American Shareholders Association

More Regulations on Energy

Federal regulators recently announced new regulations to be placed on the energy industry.  These include:

…an extended agreement with the [Commodity Futures Trading Commission’s] British counterpart to expand the surveillance of energy futures contracts with delivery points in the United States.  The commission’s second set of measures would require institutional investors who manage so-called commodity index funds, which are meant to mimic oil prices, to provide monthly reports on their activities…The commission said it would also review trading practices for index traders to ensure they are not “adversely impacting the price discovery process, and to determine whether different practices should be employed.”

Essentially, more superfluous overregulation.  Analysts have noted that the rules would do little to reduce volatility in the oil market and would not reduce oil prices.  Jeffrey Harris, the chief economist of the Commodity Futures Trading Commission, noted that the price in oil has little to do with market manipulation, which is what the new regulations address.  Rather, argues Harris, the price in oil has been caused by a myriad of factors including “a weak dollar, strong demand from emerging world economies, geopolitical tensions in oil-producing regions, supply disruptions, and unfavorable weather.”  Read more on this issue here.

New Video on the Global Flat Tax Revolution

Mortgage-Backed Securities, Qualified Special Purpose Entities, and the Housing Crisis

Creating a mortgage-backed security involves two steps. First, investment banks or other financial institutions issue loans. Next, the investment banks pool these loans together and sell an interest in the loans to investors as bonds. The investment banks obtain cash immediately. The investors obtain the right to the proceeds of the loans and corresponding interest revenues. However, the investment banks must remove the loans from their books to receive sale status and recognize gains.

To achieve sale status, banks often use qualified special purpose entities (QSPEs), which are created by investment banks as legally separate entities with separate books. Once a QSPE is established, the investment bank can transfer the loans from its books to the QSPE’s books. After this transaction is made, the bank can no longer renegotiate the terms of the loans, which creates problems when defaults on loans are reasonably foreseeable.

As the issuance of mortgage-backed securities increased, underwriting became increasingly lenient and the issuance of subprime loans – loans to individuals with poor credit histories – increased. Banks’ increasing eagerness to make loans, increasingly lax underwriting, and the inability to renegotiate loan terms, dramatically increased the number of defaults. Many of these loans came in the form of home mortgages, and thus the defaults were a large spur in the housing crisis.

Looking forward, there is some hope for optimism. The Financial Accounting Standards Board (FASB), the governing body of U.S. accounting rules, recently outlawed the use of QSPEs for the purpose of removing mortgage-backed securities from financial institutions’ books. Such a measure encourages the financial institutions to tighten their underwriting efforts and ensure that the initial issuance of loans is conducted with a higher degree of responsibility, since defaults are recognized on their own books.

SEC Caves In To Big Labor

Shockingly, the Securities and Exchange Commission has given free reign to chaos at shareholder meetings.

Unions try to do everything they can to force votes and disrupt these meetings for one reason--to cut a backroom deal with management that leads to unionization in exchange for calling off the dogs.

This week, the SEC ruled that shareholder meetings can be forced to have a vote on a resolution endorsing universal health care.  Besides the fact this has nothing to do with company business (it's more like a opinion statement) and wastes company time, it's also the tip of the spear.  From here, unions will demand more votes on more substantive things--things like executive compensation, green initiatives, "charitable contributions" to union-affiliated organizations, etc.

Retirement Plan Assets Up Over $1 Trillion--In One Year

The Investment Company Institute released their factbook recently, and it seems that Americans aren't doing too badly in the retirement savings area, after all.

The amount of money Americans have saved for retirement grew by $1.1 trillion at the end of 2007, to $17.6 trillion.  This is an increase of 6.67% from the year-end 2006 levels. 

About half of this nest egg ($9.2 trillion) is held in IRAs and defined contribution retirement accounts like 401(k)s.  The rest is in taxable brokerage accounts and (increasingly less) defined benefit pensions.

When you consider there are about 200 million adults in America, that's an average nest egg of $88,000.

Environmentalism or Economics?

