ataxingmatter

McConnell Tossing the Gauntlet on Debt, Taxes and the GOP's dream of dismantling Social Security and Medicare

Pretty much as I predicted, Obama's failure to go over the fiscal cliff--instead "negotiating" and settling for a half-assed deal that hardly got rid of any of the stupidities of the Bush tax cuts--convinced the Republicans that they can play their brinkmanship game on the debt ceiling debate yet again and perhaps finally get the Democrats to undo their own most significant programs of the last 100 years--Social Security and Medicare.

What we ought to be doing is cutting the military/defense and corporate welfare budgets.  And then increasing taxes--with (1) new layers of tax brackets and tax rates corresponding to our new levels of income inequality, so that multimillionaires are taxed at a higher rate than mere millionaires and billionaires are taxed higher than multimillionaires and (2), at the least, legislation to eliminate the farce of the so-called "carried interest: privileged compensation taxation for LBO managers, who get mostly preferential capital gains for their "services" in buying companies and loading them with debt that makes the managers but not the workers wealthy.

But the Democrats somehow still thought they would get some kind of credit, even from the staunchest of the right-wingers, for being "bipartisan" and working out a "deal" to avoid the "fiscal cliff."  So they made the ridiculous Bush tax cuts permanent, except for those in the upper-upper crust making three times as much as anybody in the middle class.  And they made the estate tax cut even larger than it was--with a $5.2 million exemption (double for a couple) and only a 40% rate.  Inequality will continue to grow at accelerated rates.  And they extended the litany of truly egregiously stupid corporate tax breaks, like the bonus depreciation/expensing provisions that ultimately permit corporate multinational giants a NEGATIVE effective tax rate (read Cary Brown on the way noneconomic frontloading of expensing amounts to nontaxation under time value of money principles).

The GOP however is currently running deranged.  The party that purports to care about fiscal conservatism only wants to fund more military and make sure that vulnerable elderly don't get as much in their Social Security checks and have to pay even more for their health care.  McConnell--the MINORITY leader in the Senate--has pronounced his party's views on the matter:  "The tax issue is finished."  Brian Knowlton, McConnell Takes Taxes Off the Table in New Talks, New York Times (Jan 6, 2013).

Folks, the stuff about the debt ceiling and the need to cut benefits under Social Security and Medicare is baloney.  The US government isn't a family--it's a sovereign regime .  We should learn from the Euro nations that are embroiled in a self-defeating austering regime that leaving citizens suffering while trying to toady to big business is a recipe for disaster.

President Obama had damn well better take Social Security and Medicare off the table as well as any corporate tax reductions.  Get rid of corporate loopholes and let corporate tax revenues INCREASE.  It is the only way left to try to re-balance an economy that is skewed in favor of the uber-rich and the multinational corporations and against ordinary Americans.  Oh, it would also help to move to single-payer single-provider health care and get profit-making out of what should be an important human right.

And are we "spending way too much" anyway, as McConnell declares?  Surely not, since we are only spending on things that the Congress has voted to spend on.  If McConnell wants to spend less, let him propose a spending cut and put it to the vote.  If it fails, then he should vote the taxes or borrowing needing to pay for the spending Congress has legislated.

So, just as my advice in the "fiscal cliff" debate was to go over the cliff, let the Bush tax cuts expire, and then put in place some decent cuts for the REAL middle class (those making less than $100,000 a year), my advice here is to go over the "sequester cliff" and let the across-the-board cuts, with the first real cuts to the military in decades, take place.  We should damp down our military zeal and start to put our money where it will build good schools, good colleges, good public transportation, and ultimately good jobs.

As for the debt ceiling, the best thing would be for the Senate to eliminate the filibuster rule (or at least make the right-wingers do a physical filibuster) and eliminate the debt ceiling.  It is an artifact of a different age, and is meaningless.  Think about this.

1) we have spending bills that require us to spend X dollars

2) we have tax bills that only raise X-Y dollars.

3) we have a governmental obligation to pay the X dollars that we spend to those who provide the goods and services amounting to X dollars.

4) Therefore we have a governmental obligation to borrow the Y dollars that we don't raise with taxes.

 

Related articles

The GOP's extortion demands: cut Social Security or we'll shoot the country in the foot

More on the Threat to Social Security and Medicare from the so-called "Fiscal Cliff"

McConnell demands unbalanced deal

Calling McConnell's Bluff

The War Against Social Security

Romer's deficit reduction suggestions worth a read

Christina Romer's recent piece in the New York Times is worth reading.  See C.D. Romer, Cutting the Deficit, with Compassion, New York Times at BU5 (Sept. 9, 2012).

Now, I generally have found Romer too willing to advocate austerity economics and too unwilling to support progressive tax policies.  But nonetheless, this piece hits some good notes.  For example, while arguing that reducing the deficit needs to be a priority, she acknowledges that it must be done "in a way that does as little harm as possible to people, jobs and economic opportunity."  Similarly, she recognizes that requires going slowly--" a comprehensive, aggressive deficit reduction plan [should be passed] as soon as possible, but the actual spending cuts and tax increases should be phased in as the economy recovers."  Why?  Because "[a] crude rule of thumb is that every $100 billion of deficit reduction will cost close to a million jobs in the near term."  A big price to pay that makes it reasonable to consider not only LONG-TERM deficit reduction plans but also SHORT-TERM job creation measures.

