ataxingmatter

David Walker's Tax Predictions--scare tactics

[hat tip to Tax Prof]

David Walker, former U.S. comptroller general and head of the GAO from 1998 to 2008, is now the CEO of the Peter G. Peterson Foundation.  (Peter Peterson founded the Blackstone Group, another one of those investment groups with connections to people in power throughout the government, and served as Secretary of Commerce to Richard Nixon.)  Clinton originally appointed Walker to the comptroller general position, which he held throughout the W Bush administration, but he was also a Labor Department assistant secretary under Reagan. 

Walker is a bean counter at heart--he worked as a CPA for Coopers & Lybrand and Arthur Andersen before going into government work.  He is one of those who harp on fiscal deficits and complain about the U.S. commitment to providing health care to all its citizens.  See David Morgan, America the Bankrupt, GAO Head Takes Fiscal Show On The Road To Warn Of Trouble Ahead, AP, Oct. 28, 2006 (reporting on Walker's "fiscal wake-up tour" to talk about the "demographic tsunami to come from baby boomer retirement); Testimony of David M. Walker, President and CEO, Peter G. Peterson Foundation, Before the House Budget Committee (June 24, 2008).  And now, in an opinion piece for CNN, David Walker uses the discredited Tax Foundation "tax freedom day" * to argue that Americans should prepare for their tax bills to double over time.  See Commentary: Why your taxes could double, CNN.com, Apr. 15, 2009.

This appears at first glance to be a campaign to convince Americans that the so-called "entitlement programs"--Social Security, Medicaid, and Medicare--have to be eliminated or will cost too much.  Especially when he refers frequently to the idea that "mandatory spending programs ... are clearly unsustainable,"  Testimony, at 2, or suggests a need for automatic reconsideration of spending programs, Testimony, at 4, or calls for 75-year projections for federal programs, with separate accounting for social insurance programs.  Walker supports: transparency and "inter-generational equity"; the need for "social Security, Medicare, tax and health care reform", use of the "bully pulpit" to "help the American people understand... the consequences of failing to act; a "bi-partisan" approach to solutions; and a commission to address entitlements. 

Regretably, that comes across primarily as an entitlement-ending agenda, one that the rabid, anti-welfare right-wing in this country has embraced for decades.  Much of the attitude traces back to Reagan, who famously declared that the government was not the solution to the problem, because the government was the problem.  It is pushed by the Heritage Foundation, one of the supporters of Walker's "crusade" on fiscal issues.

But let's assume that it is really about increasing transparency so that we make decisions --about "major entitlement, spending and tax proposals"--by looking to the long term rather than to the next election.  So how does one consider whether this concern for deficits is worth giving up on universal health care for?  First, one has to look at other countries that provide universal health care much more cheaply, and better, than we provide privatized health care.  The conclusion there is that we should indeed reform the way we provide health care, and be willing to generate and spend some more tax dollars to do so, in order to ensure that every American has health care. Health insurers shouldn't be dictating medical decisions to doctors, and wealthy people shouldn't be the only ones able to get health care if they don't have health insurance at work.  We need single-payer, single-provider health care, and that is worth thinking about.

But what about the rest of it.  Doesn't the crusade against deficits based on the problems of "entitlement programs" sound an awful lot like the crusade against welfare just a few years back?  There seems to be a good bit of ideology mixed in here.  What if we cut military spending--the monstrosity created by four decades of throwing money at the military for anything they wanted--and use the savings on public infrastructure both tangible (roads, airports, rail) and intangible (education)?  Or what if we taxed capital gains receipts the same way we tax wage income?  Wouldn't that address our future problems without pushing the burden down on hardworking, low and middle-income Americans?

In other words, don't these scaremongering tactics about entitlements miss the point?  Right now, Social Security surpluses are adding to, not taking away from, government revenues.  Right now, we might predict that there wouldn't be enough money in Social Security to pay for the projected increased benefits in 2040, but we have the possibility of taxing capital gains receipts the same way we tax payrolls, so as to produce a significant increase in revenues to support these well-founded social programs.  Right now, we have an opportunity for the first time in decades to cut our enormous military spending by recognizing that we don't have a superpower enemy intent on nuking us, but lots of little enemies capable of suicide-bombing us.

Walker claims that American's tax bill will double over time, due to the federal debt burden, and tries to "put things in perspective" by using a calculation of the federal day as of September 30, 2008 to conclude that "every man, woman and child in the country" will have to pay off that debt with $184,000.  Of course, that calculation--besides averaging, again, the high bracket incomes with the low, also fails to consider the fact that debt is paid off over time, and so may be paid off with much higher incomes than those currently enjoyed, thus appearing to be less of a burden than when stated in 2008 dollars.  In other words, the campaign appears to be intent on making all Americans resent  entitlement spending because, it is claimed, every American's taxes will have to double to pay for it.  While he includes tax increases in the list of things that need to be done, he doesn't specify whose taxes need to increase the most.  But he makes clear that he thinks we need to cut spending on entitlements.