The U.S. has seen a recent boom in sales of hybrid cars, small cars getting better gas mileage, more energy efficient light bulbs, and various other environmentally friendly products. Many would argue that this trend is a product of our growing environmentalism as a nation. Others know better.

Free market economists have long argued that social wellbeing is driven by economic wellbeing. Now, it is increasingly being argued that environmentalism is driven by economics as well. It is no surprise that the rise in hybrid cars and smaller cars getting better gas mileage directly parallels the rise in prices of gasoline. It is no surprise that the use of energy efficient light bulbs directly parallels the rise in energy prices. It is simply economics.

Arthur O’Donnell, executive director of the Center for Resource Solutions, notes the following: “What would happen to Americans’ newfound energy consciousness if the price of a gallon of gasoline fell back to $1.50 tomorrow from its current average of about $3.93? People would say the crisis is over and generally move back to their previous ways.”  Read more on this issue here.

A Message From Fred Thompson To Conservative Candidates

Former Senator and Republican Presidential candidate Fred Thompson recently offered conservative candidates some advice for the upcoming election. Among the core conservative values expressed by Thompson was the necessity for free and open markets. He notes the need for the U.S. “to be free in an unfettered market of ideas, not subjugated by a too-powerful government.” Thompson goes on to outline the following points for conservatives to keep in mind:

- Congress cannot repeal the laws of economics.  There are no short-term fixes without longer term consequences.
- In a free and dynamic country with social mobility, there will be great opportunity but also economic disparity, especially if the country has liberal immigration policies and a high divorce rate.

- An education system cannot overcome the breakdown of the family, and the social fabric that surrounds children daily.

- Free markets, not an expanding and more powerful government, are the solution to today's problems.  Many of these problems, such as health-care costs, energy dependency and the subprime mortgage crisis, were caused in large part by government policies.

The World has Gone Mad

A recent poll conducted by the Financial Times/Harris Poll surveyed nearly 9,000 individuals in eight countries to find the answer to the simple question: “Should the rich be taxed more?” The percentages answering yes to this question were as follows:

Japan — 77%
Spain — 65%
Germany — 64%
U.S. — 62%
China — 60%
Italy — 59%
U.K — 56%
France — 51%

It should be noted that the sample size is small for such a broad survey. Additionally, the question may be framed from a biased perspective and fails to define “rich” and “more.” Nevertheless, the results are cause for concern. The fact that the U.S. ranks in the middle of the pack among countries with more socialist systems suggests a growing socialist mindset in regard to taxation in America.  The results also underscore the need to dispel such a mindset, which inevitably leads to the inequitable redistribution of wealth.  Read more on this issue here. 

ASA and 88% Tax Rate Mentioned in WSJ

We always get a giddy feeling around here when we're noticed by the national media, so here's the link and my shameless plug:

Tax rates under a Barack Obama presidency are expected to rise to as high as 52.2% when combining the income-tax increase the candidate supports and his proposed elimination of the payroll tax cap. These would be the highest rates since the late 1970s, when the economy went haywire. "That's a frightening proposition, especially when the rest of the world is cutting tax rates," says Jim Carter, chief economist on the Senate Budget Committee's minority staff.  Now a new study by the Congressional Budget Office suggests that rates would have to go even higher if entitlement spending isn't reined in. The report, which was requested by Republican Rep. Paul Ryan, finds that the top rate of personal income tax would have to rise to 88% from 35% to pay all the nation's bills. Even the lowest tax rate would have to more than double. This is the price we pay for running up unfunded liabilities in Medicare and Social Security.  Faster economic growth would help ease the burden of these long-term costs, but if tax rates are raised, economic growth will slow. That's the point of Mr. Ryan's inquiry. If we don't get serious about reforming health care programs and Social Security, Democrats will argue that only super-sized tax hikes will solve the problem.  Ryan Ellis of the American Shareholders Association states the obvious when he says that income-tax rates of 88% are a surefire way to create a massive outflow of capital away from the U.S.

