications vis-à-vis immigration reform, though, I want to comment on the implications for us taxpayers with respect to the larger question of wealth redistribution in our country.

Stiles noted that

[t]he study seeks to calculate the total amount of taxpayer-funded benefits and services illegal immigrants would, if given legal status, consume over their lifetimes, compared with the amount they would contribute in taxes.  The various benefits and services taken into account include direct benefits such as Social Security and Medicare, means-tested welfare programs such as food stamps and public housing, public education, and other services such as police and fire departments.

Stiles’ summary continued:

[O]nce formerly illegal immigrants become eligible for [means-tested welfare] programs, average fiscal deficits [of welfare payouts over tax collections] would rise to about $29,500 per household.  During retirement, when former illegal immigrants, now permanent residents or citizens, would be eligible for Social Security and Medicare benefits, the net cost to taxpayers would remain high, at around $22,700 per retiree per year.

In the aggregate,

[a]fter legalization, [the fiscal deficit]…would climb to $106 billion once households become eligible for welfare benefits, and would increase still further to around $160 billion during the retirement phase.

There are legitimate criticisms of this study as it applies to immigrants, mostly centered on the study being static rather than dynamic—for instance, now-legal immigrant contributions to our economy are not considered.

In the context of this post, though, the numbers are instructive, since there are no special welfare programs for immigrants, legal or otherwise: these are the programs in which American citizens of an economic status participate.

There are more than 50 million recipients of Medicaid benefits and more than 40 million food stamp recipients presently (yes, there’s overlap between these two groups).  There are more than 100 million recipients of some form of welfare.  With 11 million legalized immigrants getting $106 billion to $160 billion in annual welfare payments, it’s easy to wonder at the magnitude of the wealth redistribution aimed at our existing poor.

Think about the economic boon—to those poor and to the middle and upper classes—of that money staying in the private economy rather than being washed through government with its inherent inefficiencies and waste, even assuming only the best of intentions and effort by the bureaucrats administering the programs.

A sound economy, with maximal monies left in the hands of the earners, greatly reduces the moral and fiscal burdens on Americans, and it greatly reduces (though it does not eliminate) the need for, and cost of, welfare programs.

A Thought on Taxes

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As the idea of reforming our mendaciously Byzantine tax code starts to come up again—whether as a reform in its own right or as a bargaining chip in the coming debt ceiling debate (which debate properly focuses on cutting spending more than on taxes)—some thoughts occur to me, triggered by a couple of recent Wall Street Journal articles.

One thought concerns the purpose of tax reform.  The Progressives in government, led by President Barack Obama, Senators Chuck Schumer (D, NY) and Majority Leader Harry Reid (D, NV), and Congressman Sander Levin (D, MI, Ranking Member on the Ways and Means Committee) insist that the purpose must be to raise yet more revenue for government, while most Republicans and generally all Conservatives insist that the purpose must be both to make the system fairer and to leave more money in the hands of the folks who earned it—which does not include government.

Levin actually argues in all seriousness

I don’t see how you do it without a major tax cut for the very wealthy.  And to make [the revenue] up, I think that means a tax increase for the middle class. I don’t see how else you do it.

But Levin, and his fellow Progressives generally, don’t explain why they have such disdain for this group of Americans.  Their bias is well-established, but it’s less important than another Progressive failure: their decision not to justify the government’s—or their own—”need” for more revenue.  The Progressives’ need is well understood—it’s to feed both their addiction to the dependency of others on their own power to dole out goodies to those dependents and to consolidate their personal political power.  But based on what theory must government have more revenue?  These worthies cynically decline to explain that at all.

Progressives (and too many Republicans) complain that cuts in taxes (or spending, come to that) will hurt this or that or those programs, but this simply begs the question.  They have yet to demonstrate either that the programs actually are necessary, and subsequently, that government can do them better than the private sector: private enterprise, charity/church, local communities, NGOs, etc.

There is an alternative to “paying” for a tax reform that reduces revenue to the government (eliding the fact that the resulting burgeoning economy will, on net, produce an increase in the government’s revenue collections).  That is to cut spending to fit within the revenues collected.  But that’s inconceivable to too many in government.

Government certainly can, and should, fill the shortfalls and failures, but there must be failure or shortfall before government legitimately can act.

Congressman Kevin Brady (R, TX, Joint Economic Committee Chairman), in the other WSJ article wrote of a practical aspect inhibiting real tax reform, and that is the inaccuracy of the underlying data.  I won’t go into the statistical arcana that are at the center of this problem; suffice it to say that there is a difference between the meanings of the median and mean (what we normally think of with “average”) of a collection of data, in this case the tables of tax data broken out by various categories involving income levels and who pays taxes currently—what Brady refers to as Tax Distribution Tables.

These tables are used to assess the outcomes of various tax proposals (and their degree of progressivity, that is by how much the higher income are required to pay more than the middle and lower income).  Misuse of the data in these tables can lead to misleading assessments of proposal outcomes.  Brady wrote

The tables use averages—rather than medians—to characterize changes in tax liabilities by income groups (or quintiles).  But averages are wildly unrepresentative for this purpose.  For example, the study found that the average tax liability for the second quintile (with adjusted gross incomes between $11,100 and $24,000) represents just 1.1% of the taxpayers in that quintile.  The average reflects a mere 31.9% of taxpayers in the fourth income quintile ($42,600-$76,600).

The average adjusted gross income for all tax returns…was $59,800 while the median is only $32,200.  The average tax liability was $8,000 while the median is $1,500.  This dramatic difference suggests how much confidence one can place in these tables as a guide to policy makers.

And

The tables group taxpayers by income categories without regard to other relevant factors.  In reality, income alone has little in common with tax liabilities—that is, how much a taxpayer owes the government—because of differences in the size and composition of households, the type of income, and the amount of deductions and exclusions.

The tables miss two other important aspects of our tax code, also, stemming from the fact that they are static snapshots and so cannot illuminate the dynamics of an American taxpayer, or the collection of us.  For instance:

Tax-distribution tables cannot capture one of the most salient characteristics of the U.S. tax code—the decreasing share of taxes paid by the bottom 50% of taxpayers and the increasing share of taxes paid by the upper 1%.

And

Tax-distribution tables are momentary snapshots that ignore income mobility.  …  The nonpartisan Tax Foundation found in a study on income mobility in 2010 that nearly 60% of the households in the lowest quintile moved into a higher income group between 1999 and 2007, while almost 40% of households in the top quintile fell by at least one quintile. The…traditional tax tables [are] obsolete shortly after they are published.