Posts Tagged 'credit'

Don’t Blink

This Saturday morning, July 23rd, the Senate was originally scheduled to vote on Cut, Cap and Balance, the Republican plan to cut $111 billion out of this year’s deficit, trim $4 trillion over ten years, and present a balanced budget amendment to the states.  Instead, Harry Reid moved the vote up to Friday morning, calling it a waste of time and the worst piece of legislation to ever come to the Senate floor.  It failed to pass on strict partisan lines.

Senator Schumer called the bill “Cut, Cap and Kill” because he insisted that the bill would kill Medicare.  Debbie Wasserman-Schultz declared in the House of Representatives that the bill would kill seniors and that it was the Paul Ryan plan on steroids.   The only problem is that in three different places Cut, Cap and Balance specifically exempted Medicare and Social Security from cuts and caps.  Had Republicans known, some of them might have been a little bit more up in arms about the bill.  It was actually a very good compromise.  It cut and cap wasteful spending on liberal social programs and government bureaucracy, not hot buttons like military, Social Security and Medicare.

Perhaps that is a more reasonable explanation of why Harry Reid went back on his promise to allow debate on Cut, Cap and Balance and instead moved the vote up.  Perhaps someone in the Senate actually read the bill and told Reid what was in it.  And then, as if scripted, suddenly news outlets started declaring a deal between Boehner and Obama that was so close Reid needed to get this bill off the floor and stop “wasting time” on it.  The only problem is there was no such deal.  Somebody was lying to provide the sense of urgency needed to cut off debate on Cut, Cap and Balance before it got out that Democrats were lying about it killing Medicare.

This has become the name of the game in budget talks.  Neither side is willing to give in because both sides know that 2012 elections hang in the balance.  The difference is that Republicans have actually gone so far as to write a good compromise bill.  Democrats can’t vote yes on it, not because it “kills Medicare” or kills seniors.  They can’t vote on it because passing Cut, Cap and Balance would destroy Democrat re-election hopes for 2012.  It would be a huge Republican victory because Republicans came up with it.

On the other hand, Democrats can’t write a plan of their own.  They haven’t submitted a budget in over 800 days, and they can’t submit one now or that will also destroy their chances of getting re-elected in 2012.  Democrats can’t write a bill that says “We want to raise taxes so that we don’t have to cut spending as much” and still win in 2012 because the vast majority of the country doesn’t want Democrats to raise taxes so that they can spend more.  They are spending enough already, and we are taxed enough already.  On the other hand, Democrats can’t write a plan saying “Ok, no higher taxes, just cuts” or they will lose their class warfare base.  The liberal base of the Democrat party does not want a bill that doesn’t raise taxes on the “rich”.  It’s not about raising revenue, it’s about punishing upper classes more.

Republicans submitted a plan and it was a good plan.  Obama has signaled that he is willing to let the country default on its debt rather than compromise with Republicans.  Democrats have proven that they are the party of no on a budget deal.  If Republicans end up caving in order to save our credit rating, I hope Americans get the right message.  It doesn’t mean Republicans are wimps and we need to get rid of them.  It means they can only do so much with just a majority in the House.  We need to give them the Senate and the Presidency in 2012 if we expect anything to get accomplished.


Imagine No Deductions

3.8 Million.  That is the number of words in our current tax code, according to Taxpayer Advocate chief Nina Olson.  Americans spend 6.1 billion hours every year preparing their tax returns.  Tax preparation requires 3 million full time professional tax preparers and 89% of Americans either use a professional or spend an average of $50 on tax software.

Do you prepare your own return?  Should you be able to prepare your own return?  I think we can all agree tax preparation is way too complicated.  Some have proposed a Fairtax, which would be like a national sales tax.  There are other proposals to fix and shrink our tax code.  Olson proposes something much more similar to what I have advocated for a few years now.

The Taxpayer Advocate Service points out that many Americans have an effective tax rate far below their actual marginal rate.  For example, an American in the 25% tax bracket may only pay an effective rate of 9% because he has more than $15,000 in income excluded through various deductions and credits.  Olson argues that we could reduce tax rates significantly by consolidating the tax code and getting rid of all those various credits and deductions.  So who is standing in the way?  She says you are.

