ataxingmatter

Deficits as far as the eye can see--what's the story?

Let me tell you a story of the passage of time, the passage of tax cuts, and who really cares about deficits or the impact of tax cuts or deficits on the middle class.

Back in 2001,  Bush and the Republican controlled Senate and House passed a huge tax cut, purportedly targeted at middle income Americans.  Americans had not been clamoring for tax relief.  The tax relief planned by the Bush Administration and Congress didn't result from long deliberation about how to achieve a less distorting tax and fairer tax system, like the 1986 tax reforms.  Bush merely took advantage of the relatively decent economic years under Clinton (much of which, we now know, was a mirage caused by the fevered frenzy of big banks speculating in the market through securitizations, derivatives, and other means and generating profits for wallstreet financial institutions and their Wall Street trader barons, but only phantom gains in housing for ordinary mainstreeters).  There was (at least on paper) a budget surplus (for the first time in years).  And instead of using that surplus to spend on public infrastructure projects or to pay down public debt, Bush said we should "give it back" to those who created it through tax cuts.  There was some fidgeting about deficits, but ultimately enough of the spineless Dems went along with the Republican rush for tax cuts galore to pass what was projected (with the use of sunsetting gimmicks) to be a $1.3 trillion tax cut.

Interestingly, once a tax cut is offered, Americans are generally quite willing to grab onto it.  It will be liked...

So in most of the rest of the years of the Bush administration there was additional tax cut legislation, in spite of the fact that Bush had engaged us in what now seems an endless state of war--with the huge, long-term costs of war including transportation to overseas locales, training of soldiers, providing care til death of wounded (both physically and psychologially) veterans, and payment for the many privatized military services instituted since Reagan (Blackwater mercenaries made many times the salary of enlisted soldiers--proving that private enterprise does not do government work more efficiently than government does, which was the original justification for privatization).  And in spite of the fact that tax cuts (ultimately mostly benefiting the wealthy) and war increases meant record deficits.  Congress whimpered a little about the deficits, but they didn't dampen the Congressional appetite for tax cuts.  Various Republicans didn't bother to whimper--they just justified them with their (now disproven) rhetoric that tax cuts would actually increase tax revenues (the laughable line based on the discredited Laffer Curve arguments).  See these ataxingmatter posts for a discussion of the Laffer Curve and why it doesn't even count as theory, much less as generally accepted theory: CFP's Laffer Curve Video; Laffer Curve II--proof?; Reagan's Trickle Down Economics Doesn't Work: tax cuts don't pay for themselves.

Moreover, most of these cuts were set up as "temporary" provisions that would sunset in a few years, reversing to their pre-2001 tax cut stage.  That was done not because the Republicans in Congress didn't intend to make these cuts permanents but because they wanted to hide the real impact on the budget and the huge deficits that the tax cut packages would create.  So they claimed they would "only" cost $1.3 trillion over ten years.....

Of course, that they would make them permanent if at all possible was clear from the outset--both in explicit statements and in the actions over the next few years, as various provisions were offered again and again as permanent revisions to the Code.  Take the estate tax as an example.  The Bush change lowered the rate and increased the exemption amount over several years.  That was then speeded up, with the estate tax being "repealed" for one year in 2010 and then the law would sunset, bringing the pre-2001 estate tax back from the dead in 2011.  Every year, some Republican would introduce a bill to repeal the estate tax that year once and for all or, once that got to be very expensive, to change it to a 35% rate only applicable to amounts above $10 million.   And even now, even the Dems are considering making the 2009 estate tax provisions ($3.5 million exemption for one, $7 million for a couple, 45% rate) permanent!  See "Estate TAx: Why don't the Dems get it?" on ataxingmatter.

Further, in spite of cutting individual taxes and then given corporations the dream package they'd been lobbying for for years, and in spite of reducing taxes on dividends down to the capital gain rate (giving wealthy investors part of what they'd been asking for for years--close to zero taxation), and in spite of continually offering bills to cut something new, resulting in even less government revenues while watching the deficit spiral out of control, Congress also knew that the alternative minimum tax (AMT) would gradually claw back the reductions for those at the bottom of the distribution.  See earlier ataxingmatter series on the AMT in which this is explained in detail:  The Senate and the House on the AMT (July 12, 2005); What Should Congress Do About the AMT (Part I, Part II, Part III, Part IV, Part V, Part VI).

