ataxingmatter

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.

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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

McCain's Tax Plans

Yesterday I received a fundraising mailing from John McCain's presidential campaign.  I found it quite interesting, as much for what it didn't say as for what it did say.  It presumed that McCain supporters would care about a very select subset of issues:  1) making the Bush tax cuts permanent, 2) making sure health care stays in the control of the insurance companies and 3) making a commitment to keeping troops in Iraq for the indefinite future (til "victory").

If you put the three issues together, you come up with some interesting analyses.  A near-permanent commitment to Iraq is not costless.  In fact, our long-term spending commitments--for disabled soldiers, equipment replacement, recruitment, and the daily costs of war at the inflated prices paid by the Pentagon for private mercenary forces--are staggeringly high.  (Recall the Stiglitz-Bilmes estimate of $3 trillion and counting as of about 6 months ago, with a $6 trillion figure not unrealistic.)   At the same time, making the Bush tax cuts permanent, and thus benefiting primarily those who have considerable capital income and are otherwise in the very tip top of the income distribution making multiple millions annually, is enormously costly.  Remember that the cost of the original package of 2001 tax cuts was around $1.6 trillion.  Project that out permanently (i.e., without the sunset gimmick used to make it come within budget estimates) and we are talking about billions of cuts annually that amount to trillions of lost revenues for each decade.  Put trillions of costs for an endless war together with trillions of lost revenues for welfare for multinational corporations and the elite owners of capital in this country, and you have put this country on a train ride to fiscal disaster.

Couple that with the personal tragedies now facing so many ordinary working Americans--foreclosures on their homes, loss of their jobs, inability to maintain high-cost (and high-deductible) health insurance so that a medical emergency can leave them with nowhere to turn.  What's McCain's preferred solution? Letting the private markets handle the health care crisis.  Folks, we've been there and done that.  In fact, we are there right now and it isn't working.  Even with all the tax code provisions that encourage provision of health insurance through work, we have more than 40 million Americans, many of them children, without adequate health care.   The private market can't do what needs to be done, because the insurers' goal is, by definition, to avoid spending by preventing people from getting benefit coverage so that their profits will be bigger.  That's why the people who need the most care are the least likely to be insured.   Only the people working together--through a single payer, single provider system-- have a chance of reaching everyone. 

Now add in the high price of oil.  Having reached or neared peak oil, the price isn't going down, not even if we drilled offshore and in every natural habitat McCain could think about opening.  Global demand will eat up whatever oil resources there are, and the price will continue to rise.  Americans need to develop technologies to switch away from oil pronto--bikes in cities, solar water heating in homes and factories, wind power, etc.   And our tax policy should be pushing us in that direction, not continuing to give Big Oil the kinds of tax breaks that have made in the business that makes men wealthy since the turn of the last century.

I can't say that I saw anything in the campaign letter that made me think the campaign has come up with a viable strategy for dealing with these long-term fiscal problems.  And this recent study from the Center for American Progress Action Fund provides an even more worrisome look at the McCain tax plans for huge tax breaks to the biggest multinational corporations.  The largest 200 corporations would get breaks of about $45 billion a year.  These are not corporations that need largesse from the federal government in order to be competitive (which they often allude to, even while claiming that they are for private market processes):  this is Wal-Mart and Exxon and other huge companies that are enormously profitable.  These huge multinationals have already captured a significant share of the power that should belong to the people and they seldom create jobs that in any way compensate for the tax breaks they get.   The country would be much better off using the revenues that would be lost in tax giveaways for corporations to create education and job training program and other infrastructure that really helps people--or even just give it away to people in poverty whose spending would be an enormous stimulus to the economy, instead of to corporations.