She’s right.  Obama’s debt panel came to the same conclusion, but could not get enough votes to send their proposal to Congress.  Let’s test this theory.  What would you say if your congressman got up at a townhall meeting and told you he was going to vote to get rid of the mortgage interest deduction?  What about the child tax credit?  How about credits and deductions for education?  What about charitable giving deductions?  Chances are, the crowd would turn into an angry mob before he could even mention lower marginal tax rates.

So far that has been the case.  Americans on both sides of the aisle are unwilling to sacrifice their credits and deductions for a simpler, revenue neutral solution.  But it’s not just Americans who want to hang on to behavior based tax reduction.

Lobbyists, and by extension the government, would hate to lose the ability to increase or reduce your taxes based on your behavior.  Right now the government can reward you for going to college, buying a house, being a teacher or performing artist, saving for retirement, having kids, working and getting childcare for those kids, working even if you can’t make a lot of money, making energy efficient improvements to your home, buying health insurance, buying energy efficient vehicles, giving to charity, paying union dues, adopting kids, hiring people who can’t get jobs ever since they raised the minimum wage, and so much more.  They can penalize you for taking early retirement distributions, not buying insurance, and of course, making too much money.  The government has more control over your personal life on your annual tax return than through any other venue.

Olson proposes a zero-based budget where we start with nothing and add back only the credits and deductions that Congress considers absolutely necessary.  Then consolidate the tax rates into two brackets.  Here’s the problem, if Congress didn’t think those credits and deductions were necessary, they wouldn’t have enacted them in the first place.  No Congressman is going to proudly announce that he voted against a tax deduction for teachers who pay for supplies out of pocket, or a credit for a student who goes to college.

The constitutional solution is a tax that is fair and equal for each individual.  It is a tax that does not reward or punish individual behavior.  It is a tax that does not take into account relations, status, and is flat based on income.  If you want a simple tax system with a return that you can file yourself with a pencil and a calculator, you will have to kiss your credits and deductions goodbye.

Obama’s big win of 2010:extending Bush’s biggest win of 2001

Victory, Immortal Fame!  So cries the last warrior standing, ironically right before he himself dies, after defeating his surrounding army.  The warriors of the mythical army, raised from serpent’s teeth planted in the ground, are tricked by Jason into battling each other.  So ends this humorous battle in Argonautica.

Not so different was the media coverage of the passing of the Bush tax cut extension.  After Obama defeated his fellow Democrats in passing this extension, the media hailed it as a much needed victory for the White House.

Wait.  What?

If you read Obama’s Tax Cuts of 2010, you shouldn’t be too  surprised.  In fact, the only thing that should surprise you is exactly how much of the Republican agenda Obama acquiesced to in this tax rate extension.  I predicted back in October, 2009 that Obama would extend the Bush tax cuts for at least the middle class, and that he would herald them as tax cuts instead of merely extensions of the Bush tax rates.  But at the time I figured it would come at the cost of no estate tax fix, higher rates for upper income earners, and other built in tax hikes.  Instead, this “White House victory” looks more like something from the last 8 years that supposedly “got us into this mess in the first place”.

The question then, if this is truly a White House victory, is if Obama has become a born again Capitalist.  The tax extension doesn’t just extend Bush tax rates for two years, it also gives a generous estate tax system that increases the exemption from $1 million to $5 million and lowers rates to 35%.  It also gives businesses of any size 100% bonus depreciation on new asset purchases in a tax gift to huge corporations.  And lastly, it replaces the Making Work Pay Credit with a 2% across the board cut in Social Security taxes.

The 2% Social Security cut was Obama’s answer to the expiring Making Work Pay Credit and is perhaps the greatest evidence of either a change of heart on Obama’s part, or a total victory on the Republican’s part.  In 2010, the Making Work Pay Credit will give families making less than $40,000 a credit of $800, while denying families making more than $175,000 any credit.  It was a perfect Liberal tax cut.  It was even poorly administrated.

