ataxingmatter

Obama's tax ideas, per McCain, checked by Factcheck

FactCheck.org has produced an analysis of a frequent claim of the McCain campaign that Obama has voted many times to raise taxes.  In the process, they also did a fact check on the Obama campaign.  Here's what they have to say in their summary of the report, called "Tax Tally Trickery" (July 3, 2008).

• Republican claim that Obama "voted 94 times for higher taxes" is "inflated and misleading" and "padded"
• FactCheck's review of the 94 votes showed:
  • 53 of the 94 votes were on budget bills, not tax bills, and thus not tax increase measures;
  • 4 of the 94 were on nonbinding resolutions related to conference negotiations;
  • 23 of the 94 were for measures that would produce no tax increase at all (they were simply against additional proposed tax cuts);
  • 7 of the 94 were for measures to reduce taxes for most, offset by raising taxes on relatively few corporations or wealthy individuals;
  • 11 of the 94 votes were to increase taxes on those making more than $1 million annually in order to fund programs such as Head Start, veterans' health care
  • many of the items listed were double-counting (or even quadruple counting) of votes on same measure

The summary concludes that Obama has "voted consistently to restore higher tax rates on upper-income taxpayers but not on middle-or low-income workers.  That's consistent with what he's said he'd do as president, which is to raise taxes only on those making more than $250,000 a year."

These "fact checks" are useful, because the campaign season can easily be filled with hype that repeats ad nauseum misleading statements, and leaves voters with unreliable information on which to base a decision.  thanks to FactCheck.org for paying attention to tax as an issue of importance in this campaign.

Center for Economic Progress "summit"

The Center for Economic Progress, through the National Community Tax Coalition and with Frontera Assets, is hosting a "summit" on financial independence for working families in Arizona, California, Colorado, Hawaii, New Mexico, Nevado, Texas and Utah.  It will be held in Scottsdale Arizona, with "pre-event" sessions July 23 and "event sessions" July 24 and 25m with a charge of $150 for affiliated organizations and $200 for others.  You can register at www.tax-coalition.org.  and apply for scholarships at this link: click here.

The Center is a coalition of organizations that focuses on helping working families. You can read about its various programs at this link:  http://www.economicprogress.org/index.php/c/About_Us

Here's what the organization has to say about the event:

From food to housing to child care, working families face rising costs at every turn, while their wages stagnate or even decline.  The National Community Tax Coalition, a leader in the movement to connect working families to tax credits and economic opportunities, wants to help you combat this crisis for working and immigrant families.  Join us as we share tools and strategies to create change on a larger scale.  During this summit, we will talk about the state of low-income workers nationwide, in the South, and along the Southwest border.  By focusing on skill building and action planning, and providing opportunities to network with other programs, experts, and elected officials, we will help you to take your organization from a practitioner in the field to a leader in the movement.

****

General Sessions:

30,000 Feet: State of Low-Income Workers, A National View

Drilling Down: State of Low-Income Workers, A Regional Perspective

What to Expect: Let's Go Deeper?

Panel Discussion: IRS News Flash

Concurrent Sessions:

Where the Rubber Meets the Road: Using Datat to Improve Your Program

The Flip Side of Free Tax Prep: Being a Strong Voice for Low-Income Workers in Your Community

Hitting Rock Bottom: Helping Low-Income Workers Navigate the Marketplace

New Tax Blog

I'm delighted to welcome to the "blawging" world Ted Seto, a tax professor colleague at Loyola Los Angeles who has just begun a new blog.  His blog is called Understanding Tax. 

Ted is a wonderful colleague who listens well and always has incisive comments on current tax issues.  He is a Harvard grad--with a Phi Beta Kappa B.A. and a magna cum laude J.D., service as executive editor of the Harvard Law Review and clerk for Judge Mansfield on the Second Circuit, and 14 years of experience as a civil litigator and tax attorney at prominent firms.  Whenever he posts an article on SSRN, I rush to skim it, knowing that I will be enlightened by his perspective.  I know that his blog will provide similarly insightful comments on tax affairs.  His entry on bonus depreciation provides a good review of the economics of the excess depreciation that has been passed in recent tax bills and touted as a great economic stimulus.  Enjoy! and visit often.

Tax as News: some articles worth reading

Here are a few links to articles on tax (or in some way related to tax) that are worth a read.