This campaign appears ill-founded and ill-focused.  Yes, let's get Americans better informed, so that they talk more about taxes and spending and understand the long-term consequences of today's decisions.  But slanting the playing field with drivel about "average taxes" and "doubling your taxes" is not the way to go about informing Americans.   It's scare tactics, nothing more or less.

* re "tax freedom day":  averaging total taxes paid and dividing them by the number of tax payers to figure out the "average" day that Americans have paid off "their share" of the tax burden is an exercise in arriving at a totally meaningless statistic.  Joe Blow and Bill Gates can't be 'averaged' in any way that is meaningful.   Yet, Walker has the gall to use that "indpendent survey" to find that the "average American's total federal state and local tax bill roughly equals his or her entire earnings from January 1 up until right before tax day" to push his anti-entitlements position.

The Torture Memos

[updated 4/20/09 with Emanuel statement and White House Telephone Number]

Warning:  this posting is not about taxes, economics, jobs, or money.    It concerns the rule of law and adherence to the international treaties to which we are parties.  It is about a code of honor, and the role of the executive in enforcing, not emasculating, the law.  It is, maybe,  about saving our souls.  It is about what it means to call ourselves a democracy and what it means to sustain a democracy after a crass political machine has used every means at its disposal to give power to its corrupt ideology.

The Obama Administration just released four additional Justice Department memos, produced under George W. Bush from 2002 to 2005, about torture (euphemistically described in one as "moving the interrogations into...an 'increased pressure phase' ") and specific techniques used by the CIA.  They permit these techniques to be used on a person who was already wounded in the course of his capture, and they permit them to be used in combination, in an "escalating fashion" culminating in waterboarding, a type of torture clearly and without any uncertainty recognized as such since World War II.  The memos even acknowledge that the limitations, to the extent you can call restrictions on degree of torture limitations, weren't always followed.  Waterboarding was used more frequently than permitted and with larger volumes of water than permitted, etc.  See Johnson & Tate, New Interrogation Details Emerge, Washington Post, April 17, 2009; Mazzetti & Shane, Interrogation Memos Detail Harsh Tactics by the CIA, NY Times, April 16, 2009.  The techniques include (among others):

• walling (slamming bodies into a wall--see further below),
• facial slapping (sounds like a euphemism for open-handed beating),
• wall standing (no repositioning permitted, creating body harming blood flows away from the head),
• stress positions (the memo accepts the idiotic statement that these are "not designed to produce the pain associated with contortions of the body" while admitting that they require such things as "kneeling on the floor while leaning back at a 45 degree angle" or "sitting on the floor with legs extended straight out in front of him with his arms raised above his head");
• sleep deprivation (for up to 11 days! straight, according to the CIA's "oral" information to the DOJ of its plans--I can't imagine I'd still be alive after that, but the DOJ accepted that "the discomfort associated with lack of sleep [would] motivate him to cooperate", and, after all, the program would illegally and unethically use medical personnel who could "intervene" if it went too far and, furthermore, they'd already done it for 72 hours (that's 3 days, folks) "from which no mental or physical harm resulted" so it must be fine if they plan to do it for "only" eleven days!);
• cramped confinement in a box, possibly with an insect mightily feared by the torturee (nothing more need be said--remember the iron boxes used by the Japanese--this is clearly torture), and
• waterboarding (simulated drowning, that could go on for 2 hours at a time, and clearly constituting torture, since 1946).

Those techniques include a number of methods of torture used by the Japanese in WWII for which instigators were prosecuted at Nuremberg.  The techniques permitted were clearly torture.  Consider slamming people into walls ("walling").  The August 2002 memo had the gall to state that the Justice Department had been informed by the CIA that the sound of being slammed into the wall is actually far worse than any pain caused and, accepting that as fact on the CIA's representation of it, the memo concluded that the  slamming wasn't torture because it wouldn't cause a lethal injury or quasi-permanent brain damage.  Supposedly, it would be a sound-making but not-serious-injury-causing "false wall" and the torturee would be protected by a towel or rolled hood to "support" the head and neck and "help prevent whiplash."  (Note that it doesn't say "prevent", since it can't actually prevent injury from such use of brute force.)  Folks, if you are slammed into a wall by someone holding onto a rolled cotton towel around your neck, odds are the towel makes it more likely that your head and not your shoulders will slam into the wall.  Even if your head were miraculously not to hit the wall full force, I suspect a good software engineer could show that a predictable result of having one's "shoulders" slammed into a hard object with considerable force in this way would be the dislocation of the brain within the skull and the stretching of vessels feeding the brain, with the potential for permanent damage.  It's one of the primary reasons that we have air bags in cars to protect us when the car hits an immovable object and would otherwise force our heads into the windshields--seatbelts (around our entire body, not our vulnerable necks) help, but don't prevent the harm.  If being slammed into a wall isn't torture, then nothing is.