On the other hand, the 2% Social Security cut is an across the board flat cut that is easy to administer and has no AGI cap.  So in 2011 a family that makes less than $40,000 will actually be paying more taxes, while a family with  a working husband and wife who make $200,000 combined will get a tax cut of $4,000.  This year they would have no tax break.  This non-progressive change is a White House victory?

The 2010 tax rate extension was an acknowledgment by the left that the policies of the last 8 years did not get us into this mess.  The Bush tax cuts got us out of the last mess and just might work this time too.  How they can claim that this Republican victory was anything else is beyond me.

The only thing the Democrats got out of this deal was not having to pay for the next unemployment benefits extension.  But in the end, Obama found it easier to defeat his own majority party than to take out the minority Republicans.  The result?  Your taxes aren’t going up next year no matter who you are.  And just as expected, Obama is saying it is because of him.

Social Sanctions

In the last couple days, to the shock and surprise of the current administration, it has been discovered that Iran may be trying to enrich weapons grade uranium at their nuclear facilities.  Now, this may just be more fear mongering, like it was for the last 8 years when President Bush was warning us about Iran’s nuclear ambitions.  Then again, this time it may be the real thing.

Iran's peaceful nuclear energy program

New evidence of potential weapon development at Iran's peaceful nuclear energy facilities

As is the custom of the left, we will be sure to respond with harsh language, tepid condemnations, and economic sanctions.  If things get real bad over there, we might even send Jimmy Carter.

Economic sanctions, the weapon of choice to combat nuclear weapons proliferation to dangerous terrorist dictators, are when a majority of the international community use their economic muscle to hurt the people living in the dictatorship through embargos, trade restrictions and tariffs.  I don’t recall Saddam ever selling a golden palace to feed his people while under US sanctions.  But we keep using them, so they must work.

Actually, you may not know this, but Brazil has put sanctions on the US.  That’s right, because Uncle Sam takes your tax dollars and uses them to subsidize US cotton growers, the World Trade Organization has determined that we must also pay $800 million in economic sanctions to Brazil (again, coming out of your tax bill).  You would think since we are loaning them $2 billion to drill for oil there so that we don’t have to drill here, they might let us slide on the cotton issue.

Speaking of sanctions, You might never guess who is currently facing tougher sanctions from the US than Iran.  You are.

Now I know, you don’t enrich uranium and try to hide it.  You haven’t test-launched any missiles lately.  Chances are you probably aren’t supplying weapons to terrorists in Iraq.  But you have definitely caught the watchful eye of the US government, and your behavior must be changed.

Enter the mandatory insurance penalty.  If you do not provide yourself with insurance under the Obama health plan, you will pay a fine of up to $3,800 a year per family.  How much is the total revenue from mandatory insurance supposed to come to?  It is nearly impossible to find a clear estimate of how much revenue these mandatory insurance penalties would raise, but it is certain to be more than the $1.64 billion in current sanctions on Iran.

You might ask yourself, wouldn’t it be cheaper than $3,800 a year to just have people pay for their medical bills?  In fact, wouldn’t it be more likely that people would buy health insurance if they were actually held responsible to pay their doctor bills?  Am I suggesting doctors withhold treatment?  Of course not.  I am suggesting that people who chose to not purchase health insurance be put on a payment plan, negotiated with their doctor, after receiving treatment so that the overall cost of healthcare is driven down by all of us.  I call it responsibility over social engineering taxes.

The reason it costs $5,000 to have a broken leg set is because the last 15 people before you didn’t pay for theirs.  Sure, some people are in a desparate situation and won’t pay for their procedures no matter what, but those people won’t be paying any of Obama’s mandatory health insurance taxes either.

What is the biggest difference between paying Obama $3,800 a year for not buying insurance like the government wants and paying $3,800 a year for your medical procedure?  Simple.  With mandatory health insurance sanctions, the money goes to the government.  When you simply require that people be responsible and pay the bills they actually incur, it goes to the doctors and eventually to you as the costs come down.