Your Exxon Mobil Stock Under Attack From Latte-Drinking Greenie Snobs

OK, so maybe the headline is a bit much.  But not too much:

The heirs of John D. Rockefeller's Standard Oil empire made a media splash recently when they demanded that the oil giant diversify out of oil, of all things. When Exxon holds its annual shareholder meeting next week, the Rockefeller clan will push proxy resolutions requiring the company to invest in noncarbon energy sources, and to create more board of director "independence" from management by splitting the role of chairman and chief executive. To hear the wealthy heirs tell it, Exxon will thus be better positioned to take advantage of the eco-opportunities of the future.  The counterpunch from other, nonwealthy shareholders has now arrived in the form of a letter from union chief Chuck Canterbury. He's president of the National Fraternal Order of Police, whose 324,000 members have plenty of pension-fund dollars invested in Exxon. In a May 17 letter to Exxon Chairman and CEO Rex Tillerson, Mr. Canterbury made clear he and his members don't agree that Exxon should be used to promote social goals if it means putting worker retirements at risk.

House Passes Permanent Tax Increase To Pay for One-Year Extension of Current Rules

If there's one thing that should be blindingly obvious, it's that permanent new tax increases shouldn't be needed merely to extend present tax law.  Yet that's exactly what the U.S. House did just last night.  Under that logic, we'd have to have hundreds of billions of dollars in tax increases over time just to keep present tax law in place.

Clinton Reports $31 Million in Campaign Debt

Hillary Clinton filed her campaign financial reports late last night, revealing that she has accrued a monster $31 million in debt.  Overspending seems to be a trend for Clinton, who has exceeded her means even amidst her best fundraising efforts.  This past month alone Clinton overspent by $9.5 million.  In April, Clinton's fundraising efforts brought in $21 million, only to see Clinton spend nearly $29 million.  Clinton's debt is largely made up of unpaid bills to vendors and consultants and personal loans.  This information begs the question: would a Clinton presidency lead to the same cavalier spending seen in her campaign?  Read more on this issue here.

Paul Ryan Introduces Mother of All Tax and Spending Reform Plans

Today, Congressman Paul Ryan (R-WI) introduced his "American Roadmap" plan to reform the tax code, Social Security, Medicare, Medicaid, and the health care system.  In short, his bill (which has been scored by CBO to be paid for and result in current levels of goverment spending by 2082), is the big enchilada.

For investors, his alternative tax system features a 0% tax rate on interest, dividends, and capital gains.  The corporate income tax is replaced by an 8.5% VAT (which is a mixed blessing). 

Here are some resources:

www.americanroadmap.org

An op-ed by Congressman Ryan in today's WSJ (subscription required), and an op-ed by Peter Ferrara praising it in NRO

New Term for the Growth Lexicon: "Hauser's Law"

From yesterday's WSJ: The federal tax "yield" (revenues divided by GDP) has remained close to 19.5%, even as the top tax bracket was brought down from 91% to the present 35%. This is what scientists call an "independence theorem," and it cuts the Gordian Knot of tax policy debate.

The data show that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP.

How Does an 88% Tax Rate Sound to You?

Uber-Congressman Paul Ryan (R-WI) recently requested that the Congressional Budget Office tell him what tax rates would have to be if entitlement spending were left unchecked, and taxes were raised across the board to pay for them.  The results are shocking:

• The lowest tax rate would rise from 10% to 25%
• The middle class tax rate would rise from 25% to 63%
• The highest tax rate would rise from 35% to 88%

That 88% tax rate would be the highest level since just before the Kennedy tax cuts of 1963.  A half-century of rate reductions and the resultant economic growth would be lost in the next seventy-five years.