Patrick McGeehan, Big Chains Benefit From City Tax Incentives but Don't Create Jobs, Report Says, NY Times, May 29, 2008 (noting that fast-food restaurants, gas stations and national chain stores have reaped the benefits of Manhattan tax breaks (to the tune of more than $400 million last year and more than the city Housing Authority has in its budget) to displace independent competitors, without creating new jobs).

Mary Williams Walsh, In Stock Plan, Employees See Stacked Deck, NY Times, May 29, 2008 (noting the concerns of US Sugar employees and former employees regarding its treatment of its ESOP program; employees are cashed out on retirement according to an "independent appraisal" that is supposed to ensure they get fair value for a privately held company, but US Sugar, a company that went private under the Mott family, has found a way to use the ESOP that is supposed to benefit employees to its advantage.  It paid employees considerably less than 2 offers it received for the stock over a two year period--the offers were for $293 a share, and many employees received as little as $194 a share under the "independent appraisal" and were not told about the offers for the higher price (nor were they allowed to attend a shareholder meeting, which is normally permitted).  The company rejected the offer of 293 a share in part because it had another appraisal for that purpose valuing the company at more than $1000 per share.  The company also stopped paying dividends on the shares.  The company benefits when retirees are cashed out (especially if they are cashed out at a cheap price) because it concentrates share ownership back in the non-employee owners of the company.  In the US Sugar case, the Mott family, and possibly a private foundation established with Mott family shares because of a need to reduce their percentage ownership of the company, are the beneficiaries.  (See next item for more on the Foundation.) Not surprisingly, some of the employees feel cheated, and they are taking their case to court.  ESOPs are primarily at private companies--95% of the 10,000 ESOP plans.  Makes one wonder if these tax-benefited plans are primarily serving the companies in getting employees to be super-productive and then ripping them off with appraisals that undervalue the stock.....).

Mary Williams Marsh, Ostensibly Independent, a Charity is US Sugar's Swing Vote Shareholder, NY Times, May 29, 2008 (noting the role of a charity in supporting US Sugar, whereas if it sided with the employees (i.e., the ESOP), the two blocks would control the company).

Jeremy Peters, New York to Back Same-Sex Unions from Elsewhere, NY Times, May 29, 2008 (noting Governor Paterson's order to agencies to ensure that Full Faith and Credit is provided under New York law to other state's marriage laws, including all tax and other economic benefits (such as filing a joint tax return) that accrue under state law to married couples.  This is another good move that steps the US towards a decent and egalitarian policy towards committed couples, rather than the biased, religion-based policy that dominates the country today.).

Brian Krebs, New Tax Plan could Jeopardize Small Business Owners' Privacy, Washington Post, May 22, 2008 (noting business concerns about loss of privacy and potential ID theft if a White House proposal for credit card companies to report merchants' income is approved).

Jonathan Weisman, McCain Offers Tax Policies He Once Opposed, Washington Post, April 25, 2008 (chronicling McCain's early statements about the harm of tax cuts directed towards the nation's wealthiest taxpayers and comparing them to McCain's campaign positions favoring the Bush tax cuts).  And you might want to remember what we thought back then--see Jonathan Weisman's 2004 article on "Tax Burden Shifts to the Middle".

Alec MacGillis, Economists Knock Proposed Gas Tax Break, Washington Post, May 1, 2008 (noting that oil companies would get richer, funds for infrastructure repairs would be substantially reduced, and Americans would hardly see the difference at the pump).

(I'll be off in Montreal for the Law and Society meeting through Sunday.  Ataxingmatter will be on a break as well.)

McCain Tax Returns--Cindy's Partial Release

Cindy McCain has finally released summary information about her 2006 returns (she hasn't yet filed her 2007 returns).  page 1 and page 2.

Like many of those who inherit wealth and thus have considerable amounts of income from capital, Cindy McCain reports considerable income--almost $1 million-- taxed at preferential capital gains rates  She also has about $300,000 of ordinary dividends and tax-exempt interest as well as $4.5 million of Schedule E income, giving her adjusted gross income of more than $6 million.  She provides no information on the source of the bulk of her income--Schedule E is not included in the disclosures.

Cindy McCain is chair of the beer distributor business inherited from her father, which is one of the largest Anhauser Busch distributors in the country.  She claims that she isn't releasing her tax returns in order to protect the privacy of her children.  See the statement on the McCain website.   Her personal wealth is estimated to be in excess of $100 million. Top of the Ticket blog, LA Times, May 23, 2008.

