taxes

George Soros: Country Leaving Euro Currency ‘Probably Inevitable’

June 26, 2011

VIENNA – Billionaire investor George Soros thinks a country will eventually exit the euro zone and urged policymakers on Sunday to come up with a “plan B” that could rescue the European Union from looming economic collapse. Soros, famous for making $1 billion by betting against the British pound in 1992, did not name any country he thought might exit the currency, but speculation is mounting about the fate of Greece as its politicians struggle to agree more austerity measures demanded by international lenders as the price for staving off bankruptcy. Soros reiterated his view in a panel discussion in Vienna that the euro had a basic flaw from the start in that the currency was not backed by political union or a joint treasury. “The euro had no provision for correction. There was no arrangement for any country leaving the euro, which in the current circumstances is probably inevitable,” he said. While he called survival of the European Union a “vital interest to all,” he said the EU needed structural changes to halt a process of disintegration. “There is no plan B at the moment. That is why the authorities are sticking to the status quo and insisting on preserving the existing arrangements instead of recognizing there are fundamental flaws that need to be corrected.” With a debt crisis in some peripheral members testing the EU’s cohesiveness at a time of popular disquiet in wealthier countries over bailouts, he said leaders had to adopt measures now to remedy the situation. “Let’s face it: we are on the verge of an economic collapse which starts, let’s say, in Greece but could easily spread. The financial system remains extremely vulnerable… “We are on the edge of collapse and that is the time to recognize the need for change.” Some steps the EU could adopt included creating a larger central budget; directing some of the income from value-added tax or a levy on financial transactions to Brussels; having a European institution guarantee banks, and tripling the size of its bailout fund by topping it up with tax revenue, he said. (Reporting by Michael Shields; editing by Sophie Walker) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Obama, Boehner Held Secret Debt Ceiling Meeting At White House

June 24, 2011

WASHINGTON (AP/The Huffington Post) — Efforts to find a bipartisan agreement blending huge budget cuts with a must-pass measure to increase how much the government can borrow have entered a new phase after Republican negotiators pulled out of talks led by Vice President Joe Biden. The exit of House Majority Leader Eric Cantor from the talks on Thursday means the most difficult decisions have been kicked upstairs to GOP House Speaker John Boehner of Ohio and President Barack Obama. The Biden-led group had made solid progress in weeks of negotiations but was at an impasse over taxes. Cantor, R-Va., said that the Republican-dominated House simply won’t support tax increases and that it’s time for Obama to weigh in directly because Biden and Democrats were insisting on tax increases. Democrats said it’s only fair to blend in additional revenues from closing tax breaks to balance trillions of dollars in spending cuts. It had long been assumed that the Biden group would set the stage for more decisive talks involving Obama and Boehner. As a result, Cantor’s move was interpreted as trying to jump-start the talks rather than blow them up â a view shared by Cantor himself. “The purpose here is to alter the dynamic,” Cantor said. In fact, Cantor’s withdrawal came after Boehner had already made a trek to the White House â in a secret meeting Wednesday night that followed up on a golf outing over the weekend. According to The Hill newspaper, Cantor’s walkout had been planned for weeks: The timing of Cantorâs exit from the talks has been discussed for weeks, and senior House Republicans cast it as a natural progression for the negotiations. âThere have been discussions about when these talks need to end and when the Speaker and the president need to get in the game,â one GOP aide explained. For his part, Cantor didn’t inform Boehner of his decision to leave the talks until Thursday, shortly before the news broke, said a GOP official familiar with the situation. The official required anonymity because of the sensitivity of the information. The White House sought to put a positive spin on developments. “As all of us at the table said at the outset, the goal of these talks was to report our findings back to our respective leaders,” Biden said in a statement. “The next phase is in the hands of those leaders, who need to determine the scope of an agreement that can tackle the problem and attract bipartisan support. For now the talks are in abeyance as we await that guidance.” The Senate’s Republican negotiator, Jon Kyl of Arizona, also exited the talks. For his part, Cantor said the secretive Biden-led talks had “established a blueprint” for agreement on significant cuts in spending. One of the byproducts of Cantor’s departure was to provide an opportunity for partisans on all sides to make statements at odds with the positions they may have to take to achieve a deal. Democrats insist that at least some new revenues are needed â both to soften spending cuts and to line up the Democratic votes needed to pass the measure. “It will take Democratic votes to pass any debt-ceiling agreement,” said Sen. Chuck Schumer, D-N.Y. “As a result, certain things are going to have to be true. We cannot make cuts to Medicare benefits. We have to allow for revenues like wasteful subsidies for ethanol and oil companies. And we have to do something on jobs.” “President Obama needs to decide between his goal of higher taxes or a bipartisan plan to address our deficit,” said Senate Republican leader Mitch McConnell, R-Ky. “He can’t have both.” As for Democratic demands for new deficit-financed “jobs” initiatives, McConnell scoffed: “What planet are they on?” Cantor said that plenty of progress has been made in identifying trillions of dollars in potential spending cuts to accompany legislation to raise the $14.3 trillion cap on the government’s ability to borrow money. Passage of the legislation this summer is necessary to meet the government’s obligations to holders of U.S. Treasurys. The alternative is a market-shaking, first-ever default on U.S. obligations.

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Corporate Tax Holiday Could Create Infrastructure Bank — But Devil Is In The Details

June 22, 2011

Rahm Emanuel has a proposition. A grand one, for big business, big unions, and Congress: let a corporate income tax holiday pay for a national infrastructure bank. Let multinationals bring their money home — the money that’s parked overseas, dodging Uncle Sam’s corporate income taxes — and the federal government can use some of it to pay for the infrastructure bank, the newly minted mayor of Chicago says. Unions, big corporations, and potentially members of both parties: a virtual rainbow coalition may be assembling in favor of the infrastructure bank. But corporate watchdogs charge there’s no difference between a tax holiday with a bank and a tax holiday without one. Under Emanuel’s plan, which he is developing with Rep. Rosa DeLauro (D-Conn.), the bank would build the bridges, roads and mass transit that America has been neglecting for decades. As these structures rust and fall apart, oftentimes nothing new is being built in their place. Yet money to improve infrastructure money will not be easy to come by in the midst of a protracted deficit debate; by including the tax holiday, Emanuel’s proposition aims to win over Republicans leery of adding to the deficit. The idea for the bank is not new — former Service Employees International Union President Andy Stern mooted it in an op-ed piece months ago — but it seems to be gaining renewed attention. Reed Hundt and Thomas Mann wrote about it in the Washington Post last week, Emanuel treated it as his own in a speech to the U.S. Conference of Mayors on Saturday, and now Sen. Chuck Schumer (D-N.Y.) is feeling out the Senate . For proponents, the hope is that the proposition could unite Democrats in the Senate and Republicans in the House. Emanuel said he thinks his grand compromise “brings the parties together.” The specific terms of the tax holiday, however, would be critical. Some Democrats don’t want to give multinationals a free pass, and Republicans don’t want to be too hard on corporate America. Without some sort of deal, it’s possible that money could continue to linger offshore — parked in anticipation of a better deal from a different Congress. That has been the situation since 2005, when another tax holiday was declared, premised on the idea that it would create jobs; it didn’t . Critics of any sort of tax holiday say that the infrastructure bank is just the latest twist on corporate blackmail. “Every one of these amnesties encourage greater holding offshore and Congress is being irresponsible even to say they are thinking about it,” said Calvin Johnson, a professor at the University of Texas School of Law who specializes in tax law. Former SEIU chief Andy Stern disagreed. “The problem is the money hasn’t come back, there’s no reason to believe it will ever come back,” said Stern, now a senior fellow at Georgetown University Public Policy Institute. “Details are appropriate and important — you know, what’s the tax rate? — but we’re now in the right framework,” he argued. In his speech to the mayors, Emanuel said he would like to see the tax rate lowered to 10 or 15 percent, down from its current 35 percent, for the tax holiday. The money the government raises from those taxes would then be directed only to the infrastructure bank, ensuring, in his view, that it would actually be used to create jobs. Such a cut on the corporate income tax rate, however, might not sit well with small businesses , who can’t use creative accounting to hide their profits overseas like the multinational corporations. And a cut to 10% might not be steep enough to win over Republicans in the House, who have been talking about taxing repatriated income at a rate in the low single digits. In the Senate, Schumer has reportedly suggested a 5% rate. Rep. DeLauro told HuffPost that she’s working with Emanuel to find a balance, and she is hopeful that Republicans can be convinced to sign on to their plan. DeLauro said she has been working on plans for an infrastructure bank for 14 years, and found the recent discussion of the idea “very encouraging.” “The concept of an infrastructure bank has wide support — from the U.S. Chamber, from labor unions, from a whole bunch of people in between,” she said. Robert McIntyre, director of Citizens for Tax Justice, isn’t one of those people. He said there was “no substantive difference” between a straight tax holiday and one that was combined with an infrastructure bank. “It’s just somebody’s wacky idea that the problem the world faces today is a lack of capital. Our problem is there’s not enough consumer demand. The government should be out there shoving money out the door and stimulating the economy.” “This bank is going to be just another bank — they could have given the money to SunTrust, you know?” he said. DeLauro said capitalizing the bank via a tax holiday was not her first choice, but she thought that it would be a good approach in the GOP-controlled House. “If we are going to have another repatriation holiday, the federal government should use the incoming revenue to capitalize a national infrastructure bank, and we do know that such an entity creates jobs, long-term economic growth,” DeLauro said. Tying the repatriation to a larger reform of corporate income taxes is also critical in her mind. “Any repatriation effort has got to be a bridge to broader corporate tax reform. We have to close tax loopholes,” she said. Her infrastructure bank plan would leverage money from corporations and the federal government to create projects that include public-private partnerships. Because of the federal backing, loans for the projects could be issued at low rates. Such arrangements are common overseas; some have pointed to the European Investment Bank as a model for what could be created here. The United States has relatively fewer infrastructure projects that are operated as public-private partnerships, and any ventures that smacked of privatization might prove controversial . A privately owned toll road created with lending from the infrastructure bank, for instance, might charge a high rate to pay off its government loan. Criticism might also arise if the arrangement’s big winners are the same multinationals benefiting from the tax holiday, as opposed to small businesses.

