Millionaire Surtax, the Tip of an Iceberg


We’ve talked about this before. “Tax the rich.” But the methods being proposed for doing this might be less precise than promised. Thinking like a simplist, by raising taxes on the rich, you would think that the government’s revenues would benefit. Lo and behold, simply raising the taxes – like what the millionaire surtax does – barely affects the revenues. Apparently proportional tax has a bad affect on the middle class. The best way to go about this is to broaden the tax pool and fill the holes in our tax code. The wealthy, after all, have a far less demanding tax burden.

Billionaire Warren Buffett alerted the public that his average income tax rate is lower than his secretary’s. Multimillionaire presidential candidate Mitt Romneyrevealed that his average tax rate is only 15 percent – the same effective tax rate that a typical household earning $40,000 to $50,000 per year would pay. Read more>

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“Junk Spending” and Growth


Where do your tax dollars go? To fat cats who splurge on Mercs, Kawasakis and Italian coffees? No. They go into the treasury to fund social welfare programs. Fair enough. But don’t we all know where tax cuts on the rich go? Here’s a hint: they’re the fat cats. So in a case (taxcuts for the rich vs raising taxes ie restoring money back into the treasury) it should be easy enough to figure that, in fact, the latter of the two best serves us, as a country. If you disagree, compare the fiscal degradation during the Bush years with those of the reform-rich ones of Clinton’s administration. Case in point. But what if we ask, in place of the taxcuts for the rich, which is best: taxcuts for the “common man” vs raising taxes, presumably on the rich (under proportional taxes). Ah, the plot thickens.

Well this is the case conjured and argued about by Amity Shlaes of the Bloomberg. Shlaes writes “Payroll-tax cut equals growth. Consumer spending equals growth. Consumer spending is 70 percent of the economy. All growth is equal,” adding:

 But perhaps the axioms are wrong. Maybe payroll-tax cuts don’t equal growth. Perhaps they don’t matter to growth. Perhaps other steps generate better growth…The [Tax Foundation] looked at rates for pension taxes and growth. It found no relationship. None. Read more>

Her argument, however, is one based on an a simple assumption, messied with many implications.; that is, proportional tax is a no-go. She makes reference to the Czech Republic, suggesting that it ” has high payroll taxes and high growth.” However, Shlaes makes a point about Chile, which  combined “low payroll taxes and high growth.” Unfortunately, tax systems aren’t so simple. The tax burden on individuals in the Czech Republic, for example, is a mere 15% – as compared to Chile’s 0-40% and the USA’s 0-35%. Obviously high payroll tax rates don’t affect the growth of the Czech people. They see “tax cuts” elsewhere.

So the moral of the story? Give the people a break. We are the ones spending the money and we are the ones serving the “invisible hand.” Towards the end of her piece, Shlaes concludes:

The seven fastest-growing countries had below-average corporate-tax rates, whereas the seven countries with the highest tax rates grew at below-average rates.

That means the new administration plan to lower corporate rates really is the right thing. “Corporate rate cuts are good” is a worthy axiom.

This shouldn’t apply to the American case. We’ve had corporate taxcuts and they’ve failed us – again, refer to the Bush-Clinton comparison. Corporate tax cuts don’t work here.

Tax and Oil


There are two sides to the game, as there always are. But now and then, shouldn’t it make sense to agree on sheer logic. Sometimes pragmatism doesn’t have two faces and, well, tax and energy are just that.

The Dems have, are and will forever be social liberals but the point of change in their line today is fiscal. Thirty years ago, a Democrat wouldn’t be caught dead fetching tax cuts to companies – of any sort. No doubt, the party has “evolved.” (I use that term lightly). In the ’90s, under Clinton, the Democratic party had developed a “third way,” in cooperation with the Labour Party in UK under Tony Blair. But still, even then, the most Liberal, in the classical sense, thing the Dems did was pass the Welfare Bills whose Liberalism was won only on the rhetoric level. They were welfare programs made to end all welfare programs. Nevertheless, don’t forget: Bill Clinton’s Administration saw a Healthcare Bill, which had complicated the most popular president’s reputation.

Obama has further “evolved” this third way. But his attempts have been rather paradoxical. AP Economic writer Christopher Rugaber argues this last point:

President Barack Obama wants to close dozens of loopholes that let some companies pay little or nothing in taxes. But he also wants to open new ones for manufacturers and companies that invest in clean energy.