Farm Bill, Adjusted Gross Income, and Congressional Competence

The House and Senate reached agreement last week on a farm bill.  Regrettably, they continued the ridiculous U.S. subsidies for huge agribusiness enterprises and wealthy "gentlemen" (and ladies) farmers.  Each person and entity (like business trusts) that is actively involved in farming is entitled to huge payments (e.g., $40,000 for certain crops; $65,000 when payments are "counter-cyclical") from the federal government for not growing crops--even when their farmland is used for growing certain other money-making crops and even in some cases if they get duplicate payments (e.g., for not growing crop one and for not growing crop 2 on what would have been double-cropped acreage if they had grown the supported crops).  Each person is eligible for a taxpayer-funded commodity support payment as long as they have non-farm adjusted gross income of half a million or less and farm adjusted gross income of three-quarters of a million or less.  Remember--that's a per-person determination.  So a husband and wife could each qualify to receive payments, based on their own AGI amounts.  (If a couple files a joint return, income is allocated between them for this purpose.)   This is NOT a bill to help small family farmers stay on the farm!

Here are some links of interest:

• conference report
• managers' statement
• House Committee on Agriculture Farm  Bill Homepage
• Senate Agriculture Committee May 15, 2008 release on approval of Farm Bill conference report

I have two comments to make on this.  First, I express my chagrin that Congress provides farm payments to the wealthiest people in the country.  Second, I express my chagrin that some members of Congress apparently don't know what they are doing when they pass such bills--case in point, Ken Salazar of Colorado.

I. The absurdity of commodity payments under the farm bill

These farm payments should be used only for those family farmers who live on the farm and would otherwise be forced off the farm land.  As it is, in many cases we are paying people who are salaried workers (as long as each person doesn't have more then $500,000 income in such salaries, for example) support for not growing crops on their often-inherited farmland on which they don't intend to grow crops anyway.

Let me share an anecdote from my own personal experience with farm support payment recipients. I met a woman in her late sixties who was living with her husband in a very nice senior living facility in Kansas (built mostly with taxpayer dollars, by the way) a couple of years ago.  She bragged to me about being able to get an apartment in the facility, and then she went on to brag about the enormous wealth that she and her siblings had from non-farmed farmland, due entirely to government support payments.  And in the same breath, she complained about migrant laborers getting "welfare" from the government.  This woman had no capacity to understand that she herself was a much larger welfare recipient than the migrant workers she thought were "ripping off" good citizens like herself, or that the rationale for providing support to migrant workers was much stronger than the flimsy excuses used to justify continued corporate welfare to agribusiness and non-farm families like her own.

I find such hypocrisy intolerable.  It's people who apply this kind of double-standard to welfare ("good" corporate welfare and entitlements for the rich versus "bad" welfare entitlements for the poor) who also support the Bush tax cuts that primarily benefit the wealthy while rejecting foreclosure assistance for middle class and poor families who are losing their homes at record rates.

II.  The absurdity of members of Congress who either don't understand AGI or misuse it to justify their votes.

  As noted above, the farm bill includes  high AGI limitations that permit payments to go to persons (remember this is a person-by-person limitation, not a "farm" limitation) that are in the very top of the income distribution in the United States.  The caps beyond which persons or specific entities are not eligible for farm payments are more than $500,000 in nonfarm AGI or more than $750,000 in farm AGI.  (Farm AGI, by the way, is not really just farm income--it includes not only income from crop or livestock production, but also rental of farms for farming, ranching or even for hunting or water rights, gains from dealer sales of farm or ranching equipment (the House unsuccessfully tried to limit it to non-dealer equipment sales) and gains from sales of farmland for development or other commercial or industrial purposes). 

Ken Salazar, a Colorado Democrat, made statements in support of the farm bill that have been the subject of considerable discussion on the TaxProf listserve and on the ABA tax list serve and has been a target of a few good postings in the blogosphere such as Wash Park Prophet (tip of the hat to all of the above). Salazar said that he thought the AGI limits were ok, because a farmer could have lots of farming expenses that would reduce their profits.

Sen. Ken Salazar, a Denver Democrat who supports the bill, disputed the idea that it pays rich farmers. The bill allows payments to farmers with adjusted gross incomes of $750,000 or less.  That number doesn't take into account deductions for the cost of running a farm, Salazar said.  "A farmer with an adjusted gross income of $750,000 might be losing his shirt" after paying for fuel, a new tractor and other expenses, Salazar said.   Anne Mulkern, Plowing Into the Farm Bill, Denver Post, May 14, 2008 (formatting changed). 