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What Millionaires Did With Their Bush Tax Cuts: ‘I Built A Dance Floor In My House’

June 6, 2011

WASHINGTON — Paul Egerman isn’t certain how many millions he’s saved from the tax cuts enacted during the George W. Bush administration in the early 2000s and extended by President Barack Obama in December of last year. “I do not know how much I’ve saved over 10 years but I’m sure it is several million dollars — probably in excess of $10 million,” said Egerman, founder of a medical transcription company called eScription. And what, HuffPost asked, have you done with all that cash? “I’ve kept it,” he said. “I have not done anything with that money.” Egerman is part of a gang of self-described Patriotic Millionaires who wish the federal government would help itself to more of their money to address its big budget deficits. Nearly 200 millionaires have signed a letter asking congressional Republicans to consider healing budget gaps with increased revenue — in particular, higher taxes on millionaires — instead of just reduced spending. The group is coordinated by the Agenda Project , a New York think tank, and Wealth for the Common Good, a network of business leaders and wealthy people that promotes “fair and adequate taxation” to support the economy. Other millionaires on a conference call Monday morning said they had more fun with their extra money than Egerman did. “I probably traveled a little bit more than I otherwise would have,” said Frank Patitucci, CEO of NuCompass Mobility Services , a company that offers relocation management services. “I got a bigger boat than I used to have,” said Dennis Mehiel, the founder and chairman of cardboard box manufacturer U.S. Corrugated, Inc. He lamented that the construction of his 150-foot sloop didn’t create any jobs for American workers. “The problem is, it was built in Italy.” Dal LaMagna, founder of Tweezerman, said he used his extra money to help the local economy in by adding stuff to his house in the Pacific Northwest. “I just started creating jobs myself. I built a dance floor in my house — which I really didn’t need,” LaMagna said, adding that he also put in a parking lot. “I just became a Dal LaMagna economic stimulus package in Poulsbo, Washington.” HuffPost readers: Got tons of money? More than you need? Tell us what you do with it — email arthur@huffingtonpost.com . Please include your phone number if you’re willing to do an interview. The tax cuts enacted in 2001 and 2003 overwhelmingly benefited the richest 1 percent of taxpayers, according to the nonpartisan Tax Policy Center , a joint project of the Brookings Institution and the Urban Institute. The progressive Center on Budget and Policy Priorities estimated in 2009 that the tax cuts “added about $1.7 trillion to deficits between 2001 and 2008.” The tax cuts would have expired in January, but President Obama broke a campaign promise and struck a deal with congressional Republicans that reauthorized the cuts for two more years in exchange for one year of extended unemployment benefits, among other things. Tuesday, June 7, is the 10th anniversary of the tax cuts. Extending them further would result in an extra $68,079 for the average member of the richest one percent of taxpayers in 2013, according to estimates by progressive advocacy group Citizens for Tax Justice . “If they are fully extended, they will cost five-and-a-half trillion dollars over the coming decade,” said CTJ President Bob McIntyre on the conference call.

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Mitt Romney’s Economic Claims vs. The Facts

June 3, 2011

WASHINGTON — In rhetorical excesses marking his entry in the presidential campaign, Mitt Romney said the economy worsened under President Barack Obama, when it actually improved, and criticized the president for issuing apologies to the world that were never made. A look at some of the statements by Romney on Thursday in announcing his bid for the Republican nomination and how they compare with the facts: ROMNEY: “When he took office, the economy was in recession. He made it worse. And he made it last longer.” THE FACTS: The gross domestic product, the prime measure of economic strength, shrank by a severe 6.8 percent annual rate before Obama became president. The declines eased after he took office and economic growth, however modest, resumed. The recession officially ended six months into his presidency. Unemployment, however, has worsened under Obama, going from 7.8 percent in January 2009 to 9.1 percent last month. It hit 10.1 percent in October 2009. A case can be made for and against the idea that Obama’s policies made the economy worse than it needed to be and that the recession lasted longer than it might have under another president. Such arguments are at the core of political debate. But Obama did not, as Romney alleged, make the economy worse than it was when he took office. ___ ROMNEY: “A few months into office, he traveled around the globe to apologize for America.” THE FACTS: Obama has not apologized for America. What he has done, in travels early in his presidency and since, is to make clear his belief that the U.S. is not beyond reproach. He has told foreigners that the U.S. at times acted “contrary to our traditions and ideals” in its treatment of terrorist suspects, that “America has too often been selective in its promotion of democracy,” that the U.S. “certainly shares blame” for international economic turmoil and has sometimes shown arrogance toward allies. Obama, whose criticisms of America’s past were typically balanced by praise, was in most cases taking issue with policies or the record of the previous administration, not an unusual approach for a new president – or a presidential candidate. Romney’s actual point seems to be that Obama has been too critical of his country. But there has been no formal – or informal – apology. No saying “sorry” on behalf of America. ___ ROMNEY: “Three years later, foreclosures are still at record levels. Three years later the prices of homes continue to fall.” THE FACTS: Although foreclosures remain high, the number of U.S. homes that were repossessed by lenders fell in April, compared with March and a year ago, according to the foreclosure listing service RealtyTrac Inc. Romney’s claim about home prices, though, is supported by the Standard & Poor’s/Case-Shiller 20-city monthly index. It found home prices in big metro areas have sunk to their lowest since 2002. Since the bubble burst in 2006, prices have fallen more than they did during the Great Depression. ___ ROMNEY: “Instead of encouraging entrepreneurs and employers, he raises their taxes, piles on record-breaking mounds of regulation and bureaucracy and gives more power to union bosses.” THE FACTS: Romney ignores ambitious tax-cutting pushed by Obama. The stimulus plan early in his presidency cut taxes broadly for the middle class and business. He more recently won a one-year tax cut for 2011 that reduced most workers’ Social Security payroll taxes by nearly a third. He also campaigned in support of extending the Bush-era tax cuts for all except the wealthy, whose taxes he wanted to raise. In office, he accepted a deal from Republicans extending the tax cuts for all. As for tax increases, Obama won congressional approval to raise them on tobacco and tanning salons. The penalty for those who don’t buy health insurance, once coverage is mandatory, is a form of taxation. Several large tax increases in the health care law have not yet taken effect. ___ ROMNEY: “The expectation was that we’d have to raise taxes but I refused. I ordered a review of all state spending, made tough choices and balanced the budget without raising taxes.” THE FACTS: Romney largely held the line on tax increases when he was Massachusetts governor but that’s only part of the revenue story. The state raised business taxes by $140 million in one year with measures branded “loophole closings,” the vast majority recommended by Romney. Moreover, the Republican governor and Democratic lawmakers raised hundreds of millions of dollars from higher fees and fines, taxation by another name. Romney himself proposed creating 33 new fees and increasing 57 others – enough to raise $59 million. Anti-tax groups were split on his performance. The Club for Growth called the fee increases and business taxes troubling. Citizens for Limited Taxation praised him for being steadfast in supporting an income tax rollback. ___ Associated Press writers Steve LeBlanc in Boston and Jim Drinkard in Washington contributed to this report.

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Ellen Brown: Japan Shows How to Defuse Debt Time-Bomb

May 27, 2011

[T]hreatening to default should not be a partisan issue. In view of all the hazards it entails, one wonders why any responsible person would even flirt with the idea. — Alan S. Blinder , Princeton professor of economics, former vice chairman of the Federal Reserve A game of Russian roulette is being played with the national debt ceiling. Fire the wrong chamber of the gun, and the result could be the second Great Depression. The first Great Depression led to totalitarian dictatorships, war to consolidate power, and concentrations of capital in the hands of a financial elite. The trigger was a default on the global reserve currency, in that case the pound sterling. The U.S. dollar is now the global reserve currency. The concern is that default could create the same sort of global panic today. Dark visions are evoked of the president declaring a national emergency, FEMA plans locking into place, camps being readied for protesters, and the secret government taking over . . . . This may all just be political theater, but do we really want to get close enough to the economic precipice to find out? The conservative ideologues toying with the debt ceiling are doing it to force cuts in the budget, a budget that was already approved by Congress. Congress is being held hostage by a radical minority pushing a risky agenda, one that is based on an economic model that is obsolete. High-stakes Gambling On May 16, the Wall Street Journal published an opinion piece titled ” The Armaggedon Lobby ,” which claimed that a “technical default” on the federal debt was just “political melodrama” and not really a big deal: [B]ond markets can figure out the difference between a genuine default when a country can’t pay its bills and a technical default of a few days if it serves the purpose of fixing America’s fiscal mess. Not so, said Saudi Prince Alwaleed bin Talal in a May 20 interview on CNBC. “That’s gambling. This is the United States. You’re leading the whole world. You cannot play games with that.” It is not just that the government could be brought to a standstill, with a third of its bills now being paid by borrowing or that interest rates would shoot up, forcing thousands of homeowners into foreclosure. Failure to pay on the national debt could trigger a default on the global reserve currency. As one commentator described what could go wrong: [T]he consequences of a US default could spark yet another global financial crisis. The US could lose its triple-A rating, which could cause a sell-off in Treasury notes by institutional and foreign investors. This sell-off could lead to higher interest rates, and banks’ balance sheets might be decimated by the decline in their bond portfolios. Thus, global banking and financial market liquidity could dry up. Lending between institutions and people or businesses could possibly cease altogether or become cost prohibitive. A Rerun of 1931? The sort of chaos that could ensue was seen when Great Britain reneged on its deal to redeem pound sterling banknotes in gold in 1931. The result was the worst global depression in history. When the pound went off the gold standard, markets panicked. People rushed to exchange their paper money for gold, in any currencies in which that was still possible. The gold wound up hidden under mattresses and in safety deposit boxes, unspent and the banks from which it was pulled, having no reserves to back their loans, quit lending or closed their doors. Credit froze; business ground to a halt. As other countries ran short of gold, they too were forced to take their currencies off the gold standard. The last holdouts suffered the most, including the United States, which kept its gold window open until 1933. The 19th century had been plagued by bank runs, caused by banks having too little gold to back their outstanding loans. The Federal Reserve was instituted in 1913 ostensibly to prevent those runs, but its levee did not hold back the run of the 1930s. In 1933, the country suffered a massive banking collapse, forcing President Roosevelt to declare a banking holiday and take the U.S. dollar, too, off the gold standard. Freed from the Bankers’ “Cross of Gold” The transition off the gold standard was a painful one but according to Beardsley Ruml, Chairman of the Federal Reserve Bank of New York, the country was the better for it. In a paper read before the American Bar Association in 1946, he said that going off the gold standard had finally allowed the country to be economically sovereign: Final freedom from the domestic money market exists for every sovereign national state where there exists an institution which functions in the manner of a modern central bank, and whose currency is not convertible into gold or into some other commodity. Freed from the strictures of gold, Roosevelt was able to jump-start the economy with deficit spending. As Marshall Auerback details , the next four years constituted the biggest cyclical boom in U.S. economic history. Real GDP grew at a 12% rate and nominal GDP grew at a 14% rate. Then in 1937, Roosevelt listened to the deficit hawks of his day and slashed the deficit. The result was a surge in unemployment, and the economy slipped back into depression. What lifted the country out of the doldrums was again deficit spending, liberally engaged in to fund World War II. In wartime, few people worry about the national debt. The debt grew to 120% of GDP — twice what it is today — and wound up sustaining another very productive period in U.S. history, one that set the country up to lead the world in manufacturing for the next half century. On Inflation and Taxes Ruml said federal taxes were no longer needed to fund the budget, which could be financed by issuing bonds. The principal purpose of taxes, he said, was “the maintenance of a dollar which has stable purchasing power over the years. Sometimes this purpose is stated as ‘the avoidance of inflation.’” The government could spend as needed to meet its budget, drawing on credit issued by its own central bank. It could do this until price inflation indicated a weakened purchasing power of the currency. Then, and only then, would the money supply need to be contracted with taxes. “The dollars the government spends become purchasing power in the hands of the people who have received them,” Ruml said. “The dollars the government takes by taxes cannot be spent by the people,” so the money supply can be contracted with taxes as needed. When the economy is in a recession, however — as it is now — the government needs to spend in order to get purchasing power into the hands of the people. Businesses cannot hire more workers until they have more customers demanding their products, and the customers won’t come until they have money to spend. The money (“demand”) must come first. Adding money will not drive up prices until the economy is at full employment. Before that, increasing “demand” will drive up “supply” by setting the engines of production in motion. When supply and demand rise together, prices remain stable. We now know that a government can go quite far into debt without a dangerous level of price inflation occurring — much farther than the U.S. has gone today. Besides World War II, when U.S. debt was 120% of GDP, there is the remarkable example of Japan. Japan has retained its status as the world’s third largest economy, although it has a debt to GDP ratio of 226% — and it is still fighting deflation. Critics of the deflationary theory point to commodity prices, which are soaring today. But if those prices were due to the economy being awash with “too much money chasing too few goods,” real estate prices would be soaring too. Instead, the real estate market has collapsed. What has actually happened is that the housing bubble has transmuted into the commodity bubble, as “hot money” has fled from one to the other. The overall money supply is still in decline . The deficit hawks have been predicting for years that the federal debt would sink the dollar and the economy, and it hasn’t happened yet. In fact the federal debt has not been paid off since 1835, and no disaster has resulted. The debt has not only been carried on the government’s books but has continued to grow, and the economy has grown and flourished along with it. This is not an economic anomaly. The economy has flourished because of the national debt. Nothing backs the currency today but “the full faith and credit of the United States.” Money is no longer a metal; it is an inflow and outflow, credits and debits . The liabilities of the government are the assets of the private economy. The national debt is what backs the money supply. Dealing with the Rising Cost of Debt Service There is a potential time bomb in a growing federal debt, but it is one that can be defused. The debt has risen from $10 trillion to $14 trillion just since the banking crisis of 2008, not from “entitlements” but due to the Wall Street collapse and bailout. Just the interest on this growing debt could cripple the tax base if interest rates were at normal levels, so they have had to be pushed almost to zero. The result has been to create a dollar carry trade . This has facilitated speculation in commodities, a major cause of today’s commodity bubbles. There is, however, a solution to this problem, and it was discovered by Japan. The government can spend, not by issuing bonds at interest to the public, but simply by creating an overdraft at the central bank, as Beardsley Ruml recommended. The Bank of Japan now holds an amount of public debt equal to the country’s GDP! As noted by the Center for Economic and Policy Research: Interest on [Japanese] debt held by the central bank is refunded back to the treasury, leaving no net cost to the government on this debt. . . . Japan continues to experience deflation, in spite of the fact that its central bank holds an amount of debt that is roughly equal to its GDP. This would be equivalent to the Fed holding $15 trillion in debt. Like the Bank of Japan, the Federal Reserve now returns the interest it receives to the government. With a rising interest tab on the federal debt no longer a problem, private interest rates could be allowed to rise to normal levels. Today the Fed is not permitted to buy bonds directly from the Treasury but must go through middleman bond dealers. But that problem too could be fixed. In a supporting statement in 1947, Federal Reserve Chairman Marriner Eccles discussed a bill to eliminate the unnecessary cost of these middlemen. He said the Federal Reserve had been allowed to purchase securities directly from the government from its inception in 1914 until the Banking Act of 1935. Then: A provision was inserted in that act requiring all purchases of government securities by Federal Reserve banks to be made in the open market, which means purchased chiefly from dealers in Government bonds. Those who inserted this proviso were motivated by the mistaken theory that it would help to prevent deficit financing. . . . Nothing constructive would be accomplished by the proviso that the Reserve System must purchase Government securities exclusively in the open market. About all such a ban means is that in making such purchases a commission has to be paid to Government bond dealers. The interest cost and the bond dealers’ cut could both be eliminated by allowing the Treasury to borrow directly from its own central bank, interest free. Nothing to Fear But Fear Itself We have been frightened into believing that government debt is a bad thing, but nearly all money today originates as debt. As Marriner Eccles observed in the 1930s, “That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.” The public debt is the people’s money, and today the people are coming up short. Shrinking the public debt means shrinking more than just the services the government is expected to provide. It means shrinking the money supply itself, along with the ability to provide the jobs, wages and purchasing power necessary for a thriving economy. Originally posted on Asia Times .

