Tag Archives: taxes

Obama’s Tax Plan

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Wednesday morning, Fox News predicted a wonderful new tax plan from the administration:

…long-awaited corporate tax reform plan on Wednesday, lowering the top income-tax rate for corporations to 28 percent from 35 percent while eliminating deductions.

Corporations with overseas operations would also face a minimum tax on their foreign earnings, new tax benefits would be given to incentivize U.S. manufacturers while taxes on oil and gas companies would reportedly see their taxes go up while losing many large deductions and subsidies.

Now we can see what President Obama actually is proposing.  Although he offers to lower the top corporate rate from 35% to 28%—and that’s the headline—the proposal represents a net tax increase.

Moreover, he wants to make permanent his tax credits and other subsidies for his favored “green” energy products; although in a cynical offering to conservatives, the proposed Obamatax also contains the Santorum manufacturer’s tax subsidy.  Obama never seems to understand that if a product, company, or industry can’t compete on a level playing ground—in an actual free market—that product, company, or industry isn’t ready for market at all.

Along these lines of special treatments according to whether Obama approves or disapproves of an industry, the Obamatax would eliminate oil and gas tax preferences (while maintaining those “green” subsidies).  This, though, will drive up gasoline prices and home (and business) heating costs—and those manufacturers’ energy costs—to the detriment of our struggling economy and of the Americans trying to get by in it.  Despite this, the subsidies should, indeed, be gotten rid of, but the “green” subsidies should be eliminated, too.  With a truly level playing field, the effects will spike and ripple quickly, and costs ultimately will stabilize at lower levels from the overall simplification and the lack of “green” costs being absorbed by the oil and gas—and all other—industries and energy consumers.

The Obamatax applies a tax to business’ overseas profits, a first in American history—and a dramatic increase in the taxes owed by American businesses.  The administration justifies this with claims like:

If foreign earnings of U.S. multinational corporations are not taxed at all, these firms would have even greater incentives to locate operations abroad or use accounting mechanisms to shift profits out of the United States[.]

On the other hand, Intel, just to take one example, earns 85% of its revenue from its overseas computer chip and other manufacturing facilities—facilities that are devastatingly expensive to build or operate here.  Now Intel’s overseas profits will be taxed.  Since Intel makes its money overseas, though, why would it want to remain a US-headquartered corporation under the Obamatax regime?

There’s also the small matter of who gets this tax “cut.”  It isn’t the sole proprietorships, partnerships, Subchapter S, and so on firms whose profits are passed on to the business’ owners, who then pay ordinary income taxes on that passed through income.  Obama’s own IRS data indicate that over half of American business income is earned by these “noncorporate” companies.  But that needn’t concern an administration bent on raising taxes any way it can get away with.

True to form (this form is not unique to the present administration), the Obamatax dictates to businesses what their policies and paradigms must be.  It intends to eliminate “last in first out” accounting, disallow the use of life-insurance policies as a tax shelter, tax carried interest as ordinary income, and eliminate depreciation for corporate aircraft (this last is chump change, but it’s an important bone for the President’s base).  Even more intrusively, though, the Obamatax interferes with debt financing decisions by reducing the deductibility of interest on business’ borrowings.

There’s the underlying mindset, too.  The Obamatax justifies the “minimum tax on foreign earnings” by saying it would

discourage a global race to the bottom in tax rates.

as if low taxes, or having the lowest taxes globally, is somehow bad.  As if it’s really the government’s money, and they’ll magnanimously let our companies have what government deems appropriate.

In touting this tax change (it’s hardly a reform), Secretary Geithner said that the overhaul should be fiscally responsible (the Obama definition of “responsible,” of course) and,

A key test of any reform should be whether the net impact of the changes improves the incentives for investing in the United States.

If he really meant that, why is this the proposal?  Answer: he really does believe it; the proposal’s structure simply displays, again, the administration’s breathtaking lack of understanding of economics.