So it seems fairly clear that Congress didn't really care much about deficits (it would not have cut more and more revenues to the government while spending more and more money on war and "homeland security" --remember those giddy military contractors during the heyday of the Bush free flow of money) or about the middle class (it would not have cut taxes with one hand and taken them back with the other AMT hand or cut taxes that primarily benefited the wealthy--such as capital gains and dividends).

Now, of course, Congress--the Republicans and the "blue dog" Democrats--are mouthing their concerns about deficits at every turn of the Great Recession and health care reform discussions.  You'd think their hypocrisy would concern them, but apparently it doesn't.  They are likely to pass a health care reform bill that gives a windfall to private insurance (mandatory premiums from all those who are relatively healthy and have chosen in the past not to be covered) while costing the federal government (coverage of the vulnerable, which will be picked up by government)--a repeat of the privatization of gains/socialization of losses that has been the norm for our handling of the financial crisis.  And part of the reason we did so much of the economic stimulus bill as tax cuts that really don't do much for stimulus--instead of infrastructure building and other projects that would have aided everyone with both REAL PERMANENT infrastructure projects and REAL job creation--was to apease the Republicans who wanted all tax cuts and no infrastructure spending.  Again, some were arguing that infrasturcture spending was deficit-creating and tax cuts were an inherent good.

So it is nice to see someone now looking back to note what the real facts are about the Bush tax cuts.  David Cay Johnston, Easing Impact of a Tax Rise, NY Times (Oct. 28, 2009), writes that the Bush tax cuts have cost us $2.34 TRILLION in revenues, according to new calculations done for the Times by the Tax Policy Center, a nonpartisan research institute whose research is respected by both Democrats and Republicans.  

Just to understand what the cost of those tax cut goodies was when it dug a $2.3 trillion hole--next year, Johnston says, we'll need to dedicate every penny in taxes paid by individuals for one month just to cover the interest on the financing of the federal debt needed to make up for that shortfall. Id.

Johnston goes on to highlight some of the ways that high-income taxpayers can save on taxes, assuming that the Bush tax cuts are allowed to lapse for them.  (Obama has--somewhat foolishly, from my perspective--promised to hold anybody making less than $250,000 harmless from tax rises, and for that reason has supported making the Bush cuts permanent for quite well-to-do families.  That is/was a mistake from my perspective--a quarter of a million in annual income is almost a quarter of a million more than most Americans have --about $50,000 is the median, and even those in the second quintile make much less than a quarter million annually.)  So there's always delaying charitable contributions so you get them against higher taxed income in 2011 rather than against lower taxed in 2010; paying property taxes later (same goal); taking more income now and less then (if you own your own company and can set your own salary and if you think the IRS won't pursue you have paying an unreasonably low salary next year if your company's income is about the same--they should, but probably won't).  These gimmicks are ones that wealthy people can afford to do, and ordinary Americans typically cannot, since they haven't got the luxury of paying themselves or they don't have enough to make significant charitable contributions int he first place, etc.  And with this kind of planning, Johnston notes, the 400 highest-income taxpayers with an average of $266 million in annual income apiece in 2006, paid at an effective tax rate of only 17%, the same rate more or less as that paid by people with an average of $50,000 to $75,000  in annual income apiece in 2006. Id.

Now that right there is a pretty good reason for having a hefty estate tax.  We should get progressive tax payments from the wealthy one way or another.  A hefty estate tax--a reasonable exemption ($1 or $2 million) and a progressive rate structure (45% rising to perhaps 65%)--would be one way to address the fact that most wealthy taxpayers can manipulate their taxes by timing their income or deductions and in other ways.

estate tax: why don't the Dems get it?

Charles Rangel has just announced (Oct 22, BNA Daily Tax RealTime) that he is putting together a draft of tax legislation that will make the current law on estate tax permanent--that's a law that provides a mere 45% flat rate on the taxable estate amount, which is the excess over the $3.5 million basic exemption (much more when you take various spousal items into account).  Remember that for an estate of $10 million left by both spouses, that's an effective tax rate of less than 14%!

According to Rangel, making the current amount permanent is a "high priority."   Why?  Interestingly, there's nothing in the BNA article on this announcement that gives any reason at all.

The cost would be $233.6 billion over ten years.