ASIDE:  And in case you wonder, tax cuts for the wealthiest amongst us, as advocated by the Romney-Ryan team--are NOT job creation measures.  The Romney-Ryan budget proposes to achieve revenue neutrality, huge tax cuts for the rich, and no tax cuts for the middle class by not proposing any specifics.  The reality is that the Romney-Ryan plan is just politico-wishspeaking:  there is no plan that will do what they claim, because they depend on the now-well-disproven idea that huge tax cuts for the wealthy will generate more tax revenues while creating more jobs.  Nope.  Neither likely nor even possible.  And by not specifying what they'd cut, they are merely trying to fool the people.

Here are what Romer proposes, with some commentary:

1) tax credits for businesses that actually increase employment

Not a bad idea to replace the endless suggestions of business tax cuts, but any accountability will have to be long-term--i.e., payroll will have to increase over a period of 2 years and the particular jobs created will have to stay in place for at least 2 years before any tax reward should be available

2) "well-designed tax reform that raises at least some additional revenue" and "let[s] the Bush tax cuts expire for those earning more than $250,000 a year [while] [i]ncreasing rates on top earners" and "lowering tax expenditures" including "the low tax rate on capital gains and dividends"

Hmmmm.The clarion call for tax reform has consistently been used by DC lobbyists to push for tax CUTS for the wealthy and big business.  It is not so clear that we need a huge tax reform.  What is usually meant by tax reform is "simplification," which is just another way to justify unneeded tax cuts  .We do not need to cut the corporate tax rate.  We do not need to reduce tax regulations. 

 But I do agree with Romer's notion that we need some tax increases.  My preference would be to allow the entire panoply of Bush tax cuts--passed by a Congress that unfortunately and wrongly believed the Laffer lie that cutting taxes would increase revenues--to expire as the Republicans originally purported to intend.  Let the sunset happen.  And then come next year, think about what, if any, of the cuts make sense. Perhaps a cut to the income tax rates of those who make less than $100,000 a year.  But an increase for those that make more than that, and a significant increase for the top two quintiles, would be in order.  We should raise rates on the wealthiest by creating additional tax brackets for those making 500,000 to a million, 1-2 million, 2-10 million, and above 10 million.   We could reasonably examine the many tax expenditures/subsidies in the Code and begin to cut back on them--starting with the capital gains rate preference, and moving through the exorbitant support for wealthy mortgages (limit it to an interest deduction on the first $250,000 of mortgage interest and phase that out for anyone with an income above $500,000) and including the R&D credit (rather than deduction), the "active financing exception" and the subsidy for moving active businesses offshore (and along with that, eliminating any idea that there is such a thing as a "profits" partner who isn't taxed on a "transfer" of a partnership interest at the time the interest is provided).

3) slowing spending growth for government health care spending- by reducing overpayments to health care providers (as the $716 billion cut misrepresented by the GOP does); by increasing those cost-cutting reforms to find other ways that we are inefficient; by "making the wealthy pay a larger share of their Medicare costs and gradually raising the Medicare eligibility age"

Here we see the problem that no one in government dares to say what must be said--that until we move to a single-payer system like the rest of the advanced world, we will see private parties continuing to rip off rent profits from providing health care.  We must eventually expand to "medicare for all"--and we should do that soon.  In the transition, it would be reasonable to have a means-adjusted payment scale, so that the Medicare tax is higher for those with more income (corresponding to the increased brackets for the income tax).  And it might be reasonable to have a few major categories of jobs for determining base retirement age--workers in steel plants who work in 115 degree interiors when it is 90+ degrees outside likely should retire earlier than workers in academia who work at their desks in air-conditioned offices.  But that won't be easy and will need to be developed by consensus over some reasonable time, rather than through partisan, anti-worker politics.

4) cut other spending--protecting children, displaced workers, and wounded veterans in the process,as well as money for education (including Pell grants) and infrastructure and scientific research--but cutting "agricultural price supports and subsidized crop insurance programs that mainly benefit large commercial farmers," the Pentagon's budget, and high-speed rail.

We certainly can cut a lot of waste and warmongering out of the Pentagon's budget, which is one reason that I'm all for letting the sequester approved by Republicans go through.  We could save a great deal there that could be used for infrastructure and other spending that builds opportunities and jobs instead of supporting the military-industrial complex.  I'd also support  cutting most of the agricultural subsidies, which primarily support Agribusiness that produces tasteless food at a high environmental cost.  But I disagree strongly on high-speed rail.  If we don't as a nation invest in transportation infrastructure that moves us beyond the costly highways (costly in human lives, dollars to build and maintain, and environmental degradation), we will not advance our economy as we must.

 

Tax Extenders: where the Senate stands

Today (August 28), the Senate Finance committee provided an updated revenue estimate and text for the bill --the so-called "Family and Business Tax Cut Certainty Act of 2012"--that it had approved on August 2 to extend $205 billion-worth of "temporary" tax cuts through 2013.  Most of these provisions are further extensions of the Bush cuts put in place going back to 2001, such as the annual "AMT patch" that comes about because the Bush tax cuts reduced the regular tax so much that the AMT does capture somewhat more taxpayers than it otherwise would have.  This is expected to be brought to the Senate floor in September.

Here's what the Senate Finance extenders bill would do, with a cost of 143.221 billion for FY 2013.:

A. Main Individual Provisions

1. AMT exemption:  increase the exemption amount for the AMT (see table below:  the first amounts shown are post-2011 without the bill, the first increased amounts are for 2012 with the extender bill and the second increased amount is for 2013 with the extender bill) and allow the entire regular and AMT liability to be offset by nonrefundable personal credits during 2012 and 2013.

