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According to press accounts, Senate Democrats have no plans to attach tax hikes to an AMT patch this year. House Dems still believe they can do so, but that's not going to happen.
The biggest fear for investors is that the business community might agree to tax hikes in exchange for the extenders package.
Harold Ford, Jr. had an article on it in today's Washington Times.
It's a little disjointed, but pieces of it include:
Click here to read details.
A couple of good articles on the Democrats' self-identity crisis when it comes to their constituents (rich people).
First, Mike Franc from the Heritage Foundation has a good article on who Congressional Democrats truly represent:
Democrats now control the majority of the nation's wealthiest congressional jurisdictions. More than half of the wealthiest households are concentrated in the 18 states where Democrats control both Senate seats...Nancy Pelosi, Democratic leader of the House of Representatives, represents one of America's wealthiest regions. Her San Francisco district has more than 43,700 high-end households. Fewer than 7,000 households in the western Ohio district of House Republican leader John Boehner enjoy this level of affluence.
Next, the Washington Post has a rather humorous debate on whether people earning more than $97,000 in wage or self-employment income are "rich." Barak Obama says "yes," but Hillary Clinton says, "no":
The exchange between Obama and Clinton began when the senator from Illinois said he was open to adjusting the cap on wages subject to the payroll tax. That's the tax that the government prefers to call a "contribution" to Social Security. Under current law, a worker pays a flat percentage (and employers match it) of wages up to $97,500. Wages beyond that aren't taxed.
Clinton responded by saying that lifting the payroll tax would mean a trillion-dollar tax increase, adding that she did not want to "fix the problems of Social Security on the backs of middle-class families and seniors."
Obama replied: "Understand that only 6 percent of Americans make more than $97,000 a year. So 6 percent is not the middle class. It is the upper class."
Clinton: "It is absolutely the case that there are people who would find that burdensome. I represent firefighters. I represent school supervisors."
Amity Shlaes today has an article in the Washington Post in which she argues that price-indexing Social Security benefits will actually be seen as a bonus by younger workers. The theory is that about 60% of younger workers are counting on a Social Security benefit of $0, so getting this "Volvo benefit" will be a plus to them. I tend to disagree, but thought the analogy was interesting.
There's a good article by Thomas Sowell in Real Clear Politics today where he documents that poor people move up the income ladder very quickly, assuming a minimal level of social participation.
Want to pay a 5% income tax? Go to Dubai.
Medicare's open season just arrived yesterday. In a very welcome development that is getting next to no coverage, Medicare medical savings accounts (MSAs) are now universal.
Like their HSA cousins, Medicare MSAs combine a high-deductible health plan with a tax-free savings account. The premium is the same as the ordinary Medicare Part B premium (about $100 a month this year). In a plan in my zip code, I could have a deductible of $2750 and an annual MSA contribution of $1375. If I had an HSA while working, this would help supplement it. Whatever I don't use carries over to future years.
These plans do not cover Rx drugs, so seniors would have to get a separate Part D plan. Also, HSAs and Medicare MSAs cannot be combined, and seniors cannont make their own account contributions. But that's all nitpicking.
Finally--universal consumer-driven care has come to Medicare.
There's a very simple solution to the AMT mistake: kill it. Don't want to do that? Patch it, so that no one else falls into it. Since you're simply fixing a mistake, and acknowledging that this revenue was unanticipated, there's no need to "pay" for it.
Dems don't seem to see it that way. That's why Harry Reid has been waffling on what he wants to do. Pay, or don't pay?
Either way, taxpayers are going to have one heck of headache this tax season.
I appeared on Fox Business News tonight to discuss the politics and policy of the death tax.
And he had a strongly-worded veto message, too:
This bill spends too much. It exceeds the reasonable and responsible levels for discretionary spending that I proposed to balance the budget by 2012. The Congress is on a path to spend $205 billion more over the next 5 years than I requested...The Congress continues to fund 56 programs totaling more than $3.2 billion that I proposed to terminate because they are duplicative, narrowly focused, or not producing results...This bill has too many earmarks. I set out clear goals for the Congress to reform the earmarking process. The Congress chose not to put earmarks in bill text, instead including nearly all in report language, and they did not reach the goal of cutting the cost and number of earmarks by at least half. This bill contains more than 2,200 earmarks totaling nearly $1 billion...
In welcome news to financial geeks and cheap bastards everywhere, NewsCorp (the owner of the Wall Street Journal) announced they would soon make wsj.com a free newspaper service, supported only be advertising.
It's always fun to check in on the penny wars. According to the WaPo's Cindy Skrzycki, "it costs 1.67 cents to make a penny, up from .93 cents in 2004. This means the U.S. Mint lost $31 million in making 6.6 billion new pennies in fiscal 2007 and another $68 million for more than 1 billion nickels, according to Michael White, a spokesman for the mint. Speculators, taxpayers, suppliers and coin collectors are affected, too.
