Tag: Income tax in the United States

The Tax Man Cometh Again

Remember, as you read through these stories, the cardinal rule of government: everything you have is theirs. If you have such a thing as “take-home pay” it’s only because of their generosity in allowing you to take it home. Sort of the way a highwayman might let you keep enough bread to feed your family while stealing everything else.

First, Chicago. The city of Chicago has figured out what every economist knows: when you tax something, you get less of it. This is why, for example, paying for healthcare reform with cigarette taxes never works. People smoke less in response and revenues fall below expectations. Taxes and fees on cars and gasoline are driving some people to ride bicycles. This is a good thing, right? Less fossil fuel use, more people getting exercise. The only losers are people like me who wear out their brake pads trying not to run over these hippie fruitcakes when they cut across a road all of a sudden with NO consideration for anyone else and NO concept of how much momentum a car has and there’s a Goddamn bike lane right there and we paid taxes to build that thing so why don’t you use it, you self-important piece of …

Sorry, lost my train of thought there.

Anyway, Chicago is floating the idea of taxing bikes.

A city councilwoman’s recent proposal to institute a $25 annual cycling tax set off a lively debate that eventually sputtered out after the city responded with a collective “Say what?” A number of gruff voices spoke in favor, feeding off motorists’ antagonism toward what they deride as stop sign-running freeloaders. Bike-friendly bloggers retorted that maybe pedestrians ought to be charged a shoe tax to use the sidewalks.

Chicago is by no means the only place across the U.S. tempted to see bicyclists as a possible new source of revenue, only to run into questions of fairness and enforceability. That is testing the vision of city leaders who are transforming urban expanses with bike lanes and other amenities in a quest for relevance, vitality and livability – with never enough funds.

Two or three states consider legislation each year for some type of cycling registration and tax – complete with decals or mini-license plates, National Conference of State Legislatures policy specialist Douglas Shinkle said. This year, it was Georgia, Oregon, Washington and Vermont. The Oregon legislation, which failed, would even have applied to children.

Don’t mention the shoe tax, guys. They’ll take it seriously.

Second story: you remember how our budget deficit problems result from not being able to raise taxes? Well, welcome to 2014 when a slew of new taxes will be heading your way.

The new taxes and fees include a 2 percent levy on every health plan, which is expected to net about $8 billion for the government in 2014 and increase to $14.3 billion in 2018.

There’s also a $2 fee per policy that goes into a new medical-research trust fund called the Patient Centered Outcomes Research Institute.

Insurers pay a 3.5 percent user fee to sell medical plans on the HealthCare.gov Web site.

Americans also will pay hidden taxes, such as the 2.3 percent medical-device tax that will inflate the cost of items such as pacemakers, stents and prosthetic limbs.

Those with high out-of-pocket medical expenses also will get smaller income-tax deductions. Americans are currently allowed to deduct expenses that exceed 7.5 percent of their annual income. The threshold jumps to 10 percent under ObamaCare, costing taxpayers about $15 billion over 10 years.

Then there’s the new Medicare tax.

Under ObamaCare, individual tax filers earning more than $200,000 and families earning more than $250,000 will pay an added 0.9 percent Medicare surtax on top of the existing 1.45 percent Medicare payroll tax. They’ll also pay an extra 3.8 percent Medicare tax on unearned income, such as investment dividends, rental income and capital gains.

Oh, and this morning, I found out about this little gem:

The new year is time for change, even in the service industry. Starting January 1, the IRS will classify automatic gratuities as service charges that are taxable as regular wages and subject to payroll tax withholding. That might sound like a bunch of arcane tax law mumbo jumbo, but what it means is that restaurants have to treat those tips like regular wages.

Typically, the IRS left it up to the waiter or tipped employees to declare that money. But with this new change the waiter won’t see those “tips” until payday—instead of the end of the shift. And restaurants will have to withhold federal income, Social Security and Medicare taxes on that money, too.

What it means for the diner is that those automatic 18% gratuity charges on tables of 6 or more may well be a thing of the past. The addition has been added onto large parties to ensure that servers are paid for catering to a large group.

That doesn’t mean you should use this an excuse to start stiffing people. Remember, the minimum wage laws here in the states for tipped workers is still at a shocking $2.13 an hour. And, as evidenced by this video, a few extra bucks means a lot to the service workers of America.

What surprises me — actually it doesn’t surprise me — is how much this stuff is going to hit the middle and working classes. Cycling taxes, insurance taxes, tip taxes — these will hit hardest on young people, the working poor and the middle class. This is a running theme in Obama’s America: the plebs get screwed; the elites pat themselves on the back for caring so much. Even when the elites do bad things, they are never punished for their misdeeds, not to the extent the rest of us would be for smoking a joint or chewing a pop-tart into the shape of a gun. It’s enough to make you think the system is broken beyond repair.

Enjoy your new taxes.

What the class warriors are really aiming for: tax everyone more

Thrill had a post up discussing the upcoming tax battle as the Bush tax cuts are scheduled to expire at the end of this year. The donkeys are clamoring for that to happen, because they want stupid people to believe that tax hikes on the rich will somehow cover the $1.3 trillion – estimated since we conveniently have had no budget in the last 3 years to verify it is only this much that they are over spending by – of annual deficit spending we have had since the democrats took over (BLAME BOOSH! – trademark). But the fact is that this tax hike is not going to change anything in any meaningful way.