• married filing jointly and surviving spouses:  45,000 increased to 78,750 and then to 79,850
• other single individuals:                                33,750 increased to 50,600 and then to 51,150
• married filing separately:                              22,500 increased to 39,375 and then to 39,925

Note that the AMT would only affect .9 million taxpayers in 2013 under this schema.  The cost of this provision for increasing the exemption amount and allowing 100% of tax liability to be offset with credits is slightly more than 104 billion for FY 2013

2. Above the line deduction for classroom expenses of $250, at a cost of 273 million

3. Exclusion of income from discharge of indebtedness on principal residence (up to $2 million of discharged debt), at a cost of 199 million

4. parity for mass transit and parking benefits (extended retroactively to Jan 1, 2012), at a cost of 218 million 

5. extend deductibility of mortgage insurance premiums as qualified residence interest (rationalized as a way to encourage home ownership), at a cost of 791 million

6. deduction for state and local sales taxes, at a cost of 1.64 billion

7. deduction for qualified tuition expenses, at a cost of 2.32 billion

8. tax free distributions from IRAs to public charities up to $100,00 per year per taxpayer, at a cost of 594 million

B. Main business provisions (nothing less than 5 million covered here)

1. Extend and modify R&D credit (applying it retroactively back to 12/31/11), at a cost of 6.2 billion

2.  Indian employment tax credit, at a cost of 69 million

3.  50% tax credit for expenditures to maintain tracks, at a cost of 232 million

4.  work opportunity tax credit, at a cost of 947 million

5. special, shorter depreciation recovery for restaurants, leaseholds, motorsports racing facilities and businesses on Indian reservations, at a cost of 335 million

6. enhanced charitable deduction for food inventory, at a cost of 218 million

7. Increase in section 179 expensing amounts, with thresholds of 500,000 and 2 million, at a cost of 8.088 billion

8. election to expense mine safety equipment, at a cost of 27 million

9. special expensing rules for film

9. special deduction for income attributable to Puerto Rican production activities, at a cost of 236 million

10. modification of payments under existing arrangements to controlling exempt organizations, at a cost of 35 million

11. treatment of RIC dividends, at a cost of 124 million

12. extension of treatment of RICs as qualified for FIRPTA purposes, at a cost of 48 million

13. active financing exception to subpart F (for big banks with foreign subsidiaries), at a cost of 9.399 billion

14. look-through rules for CFCs, at a cost of 1.199 billioin

15. S corporation stock basis adjustment for charitable contributions of property, at a cost of 93 million

16. shorter period during which S corporations have to recognize built-in gains tax, at a cost of 184 million

17. empowerment zone tax incentives, at a cost of 360 million

18. Increase in excise taxes paid to Puerto Rico and the Virgin Islands, at a cost of 199 million

19. Extension and modification of credit for American Samoa, at a cost of 38 million

C. Main Energy provisions

1. Section 25C nonbusiness energy property extension/modification, at a cost of 1.456 billion

2. Alternative fueld vehicle refueling property provision, at a cost of 34 million

3. Cellulosic biofuel credit, and special depreciation for celluslosic biofuel plant properties and other items at a cost of 44 million

4. extension of numerous credits for biodieself and renewable diesel, at a cost of 1.881 billion

5. extension of various credits for renewable energy, at a cost of 122 million

6. energy-efficient home construction credits, at a cost of 74 million

7. energy-efficient appliances credits, at a cost of 155 million

8. Cost of "special rule for sales or dispositions" to implement FERC or state electric restructuring, at a cost of 596 million

9. excise tax creidts and outlays for alternative fuels, at a cost of 305 million

 The IRS made available an analysis of the difficulties in responding to potential changes to the AMT in time for filing of returns; that report is available at IRS Complexity Analysis (Aug. 13, 2012).  Links to pdfs of the Senate Finance Committee Report on the Family and Business Tax Cut Certainty Act of 2012 (Aug. 28, 2012); Estimated Revenue Effects; and text of the proposed legislation are available at the Senate Finance Committee website.

Many of these provisions--including the chartiable contribution deductions for value rather than actual investment, the R&D credit extension and the active financing exception extension for businesses, as well as the accelerated depreciation and expensing provisions, don't appear to contribute to growth in the way that the proponents of the provisions claim.   The Finance Committee hasn't made a strong case for continuing to include so many of these tax expenditure subsidies in the Internal Revenue Code.

Two of the business provisions are particularly unjustifiable.  There is no indiciation that businesses will not do research without getting a credit (instead of a deduction) for research expenses.  The Finance Committee justifies allowing this partly retroactive extension of the credit based on the benefit of research itself.  But the Committee hasn't answered the right question--is it essential to research that businesses get a credit, rather than the deduction otherwise available, for research?  The Committee just states that research is important and the Committee "believes it is appropirate to extend the present-law research credit" [that's the TEMPORARY credit that was created more than a decade ago!] and the Committee has enhanced the credit by permitting someone who is selling the business to use the credit for expenses incurred before the sale and by making it easier for a controlled group to manipulate their income by allocating research expenses among the controlled businesses.

The norm in Congress is that all of these temporary provisions will be renewed year after year, no matter what the cost, while a significant faction in the House and Senate continue to push the idea that it is necessary to cut spending on health care and other social safety net costs, cut taxes for the wealthiest amongst us, and increase spending on our already bloated military.

Obama proposes to exempt some IRS spending on enforcement from budget cap

 The 2011 debt ceiling compromise, known as the Budget Control Act, establishes automatic cuts in spending for various categories if no further deal is reached to overturn them. 