There's more.  The corporate income tax rate--currently the second-highest in the developed world at 35%--would also have to rise all the way to 88% (the highest it has ever been in the history of the country).  Assuming a 20% capital gains rate and an 88% dividends rate, that creates an integrated double-taxation of corporate profits along the following schedule:

• A dividends rate of 98.56% (88% corporate and 88% personal)
• A capital gains rate of 90.4% (88% corporate and 20% personal)
• A corporate capital gains rate of 98.56% (88% corporate and 88% corporate)

Federal Bureaucrats Have a Better 401(k) Plan Than You Do

Many of you might already know that federal employees have the best 401(k) plan in the world--the "Thrift Savings Plan."  The administrative costs are super-low, thanks to taxpayers like us picking up many of the administrative costs.  Now, they're looking to add a Roth deferral option and make the TSP even better:

Currently, TSP participants make tax-deferred contributions, and those savings plus any earnings are taxed upon withdrawal, usually in retirement. Contributions to Roth plans are made after taxes have been paid; those savings and their earnings are withdrawn tax-free. That makes a Roth option especially attractive to people who expect their income to rise over time [very helpful when you have an automatic COLA, as federal employees do], putting them in higher tax brackets.

Hold Onto Those Munis: Supreme Court Solidifies Them In Law

Investors already probably know that municipal bonds are usually free of federal income tax (even under AMT, unless the interest is derived from "private activity bonds" like sports facilities).  States often don't tax municipal bond interest from their home state.  Now the Supreme Court has upheld that practice.

What does this mean for investors?  It pretty well locks in the favorable tax treatment at both the federal and state levels.  With the possibility of rising tax rates on capital gains and dividends, this Supreme Court decision makes munis a more favorable investment over time.

Obama Lays Out Retirement Plan: Younger Investors on Their Own

Barack Obama laid out a retirement policy plan this weekend.  He talks about the elderly, the poor, etc.  However, he leaves out the most important component of all: the fact that younger workers lose money with every paycheck by sending money down the rathole of Social Security:

Here's my plan. Right now, the Social Security payroll tax only applies to the first $102,000 a worker makes. I think the best way forward is to adjust the cap on the payroll tax so that people like me pay a little bit more and people in need are protected...And we should include what's called a "donut hole" to make sure that this change doesn't ensnare any middle class Americans...That's why I've proposed automatic workplace pensions. There will be no red tape or complicated forms - employers will provide a direct deposit of a small percentage of each paycheck into your account. You can add to it, or you can opt out at any time. And employers will have an easy opportunity to match employee savings. If you switch jobs, your savings will roll over into your new employer's system. If you become self-employed, you will control your account. Studies show that about 80 percent of Americans will enroll if given the option to pursue my plan. This will put a secure retirement within reach for millions of working families.

So let's get this straight: he wants a top tax rate on wages of 39.6% income tax plus 15.3% payroll tax, for a combined Carteresque 54.9%.  And, rather than letting younger workers save some of that 15.3% themselves, he wants to opt them into an additional savings plan on top of that.  Some visionary.

McCain Criticizes Obama's Trade Policy

In a recent speech John McCain called Barak Obama a “tool of organized labor,” noting that “He’s been against (trade agreements with) Colombia, South Korea, and several others. That’s what labor unions want: no free trade agreements.” Obama has also spoken harshly of NAFTA, and he recently opposed a Latin American trade deal. Agreements such as the South Korean and Latin American trade deals promise to open up untapped markets to U.S. businessman and encourage economic expansion. However, Obama’s sentiments may not be a major concern, so long as you don’t mind hampering competition and growth in America a little…  Read more on this issue here.

It Bears Repeating: Obama Means Higher Cap Gains and Dividend Taxes

There's a theory in politics that you should pick a theme, and repeat it again and again.

The theme from ASA's perspective?  An Obama win will mean a 28% capital gains rate and at least a 40% dividends rate (both up from the 15% of current law).  Click here to read the latest iteration of this simple message.

Think you're ok because you do all your savings in an IRA or a 401(k)?  Think again.

List of Congressmen Who Voted To Raise the Capital Gains and Dividends Tax

The House yesterday voted to approve the "Blue Dog Tax Hike" (see the roll call here). Unfortunately, 27 Taxpayer Protection Pledge signers broke their promise to their constituents that they would never raise income taxes. Seven Pledge breakers (Phil English, Vito Fossella, Steve LaTourette, Tim Murphy, Jon Porter, Rick Renzi, and Fred Upton) are first-time offenders.