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Rick Santorum Up To Date On Taxes; Previous Report Incorrect

May 27, 2011

WASHINGTON — Former Sen. Rick Santorum paid a penalty for a late Penn Hills property tax filing in 2010, but his taxes are up to date.

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Tax Cheats Received Billions In Stimulus Cash, Report Finds

May 24, 2011

WASHINGTON — Thousands of companies that cashed in on President Barack Obama’s economic stimulus package owed the government millions in unpaid taxes, congressional investigators have found. The Government Accountability Office, in a report being released Tuesday, said at least 3,700 government contractors and nonprofit organizations that received more than $24 billion from the stimulus effort owed $757 million in back taxes as of Sept. 30, 2009, the end of the budget year. The report said the tax delinquents accounted for nearly 6 percent of the 63,000 contractors and grantees examined and cautioned that the real number might be higher because the known tax debt does not measure such factors as income underreporting. Among the examples was an engineering firm that received a $100,000 stimulus act contract but owed $6 million in taxes. The IRS called it “an extreme case of noncompliance.” A social services nonprofit that received more than $1 million in stimulus funds owed taxes of $2 million. The GAO referred those two cases and 13 others to the IRS for further investigation. On Tuesday, a Senate Homeland Security and Governmental Affairs subcommittee will hold a hearing on the report. Federal law does not prohibit tax delinquents from getting government contracts or grants, though there are provisions that enable the government to withhold payments in some cases. While the federal government requires contractors to present documentation that their taxes are paid, some recipients escaped federal review because the money was disbursed at state or local levels. Sen. Carl Levin, D-Mich., chairman of the investigations subcommittee holding the hearing, said it’s been known for years that a few federal contractors and grantees don’t pay their taxes. He said a program to recover funds from tax delinquents has been strengthened, and “the executive branch has made it clear” that nonpayment of tax can be grounds for denying a specific contract or barring a contractor from bidding on any contract. He added that the executive branch should “get on with it” and bar “the worst of the tax cheats from the contractor workforce.” “It is a matter of basic fairness that those who take government money should be required to pay their taxes like everyone else,” said Sen. Tom Coburn of Oklahoma, the panel’s top Republican. “That such a huge amount of the stimulus money went to known tax cheats should be a wakeup call for Congress.’” The stimulus package, enacted in February 2009, funneled some $821 billion into the recession-hit economy. Of that, about $275 billion was designated for contracts and grants, of which nearly $200 billion had been paid out as of March 25, 2011. The report noted that about 35 percent of the unpaid taxes were for debts incurred prior to 2003 and that more than half of the apparent violations, $417 million, were from unpaid corporate taxes. Another quarter, $207 million, came from unpaid payroll taxes. The most serious documented case was a security firm that owed $9 million, mainly in unpaid payroll taxes from the mid-2000s. IRS records indicated that the company paid other creditors while shirking its tax obligations. The company, which received more than $100,000 in stimulus money, had a history of being uncooperative, missing deadlines and repeatedly filing appeals, according to the records. Sen. Max Baucus, D-Mont., chairman of the Finance Committee, said every unpaid tax dollar was “added to our deficit or taken from future generations, so I will certainly use the conclusions from this report to look for new ways to ensure everyone pays their fair share.” For Republican the report provided another way to criticize Obama’s recovery package. “This shows how fundamentally flawed the failed stimulus has turned out to be when Washington jams through almost a trillion dollars in spending with little scrutiny,” said Sen. Orrin Hatch of Utah, top Republican on the Senate Finance Committee. ___ Associated Press writer Stephen Ohlemacher contributed to this report.

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Sen. Ron Wyden: Fact-Checking the Oil Companies’ Defense of Taxpayer Subsidies

May 19, 2011

Just one week ago the American people heard executives from the top five oil companies stand-up and explain why — despite record profits — they need the federal government to give them a break on their taxes. We’re talking about the billions of dollars in tax incentives and assistance that oil companies get for drilling in the United States. These incentives were put in place long ago when the oil industry was just getting started. Today, these major oil companies are among the largest corporations in the entire world. That hasn’t been the case for awhile. In fact, in 2005, representatives of the country’s major oil companies told me that they no longer needed tax incentives to keep drilling in the U.S. because oil was selling for $55 a barrel and that price gave them more than enough financial incentive to keep drilling. Well, if the oil companies thought that $55 a barrel oil was enough to keep them drilling in 2005, it would seem safe to assume that with oil hovering around $100 a barrel today, they would no longer be asking for their tax incentives to keep drilling. That wasn’t the case at last week’s hearing. So what’s changed since 2005? Why are some of the largest and most profitable companies in the world still telling Congress that they still need government assistance? Let’s break it down. Claim #1: Oil is getting harder and harder to find. The truth about oil supplies: If anything, U.S. oil supplies and prices are less tied to the global market now, and new oil supplies are easier to find, than they were in 2005. The location and technology for getting oil and gas, especially from on-shore shale formations, have not only dramatically increased U.S. oil and gas reserves, but the technology is now so well established that U.S. oil and gas production is rising rapidly as a result. According to a recent analysis by the U.S. Energy Information Administration, oil production from the Barnett shale formation in Texas — literally in the backyards of the headquarters of these same companies — has tripled since 2005. In fact, total U.S. oil production has increased over 10% since hitting its low point in 2008 and EIA projects that because of increased production in oil shale and in the Gulf of Mexico and other sources that it will continue to grow. On top of that, the CEO of ExxonMobil said on CNBC in March 2011, “I am not aware of anyone who is having difficulty securing supplies of oil…there is no shortage of supply in the market.” Claim #2: Oil companies face global competition. The truth about global competition: U.S. oil prices are also less tied to global markets and competition now than they were in 2005, because of increased U.S. production and increased Canadian tar sands production flooding into the U.S. market. This should be of no surprise to the five major oil companies who testified last week, because every single one of them has made major investments in Canadian tar sands projects. Claim #3: The loss of tax breaks will drive up the price at the pump. The truth about the price at the pump: Recalling that hearing in 2005, I also asked the CEOs about ending these tax breaks on their companies and several of them said it wouldn’t affect them or would only minimally affect them. ExxonMobil CEO Lee Raymond said “As for my company, it doesn’t make any difference.” Chevron CEO James O’Reilly said ending these tax breaks would have “minimal impact on our company.” And, BP’s US CEO Ross Pillari agreed, saying “it’s a minimal impact on us.” So if taking away the tax breaks won’t have much of an impact on the oil companies, why would it have much of an impact on price? The American people should not be held hostage to the false claims that without the billions in taxpayer subsidies they currently receive, these companies will produce less oil and that will raise the price at the pump. It’s time for the oil companies to own up to what they said in 2005: they did not need taxpayer subsidies then, and they do not need subsidies now.