But instead, be prepared to be hit with all the social sanctions this healthcare plan has in store for us.  Sanctions for drinking soda, sanctions for not buying health insurance, oh yeah, and $215 billion in sanctions for buying a really good health insurance plan.  That’s right, you pay tax penalties for not buying insurance, and you pay taxes for buying too much insurance.  Yes it’s unconstitutional, but that hasn’t mattered for years.

We already face a host of sanctions from our government for bad behavior.  You are punished for smoking, drinking, driving, making too much money, and soon you will be sanctioned for using energy in your home through Cap and Trade taxes.  Perhaps Iran and North Korea never take our sanctions seriously because what they pay is nothing compared to what US citizens pay.

But on the other hand, the government rewards you for good behavior.  If you fit the government mold, you can get more aid than the $3.5 billion in US tax dollars Africa has received in foreign aid.  In the US first time home buyers have received $10.4 billion in taxpayer aid for being a good citizen and buying their first home.  Good citizens who bought government approved cars received $3 billion in aid.  Our very tax code is written to mold us into what the government deems model citizens.  You get tax breaks for owning your home instead of renting, for saving for retirement, for buying health insurance, for going to college, for marrying someone of the opposite sex, for giving to charity, for having two children, and for hiring ex-felons and “disconnected youth” (high school dropouts who can’t get a job anymore since they raised the minimum wage).

On October 1st, President Obama and the international community are going to get tough with Tehran.  Who knows, with enough economic leverage maybe they can get the Iranians to become model citizens too.

Obama’s Tax Problem

During the campaign, Obama sought to defeat the old Liberal label of “tax and spend”.  He swore fiscal responsibility and pay-go.  $1.58 trillion in red ink later and here we are.

He promised something else.  Obama promised no tax increases on people who make less than $250,000 a year.  That number fluctuated, but in the end it was between $150,000 and $250,000.  Now Obama is in trouble.

It shouldn’t come as a surprise.  All throughout the campaign, Conservatives kept saying you can’t have fiscal responsibility, buy whatever you want, and give 95% of Americans a tax cut.  We said even if you don’t balance the budget, if you spend as much as Obama was promising, you will have to raise taxes.  Some of us even predicted that Obama would seek to redefine the word tax in order to get around it (e.g. raising government fees, licensing costs, and other such things).

On Sunday with George Stephanopoulos, that is exactly what Obama did.  First he argues that private insurance companies raising rates because people use the ER for free is a tax increase.  Then he argues that adding up to $3,800 to a family’s tax bill for not buying government approved insurance is not a tax increase.

This issue is about to get even worse for Obama.  The White House has recently admitted that Conservatives were correct in their estimates of what Cap and Trade taxes would cost the average family in the US.  When the administration said it would cost families the equivalent of a postage stamp a day, they meant if you were mailing bricks.  The final White House number comes to $1,761 per family in new Cap and Trade taxes.  Considering how well they’ve done with their other estimates lately, like how high unemployment would get, I am not too optimistic that the number will be so low.

If Democrats stick with the Baucus plan, they will have a new tax issue to answer for.  The Baucus plan pays for itself through taxes on medical equipment, clinics, insurance companies, and medical savings accounts.  A rational person might think that if you wanted to cut medical costs, you would actually cut taxes on all these things.  After taxing these things and making them more expensive, the Baucus plan gives you tax credits so that you can afford to buy insurance at the pretax rates.  It generously gives you up to 13% of your income back to buy health insurance, if you don’t make too much.  Will that be enough to pay for health insurance when the Baucus plan increases healthcare costs by 30% with his new embedded taxes?  By the way, in case you were wondering, I am assuming that some of the cost of the Baucus plan actually will be paid for by Medicare cuts like they promise.  But seriously now, what are the odds of that happening?