This vote would increase the capital gains and dividends tax rate to 15.47%.

Here is the complete list:

Don Young
Rick Renzi
Ileana Ros-Lehtinen
Mark Kirk
Tim Johnson
Ray LaHood
Ed Whitfield
Ben Chandler (D-KY)--the fifth Pledge violation this Congress
Wayne Gilchrest
Fred Upton
Joe Knollenberg
Candice Miller
Jim Ramstad
Jo Ann Emerson
Gene Taylor (D-MS)--the fourth Pledge violation this Congress
Walter Jones
Robin Hayes
Jeff Fortenberry
Robert Andrews (D-NJ)--the fifth Pledge violation this Congress
Chris Smith
Jon Porter
Vito Fossella
Steve LaTourette
Phil English
Tim Murphy
Tom Petri
Shelly Moore Capito

FactCheck.org Needs to Check Their Facts on 401(k)s and the Capital Gains Tax

FactCheck.org takes the McCain campaign to task for saying that a higher capital gains tax rate will affect 401(k) plans.  They (correctly) point out that 401(k) plan assets don't owe capital gains taxes.

What they fail to acknowledge is that a higher capital gains tax makes stocks less valuable on an after-tax basis, so stock prices decline to price that in.  Stock holders--whether their accounts be taxable or not--suffer from lower investment returns.  That's what McCain is saying, and common sense tells you he's right.  The stock market popped up by $5 trillion in wealth after the capital gains tax was cut in 2003.  Surely the higher after-tax value of stocks had something to do with higher stock prices.

So, a higher capital gains tax most certainly does affect each of our 401(k) balances.  It's too bad FactCheck.org doesn't allow comments once they have spoken from on high.  Very Web 1.0.

House Voting Today on Tax Increase

Today, the U.S. House will be voting on a tax increase.  Specifically, it would impose a 0.47% surtax on households earning more than $500,000 per year ($1,000,000 married filing jointly).

For investors, this means a dividends and capital gains rate of 15.47%.  In 2011, the dividends rate would rise to 40.07% and the capital gains rate would rise to 20.47%.

Meanwhile, 83% of tax returns that have income at this level are owners of partnerships and S-corporations.

Americans for Tax Reform will be double-rating this vote, which is also a violation of the Taxpayer Protection Pledge.  Good articles today on this in Roll Call (subscription required) and the Wall Street Journal (subscription required). 

The Club for Growth will also be key-voting it, as will NTU.

File Under, "Keynes 1, Laffer 0"

In a move one part futility and two parts stupidity, the British government announced they would be increasing the standard deduction by some $1170.  This to supposedly "stimulate" the economy. 

Supply siders (read: people who know that policy changes have consequences on behavior) realize that this won't work.  There will be no additional incentives to work, save, and invest.  At the margin, fiscal policy is no more growth-inducing than before.

If the Brits really want to grow the economy, they should take a page from Thatcher.  Cut the British top income tax rate of 40%.  Cut the corporate rate from 30% to the European average of 25% or lower.  Cut the British dividend rate of 22.5%.  Cut the capital gains rate of 18%.  This is not rocket science.

New Poll Shows 1/3 of Investors Might Sell Assets If Cap Gains Rate Hiked

Bloomberg seems to take it as good news that "only" 31% of shareholders earning at least $100,000 per year might sell assets if the 15% capital gains tax rate is hiked.  I don't know about you, but that scares the holy hell out of me.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aRRZojfv5DQc&refer=home

Inflation Decellerating; Economists Getting Off Recession Bandwagon

Two pieces of cheerful news for investors this morning.

First, inflation seems to be cooling off.  Headline inflation grew by only 0.2% in April, less than anticipated.  For the trailing twelve months, inflation is 3.9%--still not good, but getting there.  The compounded annual quarterly rate is a reasonable 2.3%, so we might be out of the woods.  All these numbers look far better ex-food and energy.

Meanwhile, Wachovia has reduced its prediction of a recession (subscription required) from a 90% chance earlier in the year to 45% today.  While things aren't stellar, they aren't bad, either.

