American Shareholders Association

Think You're Not in the Top 10%? Think Again.

The IRS today released its updated figures on income earners in America.  The most interesting part of this is to see (especially for those of us in cities) how little one has to earn to be in the top half of income earners, or even the top 10%.

A Few Highlights

• total income taxes divided by total adjusted gross income (AGI) totaled 13.6% in 2005, up 0.4% from 2004
• the top 1% of income earners (those earning AGI of $365,000 or higher) paid nearly 40% of all income taxes
• the top 5% of income earners (those earning AGI of $145,000 or higher) paid nearly 60% of all income taxes
• the top 10% of income earners (those earning AGI of $104,000 or higher) paid 70% of all income taxes
• the bottom half of income earners (those earning AGI of $31,000 or less), paid only 3% of all income taxes

Get the picture?  Those who want to make our tax code more progressive need to be asked, "just how much do you want to make working people pay?"

U.S. Economy Sluggish, But Not in Recession

The Commerce Department released their latest estimates of GDP growth in the fourth quarter of 2007.  While it was a very sluggish 0.6% real growth rate, that's hardly recessionary. 

We may look back on this as the dog that didn't bark.

Follow Up on Liechtenstein Tax Haven Issue

Apparently, there was a lot of traffic on the web concerning this Liechtenstein tax haven question we posted on yesterday.  Most of it's predictable, but apparently the IRS has their hands out, too.

DeMint Seeks Earmark Mortatorium

Senator Jim DeMint has announced that he will force a vote on an earmark moratorium as part of the Senate's budget resolution debate.

Medicare to Eat Up $1 Out of Every $5 Tax Dollars

Depressing news out of CMS today (the agency that administers Medicare): by 2020, $1 out of $5 federal tax dollars will be going to the old-age socialized medicine program.

Congressman Jeb Hensarling (R-TX) has a good op-ed on what needs to be done to protect taxpayers against this growing threat.

SEIU To Bash Investment Partnerships

According to industry reports obtained by ASA, the SEIU is getting ready to fire both barrels at the investment partnership industry.

To refresh memories on the issue, qualified dividends and capital gains are taxed at 15% for individuals.  Managers of investment partnerships often get compensated in dividends and capital gains.  Liberals in Congress want these dividends and capital gains (that is, only those received by partnership managers) to be taxed at rates of 35% or higher.  It's class warfare, pure and simple.

Needless to say, these partnerships will have less profit to pass along to universities, charities, and other non-managing partners.  Nice idea, Congress.

What's ironic is that union pension plans often derive a good chunk of their income from these investment partnerships.  The SEIU is slitting its own throat.

Laffer Curve 101, Part II

German Tax Collectors Blitz Liechtenstein

When high-tax countries like Germany try to bully around "tax havens," they're normally talking about free market Carribbean nations.  Now, though, German tax collectors are going after one of the oldest countries in Europe--Liechtenstein.

Quite frankly, Germany has a lot of nerve.  It's their sky-high tax rates that are causing its taxpayers to move 4 billion Euro to the DC-sized country.  If they want to retain the capital, Germany should cut their own tax rates.  What's next?  Ireland?  Eastern Europe?

Shadegg Changes His Mind: Republic Saved

Last week, Congressman John Shadegg (R-AZ) announced last week that he was retiring after this term.  An outcry ensued from constituents, 144 of his Congressional colleagues, and the heads of 33 conservative organizations.

Last night, he announced that he changed his mind.

This is great news in general, and especially great news for proponents of purchasing health insurance across state lines.  That's because Shadegg is the sponsor of H.R. 4460, the "Health Care Choice Act."  It would allow individuals to not only purchase health insurance policies licensed in their own state (as they are limited to under current law), but from each of the 50 states and the District of Columbia.

Needless to say, opening the individual health insurance market up to nationwide competition would result in dramatic cost savings for many consumers, and undoubtedly get many of the uninsured insured.