Let us start with the real numbers, and we can take a look at the Tax Foundation’s site where they have this special report breaking down the numbers. First up, the table showing the Bush tax cut provisions and what is going to happen on January 1st (table 2 in the report):

Major Bush Tax Cut Income Tax Provisions

Let’s break down the tax changes, focusing on income tax brackets. The first thing to notice is that the lowest bracket, 10% goes away. All those that were in that bracket now are moved into the 15% bracket. Note that this apparently still leaves a sizable chunk of people that are not paying income taxes because of some earnings threshold, still not paying any income taxes. All other brackets jump some 3 ½ percent. According to this Tax Foundation’s special report’s table 1, line one, this change across the board will result in a measly $156 billion dollars of extra annual revenue.

Tax Changes Effective 1-1-2013

So an across the board hike of 3 ½ percent for ALL BRACKETS that are currently paying income tax will yield us just $156 billion more. Focusing only on the hike the left wants, the top earner’s bracket, the question begs to be asked: what’s the revenue then? If we want to be generous, apply historical precedent where these rich people already pay 50%+ of the taxes, we can guestimate their share amounts to some $80 billion. Yeah, I am fudging it upwards, but in the grand scheme of things – they are spending over $1.3 trillion more than they are collecting each year – that $2 billion is a rounding error, and then one in the left’s favor. Shit, let’s just say it is an even cool $100 billion they are going to rake in, because these stupid rich people are not going to react at all to the government wanting to fleece them even more. So where are the other $1.2 trillion they need to just break even going to come from? There is no way this gap gets covered by just the rich. Even if they jack their bracket up to over 50%. And that’s the point.

This Obamanomics strategy here is just that: a fake. The intent is to allow the left to pretend they created new revenue by socking it to the group people envy the most. We have had more than a decade of this conditioning. The Boosh tax cuts caused a deficit! (Not the fact government spent more than it took in). Those evil Boosh wars caused the deficit (again: not the fact government spent more than it took in). The rich are not paying their fair share! Boosh’s tax cuts and wars, not the stupid and doomed attempt to social engineer through mortgage lending, caused that horrible economic down turn that still plagues poor genius Obama. Even after 4 years of Obamanomics, and that’s because these evil republicans are protecting their rich fat cat buddies! The fact that 4 out of every 5 of these rich people voted for Obama be damned.

Anyway, back to the plan. So the left socks it to the group everyone loves to hate, and then what? Well, then jack up spending, yet again. After all, they have provided new revenue, and in the mind of the math challenged tools that love this nonsense, they think things are all fine and more spending is no big deal. After all, their buddies in government can just confiscate more from those rich people to cover any new spending, right? Heh, sure. Eventually taxes will have to go up on everybody to cover the gap, or that gap is only going to grow, sine the end goal is to provide an excuse to spend more. And that’s the big goal: an excuse to spend more.

Now, if all that we ere facing was an economic growth crushing tax hike and increased government spending, things would only look ugly. But there is another monster on the horizon that promises to make this bleak scenario downright frightening on account that it is going to not just siphon even more money out of the economy and allow government to mismanage it, but drastically affect employers, and thus employment. And that is on top of the fact that while they told us this thing would end up collecting more than it would cost to sell it, we now know that is not even remotely close to the truth. Yeah, we are talking about Obamacare and the pain that will cause us.

The table below breaks down Obamacare taxes, and man are there a lot of them.

Obamacare Taxes

This monster is just going to have staggering implications. But that’s a post for another day. Right now, let’s focus on why the class warriors really want that tax hike, and that it will not be just on the rich, by necessity.

A Gold Medal in Pandering

There’s been a bit of a furor lately over Olympians having to pay taxes on cash bonuses they get for winning medals. Yglesias has the details:

In this particular case, the issue is that the U.S. Olympic Committee—the nonprofit group that organizes Team USA for the games—rewards athletes with cash bounties for medals won. Gold medalists receive $25,000, silver medalists get $15,000, and bronze medalists receive $10,000. That’s income, so come spring of 2013 when medalists are filling out their tax forms, it’ll be reported and taxed like any other income. Their after-tax income will be higher if they do win a medal than if they don’t. There’s no “extra tax bill” waiting for anyone. There’s simply extra income, and the income would be taxed.

Just to clear up a piece of misinformation: the bonuses will be taxed at the marginal rate. For athletes who are making a lot of money, that could be 35%. For most, it will be much lower. And it seems very unlikely that the medals themselves will be taxed; just the bonuses.

Marco Rubio has proposed and President Obama has indicated he will sign a bill that exempts the Olympian bonuses from income tax.

I think it’s a bad idea.

Look, I’ve loved watching the Olympics and our athletes have made me immensely proud. It’s not just the performances; it’s the way they have carried themselves. With a few notable exceptions, they go into interviews well-spoken, polite, enthusiastic and patriotic. They’ve been respectful of the sport and their fellow athletes. I was particularly impressed last night with Allyson Felix, who was gracious, winning and plans to become a school teacher when she retires.

But does this mean we should be exempting them from taxes? Yglesias again:

The underlying issue is that taxes aren’t supposed to be a cosmic judgment on the underlying worthiness of people’s activities. The earnings of a great artist and a reality TV show producer are taxed the same. That can seem a bit perverse at times, but having Congress try to assess which professions are important and which are bad would be much worse. The goal of the tax code should be to try to raise an adequate amount of money in a way that’s economically efficient and meets social equality goals. That tends to mean as broad a tax base as possible—few deductions or exemptions, in other words—to make it possible to raise revenue with relatively low tax rates. Exceptions should generally be justified in terms of broad benefits to society.