Obama is masquerading this as a tax cut, but it’s plainly another of his tax increases, and it’s commensurately hard on our already weakened economy.  It’s a good idea to lower the tax rate, and it’s a good idea to eliminate (though reductions are a good start) tax credits, loopholes, subsidies, and the like.  But these must be across the board—no company or industry should be getting special government treatment, good or bad.

A Look at our National Debt

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The Congressional Budget Office pipes up.  Here’re some highlights from its January 31 annual Budget and Economic Outlook.

The current-law baseline which the CBO uses is a set of budget projections based on existing law as enacted, including sunsets and expirations.  These assumptions thus accept, for instance, that all temporary tax provisions, including those originally enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003—the Bush tax cuts—will expire as scheduled and that the alternative minimum tax (AMT) will not be indexed for inflation past 2011.  Further, under these baseline assumptions, about $1 trillion of spending cuts that mandated under the Budget Control Act of 2011 following the failure of Congress’ supercommittee will begin as scheduled in January 2013.

What flows from this baseline?  The budget deficit falls from the current year’s nearly $1.1 trillion, or 7.0 percent of GDP, to 1.5 percent of GDP in fiscal 2015—primarily due to an optimistic 25 percent increase in total federal revenues during that period.  The CBO cautions, though, that the deficit will resume its expansion post-2015 due to mandatory spending on programs such as Social Security, Medicare, and Medicaid and increasing interest payments on the still expanding federal debt.

The CBO also offered estimates based on an alternate scenario and its assumptions.  In its “alternative fiscal scenario,” the CBO assumes that the expiring Bush tax cuts are extended (excluding the current 2% payroll tax holiday); the AMT is indexed for inflation post-2011; Medicare physician payments are held constant at current levels (rather than falling nearly 30 percent in March 2012); and the spending cuts required under the Budget Control Act do occur.

Using these assumptions, the CBO concludes that annual budget deficits will remain elevated at about 5.4% of GDP over the next 10 years, and the ratio of publicly held debt to GDP will rise from its current elevated level of nearly 72% in fiscal 2012 to over 94% in fiscal 2022.

There are other aspects to this.  The CBO estimates that with the Bush tax cut expiry, economic growth—GDP growth—will be a meager 1.1% until recovery can begin in the out-years.  On the other hand, were these alternate assumptions enacted, GDP growth would be 0.3 to 2.9 per centage points greater than under current law.  Later in the decade, though, higher levels of government borrowing would crowd out private investment, drive up interest rates, and hold back economic growth.

Notice what’s not being assumed in the alternative scenario: real cuts in spending.  The assumptions don’t even include the effects of the fictional cuts of “reduced increases” in future spending.  What is it that drives that “higher level of government borrowing?”  It’s not not enough revenue for the government.  It’s too much spending by the government.

When, and only when, government spending is reduced to sane levels can we begin to pay down our burgeoning national debt.  Only by leaving our money in our hands and not having it taken away from us by ever-increasing taxes and by ever-increasing debt payments can our private investments increase, our job creation increase, our prosperity begin to recover.

h/t: Deloitte

Taxes, Again

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Once again, a tax cut for Americans is being held hostage against a demand to offset that cut by a commensurate tax increase imposed on a government-disfavored group.  Senate Majority Leader Harry Reid (D, NV) has announced, at this late date,

We know there’s gonna have to be mandatory cuts, we understand that but also going to have to be something done with tax incentives, enhancements, revenues[.]

Unfortunately, this also is the wrong fight.  Both Democrats and Republicans are agreed that a two per centage point reduction in individuals’ taxes (or a three per centage point reduction both for individuals and businesses, if President Obama can be believed) is good for Americans.  Economists are agreed that temporary tax cuts, such as the proposed payrolls cuts, are not at all stimulative for the economy as a whole—a stimulus effect requires the cuts to be permanent.

The discussion, then, shouldn’t be a debate at all, nor should it concern payroll tax reductions, which serve only to further gut, and so to hasten the demise of, the Social Security system.