House GOP Suffers From Internet Censorship

It looks like Nancy Pelosi is a little nervous about Congress' addition to earmarks.

House GOP Leader John Boehner (R-OH) requested a web link to highlight the earmark reform caucus.  It was approved, and then later denied, by the House Chief Administrative Officer (who reports to Pelosi).

Boehner responded:

“I am writing today to register my protest over this belated change,” he wrote Beard. “Changing its address now will inevitably hamper the effectiveness of the new Web site, much to the convenience of the majority that runs the House.”

Hillary Clinton: Private Equity Hypocrite

In her continuing struggle to remain relevant against Barak Obama, Hillary Clinton took on the private equity taxation question yesterday.

It's not surprising that a liberal Democrat is pushing to raise the tax rate on partnership manager investment income from 15% to 39.6%, or higher.  What's actually surprising is that Hillary Clinton herself is doing it:

Hillary Clinton has been the recipient of widespread support from some of the country’s top hedge fund managers in her 2008 bid for the White House, according to The New York Times.

Some of her biggest donors are hedge fund managers including James Simons of Renaissance Technologies LLC, Richard Perry of Perry Capital LLC, David Shaw of D.E. Shaw & Co., Glenn Dubin of Highbridge Capital Inc. and Tom Steyer of Farallon Capital Management, LLC according to the Times.

Sen. Clinton’s daughter Chelsea also works for the New York-based hedge fund Avenue Capital Group.

Not So Fast, Unions: Only Individual Retirees Can Sue 401(k) Plans

There was a lot of talk in the media today about how the Supreme Court ruled that 401(k) plans can be sued.  Much of the press coverage is getting it wrong.  The case, which was unanimously-decided, was very narrow in scope.

The plaintiff directed his 401(k) plan to allocate resources in a more conservative direction.  For whatever logistical reason, this never happened and it was the 401(k) plan's fault.  He sued the plan for loss of income.

So, if you are a retiree AND you direct your 401(k) to change investments AND it doesn't happen AND it's the 401(k) plan's fault AND you lose money, you have the right to sue,

Not a huge deal.

Senate GOP Teetering on Edge of Socialized Medicine

As you may have heard from yesterday, I have been lobbying the Hill this week looking for cosponsors on the Health Care Choice Act (H.R. 4460 and S. 2477).  Jim DeMint of South Carolina is the Senate-side lead, so we're also meeting with select Senate health care staff.

The news is not good.

It seems like there's an emerging consensus among Senate health care staffers that amounts to the following:

• Tax increases are probably necessary
• Socialized medicine (a la Massachusetts) the GOP way is preferable to socialized medicine the Democrat way
• Anything is worth their bosses being "relevant to the debate"

In short, there's no spine among health staffers on the Senate side, and that spells trouble for 2009.

Lobbying on Health Care Choice Act

Tuesday, Wednesday, and Thursday, I will be team-lobbying on the Hill.  We're seeking co-sponsors of H.R. 4460, the "Health Care Choice Act."  It's sponsored by Congressman John Shadegg (R-AZ), who might be reconsidering his recent decision to retire.

HCCA would allow individuals to purchase health insurance plans not only from their home state (which they are restricted to under current law), but from any state in the union.  This should serve to make health insurance more affordable for people in high-cost states like New Jersey and Minnesota which have onerous coverage mandates, guaranteed issue (which allows sick people to game the system and drive up costs), and community rating (a hidden tax on the young and a subsidy to the old).

Currently at 46 members, looking to get to 100.  Passed out of the Energy and Commerce Committee in 2006, and it's in John McCain's health care platform (and was in all the other GOP candidates', too).

PBGC Enters the 21st Century

Shockingly, the Pension Benefit Guarantee Corporation (PBGC), the government agency that takes over failing pension plans, was investing with an asset mix too conservative for a 70 year old. 

Up until now, the PBGC had 15% stocks and 85% bonds and cash.  Needless to say, that opened the PBGC funds to significant interest rate risk, and kept the annual rate of return at a paltry level.