Treasury, capital gains, and tax policy

Phillip Swagel, assistant treasury secretary for economic policy, spoke yesterday to the National Association of Publicly Traded Partnerships and, according to BNA RealTime, repeated two of the mantras of the tax-cuts-for-capital club.

first, Swagel urged the party line on low taxes on capital gains to encourage savings and "to remove a bias away from capital income".  The usual argument for there existing a "bias" is that the US system has a corporate tax, so that a tax on capital invested in corporations is a "double tax" on the holders of the corporate interests.  Fact is, of course, that many corporations pay no tax at all on their income, as a result of a combination of agressive tax planning and legislated corporate welfare, including the "paper" deductions created by the many Bush accelerated write-offs for investments.  Furthermore, there is not much support for the notion that shareholders bear the corporate tax- studies show a minimal effective tax difference for investments held through corporations and other investments.   So with the very low preferential tax rate for capital gains, the very low tax on dividends paid to shareholders, and the very low effective tax rate for corporations, talk about a bias against capital in our system is mostly hot air.  In fact, with the significant preference for capital gains and the regressive nature of the payroll taxes, among other features, our overall system is really biased in favor of taxpayers who have mostly capital income and against taxpayers who have mostly wage income.  Since the latter group of ordinary salaried workers make up the majority of taxpayers, the system is biased in favor of the elite at the top of the income distribution who aren't paying their real share of the tax burden.   

Second, Swagel repeated the fearmongering on Social Security that is becoming so common that it reminds me of the talk about weapons of mass destruction before Bush undertook his preemptive attack on Iraq.   Swagel warned that "entitlement spending must be dealt with", again according to the BNA report.  Now, interestingly, this is a statement that leaves out one entire side of the equation by suggesting that it is the "entitlements" that are the problem.  Remember that we created Social Security as a safety net to ensure that elderly and disabled Americans would not be thrust on meager private charity for their subsistence.   The vast majority of Americans are still very much in favor of maintaining the kind of social net that Social Security and Medicare provides.  And the projected shortfalls of both systems, though large, may not even materialize, if the trustees' conservative projections prove too conservative.    A small shift in the economy can make enormous differences in predictions about funds available in 20 or 30 years.  Furthermore, we can (and should, in my opinion) take reasonable and fair steps now to ensure that there will not be a problem in addressing these needs in the future--by removing the cap on payroll taxation, and changing it from payroll to an income basis (and so including capital gains).

One can expect this kind of rhetoric to continue, however, at least through the election.  Americans are not very well educated about taxes, and it is terribly easy to distort a tax statistic or present information selectively to support the conclusion desired.  Sometimes it happens by mistake, but frequently it is associated with an attempt to push a particular policy perspective.  We need straight talk about taxes and our social net, not fearmongering, but we are not likely to get it.

Research & Development tax credit: an extension that should be cut off

As most everybody probably is aware, the fate of "extender" legislation--legislation to extend the term of various corporate tax breaks enacted as part of the huge Bush corporate tax break package--is at this point uncertain.  The House passed HR 6049 some time ago, with the various corporate extenders as well as several energy tax breaks.  These "popular" extenders (that is, popular with the lobbyists, like the National Association of Manufacturers, that think pork for corporations is just dandy) include almost $9 billion for one year's extension of the R&D credit (for research that companies have to do anyway if they want to compete, now more than ever in a globalized environment), and more for the active financing exception (a boon to financial institutions that operate overseas), and another boon to corporations operating overseas in the look-through provisions under Subpart F.  Consider NAM's chief John Engler's statement about why the R&D credit is needed in spite of the fact that research is just an ordinary expense of business like any other deductible expense:

If the theory of having the R&D tax credit, which I believe is to encourage additional research and development investment, then you need to have the tax credit be permanent so people can make longer term strategic commitments because you aren't are going to invest in building a lab and a staff of researchers based on a commitment," he said. "What I see out in the world is pretty good competition for these jobs."  Heather Rothman, NAM Chief Urges Congress to Move on R&D Tax Cut, BNA Daily Tax Report, June 24, 2008.

Come on.  Common sense says that corporations that need to invest in a lab in order to stay competitive (like, say, pharmaceutical companies) will do it whether or not they get the gift of an accompanying tax credit.  It also says that companies don't make long-term commitments based solely on whether or not there's a credit (instead of a deduction) in the tax code, because history shows that the tax code can be (and is) revised on an annual basis.  In fact, you can certainly interpret the legislative history to say that the GOPers that now want these extensions so badly (but not bad enough to pay for them) enacted them all as temporary provisions under the argument first that they were giving back the surplus (of course, that evaporated very quickly) and then that the cuts would provide a needed short-term stimulus to the economy and were simply too expensive for enacting as permanent provisions.   Lots of the purportedly temporary provisions are aimed at letting companies expense their investments rather than taking them into account over time as deductions--the R&D credit is just one more corporate welfare element like those accelerated depreciation provisions.