More Good News for HSAs, Unless Your Name is Pete Stark

The IRS released the 2009 HSA limits yesterday.  Here are the new levels:

• Contribution Limit: $3000 ($5950 family)
• High-Deductible Health Plan Minimum Deductible: $1150 ($2300 family)
• Out-of-Pocket Maximum: $5800 ($11600 family)
• Over 55 Catch-Up Contribution: $1000 ($2000 if both spouses age 55 or older)

Most HSA plans have a deductible of at least $1200 single/$2400 family, so this shouldn't affect too many people.  The extra contribution amount is yet another incentive to save more tax-free for future health needs.

Great news for America's 6.1 million HSA covered lives (likely far more, since that number is from 2007).  This hasn't stopped HSA public enemy number one, Congressman Pete Stark (D-CA), from raining on everyone's parade with an anti-HSA hearing today.

It's the Spending, Stupid: Part Two

The WSJ has a piece today on the dropoff in corporate income tax revenue, and imply that this is what's causing the larger budget deficit this year.

Hogwash.

Corporate income tax revenues, have indeed, fallen off.  But overall tax revenue is keeping pace with inflation (up 2.9%), and non-withheld income taxes are up over 7%.  Corporate income taxes being down 14% or so is not that much money--maybe $50 billion of the increased deficit, at the most.

No, the real culprit is spending.

Trifecta of News on HSAs

A few things on the health savings account (HSA) front:

1. The Republican Study Committee has come out with a very good refutation of the GAO report bashing HSAs
2. Helpful political news: the state of Georgia is giving small employers a $250 tax credit to open an HSA plan for their employees, is letting Georgians purchase HSA-qualified insurance inter-state, and is allowing HSAs to be a deduction against taxable state income.  Click here to read more
3. Harmful political news: Congressman Pete Stark (D-CA) is at it again.  He's holding a hearing this week on HSAs and other consumer-driven health care vehicles

Take Your Pick: Higher Taxes, or REALLY Higher Taxes

Very good analysis by Andrew Biggs in the WSJ this morning on how high taxes will go even if the Democrat tax hike is avoided.  The numbers if the tax hike is achieved by Obama and friends are staggering:

If the tax cuts expire, income-tax revenues by 2018 will rise to 10.8% of the total economy from 8.7% today – an increase of 24%. Compared to the average over the last 50 years, allowing the rates to rise would increase tax revenues by 32%.  Believe it or not, income taxes will rise even if the tax cuts remain in place, because the revenue-increasing effects of bracket creep more than offset the lower rates. With the lower rates, total income-tax revenues will increase to 9.3% of GDP by 2018. This level is 7% higher than today, and 13% above the 1957-2007 average...So even if the tax cuts are made permanent, future Americans will pay a greater share of their incomes to the government than in the past. But for some in Washington, that's not enough.

Jobless Claims Continue to Stabilize

More signs today that the labor side of the economic equation isn't all that bad.

Initial jobless claims fell by 18,000, and the more important four-week moving average ticked up by only 2500, to 367,000.  There were modest job losses in April.  The unemployment rate is at an historically-low 5.0%.  Average hourly earnings are up 3.4% from April 2007, about in line with inflation.

Let's not forget the fact that we haven't yet had a quarter of negative GDP growth.

So where's this recession everyone assumes we're in?

Monthly Budget Review: It's Still the Spending, Stupid

CBO came out with their monthly budget review late yesterday.  The headline is that the budget deficit was $151 billion for the first seven months of the fiscal year (up over 86% from this time last year).

What's the cause of this red ink?  Taxes falling off a cliff thanks to the economy?  If you said that, you'd be wrong:

• Overall tax receipts were up 2.9%--roughly in line with inflation, despite the limping economy
• Non-withheld income tax payments (reflecting self-employed persons) is up a robust 7%
• The only down note is corporate income taxes, down 13.6%

No, the culprit, as usual, is spending:

• Overall spending is up an adjusted 7%
• Leading the way is defense spending, up an adjusted 10.2%
• Domestic discretionary spending is up a pork-filled 7.4%

So when someone blames taxes for the rising deficit, you can tell them that tax revenues are pulling their weight.  It's just that spending is growing over twice as fast.