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WATCH Over 50 And Out Of Work: ‘My Wife Doesn’t Love Me Anymore’

May 18, 2011

Mike Risinger’s 17-year career as a draftsman started falling apart in 2008. When the financial crisis hit, he spent a year working as a contractor, and then a few weeks working for a friend before a starting an endless stretch of unemployment. Now his wife is working two full-time jobs to pick up the slack. “We see her very little, and usually when we do see her she’s dead tired and doesn’t want to do anything,” Risinger says in a video posted online May 9. “It’s miserable.” Risinger, who lives in Portland, Ore., says one of his two daughters wants to go to college next year. “I don’t know how she’s going to pay for it. The finger gets pointed at me,” he says, his eyes weary. “I seem to have lost my edge. I can’t get an interview anymore.” “My wife doesn’t love me anymore,” the 58-year-old says, smiling instead of crying. “My kids don’t love me.” Risinger’s video lives on Over 50 And Out Of Work , a site created by New York-based journalist Susan Sipprelle to document the jobs crisis among older workers. Sipprelle, 52, is looking out for people like herself. “I could see the impact this is having on my peers,” she says. “So many of our interviewees thought they were set for life.” The site has videos of jobless Americans from all over the country. Sipprelle and her team this week embarked on their final trip — to Louisville, Ky. — where they will film their 100th interview. Workers older than 55 are much less likely to lose their jobs, but once they do, they’re much more likely to be unemployed for a long time. The average jobless spell for older workers now lasts longer than a year . The anxiety and despair among people stuck in this situation has been well-documented in studies, particularly by Carl Van Horn at Rutgers University’s John J. Heldrich Center for Workforce Development . (Van Horn is one of several experts Sipprelle has interviewed for the project.) But statistics and expert witnesses can’t convey the poignancy that Sipprelle’s jobless interview subjects can. Elizabeth Zima , of Calistoga, Calif., for one, has been out of work since she lost her job as a health care writer in 2008 and has already blown through her retirement savings. “I can’t pay my taxes,” says Zima, 57, suppressing sobs in a March 15 video. “I can’t pay my taxes. I’ve always filed. I always have felt it’s been my responsibility. I can’t pay ‘em. Even an extension — I’m not gonna be able to pay ‘em.” Sipprelle says two or three of the people she’s profiled have since found work with pay comparable to what they’d earned before being laid off. A few others have taken jobs with much worse pay, while some have struck out as entrepreneurs. “We have a handful in really, really bad shape,” she says. Watch Mike Risinger’s interview: Mike Risinger from Over Fifty and Out of Work on Vimeo .

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Fred Rotondaro: On Taxes

May 13, 2011

House Speaker John Boehner said again this week, tax increases are off the table. He and Senate Minority Leader Mitch McConnell have used the same language hundreds, perhaps thousands of times. You can’t tax the job creators in a recession, they say. They pound it home time and again. It’s the wealthy who create jobs in America, leaving the clear implication they’re defending tax cuts for the wealthy and for corporations because it’s good for America. McConnell and Boehner either have very incompetent staffs or they are deliberately misleading American voters. There is in fact no clear evidence that tax cuts for the wealthy create jobs. The non-partisan Congressional Budget Office last year analyzed fourteen approaches to creating jobs in America. Tax cuts for the wealthy came in 14th — dead last . Some Republican spokesmen say that history proves them right, arguing that Ronald Reagan cut taxes and had job gains in his administration. They don’t mention that after Reagan cut taxes, he raised them again. The most obvious comparison is of course the eight-year administrations of Bill Clinton and George Bush. Clinton had a tax rate of 39 percent and created some 22 million jobs during his administration. He left George Bush with a surplus and a roaring economy. Bush’s first move was to use the surplus as an excuse to drop tax cuts to 35 percent for the richest Americans. There is no doubt this was good for the rich who from 2001 to 2007 increased their assets by 10 percent every year. During that same period middle Americas actually lost eight percent of their net assets. And importantly, in 2008 and 2009, the last years when Bush policies were in full effect, America lost a total of 8 million jobs. Higher taxes under Clinton and a net gain of 22 million jobs. Reduced taxes under Bush and a two-year loss of 8 million jobs . How does this equate into lower taxes being good for America? In addition, recent studies using CBO figures estimate that six trillion of our current debt stems from the Bush tax cuts in 2001, 2003 and 2004. McConnell and Boehner know the above figures quite well. They have good staffs as befits their important roles. But telling the truth about taxes would not suit their political agendas. Republicans leaders for the last 30 years have promoted lower taxes for three main reasons, each interlinked. First, Republicans do believe in lower taxes. This goes with their theories about smaller government and with their distaste of such programs as Medicare and social security. Second, it is the very rich and corporations who contribute the most to Republican politicians. It is circular giving for the rich and corporations get substantial largess from the government in many forms — contracts, advantageous government policies, etc. Third, the beneficiaries of Republican tax benefits are well organized and well funded. The Club for Growth and Americans for Tax Reform are two corporate funded groups based in Washington that in effect monitor Republicans on tax policy. The ATR boasts openly that it extracts pledges from members of Congress that they will never vote for any sort of tax increase. ATR says it has over 40 pledges from senators and more than 200 from representatives. Failure to follow the pledge has often meant well-funded primary opponents. Politicians like Boehner and McConnell know full well the implications of their no new tax policy. But sadly, like so many politicians like them, they put power and money above the inter of the average American. And they don’t stop for a moment in deceiving Americans in their pursuit of their political goals.

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William S. Becker: Big Oil’s Political Ploy

May 13, 2011

Whatever else we might say about Big Oil in the United States, we have to give the industry credit for one thing: it has mastered the art of scamming us with a perfectly straight face. The scam has been underway for decades. This year’s example is the debate about repealing $21 billion in federal subsidies for big oil companies over the next decade.To their credit, President Obama and several Democrats in Congress are pushing the idea. Oil executives have launched a counteroffensive reminiscent of Gordon Gekko’s argument that “greed is good.” Requiring taxpayers to subsidize America’s biggest oil companies is in the best interest of the country, they say, and anyone who disagrees is playing politics. ExxonMobil, for example, said that President Obama and congressional Democrats are engaging in “political theater” on this issue. Perhaps. But the real plot line is that big oil companies are fighting once again to keep largesse they don’t need and the nation can’t afford. Here are some examples of the time-tested arguments we’re hearing from Big Oil: Eliminating their subsidies will force oil companies to increase the cost of gasoline. Even some oil executives acknowledge this is not true. Unless the industry uses subsidy reform as an excuse to gouge consumers, reducing its tax breaks will not affect energy prices. The handful of subsidies under scrutiny here are the proverbial drop in the oil barrel. They are a fraction of the special favors oil companies receive from the federal government, usually at taxpayer expense. And oil company revenues are so high, even counting the cyclic nature of the market, that subsidy reform will not make a difference in energy prices. The bigger misdirection is the industry’s stubborn assertion that encouraging more domestic production with taxpayer subsidies and permission to drill everywhere will have a meaningful impact on consumer prices. Legions of experts have pointed out in the past that petroleum prices are set by a world oil market so large that more domestic drilling and subsidies won’t much matter. Two fresh examples illustrate how little we control the factors that influence the global petroleum market. Last December, a vegetable vendor in Tunisia set himself on fire to protest harassment by police. His self-immolation and subsequent death triggered the “Arab Spring” — a chain reaction of protests across the Arab world fueled by frustrations ranging from high food prices to chronic unemployment, and suppression of freedoms to government corruption. Oil prices rose just because of the fear that Arab unrest would threaten world supplies. The second example is the historic flooding along the Mississippi River. Hopes have been high that high oil prices will flatten demand and lower the cost of gasoline. But gasoline prices may rise anyway because the river is threatening to disrupt oil barges, pipelines and refineries. It’s unfair to cut subsidies for big oil companies when other companies and industries get taxpayer support. Sen. Orrin Hatch, R-UT, made this statement when oil company executives testified before Congress on May 12. The corollary is that if oil companies get tax breaks, so should all other companies and industries. The last time I checked, we can’t afford that. More seriously, Hatch’s point is valid within the oil industry. Current proposals would cut some subsidies for big oil companies, but not smaller oil producers. The equitable solution is to phase out all federal subsidies for oil, regardless of the size of the company producing it. Applied to the energy sector in general, however, Hatch’s point is bogus. The oil industry has been getting federal subsidies for nearly a century, far longer and in far greater amounts than alternative energy industries. Rational public policy would recognize there’s a big and legitimate difference between subsidizing mature and wealthy industries such as coal and oil, and subsidizing emerging industries that are critical to national security, such as solar and wind energy. Fossil energy subsidies are classic corporate welfare; renewable energy subsidies help these vital young industries get across the “valley of death” and into the marketplace. The American people don’t want shared sacrifice. They want shared prosperity. This interesting statement came from Chevron CEO John Watson at the same congressional hearing. If Watson really supported the idea of “shared prosperity,” he’d volunteer to give his company’s tax breaks back to the American people. Rather than reducing federal budget deficits, cutting oil subsidies will have the opposite effect. Jobs and investors will disappear and government tax revenues will fall. This argument has been raised by Jim Mulva, chief executive of ConocoPhillips, among others. It’s ludicrous to believe that cutting these few subsidies will drive investors away from oil. So long as there are profits to be made, oil companies will drill and investors will invest. In a world in which populations are growing, consumerism is surging and emerging economies are injecting oil like steroids, there are ample profits to be made. Eliminating a few subsidies won’t change that. Cutting these subsidies is a tax increase for Big Oil. The “tax increase” argument is an all-purpose fear phrase routinely rolled out by fiscal conservatives and corporations. It’s not clear to me that eliminating a tax break qualifies as a tax increase, strictly speaking. Yes, removing subsidies would result in big oil companies paying higher taxes, assuming their accountants don’t find other ways to escape the obligation. But taking away subsidies merely results in oil companies paying what they should pay without favored treatment. Look at it this way: Big Oil is subsidized not only by access to public lands, low royalty fees and special breaks in the federal tax code. It also is subsidized every day by every one of us who pays taxes, buys gasoline or purchases a petroleum-based product. Our tax dollars pay the enormous costs of protecting overseas oil supplies and shipping lanes. The gas taxes we pay at the pump help build and maintain the highways that promote the use and sale of oil. More than 154 million Americans live in places where coal plants and petroleum-powered vehicles contribute to pollution that makes the air too dangerous to breathe . Families bear the medical costs and lost wages associated with that pollution. It’s difficult to feel bad about the taxes paid by Big Oil. Oil subsidy reform is election-year silliness and political posturing by Obama and reform advocates on the Hill. Ken Cohen, the vice-president of public and government affairs at Exxon, told the Financial Times the subsidy debate is merely “the kickoff for the 2012 presidential campaign and congressional elections.” So what? The 2012 election cycle is an excellent time for presidential and congressional candidates to differentiate themselves on national energy policy. Our oil addiction is one of the biggest national, environmental and economic security issues of our time. We need an electoral intervention. Cutting subsidies by $21 billion over 10 years will make little difference in reducing the federal deficit. That’s true. As of May 12, the national debt was more than $14 trillion — the largest in the world, about $46,000 for every citizen. But we have to start somewhere. To paraphrase the late Republican Sen. Everett Dirksen, “Twenty billion here, twenty billion there, and pretty soon you’re talking real money.” The oil subsidy debate has greater significance than $21 billion, however. It is a litmus test of conservative sincerity about reducing the federal deficit — a test the Tea Party should watch closely. So far, the spending cuts proposed in the Republican-controlled House have been driven by naked ideology, using deficit reduction as an opportunity to attack environmental regulations, climate science and government services for the poor and middle class. In the words of ExxonMobil, the votes have been pure political theater. Last February, shortly after he became Speaker of the House, John Boehner said this : “It is immoral to bind our children to as leeching and destructive a force as debt. It is immoral to rob our children’s future and make them beholden to China. No society is worthy that treats its children so shabbily.” With that level of moral conviction, it should be a no-brainer for Republicans to vote in favor of eliminating oil subsidies. If conservatives are not willing to harvest this low-hanging fruit, it’s doubtful they’ll make the far tougher choices that meaningful deficit reduction will require. Congress should take up oil subsidy reform another time, as part of overhauling the nation’s tax system. There’s no reason to wait on reforming such an obvious and equitable target for deficit reduction. And there’s no reason to believe that a Congress so deadlocked by partisanship and its own rules will succeed at reforming the tax code anytime soon. This isn’t the first time we’ve had this debate. In the past decade alone, oil executives were called before Congress to justify excessive profits in November 2005 when oil cost $60 a barrel; again six months later when a barrel of oil cost $75; again in April 2008 when oil hit $100 a barrel; and again this week, with crude back in the $100 range. For the past 40 years of oil crises, oil wars and oil-induced recessions, it has been Groundhog Day on Capitol Hill. The questions reform-minded members of Congress asked oil executives over the years remain relevant and unresolved today: Why should oil companies get tax breaks when their profits are so high and consumers are so broke? Why isn’t Big Oil investing more of its profits to develop the alternative energy resources that would keep the industry and the nation secure in the long-term? If it were up to me, all fossil energy subsidies would be shifted to a rapid buildup of energy efficiency and renewable energy technologies in the United States. But if deficit reduction provides the only sufficient leverage for subsidy reform, so be it. However we use the revenues, we should resolve the indefensible perversities of national energy policy once and for all, starting with the elimination of federal subsidies for Big Oil.