I’ve argued this point in a previous post. Aren’t the consequences obvious enough? Well, if you haven’t guessed, Rugaber agrees with me. Exploitative companies may end up grabbing “these new tax breaks.”

Loopholes are bad. Some may have good intentions, but history has shown us that, well, intentions aren’t what create ends – results are. In a semi-Capitalist society as ours, oh so fueled the proverbial private entrepreneurship and the American Dream,  they are especially dangerous. If people do not pay up, where will our revenue flow come from? How will we fund our welfare programs? See how tax cuts may seem so attractive for the individual but, honestly, they are disastrous for the country as a whole?

Yet there is hope. We can make taxes payable and, at the same time, afford to continue with our many welfare cuts. We can hold Congress’s budget axe. The proposal has been made before. Its called a progressive or proportional tax. Pay as much as you can afford. But, of course, the plan has enemies in the more wealthier rungs of Society. Nonetheless, top CEOs of the biggest companies, most of whom call Silicon Valley home, differ. Mark Zuckerberg, for one, the CEO of Facebook, is “cool with that.” Republicans, however, aren’t.

And that’s not the only thing they aren’t cool with. They are obsessing over gas problems and disapprove, for one reason or another, progressive energy policies. However, tapping into energy, at one fell swoop, solves all the problems and complications of gas issues. Right off the bat, we don’t have to deal with the Middle East (note: that doesn’t mean we shouldn’t help the revolts, we just wouldn’t have to help them for our economic needs). Better yet, these new energy sources would create more jobs, which is always a good thing.

But the unecessary complicated arguments continue. Obama said that his administration has allowed pipelines to open in from Canada; after which, prices and production continue to rise. But a former Energy official from the Bush Administration argues that big government isn’t the answer, “[e]ntrepreneurial investment undertaken several years ago,” rather, is. Sounds to me like someone is eager to get his job back. Before Obama opened these pipelines, oil was doing horribly. That was the root of Obama’s argument and overlooked, yet again, by the Republicans.

Either way, entrepreneurial investment if it is isolated to oil production isn’t being used right. Spreading that sort of spirit to new energy ventures will surely open new opportunities for the US: both within the energy sector, allowing us to tap into more sustainable energy resources, and fiscal. By opening up new businesses and incorporating a more progressive tax policy, sooner than later, we will be able to pump our revenues and finance many more social welfare programs. All the major cutbacks made in recent time can be reversed and we can continue from where we left off a two decades ago. That is American progress at its best and its about time we tapped into it.

Not bad, Mr. Romney. Not bad.


Romney has been reluctant to take on an aggressive conservative front in his social agenda. Santorum, on the other hand, not so much. In a world-class embarrassment, which was well-documented, by the way, all over YouTube,  the nominee hopeful stood in front of a crowd of America’s youth and made a brutal comparison between polygamy and same sex marriage. He suggested a law that would support gay marriage would be a precedent for polygamy and zoophilia. Absurd? You betcha.

But that’s not all. Put concisely by AP’s Charles Babington and Kaisie Hunt, the Pennsylvania-native:

has questioned the usefulness of public schools, criticized prenatal testing and said President Barack Obama’s theology is not “based on the Bible.” On Monday, he likened Obama to politicians who spread fear about new oil-extraction technologies “so they can control your lives.” Read More>

On the other hand, Mitt Romney, the Mormon, has another plan. Now, understand that Romney isn’t suggesting that we allow homosexuals to marry. He isn’t. At best, Romney “rarely discusses” this stuff “in detail.” But he has mastered, in my opinion, a new species of Republican. Those guys that think the unemployed are lazy but, yet, find it in their heart to accept Gay marriage. (Sorry for the condescending tone).  Now this sort of mindset that Romney carries cannot come at a better time. Just recently, NJ’s governor Chris Christie has nulled a Gay marriage act that would allow same sex couples to get married in the state. No doubt, this has angered – or at least raised some eyebrows – among the socially liberal Republicans. So who do these guys look to? Great timing, Mr Romney. No one can “Don’t Ask, Don’t Tell” like you!

Taxes: They’ll do you in


Rick Santoram’s tax returns were made public recently. They don’t look too great. I mean, yeah, the guy’s rich. But his campaign lines don’t really match with his financial reality.

