American Shareholders Association

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?