American Shareholders Association

Shareholder Votes of Interest From Senate Budget Vote-a-Rama

Over the past couple of days, the U.S. Senate considered a host of amendments to the budget resolution (the so-called "Vote-a-Rama").  Several votes were of interest to shareholders, including:

• Final passage 51-45, which assumes the largest tax increase in American history.  This includes raising the capital gains tax from 15% to 20%, and the dividends tax from 15% to 39.6%
• Reimportation non-binding "Sense of the Senate," which received a disturbing 73 votes
• DeMint amendment to provide a universal above-the-line tax deduction for health insurance premiums
• Exemption of AMT patch from PAYGO rules
• Two (Kyl and Landrieu) death tax votes that would have established a 35% rate
• The famous DeMint earmark moratorium only received 29 votes
• Extension of the extenders package (including the R&D credit) through 2009
• A Brownback commission plan that is like BRAC for spending programs
• Creation of a deficit-neutral reserve fund for Social Security reform
• To immediately raise the top marginal tax rate from 35% to 39.6%
• Repealing the "Clinton AMT" (lowering the top rate from 28% to 24% and indexing the AMT deduction to inflation from 1993)
• To make the major provisions of the Bush tax cuts permanent

Specter to Offer Amendment Repealing "Clinton AMT"

This week, the Senate is considering the FY 2009 Budget Resolution.  As part of the "vote-a-rama" series of amendment votes, Senator Arlen Specter (R-PA) is offering a measure to repeal the "Clinton AMT."

What's the "Clinton AMT?"  Back in 1993, President Clinton raised the AMT rate from 24% to 28%.  He also failed to index the AMT's version of the standard deduction to inflation.  The Specter Amendment reduces the rate back to 24%, and permanently indexes the deduction to inflation.

Believe it or not, that solves 40% of the AMT problem.

Andrew Biggs Gets It Wrong on Social Security--Again

ASA is a big fan of Andrew Biggs and the rest of the "pain caucus" (i.e. benefit cuts, openness to tax increases, and teeny personal accounts for Social Security).  He's a great guy and a top-rate mind.  Today in the WSJ, he has an almost-terrific article on how Obama's "donut hole" Social Security tax increase would be a massive tax hike:

The top marginal federal tax rates would effectively increase to 50.3% from 37.9%, equivalent to repealing the Bush income tax cuts almost three times over...If one accounts for behavioral responses, even the modest budgetary improvements from Mr. Obama's plan are likely to be overstated. If employers reduce wages to cover their increased payroll-tax liabilities, these wages would no longer be subject to state or federal income taxes, or Medicare taxes. A 2006 study by Harvard economist and Obama adviser Jeffrey Liebman concluded that roughly 20% of revenue increases from raising the tax cap would be offset by declining non-Social Security taxes.

Where Andrew goes wrong is on the advice for Obama.  It's very similar to the advice that the Pain Caucus had for President Bush in his failed effort to reform Social Security:

Mr. Obama should drop his exclusive [emphasis added] focus on raising taxes and return to his previous view, that Social Security faces significant problems requiring prompt attention. All options should be on the table.

In Washington, that's code for, "tax increases need to be on the table."  The problem here is that the goal is wrong.  Social Security's solvency is not what's at issue.  The "crisis" is that younger workers are getting ripped off, and won't get their money back.  They should be allowed to save that money in a personal account they own and control, much like an IRA or 401(k) plan.  To hell with "the solvency of the system."  That relatively-minor crisis is taken care of by solving the bigger issue.

Flat Tax Club Now Up to 24 Nations

Dan Mitchell has written a new update on the flat tax for the Center for Freedom and Prosperity.

The "flat tax club" is now up to 24 members with the addition of Iceland.

Tax Issue Front and Center in 2008

Grover Norquist has a piece in RCP this morning about the tax issue in the 2008 Presidential election.  Here's a snippet about the investor class in particular:

[T]he growth in the investor class--those Americans who own shares of stock directly in their mutual funds and 40lk's--have strengthened the power of the tax issue. When Reagan was elected only 20 percent of Americans owned stock. Today the number is more than 60 percent of adults.  This growth in the number of Americans who own stock directly makes the tax issue more important for two reasons: first, taxes on businesses, once taxes on "the other," are now more transparently taxes on most Americans. Second, taxes on businesses have a wealth effect. The same Fortune 500 company facing a 35 percent dividend tax has one value. Cut the dividend tax to 15 percent and the stock of the company increases. When the 2003 tax cut brought the capital gains and dividend tax rate to 15 percent the Dow Jones stock market rose from 8454 on May 1, 2003 to a peak of 14,165 on October 9, 2007 As we approach a return to higher taxes on capital gains and dividends in January 2011the stock market will continue to drift down in anticipation.

Budget Resolution on the Floor This Week

This week, both the House and the Senate will be considering the FY 2009 budget resolution.  There are several differences between the two budgets, but they both have two things in common:

• They budget in the largest tax increase in American history.  Over the next decade, taxes are slated to rise by some $3.2 trillion.  That's $10,000 for every man, woman, and child in the United States
• Nothing is done to slow down the exploding growth of Social Security, Medicare, or Medicaid.  Largely due to the unrestrained growth of these programs, federal spending will rise from $0.20 out of every $1.00 of economic output today all the way to $0.40 out of every $1.00 by 2050.  That would make France look like a tax haven.