The memos were written by high executives in the Justice Department.  Two of those Justice executives--Jay Bybee and John Yoo--were perhaps the most significant of the known enablers of illegal torture, since they produced the first memos justifying torture by defining it out of existence--nothing the US did would be torture unless it came awfully close to producing death.  (Of course, the very techniques that these guys approved actually did produce death in some cases, and certainly came close to it in others--even the army records show "homicides" of prisoners.)

One of those two, Jay Bybee, is now a federal judge sitting with life tenure in judgment on others for everything from petty crimes to death penalty crimes.  The other, John Yoo, is now a tenured professor of law teaching young and impressionable students how to write legal memos.  Those two facts should cause ordinary Americans to quake in their boots, for these two purported upholders of the law surely should be considered war criminals and tried as such.  The United States proved that in the post-World War II Nuremberg trials, when we tried as war criminals those Japanese who conducted waterboarding, just one of the "techniques" found not incompatible with laws against cruel, inhuman, and degrading treatment of prisoners by these yahoos.

The four recently released memos, added to the earlier releases--see, e.g., A Guide to the Memos on Torture (describing 2002-2003 information), provide full evidence of an out-of-control administration that considered itself above the law and willing to define-away the law to permit its minions to do whatever it had decided it wanted to do, all justified by a state of war that was created by a "preemptive" strike carried out by lying to the American people about the need for the strike (there were no mobile labs of chemical weapons, no weapons of mass destruction at all and they knew it was unlikely because of the success of the UN investigative team). 

There can be only one response to these facts.  The ethics investigation by the Justice Department's ethics office is appropriate, but has only limited sanctions available.  The investigation should be carried out without holds barred, and the report should be made public without any redactions.  But that is just a start.  Congress must act, immediately, to consider the impeachment  and conviction of Jay Bybee for violating international and US law in sanctioning and making possible the use of torture in his role as a loyal lackey to the Bush administration, so that he can be removed from his position as a federal judge.  The Department of Justice must act, immediately, to investigate and undertake criminal prosecutions of the primary perpetrators of a policy sanctioning torture.  That such investigations and prosecutions might reach to the highest offices under the Bush administration--including Jay Bybee, John Yoo, Stephen Bradbury,  Dick Cheney and his various staff members, or even George W. Bush--cannot be a deterrent to the necessary undertaking of execution of the laws of the United States against war crimes. 

While I appreciate President Obama's concern that such prosecutions could be a distraction and arouse divisive  rhetoric, see Text of President Obama's Statement on the Memos, and I understand the CIA's concern that its operatives not be punished for carrying out orders that can at least be portrayed as considered patriotic in the context of 9/11 (though torture doesn't really produce good intelligence), see Text of Statement by the Director of National Intelligence, I still don't agree with the position against taking action to enforce the law of the country against torture.  We do not ordinarily refuse to investigate crimes or defer from prosecuting criminals who commit crimes of this magnitude merely because of those kinds of practical issues.  A man is in prison for life in California for stealing a piece of pizza.  Yet the authors of apparently facially incompetent legal memos written to justify methods of torture already in use at the time the memos were written are neither in jail nor even under threat of investigation at present.  That is not justice, and that is not the American way.

As Michael Ratner, president of the Center for Consitutional Rights, states:

Torture is torture and all the legal window dressing in the world cannot hide its essence: the infliction of pain and suffering on human beings. If legal advice can protect torturers, no official anywhere can ever be prosecuted. Legal advice then becomes a get out-of-jail free card and will be employed by every petty dictatorship to protect its abusers. ... Prosecuting those involved in the torture program, particularly the officials who conceived, authorized and ordered the torture program is not 'retribution' or 'laying blame for the past' as President Obama says.  it is about insuring that we will not again become a nation that employs ... torture. ... We prosecute those who break laws to deter lawbreaking.  Ratner, Room for Debate: the Memos: Torture Redefined, NY Times blog, Apr. 16, 2009.

Senator Leahy wants an independent commission that would offer immunity for candid testimony.  While such a commission might serve some purposes, especially if it only offered immunity to underlings and not to the major perpetrators of the policy, it would be a problem if it amounted to an escape from justice for those who are most guilty of creating these warped policies. 

A commenter on the "room for debate" blog quoted above notes that "it's unbelievable that the OLC gave legal cover to the CIA to use some of the worst of the Stalinist Era torture techniques."  If you agree with that assessment, if you agree with my own description of the problem, if you are appalled upon reading the extent of the blatant disregard for the law evidenced in these memoranda, if you want your country to "get right" with the international laws of justice towards all and humanity even in dealing with the enemy, then you must write your congressional representatives, write President Obama, write Attorney General Holder, and take every activist step you can to ensure that we do not merely brush this egregious action by our government, on our behalf, in our name, under the rug. 

Rahm Emanuel has since stated that the White House does not intend to push for prosecution of anyone in the Bush administration for their sanctioning of torture.  See, e.g.,   This is not a political decision to make--the Attorney General is supposed to apply the law without political considerations, and hence AG Holder should disregard such comments.  Applying the law is not "retribution".