"The government fears that citizens will melt old pennies to extract the copper, which, until a recent dip, has shot up in price over the past five years. In December, the U.S. Mint banned melting pennies and nickels (nickel prices are up, too), sidetracking one Ohio metals expert's plan to cash in."
Three interesting things of note on this end.
First, USA Today has a piece on the declining role employers have in providing health care. While the paper laments this, why the heck shouldn't people get health insurance the same way they get life insurance and car insurance (that is, any way but from their boss)?
Second, CBO has come out with a sobering study of projected health care cost growth that predicts that, if current trends continue, government health care spending will rise from about 5% of the economy today to almost 30% by 2082.
Finally, John Graham from the Pacific Research Institute has a good analysis of how declining employer health coverage and rising health spending as a percent of GDP may not be the evils they are made out to be.
Interesting article today on how the private equity firms have joined the battle on AMT offsets.
Here is ATR's Grover Norquist talking about the Rangel tax hike on CNBC.
Two parallel news stories on what Hillary and Obama think about Social Security.
First, Madame Hillary:
"If you lift the [taxable wage] cap completely that would be a $1 trillion tax increase," Clinton told reporters after a Veterans Day event. Clinton said she would initially end the practice of borrowing from the Social Security trust fund. She said more responsible fiscal practices could bolster the economy, which would in turn make the fund more healthy.
This is pure pablum. While it's welcome that she doesn't want a $1 trillion tax increase that would completely-destroy small businesses (saddling them with a 55% marginal tax rate), her idea of using the Social Security surplus to pay down the publicly-held national debt (which is what she is talking about rather opaquely) would do precisely nothing to help the situation.
Second, Obama:
"I think the best way to approach this is to adjust the cap on the payroll tax so that people like myself are paying a little bit more and people who are in need are protected," the Illinois senator said...Obama's proposal could include a gap or "doughnut hole" to shield middle-income earners from paying more in taxes, he said.
That also wouldn't solve anything. First, people would be able to collect Social Security benefits off those "contributions." Even if you prohibited a tax-benefit connection, this massively increases taxes on small businesses, lowers the rate of return on Social Security taxes paid, and only extends the life of the program by a handful of years.
The final vote was 216-193. Only eight Democrats voted for it. 24 Members abstained from voting. Not one Republican voted for this tax increase.
Continue reading "No House Republicans Vote for AMT Patch/Tax Increase" »
Alan Reynolds has a good article on the combined MOTH-tax cut expiration Rangel bill. In it, he points out that AMT relief will mostly affect the top 4% of income earners. In exchange:
On a joint tax return, the current tax rate of 10 percent on the first $15,650 of your taxable income would jump to 15 percent under Mr. Rangel's misnamed "Tax Reform and Reduction Act." The 25 percent rate would climb to 28 percent, the 28 percent rae to 31 percent, the 33 percent rate to 40 percent, and the 35 percent rate to 44 percent. Yet Mr. Rangel describes these across-the board tax increases as "broad tax relief." He even dares to compare them with Tax Reform Act of 1986, which had no tax rate higher than 28 percent.
The Heritage Foundation has done a very useful analysis of what effect the Charlie Rangel MOTH bill would have on the economy in conjunction with the expiration of the Bush tax cuts. Here are the dire results from 2008-2017:
From a good op-ed in today's WSJ:
Here we are 27 years later -- with 40 million more jobs and a nearly $50 trillion higher net worth -- yet the left intelligentsia is still obsessed with discrediting supply-side economics. In recent weeks, the New York Times, the New Yorker, the New Republic and many other liberal publications have devoted great space and attention to attacking the entire theory that lower tax rates can increase incentives for investment, saving and work...
In any case, the share of taxes paid by the top 1% and 5% income earners has consistently risen from 1980 through 2007, even as tax rates declined. Today the highest income tax rate is half what it was in the 1970s. Yet the share of taxes paid by the top 1% of income earners is twice (39%) today what it was then (19%)...
What the critics have no plausible answer for is this: If the supply-side tax rate reduction model is truly so abhorrent, why are so many nations around the world latching on to it? What explains the Irish Miracle? Why are Germany, France and the U.K. slashing their corporate tax rates? Why are there 18 countries with flat taxes? Are their leaders deranged, or been bamboozled by crackpots? Perhaps a better explanation is that they know intuitively what a new National Bureau of Economic Research study has found: Nations with low tax rates on business have statistically significant higher rates of new business formation, investment and income.
How's this for twisted logic:
"Congressional Republicans are quick to blame someone else for their inability to make the Bush tax cuts permanent," said Mr. Rangel, New York Democrat and chairman of the Ways and Means Committee. "Their sharp rhetoric ignores the fact that these very tax cuts put millions of American families in the cross hairs of a tax increase in the form of the dreaded alternative minimum tax."
As they say in the public schools, "huh?"
From today's CQ:
The White House objects to the core principle behind the bill — that the revenues lost by a one-year “patch” of the AMT should be offset by new revenues from other taxes. “The administration does not believe the appropriate way to protect 21 million additional taxpayers from 2007 AMT liability is to impose a tax increase on other taxpayers,” said a Statement of Administration Policy released Thursday morning.
