Tag Archives: taxes

Read ’em and Weep

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I’ve written a bit lately on the coming Progressives’ explosion in the taxes they intend to inflict on us.  Grover Norquist—that evil man of the gadfly organization, Americans for tax Reform—has compiled a list of those that are coming down the chute.  The coming tax bite can drive as deeply as $6 trillion to $7 trillion over the next 10 years.  Here are a couple highlights; read the whole thing.

Savers and investors are especially hard-hit by the scheduled tax hikes. The top rate on long-term capital gains is set to rise from 15 percent to 23.8 percent. If you receive dividends, the top rate on this income will rise from 15 percent to 43.4 percent. The Tax Foundation reports that 70 percent of taxpayers over age 55 reported dividend income, earning 71 percent of the total dividends in America. A tax hike on dividends is another tax hike on seniors.

And

The death tax is set to go up, both under current law and in President Obama’s budget. Today, the death tax rate is 35 percent and there is a “standard deduction” of $5 million ($10 million for married couples and widows). In 2013, the rate will rise to an astonishing 55 percent, and the deduction will fall to only $1 million. Even under President Obama’s budget, the rate will rise to 45 percent and the deduction falls to $3.5 million. For thousands of families, death will once again become a very taxable event.

As to that last, it’s irrelevant: as Progressive ex-Congressman Anthony Wiener insists, “We’ll be dead.”  Or maybe not so irrelevant: our heirs won’t be.

On the Subject of Taxes….

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Here are the taxes that are starting to go into effect courtesy of Obamacare.  These are in addition to the tax increase that will result next year because President Obama refuses to allow the Bush tax cuts to be extended any longer, much less made permanent.  Note: Americans for Tax Reform refers to the Mandate fines as taxes.  This is how the Obama administration is trying to weasel-word the fines in front of the Supreme Court (and did so through the lower court cases).  However, the Patient Protection and Affordable Care Act clearly and directly makes these fines, not taxes. [Emphasis is in the original.]

Individual Mandate Excise Tax(Jan 2014): Starting in 2014, anyone not buying “qualifying” health insurance must pay an income surtax according to the higher of the following

1 Adult 2 Adults 3+ Adults
2014 1% AGI/$95 1% AGI/$190 1% AGI/$285
2015 2% AGI/$325 2% AGI/$650 2% AGI/$975
2016 + 2.5% AGI/$695 2.5% AGI/$1390 2.5% AGI/$2085

Employer Mandate Tax(Jan 2014):  If an employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $2000 for all full-time employees.  This provision applies to all employers with 50 or more employees. If any employee actually receives coverage through the [government’s insurance] exchange, the penalty on the employer for that employee rises to $3000.  If the employer requires a waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer).

Combined score of individual and employer mandate tax penalty: $65 billion/10 years

Surtax on Investment Income ($123 billion/Jan. 2013):  This increase involves the creation of a new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single).  This would result in the following top tax rates on investment income

Capital Gains Dividends Other*
2010-2012 15% 15% 35%
2013+ (current law) 23.8% 43.4% 43.4%
2013+ (Obama budget) 23.8%** 23.8% 43.4%

*Other unearned income includes (for surtax purposes) gross income from interest, annuities, royalties, net rents, and passive income in partnerships and Subchapter-S corporations.  It does not include municipal bond interest or life insurance proceeds, since those do not add to gross income.  It does not include active trade or business income, fair market value sales of ownership in pass-through entities, or distributions from retirement plans.  The 3.8% surtax does not apply to non-resident aliens.

**eehines Note: The Obama budget was laughed out of the Senate by his own party.

Excise Tax on Comprehensive Health Insurance Plans($32 bil/Jan 2018): Starting in 2018, new 40 percent excise tax on “Cadillac” health insurance plans ($10,200 single/$27,500 family). For early retirees and high-risk professions exists a higher threshold ($11,500 single/$29,450 family).  CPI +1 percentage point indexed.

Hike in Medicare Payroll Tax($86.8 bil/Jan 2013): Current law and changes:

First $200,000
($250,000 Married)
Employer/Employee		 All Remaining Wages
Employer/Employee
Current Law 1.45%/1.45%
2.9% self-employed		 1.45%/1.45%
2.9% self-employed
Obamacare Tax Hike 1.45%/1.45%
2.9% self-employed		 1.45%/2.35%
3.8% self-employed

Medicine Cabinet Tax($5 bil/Jan 2011): Americans no longer able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin)

HSA Withdrawal Tax Hike($1.4 bil/Jan 2011): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Flexible Spending Account Cap – aka “Special Needs Kids Tax” ($13 bil/Jan 2013): Imposes cap of $2500 (Indexed to inflation after 2013) on FSAs (now unlimited).  There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children.  There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education.  Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year.  Under tax rules, FSA dollars can be used to pay for this type of special needs education.