Call the White House at 202-456-1111 to let them know that you disagree with their approach to condoning torture after the fact.

Inequality

As a proponent of what I have called 'democratic egalitarianism', much of what I have to say about tax policy derives from my view that government policies in general should be supportive of movement towards equality and away from inequality.  I focus on tax, and related economic and budgetary matters, because of the central significant of economic resources.  But there are many related issues, from the morality of allowing a "greed is good" mantra to predominate over our long-held "do good to others/ act in neighborly ways" heartland values to the questions of social justice that run through our criminal justice, property laws and welfare policies, as well as our "tax expenditure" legislation that allows hidden subsidies--usually for the wealthy class of capital owners--to treat ordinary Americans unfairly. 

So, since I know I can't keep up to date on, or talk enough about, all of those issues, I am adding to the blog a new blog under "progressive sites of interest" that helps in that effort.  It's Professor Lane Kenworthy's blog called "consider the evidence".  Fittingly, he is now running a series on the causes of inequality, looking at lax labor unionization provisions, education and globalization and assessing their impact in creating the worrisome inequality in American society today. 

Enjoy!

Lobbying pays--if you are a corporation lobbying for tax breaks

[hat tip to Tax Prof]

Several professors at the University of Kansas did an empirical analysis of the return to corporations for their lobbying for a "repatriation" tax break that was passed in the 2004 tax act.  (The label put on the bill by the Republican propagandists claiming that they were cutting tax revenues in order to create jobs is the "American Jobs Creation Act, but the bill really didn't do anything much to create jobs; in fact, companies got a huge tax break without having to demonstrate that they'd created a single job.)  Professors Mazza, Alexander, and Scholz concluded, in Measuring Rates of Return for Lobbying Expenditures: An Empirical Analysis under the American Jobs Creation Act (April 8, 2009), that repatriation was great for the corporations.  Ninety-three of the country's largest multinationals got tax savings of $62 billion after spending a mere $283 million on lobbyists for the bill.  That's a return, over 500 companies, of an average 22,000%.  Not bad for the corporations, but not so good for workers.  Most workers were still getting stagnating wages, and not many new jobs were being created in the economy overall.

Meanwhile, for those who complain that highly progressive taxes are causing the wealthy to pay far, far more than their fair share (we hear that a lot around April 15), see any one of the following:  Catherine Rampell at Economix, How Progressive Is the Tax System;  CTJ April 13 item: "Is 'Tax Day' Too Burdensome for the Rich?" (presenting data on tax progressivity); Economist's View, Just How Progressive is the Tax System?, Apr. 14, 2009.   Bare bones gist:  the richest few do not pay a hugely disproportionate share of the tax revenue, as is sometimes claimed; when one considers the share of total taxes (federal , state and local) paid by various income groups, the share of taxes ends up being almost proportional to income.

IRS "Dirty Dozen" list of tax scams: don't do them, dear reader

It's that time of year again--yes, the April 15 deadline for most calendar year taxpayers to file their return, but also the  mid-April deadline for the IRS to release its latest version of the "dirty dozen" tax scams and warn taxpayers not to use them.  If you're doing one of these, hold that return--don't mail it; fix it first.

What's on the list--I.R. 2009-41 (Apr. 13, 2009)-- this year? 

1) Phishing.  We all get a few of these emails daily, telling us of these great rewards if we will just respond verifying our email and providing our bank accounts and passwords and other information.  Don't be fooled.  Delete it, or forward it to the IRS at [email protected].

2) Hiding Income Offshore.  This one has been in the news lately, as the IRS pursues those 52,000 Swiss bank accounts to find out the names and possibly assess lots of back taxes and interest and penalties, under tax and other laws.  Hide and seek may be fine when you are a five-year-old with no assets, but putting your millions under an offshore island "pillow" to hide them and all their earnings from Uncle Sam is a big no-no.  Better come forward soon--much better to 'fess up and tell all than be caught red-handed with your kitty on an offshore island.

3) Filing false forms.  Claiming refunds you aren't due, or claiming deductions for nonexistent (or personal) expenditures isn't okay.  If you just happened to take some work home once in a while, you cannot claim part of your bedroom as a home office.  In fact, if your employer provides you an office, you ordinarily can't claim a home office even if you bring work home every single night and work at the same desk and don't do anything but work there.  It's pretty clear that some tax return preparers  make up the numbers and tell people they are entitled to a home office deduction when they are not.  Don't do it. 

4) Claiming inappropriate charitable deductions.  There are lots of charitable deduction scams, especially ones that overvalue the item contributed and undervalue the consideration received for the contribution.  If you bought a ticket for a concert, got it, and then decided not to go so you didn't use the ticket, you can't take that ticket price as a charitable contribution.  Nah, don't go there. 