Now, they will seek to maintain an asset mix of 45% stocks, 45% bonds, and 10% cash.  That's a far more rational mixture of assets, and one that should serve to put the PBGC on better footing.

The investor class continues apace.

The "Wealth Gap" Mirage

The Dallas Fed has published a fascinating piece in today's NYT that tears down the populist lie that there is a huge gap between rich and poor.

Measured as adjusted gross income, the highest quintile earns 49.6% of the pie, whereas the lowest quintile earns 3.3%.  Looks like a huge gap.

However, the poor have access to many sources of income not captured by AGI--government transfer payments, drawing down savings (especially the old and "poor"), etc.  In fact, the poorest quintile consumes twice their own income, largely for this reason. 

If one compares consumption per person in the two quintiles, the gap narrows considerably.  The top quintile consumes just over twice the amount per person as the lowest quintile.

Russia's Flat Tax Lowered Tax Fraud

Interesting article today at the Healthcare Economist blog, which links to some good academic studies on Russia's flat tax.  One nugget is particularly informative:

The authors found that the flat tax lead to a significant decrease in tax evasion.  This is likely due to the fact that lower marginal tax rates decreases the incentive to avoid reporting income.  Further, if there is a decrease in tax evasion, policy makers can lower the marginal tax rate further while still collecting the same amount of revenue.

If only U.S. policymakers understood this common-sense truth.

Kudlow Dissects Obama's High Tax Plans

In today's NRO, Larry Kudlow tallies up what an Obama Administration would mean.  Specifically:

• He would raise spending by $800 billion
• He would increase tariffs and other barriers to trade
• The capital gains rate would nearly double, from 15% to 28%
• The dividends rate would nearly triple, from 15% to 39.6%
• The top tax on wages and self-employment would rise from 37.9% to 54.9%
• The death tax would explode from 0% to 55%

Jim DeMint Offers a Conservative Vision

Today at the Heritage Foundation, Senator Jim DeMint (R-SC) offered a bold agenda for reform.  Among the proposals he advanced:

• Make the Republican tax cuts permanent
• Lower the corporate income tax rate to at most 25%
• Allow individuals to purchase health insurance across state lines and let people pay for premiums with HSA dollars
• End earmarks, the gateway drug to bloated spending bills
• Set aside the first four percent of GDP in government spending for defense
• Stop spending the Social Security surplus on government programs and set it aside for younger workers

Taken together, this is a great set of reforms that everyone should get behind.

Energy Companies Paying Record Taxes

According to the Tax Foundation, oil companies are paying record amounts of taxes.  Democrats have plans to increase taxes on energy companies even more, under the false pretenses that they aren't paying their "fair share" in taxes.  Maybe they ought to take a gander at the chart on the left.

Farm Bill Tax Increases Stripped Out

According to published reports, Congressional Democrats will be stripping their tax increase out of the Farm Bill.  Just another sign that a President taking tax increases off the table has a real effect on legislation.

Too bad so many House members voted for a tax increase, all for naught.

The Left-Wing Case for Killing the Corporate Income Tax

Back in the 1970s, left-wingers knew that the corporate income tax was mostly borne by labor (since capital, even then, was more highly-mobile and could avoid paying the tax).  Some liberals even called for full repeal of the corporate income tax.

Now that the U.S. corporate tax rate (second highest in the developed world) is once again current, the Left is again weighing in.  The Green Party's netroots blog has published an article calling for full corporate income tax repeal.  They would replace the corporate income tax with a per-owner tax on profits, much like how S-corporations are taxed.

Welcome to the party, Greenies.  Let's hope your friends show up soon.

Even Henry Waxman Has Sworn Off Earmarks

Why can't most of the House GOP?