Tax on Medical Device Manufacturers($20 bil/Jan 2013): Medical device manufacturers employ 360,000 people in 6000 plants across the country. This law imposes a new 2.3% excise tax.  Exemptions include items retailing for less than $100.

Raise “Haircut” for Medical Itemized Deduction from 7.5% to 10% of AGI($15.2 bil/Jan 2013): Currently, those facing high medical expenses are allowed a deduction for medical expenses to the extent that those expenses exceed 7.5 percent of adjusted gross income (AGI).  The new provision imposes a threshold of 10 percent of AGI; it is waived for 65+ taxpayers in 2013-2016 only.

Tax on Indoor Tanning Services($2.7 billion/July 1, 2010): New 10 percent excise tax on Americans using indoor tanning salons

Elimination of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D($4.5 bil/Jan 2013)

Blue Cross/Blue Shield Tax Hike($0.4 bil/Jan 2010): The special tax deduction in current law for Blue Cross/Blue Shield companies would only be allowed if 85 percent or more of premium revenues are spent on clinical services

Excise Tax on Charitable Hospitals(Min$/immediate): $50,000 per hospital if they fail to meet new “community health assessment needs,” “financial assistance,” and “billing and collection” rules set by HHS

Tax on Innovator Drug Companies($22.2 bil/Jan 2010): $2.3 billion annual tax on the industry imposed relative to share of sales made that year.

Tax on Health Insurers($60.1 bil/Jan 2014): Annual tax on the industry imposed relative to health insurance premiums collected that year. The stipulation phases in gradually until 2018, and is fully-imposed on firms with $50 million in profits.

$500,000 Annual Executive Compensation Limit for Health Insurance Executives($0.6 bil/Jan 2013)

Employer Reporting of Insurance on W-2(Min$/Jan 2011): Preamble to taxing health benefits on individual tax returns.

Corporate 1099-MISC Information Reporting($17.1 bil/Jan 2012): Requires businesses to send 1099-MISC information tax forms to corporations (currently limited to individuals), a huge compliance burden for small employers

“Black liquor” tax hike(Tax hike of $23.6 billion).  This is a tax increase on a type of bio-fuel.

Codification of the “economic substance doctrine”(Tax hike of $4.5 billion).  This provision allows the IRS to disallow completely-legal tax deductions and other legal tax-minimizing plans just because the IRS deems that the action lacks “substance” and is merely intended to reduce taxes owed.

That’s a total of $12 billion in taxes increases already inflicted in 2010 and 2011, $290 billion more in increased/newly created taxes starting next year, and yet another $60 billion starting in 2014.  Plus the rapidly accelerating system of fines for not buying or providing health insurance, which total $65 billion over 10 years; and another $32 billion in taxes, starting in 2018, for buying more health insurance than Government has determined you need—those Cadillac plans.

Your Tax Money at Work

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This is a “green” energy bureaucrat’s dream, and it uses your money both going and coming.  It doesn’t get any better than this.

Wind farms in the Pacific Northwest—built with government subsidies and maintained with tax credits for every megawatt produced—are now getting paid to shut down as the federal agency charged with managing the region’s electricity grid says there’s an oversupply of renewable power….

You read that right.  The Bonneville Power Administration, which runs over 30 hydroelectric dams that compete with wind farms for the northwest consumer’s energy dollar, is paying the wind farms to not produce energy.

Apparently, both early snow melt and high winds last spring and summer had both systems producing at peak capacity, but that was more energy than consumers wanted.  As a result, the BPA shut down the wind farms for 200 hours over a 38-day period, or 22% of that time.  Because this Federal agency was so hard on a precious “green” energy program, it wants to blow a bunch of green at those poor wind farms—to the tune of $50 million for last year, and for this year, and for future years in which there’s too much energy being produced.

Guess who gets to pay those $50 million?  Nope, not all of us taxpayers.  Yet.  So far, just the existing BPA energy customers.

There is no better racket than this: get paid to build, and then get paid not to use what was built.  All with OPM.  This was noticed by Todd Myers, the Director of the Center for the Environment, a section of the Washington Policy Center:

We require taxpayers to subsidize the production of renewable energy, and now we want ratepayers to pay renewable energy companies when they lose money?

That’s a ridiculous system that keeps piling more and more money into a system that’s unsustainable[.]

On the other hand, the Executive Director of the Renewable Northwest Project, Rachel Shimshak, also objects:

It sends a very poor signal to the market about doing business in the Northwest.  We want the Northwest to be a good place to do business.

She’s right, though.  This is a terrible signal about the market viability of these “green” projects: they aren’t viable.  And the sooner this stuff is gotten out of the way of people’s pocketbooks, the better will become the Northwest as a place to do business.

Two Economic Plans

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Here is a sort-of side-by-side comparison of Senator Rick Santorum’s economic plan with Governor Mitt Romney’s plan—only sort-of because they address different things in addition to their areas of overlap.