5) Preparing someone else's returns with a skim and a whiff of criminal fraud.  Watch for the bad guys posing in sheep's clothing--tax return preparers who take huge bites of your refund for a "refund advance loan" or charge inflated fees for putting your numbers in easily available software, and then still don't get it right.  Know your serviceprovider.

6) Making frivolous arguments.  Don't be like Wesley Snipes and all those tax protesters who buy and read a book that made its author millions but doesn't accurately reflect the tax laws.  it may sound good, but it isn't.  There is a law that imposes the income tax, and the same law makes it more onerous to those who frivolously flip their noses to the law.   Tax is still due, and penalties add up. 

7) Filing false refund or abatement claims (not unlike 2, above).  The IRS has apparently seen a number of false claims for abatement using Form 843, by people who've never even filed a return.  An obvious no-no.

8) Disguising entity ownership.  Pretending that someone else owns entities you form to hide income, get made-up deductions, launder money, or otherwise lower your taxes does not make Uncle Sam happy.  Me, either.  This is something that the uber-wealthy and just wealthy tend to do.  Don't.  'Tain't fair.

9) Filing zero wage returns.  Some taxpayers file "corrected" 1099s to claim that they shouldn't have paid any withholding tax on their wages. 

10) Misusing trusts (not unlike 8 above).  Trusts have been used, like corporations and "private foundations" in the Phillipines, to hide assets and reduce income and estate taxes.  Watch out.  The IRS is watching.

What's Ahead--maybe a "fake" recovery?

Naked Capitalism's guest poster Ed Harrison explores his views about the recovery possibilities--both political and real, in The Fake Recovery, Apr. 13, 2009.  Here's his conclusion, which may surprise you, given his assessment of the pragmatics of the political situation, which mean that the Obama Administration probably won't nationalize banks, even though it probably should.

You should be under no illusion that the coming rebound is permanent. Much of it is not. What we are seeing is the makings of a cyclical recovery that might begin as early as Q4 2009 or Q1 2010. How long or robust that recovery is remains to be seen. Moreover, it is still questionable whether we will get any meaningful recovery at all in spite of the 'green shoots' because the banking system in the United States is severely undercapitalised and more asset writedowns are coming due. This is a fake recovery underneath which many problems remain.

Nevertheless, banks are going to earn a lot of money and that is bullish for their shares - at least in the medium-term. Yes, the stock market is overbought right now. However, if banks put together some decent earnings reports over the next few quarters, their shares will rise.

Furthermore, if the banks can earn enough, this cyclical recovery will have legs as banks will then have enough capital to resume lending and that is supportive of the broader market as well. It is still too early to tell how this will play out over the longer-term. For now, I am much more positive on financials, and somewhat positive on the broader market as well.

Our friend Mark Thoma over at Economist's View doesn't seem to take so kindly a view of the bank rescue plan.  See "How Long?", Apr. 13, 2009, which suggests that "the administration is tinkering at the fringes with programs designed to enrich Wall Street."  Why doesn't somebody start figuring out how to enrich Main Street, where foreclosures and job layoffs are taking a bruising toll?

 But maybe more worrisome is what we know about the politicians advising the chief politician on this recovery--Larry Summers, aka one-time Clinton Treasury Secretary, aka one-time Harvard president, and aka  a one-day a week, millions of dollars income recipient from D.E. Shaw.  See this additional posting on Summers and Senator Dorgan, Apr. 12, 2009, by Stormy.  Summers' too-close-for-comfort ties to Wall Street don't provide much reassurance that the taxpayers aren't being taken for a ride (again) by the Big Bailedout Banks.

More on Estate Tax "reform" (read--"help for the uber-rich")

I reported on the Senate's Lincoln-Kyl amendment, passed by 51-48, to weaken the scope of the estate tax for the benefit of the top one-quarter of one-percent, the "uber-rich", in last week's posting, "A Link Worth Noting: Can You Believe the Senate's Estate Tax Proposal?"  The gist--where does the current Senate get these ideas, that in the midst of a gigantic economic recession, when trillions are already being committed to bail out Big Banks (and their wealthy shareholders) while ordinary Americans are facing excruciating job losses and shrinking pocketbooks from the loss of home values, the Senate comes up with another idea for giveaways for the uber-wealthy.  I quoted the Center on Budget and Policy Priorities, which has put together some interesting numbers that reveal the clear way that this additional revenue reduction benefits the ultra-wealthy.  Hard to think of a worse response.....

Bob Greenstein agrees, in "Senate to Uber-Rich: 'Help is on the way'", Huffington Post, Apr. 13, 2009.  He makes it clear.  "Only a tiny fraction of estates will owe any estate tax in 2011 if 2009 law is extended--Only 0.25% of estates (1 out of every 400) will owe any estate tax in 2011."  But under the proposal, those few "[e]states worth more than $20 million would get an average tax cut of $3.5 million."

And he attacks the misleading propagandizing that has been the modus operandi of the 'coalition against fair taxes' (my name) from the beginning.