Americans Moving to Pro-Investor States

Interesting article today in the WSJ on how Americans are choosing to move to low-tax, pro-investor states:

One reason to conclude that taxes are also a motivator is because the eight states without an income tax are stealing talent from other states. They are Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming, and each one gained in net domestic migrants. Each one except Florida -- which has sky-high property taxes on new homesteaders -- also ranked in the top 12 of destination states.

Have an Opinion on the Bush Tax Cuts? Put Your Money Where Your Mouth Is

2006's really big thing was being able to bet on individual Congressional races.  Now, people can actually bet on where marginal tax rates will be several years from now.  Prevailing wisdom is not optimistic.

Selective Dynamic Scoring

The WSJ today had a ridiculous news article about how the business investment provisions of the economic growth package will "cost more" than originally estimated.  Here's their logic:

The difference comes from the failure of the government to take into account the "time value of money" when calculating the cost of tax breaks that allow companies to take deductions immediately, instead of spreading them over several years...Failing to include interest costs understates any government estimate of tax cuts or spending. But the degree of distortion is greater with these timing-related tax breaks, because official projections assume that the initial cost will eventually be earned back.

What the article barely mentions is that you can always add the time value of money to any tax or spending proposal, except maybe one financed from surpluses.  The WSJ ought to know better than to carry water for Citizens for Tax Justice.

Congress Finally Passes Growth Package

And the President will sign it.  Advocates of pro-growth tax policy dodged a bullet.  The Senate nearly gutted the 50% partial expensing provision.  The final version still has it (and expanded small business expensing) in there.  All in all, worth the bribe.

Bush Says He Will Veto Approps Bills That Exceed His Request

This would be a lot more impressive if his budget actually had tight numbers.

Report from CPAC

Have been talking to the bloggers and activists, and people are pretty unexcited about McCain.  This was a big opportunity for him to seal the deal with conservatives, and he seems to have blown it.

In other news, the President spoke this morning at 7:15AM.  I wasn't, of course, there.  However, those who were came out jacked and pumped.  It just goes to show you that CPAC attendees want to be fired up.

One surprising development is the lack of Fair Taxers around.  There normally are a few trying to make converts, but I haven't seen any thus far.

Liveblogging on McCain from CPAC

A few thoughts on his speech:

• Still no promise in writing never to raise income taxes while President.  He did say that he would stop the Democrats in Congress from raising taxes, which isn't the same thing
• Did, however, give a promise to veto any bill with earmarks--any earmarks
• Promised to "reform" the entitlements.  However, pledging that while not taking tax increases off the table means that we're headed for the 1983 Greenspan Commission

Corporate Income Tax Payments Down 10% Since This Time Last Year

The Congressional Budget Office released their January budget report.  Some of the lowlights:

• Corporate income tax receipts are down 10.1%
• Tax revenues are only up 3.3%, but spending is up by 8.2%

Pork Barrell "Stimulus" Bill Blocked In Senate

Thankfully, the larded-up "stimulus" package fell one vote short yesterday.  Hopefully, Senate Democrats will come to their senses and simply pass the less-offensive White House-U.S. House compromise, which has 50% partial expensing.

ATR Releases Updated Prez Tax Matrix

Americans for Tax Reform has released the updated version of the Presidential tax matrix.  Click here to see the positions that all the candidates have taken on major tax issues.

News Flash: Immigration is NOT a Vote-Moving Issue for GOP Primary Voters

If the entire 2006 election cycle was not proof enough, we now have the Romney campaign to demonstrate that immigration is not a vote-moving issue for GOP primary voters (no matter how anti-immigrant they may happen to be).  Today's WSJ says it best:

Apparently conservative voters respond to issues that impact their personal quality of life far more than they do to racially polarized rhetoric designed to pit one group of Americans against another. In the two states Mr. Romney won, Michigan and Nevada, he focused on economic issues, and exit polls show that issue resonated much more than immigration.

Fixing the Family and Medical Leave Act

One of the first "presents" that the Clinton Administration gave America was the "Family and Medical Leave Act," sold as a way to let parents take care of sick kids.  In reality, it gave labor unions another tool over employers to extract labor concessions and get people off work and onto the campaign trail.