Let me repeat that--if we make the current estate tax rates/exemption amounts permanent instead of allowing the estate tax to lapse back to where it was before George W. Bush and the Republicans in control of Congress decided to cut taxes on the wealthy to "ensure growth", it will cost us about a quarter of a trillion dollars over the next ten years. 

This was a huge Republican priority since it is a bill that benefits ONLY the super rich who have estates worth more than $3.5 million.  The GOP wanted to kill the estate tax entirely, but opted for doing it in in bits and pieces.  They passed a bill that eliminated the estate tax gradually down to zero, then resurrected it from the dead back to its 2001 level in the next year.  That way, they pretended that they weren't really creating the gigantic deficit hole that they were really digging for us, because they counted all that income from the estate tax, back at the 2000 levels, in the "out" years.  Of course, they really intended to dig the huge deficit hole (remember that until the Democrats were in control and arguing for the need for deficit spending as a stimulus, there wasn't a tax cut-created deficit that the Republicans didn't like).  They just hoped they could fool most of the people for most of the time into thinking this was something reasonable and that it was something that ordinary Americans should care about.  Regretably, it works because many people who have no possibility of ever being subject to the federal estate tax are convinced that their small estates will be cleaned out by it. Clearly, the GOP  strategy was that once they had gotten the estate tax down to zero, all those folks that hadn't managed to die in that year would raise hell unless they kept it at zero from then on.  The Dems are clearly afraid to let the provision sunset under its own terms--they're too scared that the Republican strategy will successfully bite them when they let the estate tax come back in 2011, right as campaigning gets under way for the 2012 elections.   So they're conceding half a defeat up front by planning to make the Republican's weak estate tax law.

In case no one noticed, here are a few relevant facts:

1) our national debt is more than $11 trillion and climbing

2) our economy is mired in a Great Recession that is leaving more people permanently dismissed from their jobs than we've seen in similar situations before, while the bankers that caused the global mess are raking in huge rewards in a banking business that is very little banking and lots of speculative trading, and one that wouldn't exist without the Fed and the government guarantee underlying their business

3) the nation need sto spend money on some very important things, like health care for war veterans, infrastructure repairs, public transportation, basic research, education

4) the Bush tax cuts were enacted at the same time as the nation was led into a "war of choice" requiring huge  and ongoing expenditures and in the midst of a bubble economy for which a not-pleasant future could be predicted based on the early warning signs (Enron, Long Term Capital Holding, the frenzied growth in CDOs and credit default swaps) and which ultimately resulted in the Bush regime's multi-trillion-dollar bailout of the big investment banks and trillion-dollar deficits

As a consequence, the estate tax revenues really matter.  They are not insignificant, and they come from a reasonable source (estates with multi-millions of dollars, that will otherwise go to beneficiaries/heirs who have done nothing to earn the windfall).  We should not make the 2009 rates permanent.  We should instead treat the 45% rate as the minimum rate on the lower-value estates, and enact a progressive rate structure, such as a 55% rate for estates over $20 million, and a 60% rate for estates over $100 million (etc.).   We should lower the exemption level back down to $2 million--there is simply no reasonable justification for granting further tax largesse to huge estates. 

Of course, we really should undo most of the Bush-era tax cuts, reinstating the law as it was in 2000 before the Republican assault on the federal fisc in the name of promoting growth began.  The Bush tax policies, combined with the Bush deregulation regime, were a disaster.  They did not promote growth; in fact, they promoted speculative frenzies in risky investment and enormous losses sustained by the nation to make up for that risky behavior.  Ordinary workers' wages stagnated; only the rich got richer.  Read Economist's View, What's Good for Goldman Sachs is Good for Everyone (Oct. 21, 2009) to understand better the mentality that thought (thinks) tax cuts for the wealthy would be the way to prosperity.  The prosperity of the wealthy, yes.  But of ordinary Americans?  No way.  (Read the comment by Richard Serlin, an adjunct at the University of Arizona.  He adds some context to the WaPo article by Ezra Klein about the stagnation of incomes for the middle class.)