Now, to be fair, Olympic athletes in other countries tend to have public support. And prizes of any kind were not taxed until 1986 (the law was changed because companies were hiding salary in ‘prizes’ given to employees). It also should be noted that Olympians make tremendous sacrifices for our national pride. To take Gabby Douglas as an example: she basically hasn’t had a personal life, moved across the country to train and her training bills bankrupted her family. I recently saw an estimate that a typical Olympian spends $250,000 to get there. I believe it when I see parents spending thousands a month just for cheerleading.

But making yet another wrinkle in the tax code is not a proper response to this. It’s merely a ridiculous bit of pandering to popular sentiment and the issue of the moment. We’ve heard all this bullshit from the Republicans and Democrats about how we need to overhaul the tax code to remove the hundreds of billions of dollars in deadweight loss it inflicts on the economy. Yet the second a pet issue comes up — Olympians having their bonuses taxed — that goes out the window.

The last thing we need is to be putting more complications into the tax code. We need to be streamlining it. If they can’t resist the outrage of the day, how the hell are they going to stand up to really powerful lobbies that want their special break protected?

If you want to subsidize Olympians, do it honestly like other countries do, with direct spending. That would actually be better, since it would support all Olympians, not just the tiny fraction that happen to win medals. (Think of the poor 4th place finishers who made as many sacrifices but don’t get the benefits). I’d be against that — we have plenty of private resources to support the Olympics — but at least it would be honest. At least it would be fair to all the athletes. And at least it wouldn’t clutter up our tax code with more bullshit.

Sunday Six Pack

NPR recently had group of economists discuss policies that they think are great for the country but that politicians consider radioactive. The group of economists was actually quite diverse, ranging from George Mason libertarian (and frequently linked Cafe Hayek blogger) Russ Roberts to Cornell liberal Robert Frank. What six policies could that group possibly agree on? And why wouldn’t politicians embrace policies that enjoy such a broad consensus?

One: Eliminate the mortgage tax deduction, which lets homeowners deduct the interest they pay on their mortgages. Gone. After all, big houses get bigger tax breaks, driving up prices for everyone. Why distort the housing market and subsidize people buying expensive houses?

One thing they don’t talk about: the mortgage interest deduction is a lot smaller than most people think it is. People see they can deduct $10,000 off their taxable income and think that’s pretty big. But mortgage interest is deducted only if you throw out the standard deduction, which is $12000 for a married couple. For most people, if their home costs less than about $250,000, they are gaining little, if anything. The host says the deduction saves him $5000. Assuming he’s calculating that correctly (i.e,. what it gives him above the standard deduction), that means he’s paying off a half million dollar mortgage.

The home mortgage interest deduction has its destructive aspects, too, distorting the real estate market. As noted above, it mostly subsidizes the purchase of large and expensive homes, driving up that end of the market. But even worse is that by creating the perception that the government is paying up a third of your mortgage, in induces people to buy more home than they can afford. Ironically, this drives up the cost of housing for the poor and middle class.

I don’t think the market can take the shock of an immediate cessation. But phasing it out would be a great idea. Even better, as we’ll see later, would be to scrap the entire tax system.

Two: End the tax deduction companies get for providing health-care to employees. Neither employees nor employers pay taxes on workplace health insurance benefits. That encourages fancier insurance coverage, driving up usage and, therefore, health costs overall. Eliminating the deduction will drive up costs for people with workplace healthcare, but makes the health-care market fairer.

Have the tax deduction for all health insurance or have it for none. Encouraging people to get insurance through their employer has been one of the biggest drivers of healthcare cost over the last few decades, pushing consumers further and further away from the actual costs. The Wyden-Bennett bill, one of the things I hope becomes part of the “replace” part of “repeal and replace”, would have done this.

Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that’s good. Don’t tax companies in an effort to tax rich people.

Four: Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you’re taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households.

The Fair Tax is one of the more coherent plans on this subject. I’ve detailed before why I oppose it. A VAT would work much better but only if it mostly replaced the existing system. A lot of libertarians oppose the VAT because they see it as a gateway to big government. My opinion is that we already have big government and, given our commitments to seniors, it’s not going to get small anytime soon. The question is how to pay for it without crippling the economy and a VAT has the minimum of deadweight loss.

I lived in Texas, which does not have an income tax, for four and a half years. It was awesome. You weren’t taxed until you spent money. I would love to see the entire nation enjoy that freedom and empowerment.

Note also something important in the broadcast: the most ardent advocate of eliminating the corporate tax? The two liberals on the panel. They know how destructive corporate taxes are to our economy.

Five: Tax carbon emissions. Yes, that means higher gasoline prices. It’s a kind of consumption tax, and can be structured to make sure it doesn’t disproportionately harm lower-income Americans. More, it’s taxing something that’s bad, which gives people an incentive to stop polluting.

This is the one that will cause the most disagreement on the blog. I don’t want to open another global warming debate. I would support a carbon tax but if and only if it came with steps three and four of eliminating our current tax system. It is infinitely preferable to the cesspool that would be cap and trade.

Six: Legalize marijuana. Stop spending so much trying to put pot users and dealers in jail — it costs a lot of money to catch them, prosecute them, and then put them up in jail. Criminalizing drugs also drives drug prices up, making gang leaders rich.

We’ve talked about this before. No need to rehash.

Here’s where the NPR segment falls on its face: they imagine a politician putting forward the above platform and being rejected by the public. There’s some validity to that. If you cornered politicians, they would probably agree that most of these ideas are sensible but fear the public backlash. However, I think that if you polled the American people on that platform, they wouldn’t be too opposed either. Oh, they might have reservations about one or two policies but they would probably accept it over the current system.