Santorum, 53, has sold himself in the Republican primaries as both a Washington outsider and a social conservative, stressing his family’s coal-mining background and his appeal to religious and working-class voters. His personal finances tell a different story, detailing the trajectory of a politician who grew more prosperous in the Senate and became a millionaire afterwards, at times capitalizing on his Beltway connections. Read More>

This isn’t really a public policy analysis but it is something to be aware of. Really. I’m sure all of us know that one’s taxes are important. They fund the state; its because of them that we are able to have great programs like Social Security, Medicare/aid, etc. But, honestly, you want to get them done right. I’m not saying Santorum’s tax consultant made an error. He probably didn’t. But, indeed, he probably spent a lot of money on getting his taxes filed. Your taxes are a representation of you. You don’t know what’s going to go down in a few weeks or a few years. So the moral of the story: Santoram isn’t “Joe the Plumber.” What you should keep in mind: tax returns are more than just for the Government. They represent you.

Thinking Ahead


Ok. So we’re coming out of a pretty terrible recession. I mean nothing is set in stone – but we’re doing a lot better than we were a few years ago, or even a few months ago. Without the rigor of a economist, I can say for sure that since 2008, we’ve been doing well. (Google shows that the GDP rose from 2008-2010, http://bit.ly/wbC4wT).

The next question we must ask, then, is obviously: how? How did the GDP rise so quickly when it had been doing so badly? Well, if you’ve been paying attention to financial politics, you should think two things: one, the fall of Bush era taxcuts (Payroll Taxcut ding ding ding!!!) and, two, the rise of Big Government spending under Obama. So know we can talk about Ezra Klein, from the WashPost, and his article.

I have three names for you: Reagan, Clinton and Obama. During the first two, the Uncle Sam took in upwards of 18% of the GDP. Nowadays its taken anywhere between 12 and 14%. Huge drop? Uh, yeah! And the reason for this should be obvious enough – when the government spends a lot of money, its revenue drops. (Of course, deficits were good – they helped us get out of the recession). Anyway, now that we’re on our way to recovery, Klein suggests, and, ever so wisely, that we start reducing our deficit spending. How else are we to cut deficits? By putting the spending back into the economy. Thus, both parties have formulated plans to cut the deficit.

And the two parties are proposing very different ways of doing that.

Comparing the fiscal promises made by Obama and Mitt Romney isn’t quite comparing apples to apples. Obama is burdened with the responsibilities of governance. His numbers need to add up. They need to unite the congressional wing of his party. They need to fit inside a detailed budget that lays out funding levels for every agency in the federal government.

Romney, meanwhile, is running a primary campaign. He’s trying to keep Newt Gingrich and Rick Santorum from getting too far to his right. He’s trying to mollify conservatives. He’s trying to inspire the party faithful. So his promises — like those of all candidates, including Obama in 2008 — are going to be a bit more fantastic than those of the sitting president. Read More>

Sealing its Fate


The inevitability of the Taxcut’s contingency was questionable. After it was brought back on the table the Republicans still wanted to watch it whither away.  Among the party’s many demands, ” House Republicans” wish “to block new EPA rules regulating emissions from incinerators and industrial boilers like those used in making paper. Democratic leaders and the White House support the rules.” No doubt, a no-go for Democrats who are so well connected with Environmental groups.  And then, of course, there is the list of other various demands the House Republicans have, each, coincidentally, completely contrasting the Democratic agenda:

Republicans controlling the House have proposed raising Medicare premiums for higher-income seniors, freezing the pay of federal workers for another year and requiring them to contribute more toward their pensions, and auctioning broadcast spectrum. Read more>

But, this time, “Party of No” has gone to far. The Dems have unleashed their mightest weapon yet: the backup plan. That’s right, if the Payroll Taxcut Bill and its advantages don’t go as planned by the Blue, given the many negotiations it has made, the Senate run by that same aquasical color will soon shoot a Bill, overpassing the Red lower house.  It will be a definite treat to watch the “Joe-the-plumber” Republicans later this year.

Senate Democrats are devising a backup plan to extend a payroll taxcut and emergency unemployment benefits that are set to lapse in coming weeks if negotiations with the Republican-controlled House don’t lead to a deal, said Majority Leader Harry Reid.