This discussion should be about a permanent income tax reduction for both individuals and businesses of two to three per centage points.  This much seems doable within the month since the idea of a tax cut and its present size already are agreed by all.  And who can understand the logic of “paying for” a tax cut with a tax increase (leaving aside the fact that there’s no need to pay for a reduction in the government’s receipt of something—our money—which doesn’t belong to it in the first place)?

This cut then should be followed by further discussion with a view to deeper income tax cuts.

Hypocrisy, Part II

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Health and Human Services Secretary Kathleen Sebelius has an opinion piece in USA Today.

In her apologia for an Obamacare regulation that requires health insurance programs provided by a vast range of Catholic, Protestant, Jewish, and so on institutions to provide contraception, sterilization and abortifacients in direct, open contravention of the teachings and beliefs of those institutions (and that requires those institutions to offer those insurance plans exclusively), she writes

One of the key benefits of the 2010 health care law is that many preventive services are now free for most Americans with insurance. … So is the full range of preventive health services recommended for women by the highly respected Institute of Medicine, including contraception.

So, no one is paying any taxes, or being forced to change their existing health insurance policies, to pay for this.

Nor is there any cancellation of religious teachings or thought or fundamental tenets by this Federal government, which used to be on the other side of a “wall of separation between Church & State.”  There’s an interesting view of “free.”

That’s why in the rule we put forward, we specifically carved out from the policy religious organizations that primarily employ people of their own faith. This exemption includes churches and other houses of worship, and could also include other church-affiliated organizations.

Umm, no.  Not hospitals, not doctors’ offices, not clinics.  These employ (quite properly) far too broad a range of employees to be able to fit within the carefully and deliberately narrowly drawn limits of this rule.

In choosing this [extremely narrow religious] exemption, we looked first at state laws already in place across the country. Of the 28 states that currently require contraception to be covered by insurance, eight have no religious exemption at all.

The religious exemption in the administration’s rule is the same as the exemption in Oregon, New York and California.

Of course, far be it from the Federal government to set an example.  Oh, wait….

Economic Growth: Tax Cuts or Taxing and Spending Increases?

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President Obama made his position clear in his State of the Union address (as if it wasn’t clear from his performance these last three years, already).  He wants more spending, and he wants to “pay” for it by increasing taxes on the hated rich.  He couldn’t find the energy to spend more than a sentence or two on spending cuts in his SOTUS; although he did find plenty of “green” energy for spending and tax hikes.

Indeed, when it comes to actually reining in government’s use of our money, Obama has been the czar of chimeras and false flags.  As the House Budget Committee Chairman, Congressman Paul Ryan (R, WI) has put it:

We have learned already that the president who’s had three years to try and propose real solutions to fix our fiscal crisis is ducking it….  He formed commissions and super committees, so he sort of outsourced the leadership only to decry their results.

Indeed.  Obama’s committees and study groups (I don’t share Ryan’s disdain for Obama’s use of them, per se; when one is ignorant of a subject, asking experts for advice is entirely appropriate) actually did generate some ideas worth serious discussion and which could have served as points of departure for real reform.  But for Obama, they were merely cynical tools of distraction; he blew off their recommendations without so much as a fare-thee-well.  And he’s been clear about how seriously he takes his own ideas.  Obama yukked it up over his “shovel ready jobs” chant:

…shovel-ready was not as shovel-ready as we expected.

Obama does have his apologists.  Third Way think tank’s Jim Kessler insists:

[W]hen you’re in the middle of a recession it’s very dangerous to stop priming the pump.  You know, you need to get escape velocity, get out of the atmospheric pull of recession, break loose and then let the economy go loose.

But what Kessler, et al., don’t understand is that that “atmospheric pull” actually is government interference in our economy.  We can’t “get escape velocity,” to mix metaphors, with the government’s enormous sea anchor dragging us back.

How has Obama’s Progressive policies of higher taxes and more spending been working out?