In many ways, it might be ideal to allow the Budget Control Act to come into play.  It would force significant reductions in the overall amount allocated to Defense, an area that has fed incessantly on revenues since Reagan's priority on militarization, coupled with Bush II's preemptive wars of choice in Afghanistan and Iraq. We need to cut military spending significantly, and it will not hurt the country's defense to do so.  (It may, however, crimp the high-flying styles of some military contractors.  About time, I'd say.)  Further, the Budget Control Act explicitly protects Social Security and Medicare, so those programs won't be curtailed in the process.  A good thing, again, since it is important for the nation to see that the fearmongering about Social Security as "insolvent" is just that. 

But there's at least one category of spending that an across-the-board cut makes little sense for--the spending necessary to collect tax from deadbeat/scofflaw or criminal taxpayers.  The IRS enforcement budget essentially is an investment in better tax compliance, and returns more dollars to the federal fisc than it takes out. 

Obama has recognized that, and seeks to exempt $277 million of the IRS enforcement spending from the Budget Control Act's cuts.  See the discussion here at OMB Watch (Vol. 13, No. 4, Feb. 22, 2012).

One of the main objectives of President Obama’s fiscal year (FY) 2013 budget request for the Internal Revenue Service (IRS) is to reduce the "tax gap," the difference between what taxpayers owe each year and what they actually pay. The president’s IRS budget request seeks funding increases for both taxpayer services and enforcement programs. Recognizing that a dollar spent on collecting revenue more than pays for itself, the Obama administration has proposed to exclude some IRS enforcement spending from the budget caps imposed by 2011's debt ceiling deal (known as the Budget Control Act). 

***

Among the enforcement programs the White House is recommending be increased to raise revenues are:

• An additional $111 million to fight offshore tax evasion, which the IRS estimates will bring in $6.40 for every dollar invested by FY 2015
• An increase of $39 million to improve international businesses’ compliance with the tax code .... The IRS estimates a return on investment of $8.80 per dollar invested
• An additional $129 million to implement recent legislative tax changes, including new reporting requirements and certain provisions of the Affordable Care Act (ACA), which the IRS estimates will bring in $3.50 for every dollar invested
• An increase of $88 million to implement the “Revenue Protection Strategy,” which allows the IRS to adjust a taxpayer's refund if examiners catch errors. The IRS estimates this initiative will return $1.90 per dollar invested as soon as new hires reach their full potential in FY 2015
• An additional $35 million to continue certifying tax preparers, which the IRS estimates will bring in $2.30 for every dollar invested by FY 2015

The IRS estimates that combined, these funding increases will bring in an additional $673 billion in FY 2013 alone, and, by FY 2015, an estimated $1.5 trillion in additional annual revenue.

 Sounds reasonable.  The Bush effort to cut back on IRS funding was a naked gambit for a weakened watchdog that would allow more corporate tax evasion.  Enforcement has paid off considerably over the past two years, as the IRS's effort to unveil offshore bank accounts of US taxpayers has led to significant numbers of taxpayers brining those assets back onto the tax rolls.  Congress should recognize the reasonableness of this request, unless it is so besotted with campaign fever that it is willing to sacrifice sound legislation to ideological obstructionism.

Obama FY 2013 Budget Proposal Released Today--President's Message

The Obama administration released its FY 2013 budget proposal today.  Obama projects that the deficit will be cut by over $4 trillion over the next decade, coming within the goalpost of 3% of GDP by the end of the decade.  That includes a reduction in defense spending of almost $500 billion over the decade.  At the same time, Obama makes the case for continuing the nation's investment in non-defense research & development--including clean energy. 

The President's message (part of the budget document, see link at bottom) sets the theme of attention to the way the gains of the top 1% have coincided with aggravated problems for the majority of hard working Americans.  It notices, that is that budgetary and tax policies, combined with  deregulation and financial crisis, are moving ordinary Americans towards despair and out of the middle class.

By giving every American a fair shot, asking everyone to do their fair share, and ensuring that everyone played by the same rules, we built the great American middle class and made our country a model for the world. Today, ... for many Americans, the basic bargain at the heart of the American Dream has eroded.

Long before this recession hit, there was a widespread feeling that hard work had stopped paying off; that fewer and fewer of those who contributed to the success of our economy actually benefited from that success. Those at the very top grew wealthier while everyone else struggled with paychecks that did not keep up with the rising cost of everything from college tuition to groceries. And as a result, too many families found themselves taking on more and more debt just to keep up—often papered over by mounting credit card bills and home equity loans.

Then, in the middle of 2008, the house of cards collapsed. ... Banks had packaged too many risky loans into securities and then sold them to investors who were misled or misinformed about the risks involved. Huge bets had been made and huge bonuses had been paid out with other people’s money. ... [M]illions of hardworking Americans lost their jobs, their homes, and their basic economic security. ...

We built this Budget around the idea that our country has always done best when everyone gets a fair shot, everyone does their fair share, and everyone plays by the same rules. It rejects the “you’re on your own” economics that have led to a widening gap between the richest and poorest Americans that undermines both our belief in equal opportunity and the engine of our economic growth.

The President's message also points out something important for citizens to bear in mind as the elections hurtle towards us at the end of this year--the reason for the financial crisis and the huge deficits we face now relate to the irresponsible tax cuts of the Bush administration--all passed when everyone knew that they would result in significant deficits that would be hard to ever make up--and the military buildup underway since Reagan, in particular the huge costs of two preemptive wars undertaken by that administration.

When I took office 3 years ago, my Administration was left an annual deficit of $1.3 trillion, or 9.2 percent of GDP, and a projected 10-year deficit of more than $8 trillion. These deficits were the result of a previous 8 years of undertaking initiatives, but not paying for them—especially two large tax cuts and a new Medicare prescription drug benefit—as well as the financial crisis and recession that made the fiscal situation worse as revenue decreased and automatic Government outlays increased to counter the downturn.