No, I don’t think the problem is necessarily one of marketing. I think the problem — a problem that NPR glosses over — is that our politicians and political class are simply too invested in the current mess. Part of it is special interests that would rather have a tax system tailored to them or a booming prison industry or a booming housing market. Part of it is simple inertia in favor of policies we have pursued for decades. Part of it is spinelessness — the unwillingness to propose policies that, as NPR noted, can be easily demagogued.

But the largest problem is that our politicians like the system we have. The system we have — especially the tax system — keeps titans of industry, atlases of production and prometheii of invention groveling to them. The system we have keeps special interests on bended knee, constantly asking for and getting favors from politicians. Remember how, earlier this year, Apple had to start ramping up their political contributions and lobbying under threat of regulation and lawsuit? Politicians love that.

The system outlined above isn’t actually libertarian. It sounds like it, because I’ve cast in libertarian terms. But steps 1-4 would be accomplished by replacing our tax system with a VAT — versions of which have propped up some of the most socialist countries in the world. That and step 5 just detail how taxes are collected, not how much are collected. It would create a tax system that was essentially “Dial a Revenue” — capable of supporting either an expansive welfare state or a limited federalist state. Opposing those changes and supporting the current system is not an issue of big government versus little government. It is an issue of just how much of our lives and our industry Washington can control.

Even step 6 isn’t a necessarily libertarian issue; it’s more a matter of common sense. I’ve heard support for marijuana legalization from all parts of the political spectrum. My mother has never voted Democrat. My best friend from college has never voted Republican. Both think marijuana should be legal.

So, no, it’s not that the above platform would necessarily be Republican or Democrat. Or conservative or liberal. Or libertarian, for that matter. The problem with it is not that it would produce smaller or bigger government but that it would produce less invasive government, less powerful government. It would disperse the groveling lackeys and toadies are politicians have grown used to. It would produce a government less besieged by special interests and lobbyists. It would produce a government that spends a lot less time looking over shoulder and poking through our underwear drawer.

And that’s the reason it can’t happen. Our establishment enjoys the genuflection too much.

The Most Hated Woman In America?

OK, “hate” might be a bit strong, how about the most hypocritical?

Sticking with that truism that you dance with the girl who brought ya, the president will not let go of that class warfare bone. The politics of envy and deflection, worked before, and since there are no magic bullets for what is ailing this economy (from a social European POV) making the rich pay their fair share is as old reliable.

But how stupid (and typical of these guys) was it to make Warren Buffet’s secretary as the poster child of wealth redistribution?

She was held up as an example of how the current U.S. tax system is unfair to ‘middle-class households’ by President Obama in his State of the Union speech – but all may not be as it first appeared.
Warren Buffet’s long-term secretary, Debbie Bosanek, has been the go-to reference during the debate over raising taxes for millionaires – as it is claimed that due to current loopholes in the system, she pays more tax than her billionaire boss.
Obama focused on Ms Bosanek again last night in Washington as she sat listening to the speech as a guest of the First Lady.

Yep, her and the first lady were yucking it up, basking in the spot light of equity and fairness. Your typical middle class earner, screwed by the system because she pays income taxes at a higher rate (false!!!!) then her famous/wealthy boss, except:

According to Forbes, Ms Bosanek takes home an annual income between $200,000 and $500,000 – based on the most recent tax tables from the Internal Revenue Service (IRS).

Wahoo, the middle class is doing great under Obama, “Please, sir, can I have some more”?

Yeah, I guess it would be a bit crass to have his butt buddy Jeff Immelt sitting next to Michelle as the embodiment of the middle class, so we got the next best thing, a half a million dollar a year earner who complains about her tax bill.

Dear Ms. Bosanek, you keep squirreling away your pennies and buy some dividend paying stocks, then you too can live (without working and garnishing income) on the dividend rate of 15%, just like your boss, but until then, STFU.

As an aside, for those this week arguing the concept of an infinite size pie/wealth (that just because I get a big piece does not necessarily translate that you by cause/affect will get a smaller piece), and that the rich are in fact paying their fair share now (some would say above and beyond that), the explanation is rather simple and rudimentary, but some will never figure out the difference between income taxes and dividend rates. Whether by indolence, bad luck, or myopia, they are stuck in their rut, unable to get out, too bad for them.

Liberals class warriors fail yet again..

Remember Buffet’s poor secretary? Well when I was told she paid more income taxes than Buffet, my first question was “How much does she make?”. My wife has a friend that is a personal assistant to a real big-wig worth a lot of millions. She makes something around $65K a year – and she is one of the high earners in that field according to my wife – so she told me to assume Buffet’s assistant was making around that. I never bought that, after all this is Buffet we are talking about, and it seems I was right in asking this question, because Buffet’s secretary, according to this Forbes article, using some basic math and available information, since Buffet’s assistant is not likely to share this information, likely makes a ton more money than the average assistant does.

The IRS publishes detailed tax tables by income level. The latest results are for 2009. They show that taxpayers earning an adjusted gross income between $100,000 and $200,000 pay an average rate of twelve percent. This is below Buffett’s rate; so she must earn more than that. Taxpayers earning adjusted gross incomes of $200,000 to $500,000, pay an average tax rate of nineteen percent. Therefore Buffett must pay Debbie Bosanke a salary above two hundred thousand.

At a minimum we can agree that the liberal talking point that Buffet’s poor secretary is getting hosed on taxes with an income at that level, is spurious at best. After all, by the liberal standard that anyone making over $200K a year is a filthy rich bastard that needs to pay more, she already gets to keep too much of her income. Obviously your average Joe also calculated this gap between Buffet and his secretary based on a number that is a fraction of what she really makes. And finding out she makes this much also throws the assumption that her taxes are drastically skewed compared to Buffet, when you consider that most people making their living as an assistant do not pull that kind of money, out the window. She pays a lot more in taxes than your average assistant would for sure.