His first installment, nearly a trillion dollars’ worth, failed to reduce unemployment or deliver the shovel-ready jobs he promised.  Of course he’s demonstrated how seriously he took his “shovel-ready” claim, even as he was making it.  His profligate spending, while succeeding in exploding the Federal deficit and the Federal debt—which now our grandchildren will have trouble paying down—beyond anyone’s worst nightmare at the start of the Panic of 2008, have done nothing else but hold back a normal cyclic recovery that has been struggling since the official end of that recession in the spring of 2009—nearly two years ago—just as similar Keynesian foolishness did for the Depression.

For his second try, he wanted to spend even more, and now he wants to raise taxes on a narrow group of Americans of whom he disapproves.  Ryan suggests checking the numbers.  Doing so exposes the depth of Obama’s cynicism in continuing to push for higher taxes.

All these tax increases that the president is talking about, they only cover 8 percent of his proposed spending increases. The other 92 percent of the president’s spending increases are borrowed money.

Ryan is being polite.  Those 92% are actually fantasy money—that’s the level of seriousness with which Progressives take other people’s money.

Here’s an alternative: reform our tax structure, including reducing rates, closing loopholes, and ending subsidies and credits.  To paraphrase Ryan’s argument, with Progressive tax increases hitting small businesses disproportionately (and hitting all of us—individuals and businesses of any size—too hard, simply by existing), comprehensive tax reform is far better than arbitrarily and capriciously raising taxes.

And then cut government spending to below the tax revenue generated.

One step currently under consideration, with both Republican and Demoncrat support, is the continuation of the temporary payroll tax holiday.  But this is a chimera; it will produce no effect on our economy.  It will, though, continue defunding an already dysfunctional Social Security system.  With the Progressives already having agreed that a 2 percentage point cut in taxes is good (and with Obama originally calling for a 3 percentage point cut in payroll taxes for both individuals and businesses), Republicans are blowing an excellent opportunity to begin serious reform.  The better place to put these cuts is as permanent income tax cuts for individuals and businesses, and as a first step toward larger income tax cuts and tax reform, generally.

Arthur Laffer suggests a more specific tax reform in a column in The Wall Street Journal.  As Laffer points out, and as thinking Americans have understood for a long time,

Jobs and wealth are created by those who are taxed, not by those who do the taxing. Government, by its very nature, doesn’t create resources but redistributes resources.

Laffer goes on to suggest that a flat tax is the optimum reform.  Although he uses Newt Gingrich’s version (an optional 15% flat tax for individuals, with the option being to continue paying under the present system, and a 12.5% flat tax for business) as his example for discussion, Laffer’s point is generally valid.

Laffer argues

Fairness in taxation means that people and businesses in like circumstances have similar tax burdens.  A flat tax, whether on business or individuals, achieves fairness in spades.*  A person who makes 10 times as much as another person should pay 10 times more in taxes.  It is also patently obvious that it is unfair to tax some people’s income twice, three times or more after it has been earned, as is the case with the death tax.

The current administration’s notion of fairness—taxing high-income earners at high rates and not taxing other income earners at all—is totally unfair.

Progressives—led by Obama—argue that it’s the rates that have to be progressive in a fair tax system, not just the amounts actually paid.  But concern with rates paid rather than amounts paid fails to achieve equal treatment at the start—at the point of equal opportunity; “progressive” tax rates only look to create equal outcomes, after the differing levels of ability, work ethic, and so on have been applied by the people involved, folks who behaved voluntarily according to their own imperatives.  Progressive rates punish hard work and success while subsidizing lesser effort.  There’s no fairness in this.

Finally, as Laffer points out,

[A] flat tax proposal is not revenue-neutral, nor should it be.  If there’s one truism in fiscal policy, it’s this: Wasteful spending will always rise to the level of revenues.  Whether you’re in Greece, Washington, D.C., or California, overspending is a prosperity killer of the first order. [A] flat tax…would put a quick stop to overspending and return America to fiscal soundness.

 

*I fully anticipate that Laffer will be called racist for using this term, and I’ll be similarly accused for repeating it.  Understand, though: only a racist will actively look to create racism where none exists, so he can cry, “Racist!”