Senator Santorum opened the discussion of his plan with this:

…Obamanomics has left one in six Americans in poverty, and one in four children on food stamps. Millions seek jobs and others have given up.

while Governor Romney had similar words to introduce his plan:

We have record-breaking unemployment and deficit spending, and a tax code that looks like it was devised by our worst enemy to tie us in knots. These three afflictions are interconnected. I have a plan to address them and achieve three goals: more jobs, less debt, and smaller government.

Economic Area

Santorum’s Plan

Comments

Romney’s Plan

Comments

Individual Taxes

 only two income tax rates of 10% and 28%. triple the personal deduction for children, eliminate the marriage tax penalty. Strong step in the right direction in simplifying through reducing the number of tax brackets while reducing tax rates.But why keep the distorting subsidy? 20% reduction in marginal individual income tax rates A step in the right direction, but it maintains the multiplicity of tax brackets

 

 reduces tax rates for businesses that pay at individual rates and employ the majority of private-sector American workers Through the above 20% reduction

 

 abolish the death tax.  repeal the Alternative Minimum Tax Unequivocally good moves

 

 place some curbs on personal tax deductions, exemptions and credits Such as…?

Corporate Taxes

 corporate tax rate halved to a flat rate of 17.5%. expense all business equipment and investment. Taxes on corporate earnings repatriated from overseas eliminated Again a sound move.  But see my summary below about manufacturing taxes. reduce the corporate tax rate to 25% from 35%, transition from a world-wide taxation system to a territorial one A good step in the right direction.Especially, the territorial tax system can be very beneficial, depending on its details.

 

 make the R&D tax credit permanent Lower the tax rate further, and this distortion isn’t necessary.  Nor will it be necessary y to weasel-word what constitutes R&D.

 

 maintain the 15% rate on capital gains, interest and qualified dividends, and eliminate the tax entirely for those with annual income below $200,000. Mostly maintains the status quo, but the differential treatment of groups of Americans just continues Obama’s class warfare.Also, see above concerning distortions and tax rates.

 

 broaden the corporate tax base. In what way, exactly?

Federal Spending

 spending cuts of $5 trillion over five years, including cuts for the remainder of fiscal year 2013 A sound start, but reduced spending in what areas?

 

 cut means-tested entitlement programs by 10% across the board, freeze them for four years, and block grant them to states A good start, but why not reduce the size of the grants each year until they’re eliminated?  These are supposed to be State programs: get the Federal government out of them altogether.

Federal Budget

 propose budgets that spend less money each year than prior years Reduced spending in what areas?

 

 submit to Congress a budget that will balance within four years; call on Congress to pass a balanced-budget Constitutional amendment which limits federal spending to 18% of GDP. Reduced spending in what areas?An Amendment can be good or bad depending on how it’s written.Finally, calling for a thing is easy to do….

 

Unstated in his present plan is his prior insistence on continuing to use our tax code to perpetuate the myth of the usefulness of government-centric economic engineering: he singles out manufacturing for especially low tax rates—no manufacturing corporate tax at all.

In addition, Santorum had this to say about jobs: he’d approve the Keystone XL pipeline, and he’d repeal all “Obama administration regulations that have an economic burden over $100 million.”  I don’t understand, though, why he exempts similar regulations from earlier administrations.  He also insists that Federal agencies must use “sound science and cost benefit analysis;” although here, too, he’s short on specifics, like what analyses fit this bill, or what constitutes “sound” science and cost benefit analysis.

Santorum also says he’ll work to replace Obamacare with “competitive insurance choices,” but without saying what constitutes “competitive” in his view—and he claims to be able to achieve this while maintaining a mandate that somebody must “protect those with uninsurable health conditions.”

Finally, he promises to present to Congress five free trade agreements his first year—but with whom?

Romney, on the other hand, expects his lower taxes to stimulate job growth.  He’s not far wrong here, but more specifics about jobs would have been nice in addition to those tax system generalities.

Both plans are vague on spending cuts, and both continue market distorting subsidies/tax credits of one sort or another—never minding that these simply continue government-generated distortions in our economy, driving up the prices of things that are subsidized and forcing all of us to pay for those price increases, whether we buy the subsidized item or not.  The two plans also emphasize different sides of the revenue coin: Romney focuses on the tax system while Santorum dwells more on spending and budgeting.

In the end, both plans, shortfalls and all, are enormous improvements over the Progressives’ plan of increased spending, higher taxes, exploding debt, and starker class warfare.

Debt, Spending, and Taxes Revisited

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PowerLine has a couple of graphs that tell the story in President Obama’s own words.  Of course, he wants to raise corporate taxes in part to cover this shortfall, even though raising taxes, beyond a level long since surpassed, reduces tax revenue collected as businesses (and individuals, in response to parallel attempts to raise taxes on them) do what comes naturally for all of us: look for ways to hang onto what’s ours, rather than give it up to a ravenous government.

The graphs are clear in their own right; I’ll say no more here.

Remember this in November.