What should really anger everyone is that we where basically manipulated by these class warriors. You think most people would have cared about this idiotic talking point if they figured out the assistant was making something upwards of $200K already? How about concluding that she obviously paid a lot more taxes than your average assistant – her situation is far more likely to trend towards being unique and not the trend – would, and hence the claim the fact Buffet paid less in income taxes than she did was meaningless?

Sucks to be class warriors when the facts get in the way doesn’t it? And have no doubt that in this case, had we know the facts, that the left wouldn’t have carried this talking point for long. I now expect the whole Buffet and his assistant argument to vanish , with the LSM pretending it was never misused as a club by either them or their ideologue masters, to push a filthy agenda.

Edit: correcte a missing not in above statement (bolded).

Proof is in the pudding..

A while back, when we where debating the democrat’s demand that they be allowed to raise taxes as part of the strategy being looked at to bring the outrageous and out of control government spending that has been going on since the democrats took control of congress and the purse strings back in 2007. Some of us pointed out how horrible an idea allowing them to raise revenue now , while pretending to make cuts a decade down the line, would turn out. Those of us that understand the tax-and-spend nanny-staters and the way the real world worked, pointed out that all extra revenue would do was encourage these crooks to keep spending or even spend more. And those cuts ten years down the line would, based on historical precedent, never happen. In short we would end up with more spending and higher taxes, and the same if not a bigger budget gap.

Look, the LSM and the left have fooled a lot of people into believing democrats can be fiscally responsible by pretending the boom Clinton years happened because him instead of despite him. The fact is that Clinton was dragged kicking and screaming after the 1994 election into cutting government bloat – and while the welfare state took a big hit because of the contract with America a lot of those savings also came at the expense of military spending – by a republican controlled congress. Slick Willy signed the spending bills congress gave him because he liked the power to prowl on chubby interns and needed to keep power to thwart anyone investigating his lying more than he liked or believed the bullshit collectivist policies that democrats falsely claim will address all the injustices of the world. But the truth is that democrats, and especially today’s crop of democrats, have zero intent or ability to do anything about managing the bloat in government.

So, you can understand why those of us that grasp these basic facts about democrats and how they use tax payers, remained baffled by those that somehow thought allowing democrats to raise revenue – that is code for steal more money from the productive through taxation – before we got immediate concrete and hard cuts was a good idea. Maybe those that agreed with the democrats though they where serious about fixing this financial mess we are in. I for one see nothing that indicates that. They sure ass hell pretend they wanted to, but that’s all I see. Lucky for those of us that they wanted to fleece, these crooks didn’t get their way in that fight. And I should point out that despite that victory, which was hollow, we didn’t get any serious cuts either. But if you will allow me the latitude, I can point at a real and current example where the democrats promised their constituents that if they where allowed to raise taxes – to the tune of an unbelievable 67% on income taxes coupled with a big jump in corporate taxes as well – they would solve all their fiscal problems in one fell swoop.

Enter the democrat owned state of Illinois, where the current Campaigner in Chief cut his teeth learning all the best dirty political tricks, and their plan to tax their deficit and debt away. One year ago the people of Illinois where sold the whopper that if they allowed their political masters to tax the productive even harder, they would finally close the fiscal gap and be able to pay for the utopian socially just system all these leftists pine for. Reality however is that things are just as bad if not worse, now that the nanny staters got more revenue:

As WBBM Newsradio’s Regine Schlesinger reports, officially, the state has a backlog of more than $4.25 billion in unpaid bills. Illinois State Comptroller Judy Baar Topinka says when one factors in other bills, the figure is closer to around $8.5 billion. Those other outstanding bills include tax refunds, employee health insurance, and bills that have not yet reached her desk.

Topinka says this is extremely disappointing, since a year ago, the state sharply increased income taxes (by 67 percent) and corporate taxes. “After the largest tax hike in our history, the state continues to be in this precarious fiscal position with persistent payment delays, and frankly, the situation is unlikely to significantly improve in the near term,” she said.

Heh! Disappointing? Seriously, was that a joke? So you drastically jack up taxes but the corrupt bunch of crooks that have been screwing the people of Illinois for decades now still can’t close the debt gap? Really? How surprising is that to all those that where advocating we should have let the clique of crooks that learned their ways from the bunch running Illinois do the same to us to cover the $1.3 trillion annual deficit? It isn’t to me. You let the big government nanny-staters that get their power from a bloated government everyone depends on get more revenue to feed the monster, and they are not only not going to bother to try and get things under control, but actually just spend more. Yeah, this piece doesn’t mention that they are doing that, but only a blinkered fool would think given this massive tax hike, that they end up billions in the red still without both the revenue stream not being as big as they expected AND the spending going up.

What could be the solution to this morass and impasse that remains despite the big tax hike? Well, from the article we get:

Some state officials say the solution is more borrowing to pay the bills, but Topinka says the solution is to cut spending.

Heh, some want to keep doing more of the same old stuff that got them into trouble in the first place. What’s the definition of insanity again? I am however surprised most of them don’t feel they should just jack taxes up again. Maybe they do feel that way but they simply do not say so. Or the author of the article neglects to point that out for some reason. Who knows? But what I am certain about is that Topinka’s solution – to cut spending – will never be entertained. Where is the opportunity for graft and power expansion in that? Don’t for a second kid yourself into thinking these crooks care about the people that elected them either beyond doing whatever token gestures are needed to secure enough votes to keep their cushy jobs. That’s nonsense. Remember how allowing the nanny staters to implement “revenue increases” always turns out the next time we hear some democrat tell us that raising taxes needs to be part of a comprehensive package. One where they tax us now, or even retroactively, but promise cuts a decade from now.