How did Senate proponents sell their colleagues on the idea of spending so much money to benefit the estates of the wealthiest one quarter of one percent of Americans who die? Mainly with deceptive advertising.

In particular, they portrayed this tax windfall for the wealthy as an essential lifeline for small businesses and farms. The Lincoln-Kyl proposal would provide "crucial support and protection to small businesses, family ranchers, and farms," Minority Leader Mitch McConnell asserted on the Senate floor.

That's sheer nonsense.

Nearly all small farms and businesses are exempt from the estate tax under the current rules, so Lincoln-Kyl would do nothing for them. Only 100 small farm and business estates in the entire country would owe any estate tax at all in 2011 if Congress extends the current rules, the Tax Policy Center reports. Less than one quarter of one percent of the $91 billion in new tax cuts that the proposal would provide would go to estates that consist primarily of small businesses or farms.

Other Links Worth Noting, from special federal tax breaks for wealthy sports owners to special state tax breaks for wealthy whatever owners to special breaks for financiers (and the screwing of ordinary American workers)

Jim Maule, at MauledAgain, on A Special Tax Break: Fair? Worth Making Permanent?, talks about the tax expenditure in favor of owners of sports complexes contained in section 168(i)(15) and a proposal to make this "temporary" bit of egregious tax legislating behavior permanent, of all things.  Jim asks some important questions:  about how such provisions to benefit particular types of industries complicate the tax laws (my view--they do, and they aren't worth it), whether such benefits really do encourage economic development (my view--a resounding nope), whether the tax break means that these facilities have no useful life afterwards (my view, of course not--they're often still around and in full use after 50 years), why congresspeople use words like "fairness" in the title of legislation that is demonstrably unfair because of the special tax breaks it gives to particular interest groups (my view, unjustifiable), whether legislators who make the laws so complex actually understand what they do in terms of complications and interms of economic impact or are acting solely to support their major contributors (my view--they don't care so long as it benefits the group they intend to benefit), and finally, what's the need (my view--none).  Jim's conclusion:  "It's unfortunate no one has introduced legislation to repeal section 168(e)(3)(C)(ii) and section 168(i)(15). That could be called the "Small Bit of Permanent Tax Fairness Act.""

Citizens for Tax Justice's blog, Talking Taxes reports on Georgia Lawmakers Swap Income for Property Taxes, Apr. 7, 2009.  This legislative action --not yet final--belongs in the Ripley's Believe It or Not category.  You see, the assembly just decided to cut capital gains taxes by 50%, at a cost of lost revenues to the state of $340 million a year.  Capital gains, of course, are mostly earned by the wealthy, who own most of the capital assets.  So how is Georgia paying for this beneficence for the well-to-do?  By planning to tax Georgian residents more heavily on their homes.  It may be that the pare-back on the homeownership property tax break makes sense over the long term, though a severe economic recession that has homeowners worried about losing their homes may not be the best time for doing so.  But surely a capital gains tax cut that benefits "the wealthiest 1 percent of families" in Georgia doesn't make any sense at all.

Angry Bear's CDAN's April 10 post on Slow collapse of the wage system is the underlying cause, citing The American Prospect's "Mind the Wage Gap" is a "reminder of reality" that we all should pay heed to.  If ordinary Americans had shared more fairly in the economic fortunes during the boom time (which would likely have happened if Big Business hadn't successfully decimated the labor laws to make workers powerless when Big Business mangers and owners take the profits and leave workers holding the bag), ordinary Americans would have had enough money to pay their mortgages and live decent lives, supporting other businesses that paid decent wages to ordinary workers who lived decent lives, supporting......

A Link Worth Noting: can you believe the Senate's estate tax proposal?

Hat tip to Mark Thoma, Economist's View, Using Inheritance Taxes to Promote Equal Opportunity, Apr. 10, 2009 and

Mark Thoma's posting links to Michael Kinsley's April 10th commentary "Democrats for Rich Heirs?" in the Washington Post and to Bard DeLong's Hoo Boy, We Need Better Senators Badly (which in turn links to Think Progress's Lincoln's $250 billion estate tax plan would cut taxes for only 60 'small businesses'), both of whom address the outrageous action in the Senate last week, when ten purported Democrats joined with all 41 Republicans in voting FOR a $250 billion reduction in tax revenues in order to give the ultra-wealthy an even larger break on passing along ultra-wealth without ever being taxed.  (You really have to read Kinsley--he has some good cutting comments that show how ridiculous the arguments in favor of a low estate tax really are--like, is anyone going to die sooner or more often once we lower the tax on estates?) The Senate continues to talk about this in terms of saving family farms and small businesses.  That's been debunked so many times that one tires of hearing the argument again.  The CBO notes that "almost all such estates are able to pay the tax biill without having to sell business assets."  In fact, the people that complain are just doing that--whining. 