The budget proposes a number of good changes. 

• Obama proposes ending "special tax breaks" for Big Oil;
• Obama wants to finally end the "carried interest" fiasco, whereby equity fund partners that make much of their money by purchasing companies, overleveraging them to pay out debt proceeds to partners, and then breaking them up and firing workers are allowed under current interpretation of the partnership rules to treat their compensation income as capital gains if that is what the partnership they are servicing has. 
• Obama proposes enacting a Buffet Rule (a type of alternative minimum tax requirement that millionaires pay at a rate at least equal to the middle class--the sentence presenting this in the President's message is badly botched); 
• Obama wants to limit certain deductions for high income taxpayers to 28%: various deductions were subject to phaseouts at higher incomes before the Bush tax cuts but were  phased out under those cuts. 
• Another good change relates to the various temporary tax provisions enacted in the Bush administration that are a significant cause of the country's current deficits.  Obama recommends allowing the temporary Bush capital gains rate decrease (from 20% to 15%) to expire as scheduled for high income taxpayers, and allowing the dividend treatment as a net capital gain, instituted first as a temporary measure in 2003 and extended several times so that it currently is set to expire at the end of this year, to expire as scheduled for high income taxpayers.  The result would be that the unearned income from dividends would once more be taxed  at the same rate as earned income from wages, a circumstance which many provisions of the corporate tax in Subchapter C--those  designed to prevent schemes that "bailout" of corporate earnings at capital gains rates rather than the expected ordinary income rates--presuppose as basic to the corporate income tax (see, e.g., the section 302 redemption analysis that considers whether the redemption is a sufficient reduction to count as an exchange or rather should be taxed as a distribution under section 301).

We can expect that the proponents of corporatism--especially the corporate coalitions fighting for preserving the benefits for the mostly higher-income shareholders such as ALEC and the U.S. Chamber of Commerce--are prepared to raise a stink about this provision and will expect the GOP members in the House and Senate to vote with them.  The obstructionist GOP is already holding a press conference and conference calls on the matter.  See this C-SPAN item.  This will be a test of whether Congress has been listening to the issues raised by the Occupy WallStreet movement across the country. 

The arguments made by the corporate coalitions don't hold water.  See various earlier posts on this matter at A Taxing Matter.  Clearly, the dividend rates until 2003 didn't prevent people from investing or prevent people from making lots of money investing.   Nor did the change in the dividend rate lead to corporations retaining more income in the US--instead, after getting one "tax holiday" in 2004, more corporations moved more money offshore in expectation of continuing the gravy train with future tax holidays.  Anything the ALEC group says has to be taken with a very large grain of salt.  Especially about how increasing the sum total of corporate and dividend taxation will drive people awy from investing and reduce corporate capital formation.  The fact is that corporate taxation is at an extraordinary low and that most sales and purchases of corporate shares take place in the secondary market, putting no cash into corporations whatsoever!

But there's a good bit not to like as well.  The President calls for "corporate tax reform"--a favorite agenda item of the radical right that will decimate any plans for reducing the deficit without overburdening the middle class if the GOP is able to move it forward.  Obama suggests that corporate tax reform should close loopholes and lower rates so that it doesn't result in increased deficits.  But any loophole closure will be undone shortly thereafter, and any lowering of rates will never be undone.  It is folly to think that the kind of base broadening/rate lowering model applicable in 1986 could work in the "greed is good/taxes are bad" poisoned climate of 2012.

Office of Management and Budget FY2013 Budget Overview

 President's Message

White House Budget Proposal Text

President Discusses Budget Proposal (at Northern Virginia Community College) (with C-SPAN video)

Payroll Tax Cut -Keystone vote up Saturday at 9 in Senate

Apparently, Senate leaders on Friday ironed out the difficulty between the GOP and the Democratic party.  The GOP got most everything it wanted, and the Dems got just barely more than nothing.  That's the way "negotiating" seems to go in the Congress these days.  The right demands and demands and demands and gets most of it by obfuscating and obstructing. 

This time the Dems were worried about not getting a spending bill.  So while the House passed a spending bill to carry the Federal Government through September 2012, the Senate caved on all the things they'd said they wouldn't cave on--like the ridiculous provision for expedited approval of the Keystone Pipeline.  All to get just a 2-month extension of the payroll tax cut and expanded unemployment benefits--which the GOP knew it could not afford not to pass, no matter what.  And Obama has already flipped on his earlier looks-like-he's-finally-figured-out-how-to-stand-tall position that he would veto any bill that carried the expedited Keystone approval provision.  See Steinhaur & Pear, Senate Agrees to a Two-Month Extension of the Tax Cut, New York Times (Dec. 16, 2011). 

The GOP continues to call the Keystone pipeline project a "job creator", even though it will create no more than 50 permanent jobs, at a considerable environmental cost.  Schumer calls the Keystone provision a "Pyrrhic victory" for the GOP, because he says Obama will not approve it if pushed.  That's not so clear to me.  Schumer also spins the cave-in as a victory for Dems! saying that the GOP won't have the leverage of the need to pass a spending bill when this issue comes back.  See  Rubin et al, U.S. Senate Leaders Agree on Two-Month Payroll Cut , Bloomberg.com (Dec. 16, 2011). 