 

Link worth noting: Wall St.Journal and Golf Carts

Tax Prof noted the Wall Street Journal editorial titled "Cash for Clubbers" (Oct. 17, 2009), which suggests that "thanks to President Obama's stimulus plan", the government is now "paying Americans" to buy golf carts.  The Journal notes that golf cart dealerships are enticing people in with the credit (which only applies to certain road-worthy carts) and that this "golf-cart fiasco perfectly illustrates tax policy in the age of Obama" when "politicians dole out credits" and "Democrats then insist that to pay for these absurdities they have no choice but to raise tax rates on other things."

The Journal is playing somewhat fast and loose with the credit and with who is responsible.  As to responsibility, it was passed before Obama tood office, so surely it cannot "perfectly illustrate" Obama's policy.  And the "politicians [who] dole out credits" have been members of the GOP during its majority control, because they argue for tax cuts of all kinds, including credits that are clearly unnecessary (the R&D credit, for example, that I think the Wall St. Journal has defended as one of those "extension" provisions that it claims is vital to competitiveness).  The Republicans passed many of these boondoggle loopholes during the time they had control between Reagan and Bush with the underlying premise that tax cuts generate more tax revenues, while at the same time they had to raise the debt limit so that the government could borrow money to fund the tax cuts and the deficit grew by unprecedented amounts.   While the Democrats have been far from perfect on these matters (e.g., including many more tax provisions than I think they should have in the stimulus bill, compared to direct spending on good projects in the public interest), at the same time Democrats have, to their credit, at least acknowledged that there is a cost to doling out credits--that tax cuts do not magically deliver more money instead of less and that we likely will need some tax increases after this long gorging on tax cut after tax cut that hasn't delivered either new jogs or high government revenues.

Tax Prof has a well thought out piece by Sue Altmeyer on the Journal piece.  She notes that the IRS ruling that golf carts may qualify if they are street-legal dates to 2000 (put out in the early months, that is, of the George W. Bush administration by the business friendly Bush IRS).  Similarly, the credit (section 30D) was enacted in 2008 (and doesn't permit the vehicle to be bought for resale, thus undoing the scheme discussed in the Journal whereby a Floridian self-styled "the Golf Cart Man" promises a special boon by combining purchases with his repurchases.  Further, she notes that Notice 2009-54 (that's under Obama) states that the motor vehicles covered are supposed to be manufactured for primarily street use.  And that notice also suggests that you should make sure that the credit being advertised by golf cart salesmen really applies by asking them for an IRS acknowledgement.  The 2009 stimulus bill did make some changes (at whose urging?).

Hat tip to Tax Prof and thanks to Sue Altmeyer for a cogent piece.

More on the public option

Listening to NPR this morning, I heard that the debate about the public option is now heading towards compromise, though no one is quite sure what that compromise will look like.  Those on the right seem to recognize that the majority of the American people want a real public option, so are less likely to insist on the silly "coops" in each state and more likely to support a national public option if the states can opt in or out of its applicability.  Those on the left, according to NPR, are less strident about insisting on a "robust" public option (mention of Sen. Rockefellar's position in this regard) and more willing to consider a national option with an opt out clause.  Even so, doesn't sound like it will be a real option--in other words, it won't be something available to everybody as a choice, but only available to those who satisfy the various restrictions.  Not very good as a real public option, I fear.

But for those who have been arguing against a public option based on "competition", Harold Meyerson's recent WaPo op-ed about "free market champions" is worth reading.  Remember that the argument goes like this.  Having a public option isn't fair because it forces private insurers (who, it is implied, do everything on their own without any government help) to compete with the public option (which, it is implied, will use tax funds to support itself and therefore be unfairly advantaged).  There are several details this broad-strokes argument overlooks.

• to the extent that people are forced to buy private insurance, that forced purchase is a form of subsidy of private insurers.  It is a guarantee of future business, from people who might not otherwise have purchased.  It is even more of a subsidy if the premium payment is in any way made by the government in lieu of the individual.
• to the extent that the "public option" is restricted to those who cannot otherwise get insurance, it will tend not to take business away from public insurers and it will tend to take on the insureds who represent more risk (while leaving to the private insurers the (forced) clients who represent less risk--that's a form of guaranteeing gains to the private end, while expecting losses on the public end
• to the extent that the public option is restricted in what it can do (e.g., whether it can negotiate prices like Medicare or even just "glom onto" medicare's negotiated contract prices), it is not advantaged compared to private insurers
• to the extent private insurers work in markets that are near monopolies, they have no current competition, so that a public option might be the only significant competition they encounter (Meyerson notes that in Alabama, one health insurance company controls 90% of the market; the Blue Cross-Blue Shield conglomerate controls a significant share of the market).