Problem is, of course, that AGI already represents PROFITS from farming, since adjusted gross income is defined as gross income MINUS the deduction for farming business expenses --i.e., farming expenses are deductible "above the line" under section 62(a)(1).  So no farmer who has adjusted AGI from "farming" (as defined in the farm bill) who be "losing his shirt".  In fact, any farmer with an AGI of $750,000 from farming would be at least 10 times better off than the vast majority of Americans in the middle (and lower) classes who earn less than $75,000 a year.

Another problem with the Salazar story is the fact that the Denver Post reporter didn't bother to get her facts straight.  Reporters are supposed to serve an important accountability function in a democracy--ask candidates and government officials probing questions, and follow up when those candidates and government officials provide nonsensical answers.  Salazar's justification for the high income limit in the farm bill was pure nonsense, and the Denver Post should correct their failure to provide the correct facts to their readers.

Candidates and Taxes: McCain's Returns

Mrs. McCain, a wealthy heiress of an Anheuser-Busch distributor, has refused to release her tax returns, saying she is not a candidate and therefore her returns are none of our business.  The New York Times editorial board says that's a pity, Mrs. McCain's Money, May 19, 2008, and I agree.

Sharing tax returns with the public is an  important step towards more open government.  It provides some information about often hidden relationships among candidates and financiers who are family or friends or who have benefited them in endeavors or been benefited by them through their prior government offices (as in the Keating Five scandal in which McCain was a participant).  That is directly relevant to the candidates' outward promises of good government and transparency. 

Release of full tax information is important, as well, because it provides other information that is relevant to our assessment of character and fitness for office.  It provides a window on candidates' resources and interests.  It lets us know something about their generosity through charitable contributions--how generous are they, and what kinds of recipients do they choose.  (McCain, for instance, is the primary donor to the McCain Foundation (headed by his wife), which has in turn given an amount equal to about half of his 2001-2006 donations to elite private schools attended by his children.  See, e.g., John McCain's Charitable Contributions, Harper.com, Feb. 29, 2008)   It reveals their ability to use their wealth to buttress their campaign financing, providing another perspective on information that may otherwise be available only in snippets as journalists probe connections.  See, e.g., this 2000 New York Times article by Douglas Franz (revealing the role of Cindy McCain's controversial father in McCain's political career).  It provides a glimpse into their financial planning.  It reveals whether they mostly work to earn a salary or mostly live on income from capital.  It allows determinations of income reported and effective tax rate paid on that income.  In other words, it tells us a lot about candidates, in a time when we need to be able to form as complete a picture of the person as possible. 

Obama and Clinton have released returns for 8 years (though there are still some reports due about the Clinton foundation donors, according to the Times).  McCain released two years of his own returns, but not his wife's separate returns related to her inherited fortune and net worth of about $100 million.  See Matthew Mosk, John McCain Releases Tax Returns, WashingtonPost.com, April 18, 2008 (noting McCain's 2007 income of  $420,000 from Senate salary, book deals, military pension, and Social Security). Yet McCain surely has benefited from his wife's wealth, including campaign assistance such as use of a corporate jet.  See New York Times, above.  Release of his wife's returns should be a no-brainer, and that makes the lack of their release raise questions. 

I've argued that all corporations and other entities should have to release full tax returns (with only some information retracted under carefully considered provisions).  There's a good argument for requiring similar release for all tax returns.  It would make it harder for people to use offshore tax havens to hide their wealth, for one thing.  It would make it easier to shame people for engaging in substanceless tax shelters to get out of paying their fair share of taxes.  It would help the vast majority of American taxpayers better understand the way the tax rules benefit the very small minority of enormously wealthy taxpayers. 

Mrs. McCain says she is protecting the privacy of her children.  Is that an acceptable excuse?  I don't think so.  It would be helpful, in fact, for ordinary Americans to have more information about the way heirs who do nothing to earn an inheritance benefit from the preferential treatment of wealth under the tax rules, and release of tax returns like Mrs. McCain's would begin to shed some light on that.  Do inordinately wealthy families worry about financial or other criminals targeting them based on information about their wealth?  Perhaps, but everyone already knows that Mrs. McCain is an heiress, so revelation of tax return information wouldn't change that public knowledge about her status. 

There doesn't seem to be any justifiable reason for Mrs. McCain to refuse to release her returns. 