“Republicans continue to drag their feet” in House-Senate conference talks on extending the tax cut, expanded jobless benefits and a provision to prevent a 27 percent drop in Medicare (USBOMDCR)reimbursement for doctors, Reid said today on a conference call with reporters. In December, Congress extended the benefits for two months past a Dec. 31 expiration when lawmakers couldn’t agree on how to finance the provisions for 12 months.

Congress needs “to move quickly to extend the payroll-tax cut to make sure” workers don’t “get a tax increase,” said Reid, a Nevada Democrat. Unless Congress acts by Feb. 29, the payroll tax for workers would increase by 2 percentage points. Read More>

Back on the Table


That’s right, the House has decided to put the long awaited negotiations back on the table and, boy, are the fans turning. Both sides have succumbed to the mudslinging.

Last Thursday, the Democrats released information asserting their refusal to accept any concession on part of the Republicans. The taxcut is inevitable but the policy cuts we see may be worth watching. The agreements have shifted since the negotiations began at the end of last year. The Democrats gave into Republicans, sporting various concessions as the Doc problem, the Pipeline negotiation and even the “millionaire tax.” But this time around they have the upper hand. Donna Smith of the Reuters writes:

A fresh round of negotiations on the package is set to begin next week when both the House and the Senate will be back in session after month-long breaks. Aides acknowledge a desire by Republicans to wrap up talks quickly and avoid the kind of drawn-out battle over paying for the package that left them fighting more among themselves than with Democrats.

They note general agreement on some budget offsets by both sides, including a plan to raise money by selling public airwave rights. Last month, Senate leaders also were discussing the possibility of ending some tax breaks for the wealthy, according to a Democratic aide. Read More>

Bringing ’em back home


In a world where jobs are scarce and corporations are recognized as people – holding the rights thereof – the Obama administration has made a leftist exploitation of conservative precedent worth very well everyone’s respect. In an attempt to bring jobs back to the United States, Obama proposed a plan to fund tax breaks to those “businesses” that bring jobs back into the United States. Now looking at it from the surface, there seems to be some great benefits: corporations will think twice before outsourcing jobs. But what does this proposal – if made into law – hold for the future.

A few hours before his death, Uncle Ben tells Peter Parker aka Spider-Man: “With great power comes responsibility.” Fortunately for us, this natural phenomenon makes its way into US public policy. It is no surprise who are on the up-side in our current economic hash. Well, definitely not the  26 million Americans who are unemployed. So what should be the policy? Shouldn’t the powerful corporations be responsible. It is their duty.

But the “pragmatists” of the world will point out that apparently that’s not how people function – apparently the dollar outweighs ethics. And legally so. Thus, offering tax cuts to the wealthy – excuse me, regressive tax cuts – are very positive means of compensation. Nonetheless, the economic repercussions of this will be no different from every other regressive tax.

Let’s suppose that the premise still holds, however, that people respond to material incentive. Then, isn’t it only common sense that by keeping the employment at home and not outsourcing, the market expands? Thus, income potential expands? Indeed, it is. This should be incentive enough not cheap regressive tax policies.

Earned Income Credit


In our current economic meltdown, there are a lot of problems on our plate. Our unemployment is shooting off the the charts and the expansion of enterprise (how many businesses were created) is plummeting. The result? A skyrocketing rate of underemployment (the word speaks for itself). 8.6% – on par with our unemployed. What’s that mean? Just as many people who are looking for work but have none are not happy even though they have work – ie they are underpaid or have to undergo unfair conditions. Though nothing – at least in terms of tax policy – can compensate for the latter, those with low incomes are eligible for something called Earned Income Credit. The IRS provides a FAQs (Frequently Asked Questions) on this matter.

The one I find most helpful:

Who can claim the credit?

A2. To claim the EITC on your tax return, you must meet all of the following rules:

  • Must have a valid Social Security Number
  • You must have earned income from employment or from self-employment.
  • Your filing status cannot be married, filing separately.
  • You must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return.
  • You cannot be a qualifying child of another person.
  • If you do not have a qualifying child, you must:
    • be age 25 but under 65 at the end of the year,
    • live in the United States for more than half the year, and
    • not qualify as a dependent of another person
  • Cannot file Form 2555 or 2555-EZ (related to foreign earn income)

The rest of the FAQs can be found here.