One of the things that those opposed to the public option seem to discount is this--private companies are in the business to make a profit, the bigger the better, and they have every incentive to find ways to deny coverage.  Public arrangements have an incentive to "offer[] Americans a better deal."  Id.

Myerson makes an even bigger point.  That the idea of a free market is one where there really is competition (not near monopoly status) and wehre products are transparent and openly comparable rather than sold "behind closed doors."  In the case of health care and financial markets, it seems that the status quo big business participants are more interested in "few competitors" and "products for whcih consumers can't easily discern if they're paying a fair price".    So just who is really in favor of a substantive free market operation???

The power of banks (plutonomy)

Read this post on Naked Capitalism.  Does it make you angry?  Do we really want banks and their wealthy clients ruling the world?  Maybe it's time to do something like join the Chicago demonstration.

Public Option--resurrected from the dead?

The constant stomping on the public option by insurers and their supporters has made it look like it would take a miracle to get a real public option in health reform through Congress, although many commentators are convinced that the only way to reduce health care costs is by creating a possibility of a national system that people can opt into.  Just passing a law that guarantees that private insurers will get a payload of premium monies from people who will have to be partly subsidized by the federal government to be able to afford it makes no sense at all.  That's because the comparison with other countries suggests that one reason (among several) for our much more expensive health care is that we have private insurers in the mix with no incentive to cut premiums and every incentive to deny coverage.

I suspect that there has been a majority in favor of a strong public option all along, but the right-wing drumbeats suggested that the right's attack on anything governmental (and distaste for anything providing an "entitlement" to those who don't have much while supporting entitlements for private insurers whose business has to, apparently, be guaranteed a profit)  had made inroads among those who bought the nonsense of death-panels, the "government will dictate your treatment", and "if it's government, it will cost more no matter what" couple with "if its government, the private insurers will be 'unfairly' deprived of profits for how can they ever be expected to compete with government" (the latter two pieces of nonsense being based on diametrically opposed foundational arguments, which somehow opponents of a public option tend to disregard).

But now "[a] new Washington Post-ABC News poll shows support for a government-run health-care plan to compete with private insurers has rebounded ...and wins clear majority support from the public."  Balz & Cohen, Public Option Gains Support: Clear Majority Now Backs Plan, Wash. Post (Oct. 20, 2009).  Regretably, the largest majority exists for a state-run, only-available-to-the-uninsured option--that is the most beneficial to private insurers and the least likely to have long-term inroads on increasing health care costs.  Give them a little more time--eventually they'll all catch on, maybe, to the dumb-it-down game being played.

Wall Street's Swagger--and the ineffective response

As everyone knows, the Wall Street banks that have benefited from an unprecedented federal bailout are making money hands over fists in proprietary investments and trades.  Lending is still slow, and while they've had access to the low Fed rates, they are charging an arm and a leg for everything.  What are they doing with all those profits-after this last year, no one will be surprised to hear that they are NOT figuring out how to return the favor done them with their record profits earned with the life-saving assistance of ordinary citizens.  They have no "magnificent obsession" to do good to make up for the extraordinary global harm that their reckless speculation caused.  No sir.  They are planning to pay record bonuses and using some of those profits to fund intensifying lobby efforts to try to make sure that Congress does nothing to prevent a replay of their cozy game of socialized losses/privatized gains.

So into this picture come the chidings of President Obama's aides, including Wall Street buddy-in-chief Rahm Emanuel.  See Fletcher & Goldfarb, Top Aides to Obama Upbraid Wall St., Washington Post (Oct. 19, 2009).  "The bonuses are offensive," Obama strategist Axelrod says.  "They ought to think through what they are doing."  "Not only do they come for a bailout . . . they're now back trying to fight a consumer office and the type of protections that will prevent another type of situation where the economy is taken over the cliff by the actions taken on Wall Street and the financial market," says Rahm Emanuel.