Although I think most of these extender tax breaks for corporations are unsound and shouldn't be extended (many were on the decades long wish list that most tax practitioners had thought had a snowball's chance in you-know-where to be enacted prior to Bush taking office), at least the House purported to pay for the corporate breaks with revenue raisers (eliminating deferral treatment of offshore compensation for hedge fund managers and extending out even further the delay in implementation of a tax break enacted to benefit multinational corporations (the worldwide interest allocation scheme, that let's corporations use the fungibility of money to decrease their US taxes). 

The Senate has stalled on action, based on Dems' refusal to let go of pay-as-you-go (about time they applied it, since they've been honoring it in the breach mostly) and the GOPers' refusalto accept paying for their largesse to corporations by removing some of the other pork they've put in the corporate pie.  My wishful thinking says that maybe for once the partisan fighting will yield a good result--letting these corporate extenders hit the dust bin for once and for all.   I hope that at least the Senate Dems will have the spine not to cave on paying for these extensions with revenue offsets, if they do enact them.

Tax Snitches--a big one revealed

This is a double gotcha moment.  As Tax Prof reported this afternoon, Bloomberg.com reveals that UPS Lobbyist Secretly Spurred Ohio to Demand Taxes from FedEx.  Kenneth Kies, the former chief of staff of the Joint Committee on Taxation, left Congress to become a lobbyist.  One of his clients was UPS. And Ohio has just revealed that Kies was the author of a detailed report delivered to Ohio officials back in December 2006 about FedEx's employment practices--a tricky little matter of several hundred thousand in taxes possibly due on drivers that FedEx classifies as independent contractors (here's its website about independent contractor recruiting), but that may instead be employees. 

FedEx had already been found to have inappropriately classified certain drivers as independent contractors in California, in a Dec 2005 decision.  See this link.  Massachusetts reached a similar decision about FedEx drivers, and there've been other lawsuits by drivers across the country, see this link, as well as the FedEx Watch site that has links on litigation around the country.   Information is also available on the class action lawsuit's website.   Here's a site, Braun Consulting, that contrasts independent contractor status with employee status, comparing FedEx and UPS.

Why would UPS care?  Because UPS treats its drivers as employees, so it is at a competitive disadvantage when FedEx does not, for essentially the same work.  They both apparently wear uniforms, drive trucks with the company's logo on them, deliver packages according to the company's mandates, with routes set by the company.....hard to see how one set could really be employees and the other set drivers, though there may be a number of factual differences that aren't obvious on the surface.  At any rate, Ohio launched its own investigation and concluded that the FedEx drivers are indeed employees.

So there's a "gotcha" for FedEx (assuming that the classification of drivers as employees holds). And if they are employees for state tax purposes, it is quite possible that they should have been treated as employees for federal tax purposes as well.  The IRS has already tentatively determined that they owe several hundred million in back taxes just for 2002 due to the classification of some drivers, and is investigating the company's classification of about 13,000 drivers in 2004-2006.  See this Trading Markets.com story.  So double "gotcha."

But there's also a "gotcha" for Kies.  In the letter turning the report over to Ohio, Kies asked for confidentiality.  Guess he didn't want to get a reputation as being willing to snitch to tax authorities.  But Ohio released the letter.   So Kies has been outed.

When I was practicing, I heard at various ABA conferences and elsewhere that brown envelope revelations were not an uncommon thing for the IRS.  Companies who were offered a tax shelter by a promoter, for example, may have refrained from buying in, yet recognized that they would be at a competitive disadvantage to companies that aggressively pursued the deal.  Snitching evens the playing field, and lets the IRS find out about the newest tax "inventions" long before it otherwise would have.  I never asked, but I always assumed that the snitching was done anonymously--materials from a promoter sent in a brown envelope with no trace or obvious identification of the sender.  I guess Kies was trying to be more up front, and hoping that his candor would encourage Ohio officials to honor his confidentiality request. 