Again, past experience suggests this may be too rosy an assessment.  There were commentators who thought that surely the Congress would not pass further tax cuts after the 2001 tax cuts resulted in large deficits but instead we got the 2003 bill and the 2004 tax giveaway for corporations bill and many others, with the deficits mounting with each one.  One would have thought that the sunset of the various Bush tax cuts in 2010 would have been a perfect time for the Dems to develop a spine, but they didn't.  And the Dems weren't even able to pass a bill ending the carried interest subsidy for hedge fund managers, in spite of the Great Recession and the need to reign in financial institutions.

The Senate bill will apparently at least not include some of the bad stuff  that was in HR 3630 as passed by the House--it is "scaled back" so it looks like medicare premiums won't rise for seniors, and  the GOP won't win its attempt to end medicare's coverage of outpatient rehabilitative therapy for stroke victims and medicare payments to doctors will not be affected.   Nor will it include the "extensions" of expiring tax provisions like the R&D credit or the active financing exception for the financial  industries' deferral of its offshoreprofits.  Id.

The Senate bill will apparently be paid for by raising the guarantee fees for Freddie and Fannie, something that was included in HR 3630.  Id.  Vote is to take place at 9 am Saturday.

Disaster Aid Disaster Averted, barely

Once again, Republicans intent on obstructing the normal operation of the federal government unless they can extract cuts to programs they don't like (in the name of deficit reduction) applied the combination of House recalcitrance and Senate anti-majoritarian filibuster to threaten a government shutdown and siderail needed funding for emergency assistance to ordinary Americans until they could get at least some of their objectives.   A compromise that will get money to FEMA and keep the government funded for a spell has been reached.

 

Right-wing Blogger Peter Pappas' Problematic Post About Tax Lies

Peter Pappas is not a left-leaning blogger.  His "tax lawyer blog" tends to serve as a booster for the right-wing rants about how the rich are paying more taxes than the poor (as though that's any surprise--the rich are the ones with the staggeringly large incomes and the uber-rich are the ones garnering the gains from productivity, while the rest of us stagnate or decline).  He also tends to engage in ad hominem attacks on left-wing bloggers--yours truly being a frequent honoree.

Here's the most recent one--a rant that left wing bloggers complain about the misleading tax rhetoric of the right and "never" complain about the misleading tax rhetoric of the left.    Pappas, Tax Lies Some Left Wing Bloggers Ignore, Sept. 13, 2011.

Let's unpack this.  Bernie Sanders, in Congress, makes a speech and in it he states that Exxon Mobil didn't pay any taxes on its $19 billion in income.  Pappas thinks I should have complained about how this rhetoric was misrepresenting the facts and misleading the public, since the company didn't pay any federal income taxes but did pay a piddling amount of other (state, local, excise) taxes.  But Sanders' next sentence in the blurb that Pappas excerpts mentions the company's $157 million refund from the IRS:  that sentence fairly clearly sets the context as a discussion of what the companies pay in federal income taxes, don't you think?  Yeah, Sanders should have spoken perfectly articulately and made absolutely clear that he was talking about federal income taxes. After all, Exxon did pay a piddling sum in overall taxes on their $19 billion of income (they claim $500 million on $19 billion, which is about 2.5%, counting all state, local and excise taxes).   But that de minimis error of lack of specificity or ambiguity is very very small potatoes compared to what the right-wing rhetoric chain does.

Pappas gives a link to his earlier post, which shows a 'guide' that Sanders' office prepared about corporate freeloaders.  Note that the first item in that guide states the following: " Exxon Mobil's 2009 profits totaled $19 billion but according to the company's SEC filing it received a $156 million rebate from the IRS PLUS it didn't pay any federal taxes." 

However, Pappas doesn't give a link to the particular speech that he's quoting, which always makes me think that there is something in the speech that he doesn't like because he knows it is telling about the state of America today.  By not giving a link (or any other direct information about the speech), Pappas avoids providing any context.  What was the context of the speech?  Sanders was addressing the question of whether Congress should extend yet again the Bush tax cuts for the wealthiest Americans.  (Now I didn't say "federal income tax cuts passed in the Bush administration" but I believe all you readers know that when we talk about the Bush tax cuts we are talking about federal income taxes, don't you?)

Instead, Pappas just links to Politifact.com--a reader might think it is just a link to the website home page, since he doesn't provide the title in the link, but it is actually a link to PoliltiFact's "rating" of the statement about Exxon Mobil in Sanders speech on the Bush tax cut extension decision.  if you pursue that link you find a link to the Nov. 30, 2010 Sanders speech (which I've also linked here).  Here are a few excerpts from that speech:

It is very clear to anyone who spends 2 minutes studying the issue that the people on top are doing extraordinarily well at the same time as the middle class is collapsing and poverty is increasing.  ***

If you can believe this, since between 1980 and 2005, 80 percent of all new income created in this country went to the top 1 percent--80 percent of all new income. That is why people are wondering and asking: What is going on in my life? How come I am working longer hours for lower wages? ***

After we bailed them out, those [Wall Street] CEOs today are now earning more money than they did before the bailout. And while the middle class of this country collapses and the rich become much richer, the United States now has by far the most unequal distribution of income and wealth of any major country on Earth. ***

In the midst of all of this growing income and wealth inequality in this country, we are now faced with the issue of what we do with the Bush tax cuts of 2001 and 2003. And if you can believe it, we have people here--many of my Republican colleagues--who tell us: Oh, I am so concerned about our recordbreaking deficit. I am terribly concerned about a $13.7 trillion national debt. I am terribly concerned about the debt we are going to be leaving to our kids and our grandchildren. But wait a minute. It is very important that we give, over a 10-year period, $700 billion in tax breaks to the top 2 percent. ***

[in the penultimate paragraph, Sanders referred to the oil companies and their demand for even more tax breaks--(federal income tax breaks, I'm sure he meant to say).  That's where the quoted sentences discussed by Pappas are embedded.]