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Heather McGhee: Who’s Budgeting for a Middle Class?

May 9, 2011

For the first time, the majority of Americans believe that their children won’t be better off than they are . If current trends continue — in just a few categories: wages, benefits, retirement income, personal debt, job creation, job quality, job security, and costs for education, child care and health care — they’re absolutely right. So as the lights are dimming on the American Dream, what are America’s political leaders doing? They’re tripping over one another to reach for the off switch. That’s exactly what the leading deficit reduction plans amount to, according to an analysis we conducted recently at Demos , a non-partisan policy center. In ” Budgeting for America’s Middle Class ,” we graded the various budget plans on their impact on working- and middle-class Americans and the result was disheartening. The only legislative budget to get above a “C” — that issued by the Congressional Progressive Caucus’ ” People’s Budget ” — only garnered 77 votes in the House and is unlikely to come to a vote in the Senate. Download the full Report Card (PDF) When today’s deficit hawks (including, however reluctantly, the president) debate how the nation should tax and invest over the coming decades, they seem to ignore that those priorities could make or break America’s future middle class. That’s because the middle class did not create itself in the mid-20th century. Along with strong labor institutions, robust public investments (which we made despite high deficits) made the financial success of ordinary families a national priority. We built the national highway system; put a generation to college on grants, not loans; and invested in public research that redounded to enormous private gain. The result was the greatest middle class the world has ever known. That all shifted in the mid-1970s as organized big business gained influence in Washington, the power of labor unions weakened, and a range of new policies undermined the living standards of working Americans. As a result, working- and middle-class families have been losing ground for the past 30 years . This reality compelled Demos to join with the Century Foundation and the Economic Policy Institute to create OurFiscalSecurity.org , a project with the goal of conducting regular reality checks on the fiscal policy debate. We relied on the principles that created a strong American middle class to craft our own model budget blueprint, ” Investing in America’s Economy .” The blueprint shows that we can tackle our long-term fiscal challenges while creating jobs, safeguarding Medicare and Social Security, and decreasing inequality. In Congress, the representatives in the CPC designed their “People’s Budget” with similar principles in mind and achieved comparable goals. Unfortunately, the new Demos report card shows that the budget proposals with the most political tailwinds — Bowles-Simpson , the President’s new deficit plan and Rep. Paul Ryan’s (R-WI) budget — fail to harness these proven methods. On the most urgent factor — job creation and an accelerated recovery — the president’s plan received a “C,” the Bowles-Simpson plan a “D-” and Rep. Ryan’s proposal failed. None of these plans included the additional public investment needed to make up for our $1 trillion shortfall in economic demand. All three ignored the lesson President Roosevelt learned in 1937 when he cut spending and the country fell back into Depression, or more recently, when Britain’s austerity measures zeroed-out GDP growth . While educating the next generation is seldom included in long-term fiscal policy debates, our children and grandchildren are constantly evoked as reasons to slash and cap spending now. We graded the plans for the investments they make in this generation through both early childhood care and higher education. The House Progressives, OurFiscalSecurity.org and President Obama all demonstrate that we can rein in the debt without leaving behind a disintegrating nation to a poorly educated generation. They also preserve our obligation to the elderly through strengthened Social Security and Medicare, showing one generation need not be pillaged for the well-being of another. There were some surprises. The Bowles-Simpson plan, for example, scored higher than the president’s for reducing our out-of-control defense budget. For all his deficit-cutting bluster, Rep. Ryan received an “incomplete” for long-term debt reduction, since the budget chairman has failed to give adequate details on the taxes he’ll need to raise to meet his target. He can’t seem to give up his raft of new tax cuts for the wealthy and their heirs — even at a time when taxes are lower than they’ve been since 1958 . Does Rep. Ryan really believe that Americans are willing to stomach the end of middle-class America? Until the political conversation takes note of the relationship between our fiscal choices and the future of the middle class, our leaders will continue to get away with touting policies that exacerbate its decline. The winning legislative plan in our report card — the CPC’s “People’s Budget” — demonstrates that we can achieve fiscal balance while preserving the America we all cherish.

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Scott Bittle: Fiscal Follies: No New Taxes? So Now What?

May 8, 2011

As of this weekend, it looks like Congress will hammer out some sort of deal to extend the federal debt ceiling and avoid pushing the country to the brink of default. The response from the Washington Post ‘s Ezra Klein is the best we’ve read so far. “Whew,” Klein wrote last week. As Klein tells it, both sides are softening their hard line positions out of a “healthy aversion to unimaginable consequences.” Whew indeed. But regardless of what kind of package Congress agrees on, this is just the beginning. We need to cut spending and raise revenue for years to get the country out of its fiscal mess. Unfortunately, a sizable contingent of Americans still believes we can solve our problems without tax increases — or at least not any that would affect “me.” More than half of Americans (53 percent) reject the idea of small tax increases and small cuts in Social Security and Medicare to “significantly” reduce the federal debt. Majorities oppose eliminating deductions for home mortgages, state and local taxes, and contributions to charities as “part of a plan to reduce the federal budget deficit.” By a margin of two-to-one, the public wants to balance the federal budget by cutting spending rather than raising taxes. And why wouldn’t they? Politicians have been telling the public for years that all we need to do is cut — even if they stop short of describing the details. So let’s take a look at what “no new taxes” really means if that’s the way we decide to go. Our trillion-dollar budget problems will be $3 trillion dollars worse. Since the Bush taxes cuts are set to expire in 2014, “no new taxes” means that Congress will need to extend them. According to the Congressional Budget Office, extending all of the existing cuts (both the Bush cuts and the expanded tax credits put in under President Obama) means government will have about $3.2 trillion dollars less to spend over the next decade . If we were at even-steven now, or even close, that would be one thing, but the United States is some $14 trillion in debt , and on track to have our national debt exceed the size of our entire economy in only 10 years or so. Plus, just about every budget out there, from the left, right, and the center (and including the Ryan plan ) has us adding to the red ink for decades. The cuts would have to be savage. Okay, for the sake of argument, let’s see what it would take to eliminate 2011′s $1.4 trillion deficit just by cutting spending. The total budget is about $3.8 trillion, so you have to cut about a third of what government now spends . That might not sound impossible, but once you take a look at the numbers, the task is daunting. To cut the deficit by one-third, you would need to eliminate everything government does except for defense, Social Security, Medicare, Medicaid, and paying interest on the debt. Losing that “non-security discretionary spending” would save $533 billion , but of course, you’ve also just wiped out the entire departments of agriculture, commerce, education, energy, and labor. We no longer have federal meat inspectors, the Centers of Disease Control, FEMA or Pell grants. Want to sink your teeth into defense spending? That’s fine, but to eliminate that $1.4 trillion deficit, entirely, you’d need to cut the entire national security budget: all $900 billion of it in 2011. People may end up paying more one way or the other, even if it’s not called a “tax.” The Republicans seem to be backing away from Rep. Paul Ryan’s controversial budget plan, which included turning Medicare into a voucher plan. It’s a “no new tax” plan, and whatever you think about it overall, it makes one tradeoff perfectly clear: the price for no new taxes is higher medical premiums for seniors . Under his plan, the CBO reported, by 2030 seniors would be paying double what they’re currently projected to pay for Medicare . In a philosophical sense, you may have strong feelings about paying higher premiums versus more taxes — but the cost to your bank account is the same either way. Taxing fat cats doesn’t help as much as you think. It is true that most Americans (although certainly not the purists) do back the idea of raising taxes on people who earn more than $250,000 a year . Unhappily, it doesn’t raise that much money. The CBO calculated that raising taxes by 1 percent on the top two income brackets (individuals earning about $175,000 and couples earning about $212,000) would only bring in about $84 billion dollars over the next decade. Unfortunately, our projected deficit for next year is about 10 times that. There certainly are other options — larger tax increases for wealthier Americans, higher corporate taxes, higher payroll taxes, modest tax increases on all of us, taxing fossil fuels, and so on. But the “no new taxes” mantra shuts down any reasonable conversation on how to cut spending and increase revenues in the fairest, least destructive way. The fact is that most government spending is on Social Security, Medicare, and Medicaid, programs the vast majority of Americans value, and there’s no way to protect them (even with tweaking) without raising taxes to cover what they cost. Perhaps the worst result for the country is when an immovable fixation against higher taxes on one side hits up against an immovable fixation on the other side that Social Security and Medicare are untouchable. At that point, the math is simply impossible. In the near-term, Congress may agree on some immediate spending cuts and make some promises about what they’ll do in the future. We’ll all feel better temporarily. But unless more Americans begin to grasp the facts of the budget, we’ll never get out of this. It’s easy to say “no new taxes,” but in real life, the results are almost unimaginable.