We tend not to like snitches, of any kind, and thus the "gotcha" sense about Kies' outing.  But we really do want people to help ensure that everyone complies with the tax laws and be willing to report gross miscompliance rather than be cowed by fear of being known as snitchers.  I suspect states and the fed should err on the side of protecting the identity of snitches, and be grateful for the evidence that helps end noncompliance.

Addressing Poverty, Protecting the Environment: PEW religious survey and its implications for tax policies

PEW has released the second part of its major survey of religion in America in the twenty-first century (this part on religious beliefs and practices, social and political views), described in Neela Banerjee, Survey Shows U.S. Religious Tolerance, NY Times, June 24, 2008.  It seems that one major conclusion of the survey is that Americans, though accurately described as a religious people, are also a tolerant people.  The survey report notes an "openness to a range of religious viewpoints [that] is in line with the great diversity of religious affiliation, belief and practice that exists in the United States."  Survey, linked above. 

Along with that tolerance go a few other attitudes that, I believe, are important to a sustainable democracy.   While Americans continue to differ strongly on issues that the right has for decades attempted to define as boundary "religious values" issues such as abortion and gay marriage, they are pretty consistently in favor of social and environmental justice, as evidenced by two views reported in the survey.  First is a view that we have an obligation through government to help the poor (more than two-thirds of those surveyed thought the government should aid the poor, even if it means more debt).  Second is a view that we have an obligation to protect the environment as a natural resource for people across generations (almost two-thirds agree that environmental protection and regulation is an important government obligation).

These findings are particularly interesting at this time, when an economic crisis means more ordinary Americans are finding it difficult to make ends meet while life remains an easy street for those few extraordinarily wealthy people at the top of the income distribution. 

On the concern for Americans in the lower income distribution, most politicians remain agonizingly silent.  We have known that we have a health care crisis for millions of Americans, but we continue to foster a private insurance system that makes its most profit by denying care.  At the same time, the country declines to take action to ensure that even the most helpless among us are protected--as shown by the decision on SCHIP.  We know that the economic crisis is extraordinarily stressful on those with few resources, but understanding and action on unemployment compensation extensions, foreclosure assistance, and infrastructure needs are terribly slow.

On the environmental front, some politicians have determined to take advantage of the ordinary person's pain from the increased price of gas to urge action --offshore drilling and opening of the Alaskan wildlife refuge--that does nothing in the short or long run to help those struggling with transportation costs but actually harms the environment and leaves us with an even more precarious energy dependency on oil.  We don't have the refining capacity to refine more oil if we got a tad more from the dangerous drilling; globalization of the energy industry means that a tad more oil here would do next to nothing to lower prices here (it's a global market, and the prices are set by global demand, including the rising powers of China and India); drilling offshore and in wildlife refuges has huge detrimental costs to wildlife and natural resources that swamp the piddling gains in energy availability; and it is time (in fact, it was time forty years ago) to take much more drastic action to reduce our dependency on oil and move us to alternate energy sources and conservation measures, both of which will improve the environment, conserve resources, and help cut our outsized contribution to global warming.

Taking the citizenry's clear support for helping the poor and protecting the environment, the idiocy of responding to high gas prices by subsidizing Big Oil and ensuring that Big Oil gets no-bid contracts in Iraq, and the need for fiscal and tax policies that better reflect the concerns of ordinary Americans, what could we do in our tax policies to make things better?  How about some or all of the following:

1. change the payroll tax system to make it progressive rather than regressive:  reduce taxes on the lowest-income Americans and increase them on the highest-income Americans by removing the cap and taxing capital gains as well as wages
2. eliminate corporate tax breaks that make moving offshore easy and profitable, for tax purposes, for big companies (e.g., define domestic companies by state of incorporate OR place of management and control; stop deferral of income--starting with the end of the active financing exception to Subpart F income and then transitioning over time to a complete no-deferral regime; and by all means, even if we don't get rid of deferral, for goodness' sake don't enact another corporate welfare provision like the 2004 de minimis tax on repatriated income that let the "bad" companies that keep their income overseas get a tax break for bringing it back to do all kinds of things other than create jobs (many of the companies actually laid off workers!)--see Lynnley Browning's NY Times story today on the windfall for 843 corporations that saved $265 billion in taxes); 
3. increase the Earned Income Tax Credit,
4. index the AMT rate brackets and exemption amount, creating an exemption amount that ensures that the lower 50% of the income distribution is not subject to the AMT; while at the same time adding various current preferences back into income for AMT purposes, such as the capital gains preference and mortgage interest deduction (if those aren't eliminated by other reforms)
5. Bring the regular tax rates into the 21st century by recognizing the way annual incomes have grown for those at the very top (CEOs making more in half a day than their average workers make in a year is not uncommon) while wages have remained stagnant (at best) for most ordinary Americans:  that means keep rates low at the bottom income tax brackets, but let them go back to their 2000 levels for the highest bracket AND add a rate bracket to the regular tax for taxpayers with more than $2 million in annual income (the current highest rate is reached at considerably less than half a million)
6. transition to a phase out of the mortgage interest deduction at lower mortgage levels
7. retain the Estate Tax (with something close to the 2001 rates and exemption levels) and at the same time eliminate gimmicky ways (from four-letter entities like GRATs and GRUTs to "valuation discounts") that the wealthy use to avoid the Estate Tax, and
8. eliminate the preferential rate for capital gains that favors accumulations of passive investments over productive engagement in enterprise--starting with the way "carried interest" is taxed for fund managers.

There are, I'm sure, a number of other things that should be done in the tax code to reflect the priorities that Americans consistently demonstrate--caring for those who are less fortunate, protecting the environment, having a fair tax system that doesn't let people off the hook just because they are wealthy enough to hire expensive "guns" to help them.   But some of these would be a welcome start.  Congress, are you listening to what ordinary Americans are saying?

Tax Cuts and Loopholes

Womenstake, a blog network run by the National Women's Law Center, has an interesting post on recent Congressional votes on various bills.  It's called "One Tax Loophole Gets Closed: Can We Make It a Trend? (June 18, 2008, Joan Entmacher).

The post praises Congress for paying for some of its tax largesse by closing loopholes--in this case, the provision in the new law providing tax assistance for military families that prevents Defense contractors from setting up shell companies offshore to avoid paying payroll taxes in respect of their employees. The post goes on to consider the House Ways and Means bill to "patch" the AMT, with offsets including taxing fund managers on their compensation the same way that bricklayers are taxed on their compensation (ie, at regular "ordinary income" rates rather than preferentially low capital gains rates) and the extender bill (with more child care credits and alternative energy incentives) that has been blocked in the Senate because of its resistance to paying for it by eliminating the fund managers' ability to defer income using offshore entities and other revenue raisers.

Here are the lines that count most in the posting:

1. Alas, as we’ve said before, there is no tax fairy to make up for lost revenues. Will we continue to cut the services women and families need to pay for tax cuts?

bank secrecy and tax evasion by wealthy US clients

The US District Court for the Southern District of Florida today released a "statement of facts" Download birkenfeld. statement of facts. 061908.pdf in connection with the guilty plea of Bradley Birkenfeld, a UBS banker, for his role in tax evasion schemes whereby the Swiss bank provided hidden offshore accounts for wealthy US taxpayers to hide their income from the US and avoid US taxes.  The statement of facts indicate that the bank earned about $200 million a year on assets of about $20 billion connected with these "undeclared accounts" of wealthy US clients, which were set up in tax havens such as Liechtenstein or Panama identified as belonging to sham offshore entities.  Birkenfeld's largest client was "a billionaire real estate developer" with initials "I.O."(identified by news media as Igor Olenicoff) who evaded more than $7 million in taxes from 2001 on the income from a nest egg of $200 million hidden offshore in this way.