Consider this, to pay for his trillion dollar deficits, Obama is considering raising the top tax bracket to 39% (a 4% increase) and tacking on a 5% “surcharge” for a total tax increase on the richest Americans of 9%.  At the same time, he is going to increase your family’s utility bill through Cap and Trade taxes by $1761 and fine you $3,800 if you don’t buy government approved insurance.  By my calculations, if you have a family of four making 300 times the poverty level, that’s a tax increase of 9%.  Now don’t get too upset, the rich will be paying embedded Cap and Trade taxes too.  Their taxes will still go up more than yours.  Feel better now?

The Baucus bill is a gift to the insurance lobby.    Think about it from the insurance company’s perspective.  Yes, you pay higher taxes as an insurance company, but then that money is given to your potential clients and they are told they must buy your product or they will pay government penalty taxes.  30 million new customers, whether they need insurance or not.  In addition, the government takes everyone who can’t afford you or is high risk and puts them in a government co-op (totally different than a government option).

Count on Obama to claim credit for giving 95% of Americans a tax cut when you get your health insurance credits.  Don’t count on him admitting that Cap and Trade, embedded healthcare taxes, tax penalties for not buying government approved insurance, taxes on your employers and taxes on your employee and health savings accounts are actually tax increases on those of us who make less than $250,000.

With Republicans Like These, Who Needs Democrats?

Last year, Senator Isakson of Georgia sponsored a bill that gave us the $8,000 first time home buyer credit.  Isakson is a Republican.  It was a year when even the best conservatives turned into redistributive socialists.  They joined the leftist majority and borrowed from China in order to redistribute money to Wall Street and its benefactors.  They robbed from the rich and gave to the rich.  Now he wants to extend the bill, nearly double the credit, and open it up to investors as well.  Does he not realize that we are about to do the same thing to Democrats that we did to Republicans in 2006; kick the bums out for spending too much?

In 2008, home values were dropping like crazy.  That’s great news for people without a whole lot of money who need to buy a house.  That’s terrible news for people who build houses.  But the fact is, we had way too many houses on the market.  There was no demand for houses.  The bubble had burst and there was no way around it.  The housing market had become an inefficient use of resources.

In the real world, that is when the over abundance of housing contractors find a new job, as do excess realtors, until the number of houses on the market no longer exceeds the number of families looking to buy a house.  Yeah, it sucks.  Yes, it is also temporary and eventually results in a more efficient growing economy with expanded wealth and opportunity.  But in 2008, Bush, Paulson and the Democrat Congress invented a new term: too big to fail.

Instead, Congress decided to re-inflate the bubble.  Instead of allowing the market to drop the price of houses by $8,000 on its own, which would automatically create demand among the new homebuyer market, Congress decided to borrow money and give Americans $8,000 to buy a new home.  This kept prices inflated, created artificial demand, and kept the bubble inflated.  Until, that is, December 2009 when the program ends.  At that point, Congress must either allow the bubble to burst again, or they must borrow and tax even more so that they can continue to kick the economic can down the road.

We saw the exact same thing with Cash for Clunkers.  Ford even hired a bunch of new people and increased production.  What’s going to happen when the artificial Cash for Clunkers demand ends?  We will soon find out.

What is depressing our economy right now is the anticipation of the next dip.  This dip will be a result of the end of Cash for Clunkers and the first time home buyer credit, TARP repayment, government sales of bailout stock (Citigroup, GM), Cap and Trade that Obama has now admitted will cost every American family $1,700, and the socialization of the healthcare industry.

Is there hope?  Sure.  We can drill for our own oil, creating a whole new economic segment of growth and employing millions while increasing economic demand in other areas.  We can start to pay down debt instead of increasing it so that 10 years from now half our federal budget isn’t going to pay for interest to China.  We can enact free market healthcare reforms that create competition, create tort reform, and cover people in an efficient, constitutional way.  We can cancel plans to tax every American through Cap and Trade and $350 billion in new taxes for Obamacare.  But you won’t get any of this with the current crowd.  Our best shot for economic recovery is the 2010 election.

And then along comes Isakson and the McCain Republicans.  Perhaps, when they stand next to us and before us at the TEA party rallies they are too busy scoring easy political points to actually listen to what we are saying.

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