For years, businesses have been lobbying the Bush Administration to put some common-sense rulemaking in place to reign in FMLA.  This seems to have finally happened.  Think this isn't a big deal for investors?  Think again:

A 2005 study by the Employment Policy Foundation found the law's cost to businesses in 2004 was a not-so-cheap $21 billion. This included $5 billion in lost productivity, $6 billion to continue health benefits for employees on leave, and $10 billion in replacement labor costs -- including wages to employees who had to work additional shifts or overtime to fill in for the missing.

Union Density Increases: Bad News for Economy

According to the Bureau of Labor Statistics, the amount of union members and percentage of the workforce that is unionized increased in 2007.  Some highlights:

• The number of union members increased by 311,000 to 15.7 million (5.2 percent of the population)
• Overall union density (percentage of workers belonging to unions) grew from 12.1% from 12.0%
• Private sector union density grew from 7.4% to 7.5%
• Government sector union density actually declined from 36.2% to 35.9%

Alaska, Hawaii, and New York are the most heavily unionized states (density greater than 20%).  New Jersey dipped below 20% for the first time in decades, while Washington State joined the "club" in 2007.

The least-unionized states (those with union densities below 5%) are Georgia, North Carolina, South Carolina,  Texas, and Virginia.  Not surprisingly, these states have much better economies than the states listed above.

President Releases Budget That Grows Government

The President released his final budget this morning, and the news is not good.

According to the summary tables, government spending as a percentage of GDP would grow from 20.5% in 2008 to 20.7% in 2009.  In other words, a Republican President's opening bid in his last year in office is to grow the size of government.

Not a good harbinger of where we'll end up.

Happy EITC Awareness Day

Sometimes, you just can't make this stuff up.

Unemployment Rate Drops to 4.9% Senate Still Wants to Extend Unemployment Benefits

Sure, the payroll job rate dropped by 17,000.  But by any historical measurement, 4.9% unemployment is full employment.  In fact, any rate under 6% was always considered full employment.  That doesn't stop Congressional Democrats from wanting to extend unemployment benefits, though.

Aetna HSA Study: Plan Participants 20% More Likely to Use Preventive Care

Aetna has just concluded a five-year study on how high-deductible health plan participants behave.  Some highlights of HSA owner tendencies:

• spend 20 percent more on preventive care
• maintain their utilization of drug therapies for chronic conditions, their access to breast and cervical cancer screenings, and their levels of diabetic testing
• use generic drugs more frequently
• are twice as likely to explore online information
• 52 percent of HRA members and 95 percent of HSA members carried over some or all of their fund into the next year

The 15% Solution: Make the Cap Gains and Dividends Rate Permanent

Jason Trennert of Strategas Research Partners LLC has a good op-ed in IBD on why making the 15% capital gains and dividends rate is so important.  Here's a snippet:

"...the policy tools currently being discussed will wind up being more politically expedient than economically effective and should thus be viewed as they are — bad public policy.  Any discussion of fiscal stimulus should at the very least include provisions for accelerated depreciation and seek a long-term solutions to what currently ails the U.S. economy. A simple first step would be to make permanent the tax cuts on dividends and capital gains President Bush and the Congress had the wisdom, and courage, to pass nearly five years ago."

Senate Coming Back from the Brink on Stimulus Pork

These four Senate Democrat leaders are desperate to pass a pork-laden stimulus package.  Thankfully, it seems like the madness is about to end.

Bush Will Propose Medicare Cuts

Since Medicare is quickly going insolvent, the President is required under the law to submit a cost-reduction plan, and Congress must vote on it.  Reports are that the centerpiece of the plan will stop the inflation adjustment in premium means-testing under Parts B (medical insurance) and D (prescription drugs).  Seems like a good idea, given that rich people don't need my taxes to get Medicare coverage.