UBS will likely be in for more pain from this, as will be various wealthy US residents and perhaps even some politicians.  According to an article on Bloomberg.com by Kolker and Voreacos, Birkenfeld's plea provides a description of the bank's systematic attempt to cater to wealthy US tax-avoiders and his attorney said he would "tell the government everything he knew about UBS."  According to an earlier New York Times article, UBS is considering divulging the names of some 20,000 private banking US clients. See Lynnley Browning, Wealthy Americans Under Scrutiny in UBS Case, June 6, 2008.  They may well be shaking in their boots about possible criminal tax convictions.  Let's hope so.

Phil Gramm, former US Senator from Texas, is vice chairman of UBS's investment banking arm, UBS Securities.  Mr. Gramm is also "McCain's econ brain" (that's presidential candidate John McCain, who has publicly stated that he isn't as well-informed about the US economy as he should be).  If the bank's assistance to wealthy US taxpayers' tax evasion was a pervasive as it appears to have been from the Olenicoff and Birkenfeld guilty pleas, one wonders how someone in as prominent a role as Mr. Gramm could possibly have been unaware of the shenanigans.  One suspects that either he was turning a blind eye (not a very good role model for providing the leading economic analysis to a presidential candidate) or he was in the know and not doing anything to stop the bank's engaging in such practices (not a very good role model for providing the leading economic analysis to a presidential candidate).

ASIDE: McCain is now described as a "budget-shrinking, flat-tax-embracing, healthcare-privatizing champion of free markets."  Id.   In other words, one might say, one who supports the kind of tax policy that embraces the tax aid to corporations and the wealthy along with unworkable "you only get what you can pay for" solutions for people at the bottom of the income scale that have put us into an  economy that works only for the wealthy, after 7 years of the Bush regime.

In the News: the AMT, Mortgage Fraud Indictments, Fair Talk about Tax Hikes (and Sunsets).

The Justice Department is going after individuals involved in mortgage fraud, in a series of "Mass Mortgage-Fraud Indictments", as noted on the TalkLeft blog.

It is appropriate that those individuals who misled investors in hedge funds be punished.  But that seems to be merely skimming the top of the barrel of the problem.  Many of the big corporate entities that made lots of money out of speculative financing, and the people who run them and own them, keep the money and don't pay the piper. 

I see this as a fundamental problem of the "free marketarian" neoliberal philosophy that views markets as the mechanism for making all systems function, without understanding the important role of proper governmental constraints, and gives ownership interests an exalted place in the economic system, without recognizing the importance of labor contributions.  Someone said (sorry, I've lost the link) that our system has become one where finance, which should be financing productive capacity, merely finances finance: speculative risktaking (betting) on market directions replaces fundamental economic productivity.  This is made possible by the deregulation of financial institutions, the treatment of commodity markets as offtrack betting parlors, and the way banks can manipulate their finances, including even (especially) the Fed.  (On the latter, see Jonathan Weil, Feds' Bear Stearns Books Look Prime for Cooking, June 18, 2008, Bloomberg.com.) 

It is furthered by skewed tax policies that generally favor capital income over labor --e.g., the preferential rates for capital gains, the treatment of compensation of income for private equity fund managers as though it were not compensation income, the "active financing exception" to Subpart F income-- and efficiency over fairness (where efficiency tends to favor the concentration of resources in the hands of a few ultra-wealthy).   

That's why it is also good to see more people beginning to talk about eliminating the preferential rate for capital gains, the compensation preference for equity managers, and the unjustifiable watering down of the estate tax.  See, e.g., Capital Gains and Games blog, Lowenstein on Needed Tax Hikes, discussing Roger Lowenstein's Sunday Washington Post Op-Ed, Read My Lips: We Need Those Taxes.