By the numbers..

The Chicago Sun-Times has this article dealing with Obama’s recent claim that his new plan to plunder $1.5 trillion from the evil productive was not class warfare based on the math. As many of us pointed out Obama was lying when he said this was not class warfare because the math proves it is just that.

When President Barack Obama rails against “millionaires and billionaires,” as he does often, Republicans accuse him of trying to divide the country by class. In his speech calling for $1.5 trillion in tax increases, mostly on high-income earners, Obama declared, “This is not class warfare. It’s math.” The problem for him is that his math doesn’t add up.

Those that point out this is class warfare are dead on, and the math proves it. From the article:

For starters, Obama’s tax increases hit individuals making $200,000 and families and small businesses earning $250,000. That’s far from being a millionaire. Sen. Charles Schumer, one of a number of the Democrats critical of Obama’s tax plan, notes that $250,000 “doesn’t make you rich at all” in high-cost-of-living, high-tax New York.

Furthermore, the numbers dispute Obama’s assertion that “the wealthy” don’t pay their fair share of taxes, according to an analysis of recently released IRS data for 2009 by the nonpartisan Tax Foundation. The study shows that taxpayers earning more than $200,000 accounted for 25 percent of the nation’s adjusted gross income for that year but paid 50 percent of the $866 billion in 2009 income taxes.

Even democrats are pointing out this plan stinks. And while donkey class warriors like Chuck Schumer do the Macarena trying to pretend the problem isn’t that the issue is that this bill has defined “rich” at a ridiculously low level, that is immediately apparent to anyone looking. The reason Obama keeps bringing down the definition/threshold of what’s considered rich, while continuing to pretend he really is only targeting those greedy billionaires and millionaires that obviously got their money by taking it from others and thus are not paying their fair share, is because there simply are not enough rich people from which these class warriors are able to confiscate all the money they are currently spending from.

As the second paragraph in the quote points out those making more than $200K a year account for 25% of adjusted gross income, but paid an unbelievable 50% of the income taxes collected. And yet, they are told they need to pony up more so the Keynesian class warriors can keep their failed vote buying schemes funded. In fact, the dirty secret is that based on how much cash these collectivist, class warrior, big government aristocrats want/need to control and spend, they will have to dumb down that threshold that defines “the rich” to a way lower number – to families making around $60-80K at a minimum – and jack up the amount they take in order to scrounge up enough cash to barely break even.

When taxes collected from individual earners amounts to $866 billion, and you are running a $1.5 trillion gap, even if we are to believe they are going to make drastic cuts – which sane people should not for the obvious reasons – and all you try to do is get about half of that from these individual owners, you are looking at almost doubling what was taken in 2009! If you double what the supposed rich – those making $200K and more – pay, you are still short by half of what you need to cover that $750 billion number. And if we are generous and grant them that they then make cuts that amount to half of what’s still missing, it is still obvious that what we are left with a big gap between what’s taken and what’s spent. The article also points out the following about corporate tax income.

Also, those awful corporations that left-wing Democrats hate so much pay a lot of taxes. The 1,900 largest corporations accounted for two-thirds of the $227 billion in 2009 corporate income taxes, according to the foundation.

There is no way they are going to fleece corporations for that much new income. Even if they doubled what corporations pay, and that would kill the economy outright, but these tools are economic illiterates anyway so it doesn’t take much pretending to go there, it is obvious that the burden on the individual earner is going to be the lion’s share. When we have a $1.5 trillion deficit, or if you are inclined to be generous – which I am not – and allow for them actually making big cuts, the numbers still don’t mesh. There is no other conclusion but that middle class would have to be soaked in order for them to keep the near 50% that currently don’t pay federal income taxes, but get back money through the IRS wealth redistribution scheme that passes for tax policy these days, larded enough to vote for them.

The math simply doesn’t add up. No matter how you slice it, what we have now is unsustainable and soaking the rich will not save the day, ever. It does add up, of course, if you are using the math to prove it is all about class warfare. The only class that makes out is the political aristocracy that bases its existence on convincing the least productive they are entitled to the money of others, and that if they allow these aristocrats to live large, they will fleece the productive real hard under the guise of social justice.

Now on to some more revelations in this article.

The numbers measuring the impact of Washington’s stimulus programs aren’t any better. The Federal Reserve declared Wednesday that the country faces years of low growth and announced a new $400 billion economic salvation program. The Dow nose-dived 283 points Wednesday and 391 Thursday. A couple of weeks ago, Wall Street reacted with another plunge after Obama announced his latest $447 billion jobs program.

That cobbled-together mixture of temporary tax cuts, short term credits and infrastructure spending is supposed to create 2 million jobs. Do the math and that comes out to the government spending $223,000 for each new job.

That’s a little better than Obama’s first stimulus package. That one, totalling $821 billion, is supposed to have created or saved as many as 3.6 million jobs — a figure widely disputed — which translates into $228,000 per job.

I won’t bother to point out how destructive these Keynesian wealth redistribution scams that fool no one has been on our economy. The numbers do that job quite well. More math! But even if you are stupid enough to buy the concept that its governments that create jobs, can you not see that under the best case scenarios – and I do not for a second buy the numbers bandied about by the Keynesians on how many jobs either patronage bill one or the new and improved patronage bill 2 will create – the cost is insane? Do you seriously believe you could sell such a business plan to a bank if you where a private investor looking for a loan? Fuck, this is insane and stupid.