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Jackie Savitz: Tax Tips From Big Oil: How to Save Billions and Short-Change America

May 7, 2011

If you run a business, like a restaurant or grocery store, you know the importance of writing off your expenses every year. Every steak you buy, for instance, can be written off. But if you tried writing off those steaks at prices 20% higher than what you paid for them, you may be guilty of tax fraud. Yet that is exactly what the oil companies are getting away with thanks to a tax loophole called “LIFO” accounting. They buy as much oil as they can early in the year, betting that prices will go up over time, and then they sell it when prices get higher. That’s a fair way to make money, but the problem comes at tax time. Rather than writing off the expense at its cost, they write it off as if they paid the higher prices for it in the first place. By claiming an expense that is much higher than what they paid, they make even more money on it, by paying less in taxes. And because of a long-standing loophole, it’s not even tax fraud. This trick is especially useful for the oil industry. Crude prices have gone up more than 20% on average from January to December each year over the past 12 years. That’s ten times more than inflation, which averaged about 2% annually. So they can overstate their costs by 10 times the inflation rate. Few other commodities can win as much money on this game of LIFO as Big Oil can. With billions of barrels of oil being bought and sold, this adds up to billions of dollars every year — dollars that go into the oil industry’s record profits, rather than into our Treasury. Whether you are a fan of paying down the debt, providing a strong national defense, or protecting social security, if that money is sitting in the oil industry’s pockets rather than in our national bank account, we are all out of luck. Yet this game has been going on for decades and it has cost our country billions of dollars, maybe even hundreds of billions, and counting. In the next ten years alone, this will add up to over 50 billion dollars. Those funds would go a long way toward paying off our debts, educating kids or making sure our soldiers are adequately outfitted, just to name a few options. President Obama has proposed fixing this injustice but, not surprisingly, the oil industry and its Congressional caucus is crying “foul.” They claim removing this gaping loophole is unfair and that it singles their industry out. But it’s really the oil industry that has singled itself out by gaming this tax loophole to maximize its profits and minimize what it gives back to society to an atrocious extent. As long as you and I have to pay our taxes fairly, the oil industry should too. It’s time we close this gaping loophole along with the many others the industry enjoys, and stop letting big oil run roughshod over our country’s finances.

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Government Borrowing Goes On Under GOP, Obama Plans

May 2, 2011

WASHINGTON — It’s all but impossible to glean from the political rhetoric, but government borrowing will grow by trillions of dollars over the next decade if the budget backed by House Republicans translates into law. And by a few trillion more if President Barack Obama gets his way. Call it the unpleasant truth behind a political struggle over raising the debt limit that is expected to intensify as lawmakers return Monday from a two-week break. While polls show voters angry over the debt, and politicians support a goal of paying it down, the two principal deficit-reduction plans would merely restrain its growth for the next decade – the Republicans’ significantly more so than the president’s. To do otherwise, Congress “would have to enact policies that would produce a surplus,” with money left over to begin retiring debt, said Robert Bixby, executive director of the anti-deficit Concord Coalition. The last government surplus was in 2001. For one to occur in the future would require “Republican spending policies and Democratic tax policies,” Bixby said, referring to GOP calls for deep program cuts, and Obama’s support for higher taxes. “Right now the two parties haven’t been able to agree on those kinds of changes.” The increase in debt woven into their budgets is not a fact that Obama, Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, or any other official chooses to trumpet. The president and most lawmakers generally avoid saying directly that government debt will rise if their budget prevails – although they are careful not to claim it won’t, either. Instead, they use similar, vaguely reassuring terms. “We have to live within our means, reduce our deficit and get back on a path that will allow us to pay down our debt,” Obama said last month as he called for $4 trillion in deficit reductions over the next dozen years. Unlike the Republicans, he favors about $1 trillion in tax increases, in addition to allowing Bush-era tax cuts on upper-income households to expire. Administration officials say they have no estimates of the impact the president’s new proposals would have on the future size of the government’s debt, which now stands at nearly $14.3 trillion. The president’s original budget for 2012, unveiled last winter, would leave debt at $27.6 trillion at the end of the decade, according to the Congressional Budget Office. The administration itself put the figure at $26.3 trillion. “The House Republicans’ budget reduces government spending by $6.2 trillion over the next decade and puts the budget on a path to balance in the years ahead,” Ryan wrote on the panel’s website, a theme that is similar to the one Obama struck. Congressional Budget Office figures, however, show that if Ryan’s plan were put into law, there still would be new borrowing each year and government’s debt would total $23.1 trillion at the end of 2021. The House Republicans’ plan relies on repealing the year-old health care law, as well as deep cuts in Medicaid and domestic programs. Its most controversial provision, phasing out Medicare as it now exists, would not begin for 10 years and has no impact on debt in the current decade. The GOP plan would generate about $4 trillion less debt than Obama’s budget envisions over the decade. Republicans point out that unlike Obama’s plan, theirs would quickly begin shrinking the debt as a percentage of the overall economy. Even so, debt would rise by nearly $9 trillion in 10 years. The administration has asked Congress to approve borrowing beyond the current $14.3 trillion debt ceiling. In exchange, Republicans want the White House and Democrats to agree to a series of measures to cut spending in the near term and make sure it stays under control in the future. They sometimes suggest that their approach would put an end to borrowing. “While America cannot default on its debt, we also cannot continue to borrow recklessly, dig ourselves deeper into this hole and mortgage the future of our children and grandchildren,” House Speaker John Boehner of Ohio said last winter on the day Treasury Secretary Tim Geithner notified lawmakers the limit on borrowing would have to be raised. More recently, Rep. Jeb Hensarling of Texas, a member of the GOP leadership, said Obama “is going to have to start the process of cutting up the credit cards, pure and simple.” Voter anger over government spending and rising debt helped generate tea party enthusiasm for Republicans and propel them to control of the House in the 2010 elections. An AP-GfK poll taken last month showed continuing concern. Among Republicans, 95 percent said they were very or somewhat worried that the increasing federal debt would harm the financial future of their children or grandchildren. Among independents, 82 percent agreed, and among Democrats, 79 percent. Yet polls also show the public is less willing to support changes in Medicare, spending cuts and certain tax increases that have been proposed to stop the debt from growing. Two plans have been advanced that project a surplus in less than a decade, one by the conservative Republican Study Committee in the House, and the other by first-term Sen. Rand Paul, R-Ky. The RSC proposal projects a $50 billion surplus in 2020, while Paul’s shows red ink disappearing even more quickly, in 2016. Both rely on highly controversial spending cuts to meet their targets and have drawn relatively little political support. In the House, the RSC plan split Republicans down the middle, with 119 GOP members voting in favor and 120 against. In addition to cuts of domestic and defense programs, it recommends gradually raising the age of eligibility for Medicare to 67 for those born in 1952 or later. Paul’s blueprint has not yet come to a vote in the Senate, but it has less than a handful of supporters. Among other recommendations, it calls for abolishing the Departments of Commerce, Education, Energy, and Housing and Urban Development.

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Tax, Spending Divisions Laid Bare In Boisterous Town Hall Exchanges

May 1, 2011

EXETER, N.H. — Peter Cass could stand it no longer as he listened to the Republican congressman defend a plan to cut taxes and Medicare simultaneously. “We pay much lower taxes than the rest of the industrialized world,” Cass, an engineer from Durham, N.H., shouted from his seat at last week’s town hall forum held by freshman Rep. Frank Guinta. America must protect its children, Cass said, and the legislation recently passed by House Republicans won’t do it. Some in the crowd of 200 cheered. Some booed. So it went in New Hampshire, Arizona, Florida, Wisconsin and throughout the country as lawmakers used a two-week recess to gauge public sentiment on taxes, deficits and spending. Televised replays of boisterous exchanges suggested that a Democratic counterattack may have stemmed the Republicans’ momentum. But many of the Republican-sponsored forums were similar to the one in the Exeter High School auditorium, where several Democrats sharply challenged the GOP plan, and plenty of Republicans defended it and applauded their representative. The April gatherings had an edgier, more partisan tone than did similar events in March. First-term GOP Rep. Allen West of Florida, a tea party favorite, received mostly praise and friendly questions when he allowed constituents to speak from microphones on March 22. But last week, West, a retired Army officer with a more confrontational style than Guinta’s, responded only to written questions screened in advance. Some hecklers were removed by security agents. Local station WPTV reported that at a town hall event the conservative congressman made his position on the issue of reforming Medicare very clear. “I gotta tell you something: if you support Medicare the way it is now, you can kiss the United States of America goodbye,” he said. Rep. Paul Ryan, the architect of the House GOP budget plan, hosted an eye-popping 875 people in Greenfield, Wis., where he faced fans and critics alike. In Kenosha, Wis., earlier in the week, Ryan exited through a back door to stymie protesters gathering out front. Should anyone need reminding, the nation, like Congress, is deeply divided over how extensively to change Medicare, cut spending and revise taxes. When Congress returns to work this coming week, the Democratic-led Senate will set aside the House blueprint. Leaders from both parties will work with the Obama administration to seek a compromise to fund the government in 2012, make long-term changes to Medicare and raise the government’s borrowing limit. Guinta, a low-key former mayor of Manchester, took a turn-the-other-cheek approach to his sometimes noisy critics. When Cass and others asked why he won’t raise taxes on the wealthy, Guinta gave roundabout answers that seemed to lull the audience. A bipartisan plan might emerge from a group of six senators, three from each party, working on the issue, he said. He promised to hold a “manufacturers’ summit” and “innovators’ conference” in his district, and to “look beyond party labels” for solutions to the nation’s problems. “I don’t think he answered my question,” said Dan Comly, who has been unemployed for months and who also criticized Guinta for resisting higher taxes on the rich. Like many GOP lawmakers, Guinta began by asking people over 55 to raise their hands. The Republicans’ Medicare plan would affect “none of you,” he said. It would, however, phase in a less costly voucher system when people now younger than 55 retire. President Barack Obama’s alternative plan calls for more modest changes to Medicare, plus tax increases on the wealthy after 2012. “What about our kids?” someone shouted at Guinta. “We have grandchildren!” said another. “What about me, I’m 14,” came the call from a student in the back. Guinta said Medicare and Medicaid, the government health programs for the elderly and the poor, respectively, aren’t sustainable in their current forms, so everyone in the country should support changes to put them on sounder footing. It’s unclear how that might happen. April’s public forums didn’t help to make it clearer. Robert Howarth, a Republican-turned-Democrat in Arizona, urged freshman Republican Rep. David Schweikert to find “other ways” besides the House-backed plan. “We don’t have to gut Medicare and go after the poor people on disability and Medicare,” Howarth said at Schweikert’s spirited town hall in Tempe, Ariz. “The millionaires and billionaires are not paying their fair share, like they used to,” he said. Howarth noted there was a strong economy and federal budget surplus during a time of higher tax rates in Bill Clinton’s presidency. Judy Lewis, a veterinarian from Scottsdale, Ariz., argued that the government must cut spending sharply. Even though leaders of both parties say economic calamity could result if Congress doesn’t raise the federal debt ceiling in the coming weeks, Lewis warned Schweikert to oppose the plan unless it’s tied to “earth-shattering changes” in spending. Schweikert, a former county treasurer, agreed. He said the debt ceiling is no greater a threat to the economy than is the failure to get deficit spending under control. In an interview, Schweikert said he has talked with “market makers” who told him “we’re going to punish you” if Congress doesn’t make huge strides in reducing the deficit. “What if we just raise it,” he said of the debt ceiling, “and interest rates begin to go up because debt markets don’t believe we’re serious about the debt?” Schweikert likened a solution to “threading a needle,” and said he will take the political heat if he’s wrong. “But what if I’m not wrong?” he said. No GOP lawmaker’s public forums drew more notice than those of Ryan, the House Budget Committee chairman. Ryan held nearly 20 sessions in April, drawing big and sometimes rowdy crowds. While some constituents urged Ryan to run for president, others shouted “hands off Medicare” and “tax the rich.” In Greenfield, when Ryan said the recent recession contributed heavily to the deficit, someone shouted, “Bush’s wars!” But the vast majority gave him a standing ovation when he concluded the 75-minute event. At times last week, the bitterest exchanges had less to do with Medicare than with fundamental questions of how people should run their democracy and confront elected officials. In Exeter, Tom Pearson of Rye touched off a shouting match by saying Obama “doesn’t give a damn about spending.” Several people began yelling and booing, and were unmoved when Guinta asked for calm. One man reminded Guinta that he won the congressional seat last year in a contentious battle in which some Democrats were insulted and threatened. “You didn’t lift a finger” to stop them, the man told Guinta. “It’s a little late for decorum, sir.” On such notes will Congress regroup this week to confront the nation’s fiscal problems.