These people want to cut back on the powers of the EPA and the Department of Energy so that ExxonMobil can remain the most profitable corporation in world history while oil and coal companies continue to pollute our air and our water. Last year, ExxonMobil made $19 billion in profit. Guess what. They paid zero in taxes. They got a $156 million refund from the IRS. I guess that is not good enough. We have to give the oil companies even more tax breaks

All in all, Pappas' chagrin at the "misleading" nature of Sanders' talk seems manufactured.  Anybody reading the speech would have been quite clear that this was a discussion of federal income taxes.

And let's put Pappas' choice of doing this posting (and claiming that I in particular am somehow derelict in my duty as a blogger for not pointing out the "lie" in Bernie Sanders' speech) in context.  Let's look, for example, at one of the "related posts" on Pappas' own blog.   Pappas, 51% of Americans Pay Zero Tax; Share of Government Funded by the Rich Increases, May 9, 2011.   Now, of course you all know that the title by itself is an outright lie.  It is very hard for any American who buys various items necessary for existence (gas, food, clothing, necessaries, an occasional splurge) to manage not to pay any state or local sales taxes, and of course many states have income taxes as well and even poor Americans who have jobs will also pay payroll taxes (for Social Security and Medicare).  It simply isn't true that  51% of Americans pay "zero tax".  Now, in the body of the  post itself, Pappas does state that the 51% figure is a number in a congressional study suggesting the percentage of Americans that owe no federal income tax in 2009.   Does that make up for the headline?  It's an attention grabber--and a terribly misleading one.

I doubt if anyone thinks that anybody who talks frequently about tax gets it right all the time--we are human, after all, and we make mistakes.  But there is a big difference between an ambiguity that is clarified by context and the type of misleading tax rhetoric that the right indulges in regularly in order to push a corporatist and pro-elite, anti-tax, anti-government agenda.  You know those false claims about taxation-- that poor people don't pay taxes and they really "need" to so that they will have some "skin in the game", that family businesses and farms are lost due to the estate tax (no, there's only anecdotal evidence about some very few being slightly impacted and none about "loss" due to the piddling estate tax), or that capital gains preferential rates for stock sales reward investment in corporations (no--they primarily reward gains from secondary trades between investors), or that Social Security is insolvent (no, it is not ), or that the investor-class merits preferentially low taxes because they are the job-creation engine of America (no--jobs are created by entrepreneurs and by mom-and-pop business and by big corporations, not the secondary market investors in those corporations and certainly not by the private equity funds that routinely buy so that they can fire), or that the active financing exception to subpart F is merited because big banks otherwise would be taxed to death (no--it is merely a way to give a special subsidy to foreign banking operations that results in very low tax rates for such financial institutions), and on and on.....  Most Americans are so ill-informed that they do not understand that the "taxable income" that may be reported by the elite is already a figure far removed from (and generally much less than) the economic income of that same elite--because of the exclusion for muni-bond interest, the tax preferences for retirement income and the elite's access to incredibly generous benefits even while those of the vast majorithy of Americans are being reduced, etc.  Nor do they understand that many of the deductions that the middle class also enjoys --for example, the mortgage interest deduction--give special benefits to the elite.

There is a reason that vast numbers of Americans are misinformed about tax matters, the role of the debt ceiling, the solvency of Social Security, the relative distribution of incomes, the relative rates of taxation, and the share of government funding paid by major corporations and similar points.  It is due to a conscious campaign by the radical right to discredit government and protect the elite from taxation.  And as we saw in the recent manufactured 'debt ceiling crisis', the radical right today is wililng to commit economic terrorism in order to get its way and protect the elite at all costs. 

House GOP Response to Obama Jobs Bill Speech

The House GOP responded to Obama's jobs act speech by writing a letter asking for the text of his proposed legislation. 

Two things are noteworthy here:  the insistence on offsets, and the presupposition that deregulation would do more for creating jobs than unemployment expansion, payroll tax cuts, and credits for hiring the long-term unemployed and the other Obama proposals.

The letter says that Republicans "look forward" to receiving information about the offsets proposed for the jobs proposals.  This  highlights one of Obama's mistakes in the jobs speech and in fact throughout his administration.  He has allowed the GOP to set the agenda.  Even when it is obvious that the economy is stalling, he still walked the "deficit reduction" walk --including calling for changes to workers' earned benefit programs (Medicare and Social Security) in line with the GOP's four-decade campaign to decimate them as unjustifiable 'entitlements'.   That permits the GOP to practice their obstructionism in two places--first, in the jobs-supporting proposals and second, in the pay-for proposals. 

The letter presages that battle by noting that the House GOP wants to look back to GOP-sponsored bills that would "remove government barriers to private-sector job creation". In other words, the GOP is repeating the same worn mantra that government regulation that protects ordinary Americans from the air, water, land pollution, bad labor practices, and other anti-consumer actions of a too-powerful corporate business sector is the thing hindering job creation. 

Everyone (except perhaps the low-information American voters who have been constantly misled on this issue by the corporate media) knows that isn't true.  What hinders job creation is the lack of a consumer base to buy the products that would be produced by new jobs.  It isn't regulation--regulation is at most a cost that limits the corporate managers' and owners' profits, since it forces business to internalize costs that it had foisted off on the public prior to the regulations.  It isn't taxes--taxes are similarly just a cost of doing business.  Remember that corporations have had an enormously profitable time, and they have huge warchests of cash, both abroad and at home.  They have plenty of money to hire if there were only people to buy the products and services to be provided by the new hires.  Until that vicious cycle is broken, stagnation will continue.   