And now for some fun.

That’s small potatoes compared with the Department of Energy’s program of $40 billion in loan guarantees to promote green energy. Half the money has been spent to create a total of 3,545 direct jobs, according to a Washington Post analysis, That’s $5.6 million per job. But rest assured, the DOE says once the full $40 billion in financing is disbursed, 60,000 jobs will be found — more than $666,000 for each new worker.

Does this sound familiar? Where did someone say exactly something like this only to be called a liar, based on a slight of hand calculation that would make David Copperfield feel awed by the illusion, used? Wink, wink…

The Other Way

As I’ve said before, I don’t think we can balance the budget without raising taxes. Of course, tax hikes have to be conditional on even larger spending cuts (a 3-1 ratio at least). And they should be real spending cuts, not phony-baloney baseline cuts or giving ourselves credit for ending the war in Afghanistan.

Given that, you might think I see Obama’s tax proposal — which mainly involves setting higher marginal rates for millionaires — as the beginning of a “Grand Bargain”. But I don’t. It’s a perfect example of how not to do tax policy. It’s built on the Warren Buffet complaint about not being taxed enough (even though Berkshire-Hathway owes hundreds of millions in back taxes). It then institutes a series of escalating marginal rates that, incidentally, will not tax Warren Buffet since his salary is actually small.

It’s crap. It’s the same mentality — we must tax X! — that gave us the abomination that is the Alternative Minimum Tax. That creature was started because of hysterical media reports about millionaires not paying any taxes because deductions wiped them out. The tax burden of the AMT is bad enough, but the deadweight loss — the time, energy and money burned to comply with it — is death.

Our hideous and destructive tax code has been built by bullshit like this. No one sat down and said, “What’s the best way to raise the money for our government while minimally impacting the economy?” Instead, it’s been built of a series of things we should subsidize (kids, home ownership, charity) and things we should punish (rich people). It’s been built on they hysteria-of-the-week. And it’s a simple fact that you will not create a good tax system this way.

Taxing Warren Buffet more is not the basis of good policy. Taxing Warren Buffet more should not be our goal (although it may be the result). Narrow aims like that are what have given us the current mess in which the IRS can’t tell you whether your tax return is right or not. Narrow aims like that distort markets and create unintended consequences. Narrow aims like that result in stories like this, where ex-pats in foreign countries are being threatened for not filing tax returns because someone got a bug up their butt about it.

There are a number of viable alternatives. Milton Friedman proposed a flat tax calibrated to provide negative tax to poor people, the negative tax replacing the welfare system. Simpson-Bowles outlined a number of proposals that the GOP is currently favoring that would eliminate most deductions in favor of a lower overall rate. The Value-Added Tax is a possibility and would be far better than the Fair Tax. One change I would like to see: eliminate the corporate tax completely but tax capital gains and stock income at normal income rates.

All of these are viable options. Any is preferable to the system we have now. And while none would stimulate the economy right away, the long term effects could be dramatic:

It will make U.S. multinationals more competitive and more likely to increase employment here in the U.S. It will shift employment away from the tax avoidance industry of lawyers and accountants to skilled workers who actually produce goods and services. It will cut down on the roughly $2 trillion U.S. multinationals have stashed overseas to avoid high U.S. taxes. It will stop rewarding U.S. multinationals for carrying debt and building financial services subsidiaries and will make them less vulnerable to financial crises. It will increase dividend payouts. It will lower the cost of capital and increase investment. These benefits only arise after firms change the way they operate, and that will take time, like many years.

On the individual side of the income tax, tax reform will reduce the excessive subsidies for housing and redress the disadvantage of renting. It will reduce health benefit subsidies which drive up health care costs. It will reduce the complexity which forces most taxpayers to use a tax preparer. With some extra effort, we could go to a return free system for most taxpayers.

Tax reform is the definition of long-term thinking. It will take years to do (Reagan had to fight for two years to get even mild reform) but will pay off over decades. If Obama were serious about both the deficit and the economy, this would have been the subject of his speech this week.

It wasn’t. Campaigning for 2012 was.

More Perspective..

During the comments discussion on one of our recent posts dealing with the effect of our current leaders on the economic and job situation in the US, the issue of what kind of impact the blatant hostility from the Obama administration towards business came up. Some people refused to accept that, in general, based on the laws and policies pushed over the last 3 years, this administration was exhibiting some serious and severe hostility towards business. Their absolute need to control the private sector, so they could use the power of big government to pick the winners and losers – under the guise of fairness or justice – was the biggest contributor to this hostility. And that hostility lead to massive lack of confidence which then drastically impacted the job market situation. When businesses feel they are under attack and they can not predict their costs and liabilities – to verify if they are financially viable and can turn a profit – they basically do not take risks.

Hiring new people these days is a huge risk. It’s also why no tax payer money spending plan the Keynesian-Marxist grieve mongering cabal comes up with, no matter how big the amount of money being flushed down the toilet may be, will ever make any kind of positive impact on hiring: they are not addressing the fundamental issues.

Today we find out that the jobless claims posted another “surprise” increase. I am more surprised that the usual suspects in the LSM still continue to be surprised that we have for months, even years, now seen the number of people filing after they lost their jobs stay steady, at scary levels, or go up, instead of realizing the trending is telling them something important.