The VAT Is No Panacea

GAO has come out with an interesting study on the value-added tax (VAT) in other countries.  VATs are often lauded as great replacements (or add-ons) to the U.S. tax system due to their ease of compliance and simplicity.  The GAO report takes some of the bloom off that rose (hat tip to Tax Prof Blog).

Study Shows Windfall Profits Tax Could Shave 20% Off Your Oil Stocks

There's a study out by Robert Shapiro and Nam Pham on a "windfall profits" tax and the effect on the energy stocks in your portfolio.  It's from 2006, but Hillary Clinton is campaigning on this Carter-era idea.  The news isn't pretty:

Higher oil prices increase not only the oil company revenues claimed by such a tax, but also the value of the oil company stocks held by shareholders (including public pension funds), by roughly 4 percent a year (at $45 per-barrel oil) to 20 percent a year (at $70 per-barrel oil).

Considering that we're likely to be in the $70-plus range per barrel of oil for the forseeable future, that 20% drop in oil stocks is probably conservative.

Freddoso Deconstructs the Ethanol Subsidy

Devastating article on NRO today by Dave Freddoso on the ethanol subsidy.  One thing to keep in mind that most of this subsidy is an income tax credit.  So, taking it away and doing nothing else would be a tax hike.  The solution is to take it away and cut income taxes somewhere else.

Tax Changes Ahead for REITs?

Many investors hold real estate investment trusts (REITs) as part of a balanced portfolio of stocks, bonds, cash, and alternative investments.  CQ has an interesting article today on some tax changes that REITs are seeking as part of the latest housing bill in Congress.

Huffington Post Gets McCain Health Plan All Wrong

RJ Eskow of the Huffington Post this week wrote a critique of the McCain health care plan.  In it, he managed to get one major fact completely wrong.  He also ignores the effects that higher deductibles can have on controlling costs, and makes the perfect the enemy of the good.  Let's take each one piece-by-piece:

1. The Fact He Got Completely Wrong.  Eskow asserts that employers will lose their tax deduction for health care provided, and the individual market will therefore be the only place people can get coverage.  That's wrong.  Employers will still be able to take a deduction for health insurance provided to employees.  The difference is that employees will have to report the value as income, and then take the $5000 tax credit ($2500 for singles).  In other words, absolutely nothing--nothing--changes from the employer perspective.  Individuals covered in the small- and large-group markets would have no difference than under the current setup.
2. The Effect of Higher Deductibles.  Not mentioned in the critique is the fact that the McCain plan seeks to turn health insurance into something more like car insurance.  Just like a car owner pays for tires and oil out of pocket, so would the patient do so for routine medical expenses.  Insurance is there for particularly high-cost years.  There's an HSA to serve as a piggybank for these routine costs.  Just last week, AHIP (the insurance industry trade association) came out with a nationwide survey of HSA plans.  In the individual market, the most popular plan has a familiy premium of $5125 per year when the primary insured is between age 30 and 54.  That means the McCain tax credit pays for almost all of it.  The average deductible in the individual market is $4846.  An HSA contribution would be tax-deductible, so our hypothetical family could get back about a third of what they put into their HSA (depending on their tax bracket).  Even better, HSA-compatible insurance premiums have been growing at a rate pretty close to general inflation (not bad considering health insurance tends to grow at double or triple that rate).
3. Making the Perfect the Enemy of the Good.  The McCain plan doesn't claim to fix the entire health care system.  What it does seek to do is make health insurance more affordable, so that more people will purchase it.  Yet, all Eskow can do is bash state high-risk pools and overestimate the difficulties of navigating the individual market.
   What about the fact that millions of Americans currently receive no tax break whatsoever for health insurance?  What about them?  What about the Americans whose employers are dropping coverage under current rules?  Shouldn't we give a simple tax credit for these people?