Other than its repetition of the Reaganomics anti-regulation mantra, the letter says nothing in substance.  It claims to approach the Obama jobs proposals with bipartisanship and cooperation.  But the years of the Obama administration have demonstrated that there is no such thing as cooperation among the current Republicans in Congress.

Jon Huntsman's Wall St. J. Op-Ed: warmed over Reaganomics

There he goes again.  Huntsman's op-ed ran in the Sept. 6, 2011 Wall St. Journal: Reigniting the Entrepreneurial Spirit.

As though enterpreneurs aren't being entreprenuers right now.  HOw about the group that made the news last night--two young men who realized that they could repai iPhones and other electronic gear for half the amount that the manufacturers charge and still make a cool profit (YoubreakIFix)?  If you have a good idea and you try to make it work, odds are you can make money off it.  That makes you an entrepreneur.

Huntsman seems to think that making the tax code friendly to Google and other Big Corps is the way to encourage entrepreneurialism.  That's like saying that taxing  the wages of partners in private equity funds at capital gains rates encourages entrepreneurialism--it's a big laugh.  Carried interest managers aren't entrepreneurs; they are speculators who buy cheap, breakup, and sell expensive. 

Huntsman wants "tax simplification, regulatory reform, and changes in energy and trade policy."  That's just more of Reaganomics--tax simplification means tax cuts for business and the 'owner' class, regulatory reform means deregulation, and changes in energy and trade policy mean deregulation and opening up of protected areas for exploitation.  None of those things will create jobs, foster entrepreneurialism, or create a sustainable American economy.

Huntsman says he favors a "revenue-neutral tax overhaul modeled after Ronald Reagan's 1986 tax reform package--which will require taking on sacred cows."  So he is willing to eliminate a few carveouts and deductions, that's good.  But he wants to lower rates even more, that's bad.  In fact, he says "flatter" is "fairer"--that's a weird view of fairness in a country that has consistently favored progressive taxation as a way to ensure that the wealthy pay for the many advantages bestowed upon them by government.  The 1986 tax cut worked as well as it did (it was no panacea) because rates could be cut in half and still be at 35%.  Today's rates are already at tax haven lows and can't really be cut any further without decimating important government programs.  Moreover, one of the key 1986 reforms was to eliminate the preferential rate for capital gains and tax the wealthy on their income the same way that the middle class is taxed--all at ordinary income rates.  Huntsman wants to couple rate reduction from all time lows with elimination of all taxes on capital gains!    He of course calls that 'eliminating the double taxation on investments" but as I've explained several times before, that use of "double taxation' is mostly false, especially in respect to investment in companies' stocks.  We already have a special tax code provision that provides for very low taxation on the capital gains an entreprenuer invests in a company directly.  But the preferential capital gains rate goes far beyond that and applies to secondary market capital gains.  That has nothing to do with direct investment.  Moreover, we have accelerated depreciation, bonus depreciation and expensing provisions that essentially make investment in business equipment very close to tax free--there's no 'double taxation' involved. 

 Huntsman repeats his proposed new rate schedule--8%, 14% and 23%--combined with "eliminating deductions and credits".  That means that the poor and middle class would bear an unconsciounable tax burden, while the wealthy would pay even less than most of them do today.  He says he'll "make business tax rates globally competitive"--that should mean RAISING rates, since the US business tax rates is already at tax haven status among the 40 OECD countries.  But of course, he actually intends to lower business taxes even further, for the benefit of wealthy managers and owners.

Huntsman's objections to regulations are equally misleading.  Regulations are the way that government acts to prevent business from passing along costs to taxpayers as 'externalities'--costs that they don't have to take into account to make a profit, but that create real harms for others, such as air pollution,  long term ecological destruction, ruination of mountains (strip mining), ruination of streams (sewage discharge), etc.  Huntsman has already reached judgement on the NLRB's consideration of Boeing's plant relocation to a right-to-work (union destroying) state.  He similarly has decided that the Dodd-Frank financial system overhaul represents "another regulatory sin" because it creates "massive compliance costs."  It appears he'd rather that the too big to fail banks continue to speculate freely in interconnected ways that end up creating a financial crisis like 2007-2008.  After all, the banksters will enjoy that, and the politicians will benefit from the big campaign contributions.  But the rest--ordinary Americans that make up the vast majority of living, breathing 'beneficiariies' of the kind of unsteady, speculative, volatile financial system created by deregulated banks--will suffer.  Huntsman understands taht the regulations that protect ordinary bank customers may face the big banks to "choose between downsizing or facing much higher capital ratios."  He casts this as a parade of horribles resulting from Dodd Frank.  Oddly, because that's actually a desirable result of banking legislation--if only that were a real possibility, it would help to end the 'too big to fail' problem!

Huntsman as president also would favor Reagan's mantra of privatization--he would 'privatize' Fannie and Freddie and "let the housing market clear".  In other words, he would let private companies now garner all the benefit of the federal taxpayer dollars in vested in Fannie and Freddie (he posed no conditions about returning all the benefits of the long-term federal guarantee) and he wouldn't give a damn about ordinary Americans who have underwater mortgages.  There's nothing in his proposal for clawbacks on mortgages in bankruptcy or otherwise.

Huntsman's warmed-over reaganomics proposals for favoring big business over ordinary Americans through a deregulatory regulatory policy, tax cut tax policy, and privatization don't address the right issues, don't promote entrepreneurialism, and are not fair.