Treasury's Proposed Rules for Foreign Investment in the United States

On Monday, the Treasury Department issued proposed regulations amending the rules for review of foreign investment in the United States under the Foreign Investment and National Security Act of 2007 (FINSA).  The review of foreign purchases of US business to be conducted by the Committee on Foreign Investment in the United States (CFIUS) has been expanded, but not as much as some have called for.  A publc meeting on the rule will be held May 2.

The proposed rule includes the following provisions (generally stated).

• An acquisition that does not constitute control is still not subject to the Exon Florio notification provision of the Defense Production Act under FINSA.
• The definition of control is expanded to include the power to block key corporate decisions, which have also been expanded to include decisions that affect minority rights.  As a result, fairly common supermajority voting provisions on basic business decisions are included.
• The acquisition of convertible interests that will convert with the passage of time is also an event that calls into play the Exon Florio provision, if the conversion will result in control under the expanded definition.
• The safe harbor for passive investments of less than 10% is retained; but the proposed rules make clear that the safe harbor does not apply to investments where the investor intends to acquire control at a later time or where the investor also acquires governance rights, such as a seat on the board of directors.
• The definition of foreign persons covered has been expanded, so that offshore vehicles that are more than 50% owned by non US persons will be treated as foreign persons, even if they are controlled by US persons.
• There is no mandatory investigation of purchases by entities controlled by foreign governments, though the Treasury Department and responsible agency must approve the decision not to investigate.
• When notification is required, considerably more information must be provided and more time may be taken by the CFIUS.

Clinton Tax Returns

There is a good bit of coverage of Hillary Clinton's release of the Clinton tax returns, as part of her campaign for the Democratic nomination for president.  I won't discuss them, since there are so many other places that are doing so.  For coverage, here is a sampling to look at:

Matthew Mosk, Clintons Earned 109 million in 8 years, Washington Post

Clintons Release Tax Returns 2000-2007, NPR News Blog

Lynn Sweet, Clinton Releases Tax Returns, Sun-Times

Clintons' Earnings Exceed 100 million, BBC News/America

Mike McIntire, Clintons Made 109 Million in Last 8 Years, New York Times

taxprof blog

More on McCain and Economics/Taxes

Yesterday, I thought it would be interesting to look at what people were saying about Candidate McCain's professed economic and tax policies, given the Center for American Progress study that shows him to be a fervent believer in the laughable Laffer "throwing away revenues to the rich makes more money for everybody, even for the government that gave it away" and despicable Norquist  "tax everybody but the rich" campaigns to return our tax and economic policies to the good ol' days pre FDR.

Remember that McCain admitted that he knows almost nothing about economics.  The vacuity of his campaign website's verbiage on fiscal and tax policy issues provides a fairly clear demonstration that he was, at least on this, speaking truth. 

This little snippet from Dani Rodrick's Weblog may explain what's going on.

Kevin Hassett, economics advisor to John McCain, is quoted today as saying:

What really happens is that the economy grows more vigorously when you lower tax rates. It is beyond the reach of economic science to explain precisely why that happens, but it does.

Now you can be excused for thinking that the first of these statements is true, if you have an economically sound reason for it. But if you don't, you shouldn't. 

Let's call it no longer supply-side economics. It is faith-based economics.

Maybe that's why economics has so often been called "the dismal science"--because for too many purported economists, like Kevin Hassett, there is so often so little science there. 

The comments on Rodrik's posting are also unusually interesting.  Robert Feinman, for example, offers the following:

Henry George had interesting ideas, but nobody reads him any more because the one organization devoted to promoting his work runs on a shoestring.

Compare this with the funding behind Heritage, Hoover, Cato, George Mason U, and a score of others. If you dig deep enough you will find the same core group of people funding all these propaganda factories: Coors, Scaife, Mars, Waltons, Koch, Olin, etc.

Liberals think that the "truth" will come out if there is an open debate of ideas. The plutocrats prefer to fund their version of the truth to guarantee that their viewpoint becomes widespread. They have been remarkably successful over the past 40 years.

This, of course, part of the concept I have espoused in this blog of "democratic egalitariansm."  Where elite families with extraordinary wealth retain that wealth and use it to influence the governing institutions, not only is "truth" hard to come by, but any efforts to undo the machinery that feeds the power that grows from the wealth are akin to scaling Mount Everest.  And that, of course, is what Jim Repetti is talking about when he says we need to consider the role of taxes in a democracy even in defining the underlying justice principles that decide how we set our tax base and rates.  See my earlier posting on Repetti's articles.