Talk is cheap.  Maybe somebody will think that this "increasingly confrontational tone against Wall STreet bonuses" will accomplish something.  I don't.  In my experience, most Wall Street bankers think they are entitled.  If they are "smart" enough to turn the loan of cheap funds from the Fed into more high return investments, they've "earned" their millions in bonuses, they think.  So what if the rest of the country is jobless, homeless and hopeless.  That's someone else's problems.  I suspect they can't even comprehend what it is like to be a member of the lower half of the distributional curve in this country, much less to be at the bottom. 

I just went through the home of one of the millionaire familes of the early 1900s in Detroit--a family of 2 adults and five children lived in a 17,500 square foot house (plus two story carriage house)  with twenty servants to take care of their every need.  The servants were packed into tiny rooms while the family enjoyed seating areas next to their bedrooms.  The floors that headed towards the servant quarters in the rear wing of the house even sloped downhill to make clear that the servants were not on the same level as the family's quarters on the same floors (the in-house gym, and other spaces).  That same disconnect and sense of entitlement as superiors that existed in the roaring twenties--and the problems inherent in such allocational imbalances--exists between Wall Street and Main Street today.

Tough talk on the Sunday CNN program from a couple of Obama's aides isn't gonna turn the tide.  Teddy Roosevelt got out on the stump and talked about the corporate titans of malfeasance.  Maybe Obama should turn some of his eloquent speechmaking to targeting today's corporate titans, so that we can start using antitrust to bust up these "too big to fail" banks and using tax laws to tax them and their Big Pharm, Big Oil buddies more fairly by getting rid of the crazy loopholes like the "depletion allowance" and accelerated depreciation, etc.

Rotunda's Washington Post op-ed on Obama's Nobel Prize Tax Consequences

Ron Rotunda and I were colleagues, I guess you could say, for a while--at least, we were both on the faculty at the University of Illinois Law School.  My longest (and maybe only) conversation with him was sitting at an Order of the Coif luncheon when I raised a discussion with the students at my table of the importance of progressive taxation and redistribution.  Ron was also sitting at the table, and he proceeded to lecture (rather patronizingly, which was his wont) that if we would only read what "real" conservatives--i.e., libertarians-- have to say about the matter, we'd be convinced that views on taxation such as those I'd expressed were simply misguided.  Seems like there was lots about personal responsibility, autonomy, and the like.  Not much about vulnerability, ability to pay or the like...  (see my earlier post on Martha Fineman and the illusion of equality for more on these ideas, here.)

Well, Ron just wrote an op-ed, with J. Peter Pham, in the Washington Post on President Obama's Nobel Prize.  He got himself a catchy title--An Unconstitutional Nobel, WaPo (Oct. 16, 2009).  As far as I can see, there's not much merit to his "unconstitutional" argument.  He claims he is concerned about the constitutionality of a President accepting such an award.  But prior presidents have received similar prizes--Theodore Roosevelt and Woodrow Wilson.  So he brushes that precedent off with an argument that might even have made John Yoo blush:  you see, he says, Roosevelt and Wilson were honored for their past actions, whereas Obama's award "is intended to affect future action" since the Committee hopes it will encourage him to reach his nuclear disarmament goal. Id. (emphasis added).  

I'm not a constitutional lawyer so let me move on to his tax claims.  Ron has also apparently decided he knows enough about taxation to write about the tax consequences of the Prize and the "legal" dilemma that he claims the prize has put the President in.    Here's the paragraph on this issue from the op-ed:

[T]he president has indicated that he will give the prize money to charity, but that does not solve his legal problem.  Giving that $1.4 million to a charity could give him a deduction that would reduce his income taxes by $500,000--not a nominal amount.  Moreover, the money is not his to give away.  It belongs to the United States: A federal statute provides that if the president accepts a 'tangible or intangible present' for more than a minimal value from any foreign government, the gift 'shall become the property of the United States.'

He seems to be saying that Obama must get a benefit from the prize, one way or another, and that is what makes it unconstitutional. As I understand it, he claims that the Nobel Prize Commission is a state agent and therefore the benefit from the prize is a gift of a foreign government (Norway), simply because Norwegian legislators elect the members of the commission.  Sounds like he's stretching it to me, since according to the Nobel website, Alfred Nobel left the money that established the Nobel Foundation in Stockholm that funds the prizes and he also left instructions on how they were to be awarded, including instructions that the Norwegian Parliament would elect a committee of five persons to name the recipient of the Nobel Peace Prize.  That doesn't sound like the committee is an arm of the state to me; instead, it seems to me that the committee is acting as the Foundation's agent.  But as I said, I don't hold myself out to be a constitutional scholar.