The Democratic senators supporting this travesty of tax policy injustice, who Kinsley points out are among the same who claim offense at multimillion dollar bonuses for bailed out Wall Street execs at AIG and elsewhere, should be overwhelmed with a barrage of complaints from every constituent.  Here's the list of ten Democrats, available at this link: Baucus (D-MT), Bayh (D-IN), Cantwell (D-WA), Landrieu (D-LA), Lincoln (D-AR), Murray (D-WA), Nelson (D-FL), Nelson (D-NE), Pryor (D-AR), Tester (D-MT).  Bayh is one of the ones who voted AGAINST Obama's budget, because he thought it was "too expensive"--so why does he support this amendment in favor of the ultra wealthy that will cost hundreds of billions?

Let's face it.  Ordinary Americans are currently suffering layoffs, loss of homes, worries about retirement, worries about health care, all from this economic crisis caused by the risk-taking speculation that made huge private profits for Wall Street and created huge socialised losses for taxpayers.  Yet these renegade Democratic senators are voting to support billions in revenue reductions benefitting the ultra wealthy at a time when these trillions are being paid out to clean up the economic mess made by the rent-seeking of many of these same  ultra wealthy--who already pay very low tax rates on their very very very very very high incomes (CEOS with $30,000 a day not uncommon; how about $400,000 a DAY taxed very cheaply at capital gains rates) and almost no taxes on their very very very very very very large estates (effective tax rates of about 14%--often on wealth that has never been taxed or has been taxed at very low rates when first earned).

The Obama proposal--to retain the 2009 rates that allow a married couple's estate to pass along $7 million (at least) tax free and then tax any millions (or billions) above that amount at only 45%--is already an outrage.  There are very few estates that pay any tax at all when the exemption amount is at the 2009 rate--no federal estate tax is paid in 997 out of 1000 deaths.  See Center for Budget and Policy Priorities. The 3 out of a 1000 that pay are the very richest multimillionaires (often billionaires) in America.  We should have a smaller exemption amount and a higher rate, even a progressive rate schedule, to expand the number of ultra wealthy who finally have to pay some tax when their estates are passed on to their heirs. 

Instead, these 51 Senators have passed a Budget Resolution that proposes exempting a whoppping $10 million per couple and taxing the excess at only 35%.  That's only a 5.8% effective tax rate on an estate of $12 million, even though these estates, in many if not most cases, represent very low-taxed accumulations (at 0% or 15% rate) during the lifetime of the decedent.  And the cost is not peanuts:  annualized, it exceeds the annual budget of the Enivornmental Protection Agency and is about the amount that the government spends on Pell Grants to help students afford college. See Center on budget and Policy Priorities, above. 

Nor is this an argument about fairness or inappropriate "double taxation" of the same income.  Most of this wealth accumulation has never been taxed during the lifetime of the decedent (either because it is in the form of appreciation of art or financial assets that isn't taxable til realized or in the form of tax-exempt income such as interest on municipal bonds or income on life insurance policies or otherwise "sheltered" through inventive strategies like secret offshore bank accounts) or it has been taxed at exceedingly low rates, especially when compared to the payroll plus income taxes paid on the salaries of ordinary, much-less-well-off Americans. 

Ordinary Americans--98% of us--pay income tax at the progressive rates of 10-35% on our compensation income every year, as well as significant payroll taxes on those same salaries.  And most of us have an estate that is so small (especially after the decline in the value of our homes, the biggest asset for most of us) that it would not be subject to tax, even using the much lower exemption levels and rates that were in effect before the first of the Bush changes in 2001!

Nor is it about saving family farms and small businesses.  Those are red herring arguments, since there's not much if any evidence that the federal estate tax, even at the lower pre-2001 rates, cast families out of family farms and small businesses.  There already is, after all, a provision for paying whatever little estate tax is due out of the income of the business over a period of 14 years , and very very few working "family farms" come in at that kind of value level anyway.  (Besides, most family farms long ago became impersonable corporate entities, reaping all the benefits of corporate tax deductions for the main shareholder's  being "required" by the corporation to live on the farm.)   As a commenter on the WaPo op-ed site whose family once owned a farm notes,  "Even if the full Clinton-era estate tax were revived a farm of that size (120 acres in Pennsylvania) would never come close to the threshold [of being taxed].  I can sympathize with those who own farms or businesses ten times larger than ours, but only up to a point."  In fact, instead of being lost to the estate tax, it is much more likely that family farms are now liquidated at death because the heirs don't want to farm them.  This argument about the estate tax destroying family farms is a pure propaganda piece, pushed by the coalition of wealthy families (like the WalMart heirs, the Mars candy family heirs, the Gallo wine family heirs, the Campbell's Soup Company heirs, etc.) that want to end the estate tax.

Nor is it an issue of individualism--the right of a person to "decide" what to do with that person's accumulated resources because the person "earned" them.  In many cases, the decedent didn't earn but himself inherited.  Even if he earned it, he earned it in significant part because of the contracting, operating, working, selling, transporting and other important institutions created by governmental institutions, not "on his own", and often with a number of direct government subsidies, such as those that made the fortune of every Big Oilman possible, and of the Stansfords and others that made fortunes out of free land and public financing for their railroad projects, etc.