From the Cato-at-Liberty blog, commenting on a report by Alvin Rabushka:
Effective January 1, 2005, Georgia (the country, not the U.S. State) adopted a flat tax of 12%, replacing its previous four-bracket system. The flat tax was augmented with a 20% tax on corporate profits, 20% on social insurance (reduced from 33%), and 18% (reduced from 20%) on VAT. The new, simpler system has had a dramatic effect on economic growth, averaging 10% a year for the past three years, and taxpayer compliance. Tax revenue increased from 14.5% of GDP in 2003 to 22% in 2006, and should reach 24% in 2007. Between 2003 and 2007, the reforms reduced the number of taxes from 22 to 7.
Read the gruesome details by Dave Freddoso here in today's NRO.
Good article on this subject in today's NRO by Americans for Prosperity's Phil Kerpen.
Barak Obama this week has released some policy positions on retirement savings this week. While he's all for forcing companies to enroll workers in IRAs, he ignores the most obvious way to give people the maximum amount of retirement savings. He should endorse letting workers save the 10% of income they and their employers are forced to pay into our failing Social Security system. Of course, his socialist tendencies won't let him endorse that most obvious solution, and the only one that will work for poorer workers.
The normally-socialist New York Times reports today that Charlie Rangel tucked a Virgin Islands tax break into his AMT patch bill. That's certainly a good reason to raise the capital gains tax and wreck the economy.
So much for wanting to clear the tax code of underbrush...
DC Insider newspaper Roll Call reports today (subscription required) that all is not well in the House Democrat caucus. Some Dems are getting a little wary at signing off on tax increases to pay for an AMT patch bill.
From today's Hill:
Hoping to shield its members from a tax hike on fund managers’ carried interest income, the Real Estate Roundtable on Tuesday unveiled a study finding that the measure’s impact on real estate partnerships alone would cost the economy up to $20 billion annually.
The study found that real estate partnerships account for 45 percent of all investment partnerships filing to the IRS. There are 6. 6 million such real estate partnerships, which hold roughly $1.3 trillion in assets, about a quarter of the value of all commercial real estate in the U.S.
The total amount of earmarks in this bill number 2200 and total more than $1 billion.
Maybe that's not a lot of money in Washington, but keep in mind that would be enough to buy a grande mocha latte for everyone in the United States.
Remember that the next time you're scrounging around for coffee money.
From today's Hill:
“There’s been a lot of pressure on the rank and file to support this deal,” said Rep. Mike Michaud (D-Maine), who opposes the deal. “It’s disappointing that Democratic leaders are not in sync with the American people.”
From today's Politico:
“They’re giving a 2007 tax cut and then putting into the code permanent tax increases,” says Clint Stretch, managing principal of tax policy for Deloitte. “For a number of years we’ve been doing temporary tax cuts paid for with permanent tax increases.”
Today, the Department of Labor Released figures for job growth in September. 166,000 new jobs were created that month. Since August of 2003 (when the tax cut on capital gains and dividends was enacted), 8.3 million new jobs have been created. September marked the 50th consecutive month of job creation, a record.
This comes on the heels of the Bureau of Economic Analysis reporting that third quarter real GDP growth hit 3.9%, the fastest rise in a year and a half. Real per capita personal income is up by $3800 (12.7%) since January of 2001.
Good article by Chris Edwards in the Heartland Institute, where he points out that average wages and fringe benefits of state and local government employees exceed that of private sector workers by some $6257.
Good article by American for Prosperity's Phil Kerpen, in which he observes about the Rangel tax hike:
The thrust of the bill, on the individual side at least, seems to be tax reform in reverse — a number of breaks, exemptions, credits, and spending schemes all paid for with higher tax rates. And because the bill does nothing to prevent the Bush tax cuts from expiring in 2011, the top individual income-tax rate, under this law, would go from 35 percent this year to 44.2 percent in 2011, which would do serious damage to the economy.
Charlie Rangel's at it again. Last week, he introduced a tax bill with $1.3 trillion in new taxes. Last night, his Ways and Means Committee reported out a one-year "patch" of the AMT which ensures that no new households will be sucked into the alternative minimum tax vortex. It also has a strange new deduction for property taxes for non-itemizers, and spends money on the additional child tax credit and the mortgage debt forgiveness provisions that have been kicking around. The usual "extenders" are in there, too.
So what's the catch? Shareholders get hosed. Landlords face a higher capital gains tax. Carried interest capital gains are taxed as ordinary income. Broker basis reporting get accelerated.
Oy.
John C. Bogle: Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor
Richard Yancey: Confessions of a Tax Collector: One Man's Tour of Duty Inside the IRS
Harvey Mackay: Dig Your Well Before You're Thirsty : The Only Networking Book You'll Ever Need
Grover Norquist: Leave Us Alone: Getting the Government's Hands Off Our Money, Our Guns, Our Lives
Paul Craig Roberts: Supply-Side Revolution: An Insider's Account of Policymaking in Washington
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