 Now, it's true that if Obama accepts the prize money  and then gives it to a charity, he would both include it in income and get a deduction for it (subject to the various limitations on the charitable contribution deduction in section 170).  The op-ed seems to see the deduction as a benefit, but miss the fact that the deduction just offsets the inclusion of the prize amount itself. 

(Else Rotunda is simply complaining that Obama should have to pay taxes on the full $1.4 million, making the very fact of being able to deduct the charitable gift against that income a benefit that equals a foreign state gift.  Even if the Nobel were a gift from a foreign state (which I doubt--see above), that is simply a nonsensical complaint to make, given the way our tax code works.  Why should the President be singled out to bear the brunt of the income inclusion, without the benefit of the tax deduction as it works in the Code? )

But beyond that, section 74(b) provides another option to recipients of Nobel prizes that Rotunda completely leaves out of his analysis--they may have the Nobel committee transfer the prize instead to a designated governmental or charitable recipient  (so long as the prize winner was selected without any action on his part to enter the contest and is not required to render substantial future services as a condition of receiving the prize--both conditions that Obama surely satisfies).  In that case, the prize is not included in the recipient's income at all (and there is no charitable deduction for the contribution to the charity).

Ron might enjoy sitting in on some of his colleagues' tax classes at Chapman.....

[hat tip to Tax Prof and Francine Lipman at Chapman]

Inflation-adjusted items in the Code? Not many, says IRS

There are a number of items in the tax code that include inflation adjustment provisions, from the tax rate brackets set forth in section 1 to the "qualified transportation fringe" under section 132(f) and the limitation on deductible interest for student loans under section 221. Each year, the IRS publishes a revenue procedure that details the inflation adjustments for the upcoming year.  Rev. Proc. 2009-50 and news release IR-2009-093 announced today that there will be little or no inflation adjustments in these various items for 2010 because inflation has not been a significant factor over the last year. 

Similarly,  there will be no COLA adjustments for Social Security, which has led some to suggest a lump sum payment to seniors of $250, to ease the pain no increase for the first time in decades,and consequently there will be a no-inflation benefit for current payors of the tax--the amount of earnings subject to tax will remain unchanged at $106,800.  See 2010 Social Security Changes, www.socialsecurity.gov;  Stagnant Prices Prevent Social Security Increase, Washington Post (Oct. 14, 2009).   

Danger: Tax Overload (Rangel Bill Proposals)

Speaking with reporters following a long House Ways and Means Committee meeting on Wednesday, Chair (at least for the nonce) Charles Rangel said that he plans to bring out three major tax bills this year (beyond the health care reform, which is in large part a tax bill): addressing estate tax, "extenders", and the economy.   BNA Daily Tax RealTime (Oct. 14 6:07).

Among the economic stimulus? extenders? (appears to be proposed as both) items to be considered--extending the home tax credit (currently $8000 expiring Dec 1).  In the Senate,  Baucus isn't sure but Conrad wants at least a six-month extension on the credit.  Since housing continues to be weak "I think it would be unwise to let the credit lapse."  I wonder what Conrad wants--to get housing back to where it was with the inflated bubble of ready money, subprime loans, bank speculative frenzies and irresponsible buying above one's purchasing capacity?  Instead of passing provisions destined to put money in the pocket of the less needy (anyone who is thinking of buying a home right now is not one of the seven million or so working Americans who have lost their jobs), why don't these guys have the guts to enact the most important provision for helping home ownership in America--a requirement that mortgage loans be modifiable in bankruptcy?   And then they could enact some banking reforms. 

Tax provisions are the least effective way to provide economic stimulus--let's build real railways, repair real bridges, and buy equipment for real schools.  And most of the "extenders" (if by that they mean the various tax breaks for one group or another, like the R&D credit, the capital gain rate for dividends, the home purchase credit) shouldn't be extended.  Personally, I think we've had enough of these several-times-a-year tax bills that provide one more chance for the greedy lobbyists and their clients to feed at the federal tax-cut trough.  Sometimes you end up with a good pay-for--the carried interest proposal would be one that should be passed.  But most of the time it is a hodge-podge that makes little coherent sense and amounts to too much of a giveaway to some industry or other.