This proposal is and has always been just one more step along the route to permanent and complete repeal of the estate tax for and on behalf of the ultra wealthy.  It is outrageous to cut needed revenues in order to give this kind of bonus to the ultra wealthy when Congress can't bring itself to continue the "making work pay" cut in the payroll taxes that are crushing many ordinary Americans .

PS  You really have to read Kinsley.  He has some good cutting comments that show how ridiculous the arguments in favor of a low estate tax really are, like the following sample:

• {Laffer's] reason [for cutting taxes] was that taxes discourage the activity being taxed; cut the income tax, and people work harder. But this, surely, is an argument in favor of a tax on inherited wealth (if you accept the premise that we've got to tax something or other). Lowering a tax triggered by your death is not likely to pay for itself by encouraging you to die sooner, or more often.
• The most common route to gargantuan wealth, like the route to smaller piles, remains inheritance.  The ability to pass money along to your kids may motivate many a successful executive or investor to work harder, but it can't possibly motivate those kids to inherit harder in order to pass it along once again.

Tax Policy: should it support capitalism, socialism or a mix?

I find when I talk to people across America--from casual conversations in airports or on street corners to email correspondence with those who write me separately rather than comment on the blog directly--that many Americans tend to confuse economic theory and political theory.  Often, I'm told that any policy that tends to redistribute resources is "socialism" and that socialism is directly counter to democracy.  Similarly, many tell me that policies that aid the wealthy in continuing to amass resources--such as lower taxes on investment earnings--is just good "free market" capitalism, and that such policies are a necessary adjunct to, or even part of the definition of, democracy.   Perhaps this trend in thinking is best symbolized by the meteroric rise of "Joe the Plumber" among America's devoted right-wing constituencies, who find a plumber without a license going by a name that isn't his own and ignorant about politics or economics a great "lecturer" on the "evils" of "socialism".  It is certainly fostered in part by the many propaganda institutes (posing as "think tanks") that spout confusing rhetoric intended to support policies that tend to shift resources ever unceasingly towards the already wealthy.

 We clearly need to do a better job of basic education about economic and political theory, and history, than we have been doing in our schools. 

There's an interesting piece of new data on this issue that may cast some light on what Americans want or believe about how our economy is meshing with our governmental system.  Rasmussen has run a national telephone survey comparing Americans' views on capitalism and socialism.  Without precise definitions (the report did not offer a definition at all to survey respondents), we can expect that Americans were responding based on their own vaguely defined views of the nature of each of these systems.  See more on that below.  But the results are nonetheless important:  20% say socialism is preferable to capitalism; 27% aren't certain which is best; and a slim majority of 53% say capitalism is better than socialism.  For young adults, the results are even closer: 37% favor capitalism, 33% favor socialism, and 30% are undecided between the two; while older adults are more strongly supportive of capitalism.  Not at all surprising is the fact that investors (which one asumes captures most of the wealthy) favor capitalism by 5 to 1 and Republicans by 11 to 1.

As the Rasmussen website points out, a huge majority of Americans (70%) also say they favor a "free market economy".  That's the terminology pushed since the Reagan era under the substantial funding (from the John Olin Foundation and other sources) for spreading the fringe Friedman "free market" mania.  Rasmussen suggests that these two findings (on capitalism and free markets) suggest that most Americans are skeptical that American capitalism relies on free markets.  From my perspective, this combination of findings is worrisome, because it means that the Friedmania has taken root in ways that will be hard to dislodge, as ordinary Americans fail to understand that "free" markets are impossible and that our version of capitalism, especially since Reagan, is among the most ruthless and disregarding of the needs of the vast majority of Americans.

I think the U.S. has a lot that it can learn from our European siblings--how to mix those socialistic policies that help ensure more balanced sharing of resources with those capitalistic policies that help incentivize entrepreneurship. 

And tax is central to how we do that.  For years, many of our tax policies have given special breaks to particular groups--especially the extractive industries such as Big Oil, the financial conglomerates and agricultural conglomerates.  We should eliminate those tax policies and move to ones that support "green" environmental objectives and more egalitarian resource-sharing objectives.  We have a chance, over the next few years as we try to climb out of the mighty hole that the Bush policies landed us in, to do so through open, transparent and deliberative consideration of alternatives, that cast aside the ideological bias in favor of privatization and deregulation to adopt a more nuanced approach that considers the areas where government intervention is most important, and how that intervention should be managed.  The tax code is one of the ways that we have enacted inappropriate policy that favors Big Business and/or Old Money--often in "tax expenditures so not very understandable to the tax-undereducated public.  Let's undertake consideration of these issues openly and understandably, rather than letting the WalMart heirs and a few well-connected Big Oilmen and Big Bankers grease the wheels that fill their own pockets.