NEW YORK (Reuters) – The number of Americans filing new claims for jobless benefits rose unexpectedly last week in a sign concerns about a weak economy were sapping an already beleaguered labor market, data showed on Thursday.

The inflation rate decelerated slightly in August as gasoline prices rose at a more modest pace and the cost of buying a new car held flat, the Labor Department said on Thursday.

And I am sure the bleak unemployment numbers do not account for the countless people that have dropped off the radar and are not even bothering to look anymore, are working part time when they would love to get a full time job, or simply can’t report because they are ineligible to receive any kind of benefits. The numbers are frightening, there seems to be no end in sight to this situation, with many are thinking will get a lot worse, and last for a very long time, before it improves – if ever – and thus, it’s no coincidence that unemployment is now the top concern for most Americans. It also explains why after three years of anything but caring for the economy and the employment situation, the WH and the donkeys are now scrambling to make it look like they do and have a plan. The problem is that it’s just a lot more of the same crap from the last 3 years that has been disastrous.

As the WSJ reports in this article the current plan basically is doomed to failure, because it tries to fool employers into stimulating economic growth with some very short term cuts, paid for with backloaded taxes that would not just wipe out any benefit that these short term cuts would create, but increase the burden on these not just these businesses, but a whole bunch of Americans Obama previously told us where exempt from his wealth redistribution schemes, to a level that it will create an economic situation that looks far worse than it is now.

President Obama unveiled part two of his American Jobs Act on Monday, and it turns out to be another permanent increase in taxes to pay for more spending and another temporary tax cut. No surprise there. What might surprise Americans, however, is how the President is setting up the U.S. economy for one of the biggest tax increases in history in 2013.

Mr. Obama said last week that he wants $240 billion in new tax incentives for workers and small business, but the catch is that all of these tax breaks would expire at the end of next year. To pay for all this, White House budget director Jack Lew also proposed $467 billion in new taxes that would begin a mere 16 months from now. The tax list includes limiting deductions for those earning more than $200,000 ($250,000 for couples), limiting tax breaks for oil and gas companies, and a tax increase on carried interest earned by private equity firms. These tax increases would not be temporary.

And there you have it. Obama’s big plan is not going to do anything to create jobs because the short term “tax cuts” are short term, but the tax increases that follow it, to pay for it, are not. I can’t say that I am surprised. After all, Obama and the left have told us they want more taxes because the beast needs the cash, and everything before this that has happened in the last 3 years has been about them trying to make it so. Basically they are trying to fool people into thinking they are improving the economic incentives for small businesses to hire, but unless these small business owners are total twerps, they will quickly realize they are being had with those back end taxes basically punishing them whether they hire anyone or not, and they will do nothing of the sort.

In fact, I expect them, if they do anything, to downsize, considering they will be slammed with new taxes in 2013 regardless. The WSJ breaks down the facts as follows:

What this means is that millions of small-business owners had better enjoy the next 16 months, because come January 2013 they are going to get hit with a giant tax bill. Let’s call the expensive roll:

• First comes the new tax hikes that Mr. Obama proposed on Monday. Capping itemized deductions and exemptions for the rich would take $405 billion from the private economy for 10 years starting in 2013. Taxing carried interest would raise $18 billion, and repealing tax incentives for oil and gas production would get $41 billion.

• These increases would coincide with the expiration of the tax credits, 100% expensing provisions and payroll tax breaks in Mr. Obama’s new jobs program. This would mean a tax hit of $240 billion on small business and workers. That’s the downside of temporary tax breaks and other job-creation gimmicks: The incentives quickly vanish, and perhaps so do the jobs.

So even if the White House is right that its latest stimulus plan will create “millions of jobs” through 2012, by this logic a $240 billion tax hike on small businesses in 2013 would cost the economy jobs. This tax wallop would arrive when even the White House says the unemployment rate will still be 7.4%.

• January 2013 is also the same month that Mr. Obama wants the Bush-era tax rates to expire on Americans earning more than $200,000. That would raise the highest individual income tax rate to about 42%, including deduction phaseouts, from 35% today. Congress’s Joint Committee on Taxation found in 2009 that $437 billion of business income would be taxed at higher tax rates under the Obama plan. And since some 4.5 million small-business owners file their annual tax returns as subchapter S firms under the individual tax code, this tax increase would often apply to the same people who Mr. Obama is targeting with his new tax credits.

The capital gains and dividend taxes would also rise to an expected 20% rate from 15% today. The 10-year hit to the private economy for all of these expiring Bush rates: about $750 billion.

• Also starting in 2013 are two of ObamaCare’s biggest tax increases: an additional 0.9-percentage point levy on top of the 2.9% Medicare tax for those earning more than $200,000, and a new 2.9% surcharge on investment income, including interest income. This will further increase the top tax rate on capital gains and dividends to 23.8%, for a roughly 60% increase in investment taxes in one year.

It doesn’t look well for us tax payers, and it certainly looks like Obama’s jobs plan will not do anything. I could break all of this down and comment, but the article already did an awesome job of that. And the WSJ author puts it perfectly when they say:

The White House’s economic logic seems to be that its new spending and temporary tax cuts will so fire up investment and hiring in the next 16 months that the economy will be growing much faster in 2013 and could thus absorb a leap off the tax cliff. But this requires its own leap of faith.

The White House also predicted a similar economic takeoff from the 2009 stimulus that was supposed to make a tax hike possible in 2011. Then last December Mr. Obama proposed new tax incentives only for 2011 because the economy was supposed to be cooking by 2012. Now it wants to extend those tax breaks so the economy will be cruising in 2013.

Emphasis mine there. What again was the definition of insanity?