Of course, the AMT continues to get attention.  Though it's mainly people in the $250,000 to $500,000 range that would be hit by it without the "patch", it is typically talked about as something that is hitting the "middle class."  Rangel's Ways and Means Committee passed their AMT plan on the 18th by a 22-16 party line vote, in H.R. 6275.  The 2008 AMT "patch" would cost a whopping $61.5 billion dollars for one year and would provide exemption levels of $46,200 for individuals, $69,650 for joint filers.  The offsets passed by the House are generally pretty good, though I'm not convinced they would raise as much as such a broad "patch" will actually cost:  taxing equity fund managers' carried interests at ordinary rates (YAY!), eliminating the rate reduction for "manufacturers" in section 199 for some oil and gas companies (half a YAY!, since they ought to simply eliminate this entire provision for everybody) and providing additional limitations on treaty benefits.  The GOP, as usual a friend of big business and big real estate developers, wanted (i) no offsets at all (stick it to the grandkids, do they say?), or (ii) no limitations on the section 199 tax revenue reduction provision at all (let the big multinationals' managers and owners make hay), or (iii) no taxation of real estate moguls' carried interest as compensation.  The first option smacks of the Laffer curve dream that if you cut taxes, money will grow on trees, and Congress rightly rejected it.  The second option smacks of the ongoing campaign to eliminate any taxes on corporations (primarily benefitting the hugely overpaid managerial class and major owners) and again Congress rightly rejected it.  The third smacks of too cozy a relationship between real estate development moguls (who raise a lot of money for particular Congressional campaigns) and Congress.  Now the House, and then the Senate, have to be held to the Pay-Go provisions and finally bite the bullet and talk to the American people about paying for the programs that we want government to provide.

ASIDE:  Cutting down on military expenditures, and investing that money in inner city America would be one way to convince Americans that they will do responsible things with government revenues.  Then one reads about the Bush administration's treatment of military procurement contract reviewer Smith, who was unwilling to pay Cheney's old company KBR for $1 billion of bills that were unsubstantiated. He got shunted aside, and his replacement was only too happy to pay up and hand the company more huge Iraqi contracts.....

MESSAGE TO CONGRESS: let those Bush tax cuts sunset like they were purportedly designed to do.  Oh, and think about re-regulating the financial institutions so our economy is built on something other than a bridge of speculation from one financial institution to another.

Credit Crunch, Fed Action to save Big Money (banks), and now MBIA's blackmail of regulators--A regulator's nightmare

It all started when the mortgage business made the bigtime and credit default swaps became the financial world's latest gimmick for speculating on market directions.  Lots of hedge funds (and lots of managers with lots of money making opportunities) later, MBIA, the bond insurance and investment management company that claims on its website that its "core business is credit enhancement", is reneging on its promise to put $900 million in an insurance subsidiary to shore up its capital, as agreed back in May (the $900 million would be in the subsidiary in 30 days, it told New York regulators on May 12).  It expects to get by with it, because of credit default swaps that would cause real problems for the credit markets if it is treated as defaulting.  Sounds like financial blackmail to me.

Regretably, that is where the Fed has gotten us with the "too big to fail" logic that saved Bear Stearns and led every other unregulated financial institution to think that they can have their pie (risky investments, putting money where managers make the most money, etc.) and eat it too (counting on the Fed to bail them out if their risky investments don't pan out).

Here's a little of what is being said about MBIA's reneging on its deal.

• Naked Capitalism, MBIA Refuses to Downstream Cash and Has the Fed Compromised its Independence
• New York Times, Gretchen Morgenson, MBIA Debt is Setting Up a Quandary
• Calculated Risk, MBIA Letter to Shareholders

By the way, the letter to MBIA shareholders is the main item that pops up on the website link, above. You'll note that one of the things that the company is promising is to "level the US playing field or restructure with reinsurance affiliates"--I take it that means it plans to create offshore insurance affiliates and use transfer pricing to avoid US tax (while keeping its new investors' money "safe" by not using it in the old insurance subsidiary to shore up any losses there).  Am I reading this right?  MBIA is avoiding its obligations to shore up the insurance subsidiary, planning to use the money instead to create an offshore insurance subsidiary, where it probably plans to use fancy pricing and other transfer pricing gimmicks to pay less to the US government, even while it and other financial institutions are counting on government regulators not pursuing regulatory action against them to get them to comply with their promises made on capital reserves because they are "too big to fail" and it would have repercussions for the crazy, speculative financial system they've set up for huge profits for themselves that, because it is a crazy speculative financial system that favors big money which favors risk, will tend to take risky positions that will tend to make it necessary for heavy infusions of government support....