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Eric Schoenberg: How I Paid Only 1% of My Income in Federal Income Tax

April 25, 2011

In 2009, the median U.S. family had an income of just under $50,000, on which they would have paid roughly $2,761 (or about 5.5%) in federal income tax. I, by contrast, enjoyed an income of $207,415 in 2009, but paid only $2,173 (or 1.0%) in income tax. In a recent newspaper interview, I mentioned my absurdly low tax rate to illustrate the extent to which the tax system is biased in favor of the wealthy (my income varies widely from year to year, but is typically north of half a million dollars). My point was that with our country facing frightening budget deficits amid an ever-widening income gap between the rich and everybody else, I consider it both unwise and unfair that a former investment banker like myself pays less in taxes than working Americans with far lower incomes. Among the dozens of emails I received in response were many from people who assumed that rich people avoid taxes through complicated strategies devised by an army of expensive advisors (many correspondents asked for the name of my accountant). But under our current tax system, the rich don’t need high-priced lawyers who exploit obscure loopholes; I wasn’t even trying to minimize my taxes (and, in fact, could have paid zero tax if I was). Warren Buffett has observed that if there’s class warfare in this country, the rich are winning. I offer my 2009 tax return, then, as a flare to illuminate the battlefield. Americans are understandably angry over the government’s multi-billion-dollar bailouts of reckless bankers. But low tax rates on investment income have put far more money into Wall Street’s pockets than the TARP bill did. Even President Obama’s proposal to let the Bush tax cuts lapse for the richest Americans would leave a top marginal rate on capital gains and qualified dividends of just 20% — half the proposed rate on labor income. This difference creates a loophole you can drive a Rolls Royce through. Having left Wall Street in 2002, I now earn far more money from my financial portfolio than from my job as an Adjunct Professor, and as a result I consistently pay under 15% of my income to the IRS. Still, I was astonished when my accountant told me that my tax rate for 2009 was a mere 1%. I knew my deductions were an unusually large percentage of my income that year due to three items: $46,000 in charitable gifts, $56,000 in state and local taxes (mostly related to 2008, when my income was much higher) and $45,000 in investment expenses (basically fees paid to various money managers). Personally, I think there are reasonable arguments to be made for keeping each of these types of deduction, but the numerous “tax expenditures” that litter the tax code mean that citizens with similar incomes can end up paying wildly different amounts in tax. Even after deductions and exemptions, however, I still had taxable income of $37,349, putting me in the 15% bracket (higher than the average rate I’ve paid in years past with income twenty times as large). If I’d been an ordinary worker, my tax bill would have been $4,764. But wait! Under the Bush tax cuts, if one’s income from other sources is low enough (which mine was after deductions), certain types of investment income are subject to zero — yes, zero — tax. In my case, the qualified dividends I received in 2009 would have escaped taxation altogether if not for the Alternative Minimum Tax. Even under the AMT, however, I paid less than half the income tax paid by a wage-earner with the same taxable income (and less than a third of the tax burden when including social security taxes, which are not due on investment income). Does that seem fair to you? Advocates of lower taxes on investment income argue that they increase the incentives for folks like me to create jobs. As a long time investor, I’m skeptical. After all, job growth was much higher in the years following the Clinton tax hike in 1993 than it has been over the last decade as investment tax rates were repeatedly slashed. And lower rates on investment income also reward financial speculators, whose actions in recent years haven’t exactly promoted increased employment. Middle class anger in the Tea Party era, meanwhile, has been directed primarily at government spending. Arguing that government will simply waste whatever money it receives, Tea Party supporters oppose higher taxes on anybody (which explains why this is one populist movement which many billionaires are happy to support). But by focusing attention solely on whether government costs too much, the Tea Party ignores the completely separate question of who pays those costs. Last year, the answer was: not me. And I’m not happy about it. Some Tea Party types have observed that I am welcome to pay more voluntarily to the federal government if I want, but this entirely misses the point. Given the choice, of course I prefer to give money to my own causes rather than the federal government. But the whole point of democracy is for the community to decide what activities are in our collective self-interest. “Taxes are the price we pay for civilization,” and since we all share in that benefit, we should all pay our fair share of the cost. While the Republicans talk about the “shared sacrifices” necessary to close our government’s budget deficit, their plan imposes pain mostly on the sick, the elderly, and the poor. Asking the rich to sacrifice by paying higher tax rates surely pales in comparison. I believe that having wealthy investors pay taxes at the same rate as middle-class workers would be an important step towards making sure that we all contribute to putting our fiscal house in order.

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Robert Kuttner: A Double Dip Recession for 2012?

April 25, 2011

Economists are painting a pretty bleak picture of the economic outlook between now and the November 2012 election. Will this hurt President Obama’s re-election chances? Or will voters blame the Party of No? That, of course, partly depends on what kind of campaign Obama runs and partly on the Republicans. But first, let’s take stock (actually, maybe let’s sell stock). The Federal Reserve has been buying up lots of bonds to keep interest rates very low. The Fed disguises what it’s doing with the antiseptic and mystifying term, “quantitative easing,” or QE for short. This is the second time the central bank has tried this trick, hence the coy nickname, QE 2. The problem is that very low interest rates only take you so far in a depressed economy. For the most part the Fed’s policy has been good for large banks and good for the stock market. Ordinary borrowers, businesses and homebuyers have trouble getting credit. But other factors are starting to limit the effectiveness of very low interest rates. For one, the very low rates in the US are depressing confidence in the dollar. That means we start importing inflation. For another, rising commodity prices worldwide — partly the result of the Fed’s policy, partly due to rising demand in India and China — means increasing prices of consumer goods at home. Five-dollar-a-gallon gas is not good for President Obama. Nor is the practice of food processing companies shrinking the size of standard packages to disguise price increases. And in the one part of the economy that might benefit from a little inflation, low interest rates have not worked to levitate depressed housing values. The time-tested remedy, when cheap money ceases working, is expansive fiscal policy — government deficits and public investment. Now there’s an idea. Oops. Forget it. There is, of course, huge pressure from the nation’s opinion elites to cut the deficit, long before the economy is out of the woods. It comes from four potent sources. Wall Street deficit hawks have been banging these drums for three decades, even during the late 1990s when the budget was in surplus. The elite media buys this story, hook, line, and sinker. Big deficits are seen as proof of partisan gridlock and government irresponsibility. The six bipartisan horsemen of budget apocalypse, Senators Warner, Chambliss et. al. are widely depicted as fiscal heroes. The pundits seem to forget where these deficits came from. Republicans since Ronald Reagan have pursued a strategy of cutting taxes and then expressing shock at the ensuing deficit and demanding program cuts accordingly. We were already having historically high deficits when the recession began, because of the Bush tax cuts of 2001 and 2003. Today’s even more extreme Republicans would cut taxes further, slash outlays to their lowest level since before FDR, invoking the gods of deficit reduction. President Obama, for his part, has fanned these flames with his appointment of the Bowles-Simpson commission, and his premature shift, as early as the 2010 State of the Union Address, from the theme of economic recovery and job creation to that of deficit reduction. His recent address at George Washington University was terrific at holding the line on Medicare, Medicaid and Social Security, but bought into the premise that we need deficit reduction more than we need job creation. Why is Obama pursuing this strategy? Partly because his conservative economic advisers buy it, and partly because his political advisers look at polls that tell them voters care about deficits, especially political independents. But that current of public opinion exists only because opinion leaders — including Obama himself — have made such a fetish of deficits. There is a whole politics that just isn’t on the table: massive public investment to create jobs and growth — which then increase revenues and bring down the deficit. The political scientist Walter Dean Burnham refers to this sort of dynamic as “a politics of excluded of alternatives.” But wait, isn’t the deficit a real problem? Yes, and no. Eventually, deficits at the 2011 level are not sustainable. However, the current accumulated debt held by the public of about 60 percent of GDP is not dire. We could have two or three years of bigger deficits, very major public investment, let the debt ratio peak at 100% of GDP; and then stronger recovery, lower unemployment, and higher taxes on the wealthy would bring the debt ratio slowly down, as occurred after WW II. Japan’s debt ratio, for comparative purposes, is over 200 % of GDP — and Japan is increasing government outlay to repair the damage of the earthquake and tsunami. Britain’s, after World War II, was over 250 percent, and Britain went on to enjoy a postwar recovery. Why can’t we have massive public reparation with war or natural disaster? Because politicians lack the vision and nerve. Austerity will only slow down the recovery. The idea that a steeper path to deficit reduction will somehow restore business confidence and thus more than offset the hit to purchasing power is just blarney. And with both parties committed to some version of austerity, we could easily have the worst of both worlds — increasing inflation coupled with persistent stagnation. However much the Republicans are at fault–for creating the financial collapse, blocking a stronger stimulus in 2009, and looting the Treasury with tax cuts for the rich, causing much of the deficit problem in the first place — an incumbent president tends to take the blame for hard economic times. Obama’s talk of having a kinder, gentler brand of deficit reduction is no match for rising fuel and food prices and persistent worries about basic economic security. Can the president shift to a rhetoric and policy that emphasizes the need for more jobs and a stronger recovery, and soon? Let’s hope so. There is nothing like an election hanging to concentrate a politician’s mind. Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril .

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Google’s Eric Schmidt Took Home A Paltry Paycheck In 2010

April 21, 2011

SAN FRANCISCO — Billionaire Eric Schmidt feels more comfortable taking a million dollar paycheck as Google Inc.’s former CEO than he did when he was running the Internet’s most powerful company. After voluntarily limiting his annual salary to $1 during most of his 10-year reign as Google’s CEO, Schmidt is getting a $1.25 million raise in his new job as executive chairman. The bigger paycheck kicked in April 4 when Schmidt was replaced as CEO by Google co-founder Larry Page. The revised compensation package, filed with federal regulators Tuesday, will pay Schmidt an annual bonus of up to $6 million. The raise and bonus plan supplement a stock package valued at $100 million that the board awarded Schmidt shortly after the late January announcement about Google’s planned change in command. The stock will vest during the next four years, a sign that Google wants Schmidt to stick around. In in his final year as CEO, Schmidt’s 2010 compensation package totaled $313,219. All but $1,786 of that amount covered Schmidt’s personal security bill and the cost flying his friends and family in jets chartered by the company, according to additional documents filed Wednesday. Schmidt, 55, ranks among the world’s wealthiest people with an estimated net worth of $7 billion that he accumulated mostly from the stock he bought and received after becoming Google’s CEO in 2001. When Schmidt joined Google, the company had less than $90 million in annual revenue. In Schmidt’s last year as CEO, Google’s annual revenue surpassed $29 billion. Google’s board has offered to pay Schmidt more money each year since 2005 only to be rebuffed. Schmidt accepted this time when a Google board committee consisting of Intel Corp. CEO Paul Otellini and venture capitalist John Doerr decided he deserved a raise in his new role focusing on acquisitions and government relations. The board also wanted to reward Schmidt for his past accomplishments as CEO, according to a Google spokesman. Page and Google co-founder Sergey Brin, who each have fortunes of $20 billion, also have insisted on maintaining the salaries at $1 and have refused other compensation besides a $1,000 holiday bonus that Google has handed out to all employees most years. Schmidt’s holiday bonus last year included an extra $785 to cover the taxes. Now that he is CEO, Page is still being paid $1. So is Brin while he works on long-term projects for the company, which is based in Mountain View, Calif. By accepting paltry paychecks, Schmidt, Page and Brin signaled to shareholders that they believed the company’s strategy and hard work would produce a higher stock price. Because they are among the largest shareholders, their wealth increases as the stock price rises. Google shares closed Wednesday at $525.73, up $4.20. Although Google’s stock is about 30 percent below its peak price reached in late 2007, the shares still have increased by more than sixfold since the company went public in 2004. The stock had been during the past week on investor concerns about Google’s expenses rising more rapidly than its revenue growth. The higher costs, in part, reflect a hiring binge that has added 5,700 employees to Google’s payroll in the past year and a 10 percent raise given to all workers in January. In calculating an executive’s total compensation, the Associated Press counts salary, bonuses, perks and stock and options awarded to the executive during the year. The value used for an executive’s stock and option awards is the present value of what the company expected the awards to be worth to the executive over time. Companies use one of several formulas to calculate that value. However, the number is just an estimate, and what an executive ultimately receives will depend on the performance of the company’s stock in the years after the awards are granted. Most stock compensation programs require an executive to wait a specified amount of time to receive shares or exercise options.

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Bradley T. Borden: Budget Deals, Service Cuts, Tax Returns, and Pure Frustration

April 18, 2011

This year’s tax filing season coincides with the recent budget deal and President Obama’s proposal to reduce the deficit by $4 trillion. We learn about cuts to public services as we write checks to pay for them. The confluence of these events frustrates most of us. Yet, further thought deepens the level of frustration. As you prepare your tax return (or provide information to a return preparer), you probably sift through your old receipts to maximize your deductions. Perhaps you have deductible moving expenses. Maybe you can deduct a charitable contribution you made. If you own a house, you can deduct the property tax and interest you paid on your mortgage. The few thousand dollars of deductions you have saves you a few hundred dollars of taxes. You might be relieved because you save a few hundred dollars (one or two thousand if you have more children) of taxes because of the child tax credit. In the end, however, you’re still frustrated because you have to pay taxes. The real frustration comes when you realize that the tax savings you obtained through your deductions and credits are a pittance compared to what the wealthiest portion of the population saved . As a former colleague quipped, “I’m a tax attorney but I can’t afford to hire myself.” His observation suggests that a small percentage of the population — the wealthiest — reduce their taxes in ways that the middle class can’t. In fact, real tax savings come long before a person files a tax return. For example, large corporations hire tax attorneys to establish fake entities in tax havens and pretend to move their income offshore. Property owners hire tax attorneys to help them create complicated like-kind exchanges so they can pay no taxes when they sell property. Business owners sell their businesses and hire tax attorneys to help them structure the sale to be tax-free. The wealthiest save hundreds of thousands (often millions or billions) of tax dollars, compared to the hundreds of dollars those in the middle class save. Many of the tax-avoidance techniques that are available to the wealthy are legal because the wealthy promote laws that create loopholes . By supporting those laws and then paying attorneys to exploit the laws, the wealthy reduce the amount of tax they pay. If the IRS audits a wealthy person , that person can hire expensive tax attorneys to challenge the IRS’s efforts. Even wealthy tax cheats may fare better with expensive tax counsel. Middle class Americans can’t hire tax attorneys or influence legislation because they don’t have enough money. Assume a tax attorney makes $250,000 and is in the top 2% of the population (but still in the middle class). That attorney may charge tens of thousands of dollars to provide tax advice. The tax savings a tax attorney helps create must be greater than the fee the attorney charges. (For example, no one would pay an attorney $100 to save $50 of tax.) To save tens of thousands of dollars of tax, a person must have hundreds of thousands of dollars of income. And such income often comes from transactions. Even tax attorneys who make $250,000 a year generally don’t own businesses or property worth hundreds of thousands of dollars (other than a home, furniture, cars, and assets in retirement savings), so they don’t have transactions that are large enough to justify the costs of tax planning. Consequently, they get hundreds of dollars of tax savings, while they save their clients millions. This behavior of the wealthy hurts everyone. The middle class must pay more taxes or the country must forfeit services because the wealthy pay lower taxes. To illustrate, the most recent budget deal cuts spending for education, health and human services, and transportation . Those cuts affect the middle class and especially the poor; they stymie growth, hurting the future of the country. To help end the frustration most of us feel, I offer a bold proposition to both sides of the budget wrangling: do nothing else until you take goodies away from the wealthy , including corporations, and raise taxes on the wealthy. President Obama once again promised that he would not renew tax cuts for the wealthy and promised to eliminate some of the tax breaks they receive. This time he must stick with those promises, and go further (despite the efforts of those who will come to the aid of the wealthy ). Some people make millions of dollars a year. Those people should pay tax at an even higher rate than a person making $250,000. Take away the preferences for the wealthy, tax them fairly, and then worry about the other expenses. That would help reduce the frustration we feel this time of year.

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President & First Lady Paid $453,770 Taxes On $1.7 Million Income

April 18, 2011

WASHINGTON — President Barack Obama and his wife, Michelle, reported income of $1.728 million for last year, much of it from the sale of the president’s pre-presidency books. They paid federal taxes totaling $453,770 after receiving a $12,334 refund. The Obamas paid their taxes at lowered Bush-era rates, even as he campaigns to end them for households with adjusted gross incomes above $250,000 – a category into which the first family clearly fits. Joining the flocks of Americans filing their taxes near the end of the federal filing period, the Obamas made withholding and other payments to the Internal Revenue Service last year totaling $466,104. That was an overpayment, so they got their refund. The president and first lady reported donating $245,075 – about 14.2 percent of their adjusted gross income – to 36 different charities. The largest single gift was a contribution of $131,075 to the Fisher House Foundation, a charity that offers a scholarship fund for children of soldiers who die or are disabled. The Obamas’ adjusted gross income for 2010 of $1.728 million was well below the $5.5 million they reported for the year before, both totals mostly driven by royalties from books written earlier by Obama. They included his 1995 memoir “Dreams From My Father” and his 2006 political book, “The Audacity of Hope.” The White House released the returns on the day that federal tax returns are due this year, although Obama signed his 1040 form last Tuesday. Michelle Obama signed the tax return on Wednesday. They also released their Illinois income tax returns showing they paid $51,568 in state income taxes for last year. Vice President Joe Biden and his wife, Jill, reported more modest earnings, a combined adjusted gross income of $379,178, on which they paid $86,626 in federal taxes for 2010. The Bidens’ withholding and earlier payments came to just $79,446 – so they had a tax bill of $7,180 to settle. The Obamas paid 26 percent of their adjusted gross income in federal income taxes. The Bidens paid 23 percent. The Bidens paid $14,479 in Delaware income taxes and $3,515 in Virginia income taxes. Jill Biden is an adjunct professor at Northern Virginia Community College. The Bidens contributed $5,360 to charities. ___ Associated Press writer Stephen Ohlemacher contributed to this report

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America’s Richest Taxpayers See Federal Taxes Dramatically Drop

April 17, 2011

WASHINGTON — As millions of procrastinators scramble to meet Monday’s tax filing deadline, ponder this: The super rich pay a lot less taxes than they did a couple of decades ago, and nearly half of U.S. households pay no income taxes at all. The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. Their average federal income tax rate was 17 percent, down from 26 percent in 1992. Over the same period, the average federal income tax rate for all taxpayers declined to 9.3 percent from 9.9 percent. The top income tax rate is 35 percent, so how can people who make so much pay so little in taxes? The nation’s tax laws are packed with breaks for people at every income level. There are breaks for having children, paying a mortgage, going to college, and even for paying other taxes. Plus, the top rate on capital gains is only 15 percent. There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank. “It’s the fact that we are using the tax code both to collect revenue, which is its primary purpose, and to deliver these spending benefits that we run into the situation where so many people are paying no taxes,” said Roberton Williams, a senior fellow at the center, which generated the estimate of people who pay no income taxes. The sheer volume of credits, deductions and exemptions has both Democrats and Republicans calling for tax laws to be overhauled. House Republicans want to eliminate breaks to pay for lower overall rates, reducing the top tax rate from 35 percent to 25 percent. Republicans oppose raising taxes, but they argue that a more efficient tax code would increase economic activity, generating additional tax revenue. President Barack Obama said last week he wants to do away with tax breaks to lower the rates and to reduce government borrowing. Obama’s proposal would result in $1 trillion in tax increases over the next 12 years. Neither proposal included many details, putting off hard choices about which tax breaks to eliminate. In all, the tax code is filled with a total of $1.1 trillion in credits, deductions and exemptions, an average of about $8,000 per taxpayer, according to an analysis by the National Taxpayer Advocate, an independent watchdog within the IRS. More than half of the nation’s tax revenue came from the top 10 percent of earners in 2007. More than 44 percent came from the top 5 percent. Still, the wealthy have access to much more lucrative tax breaks than people with lower incomes. Obama wants the wealthy to pay so “the amount of taxes you pay isn’t determined by what kind of accountant you can afford.” Eric Schoenberg says to sign him up for paying higher taxes. Schoenberg, who inherited money and has a healthy portfolio from his days as an investment banker, has joined a group of other wealthy Americans called United for a Fair Economy. Their goal: Raise taxes on rich people like themselves. Shoenberg, who now teaches a business class at Columbia University, said his income is usually “north of half a million a year.” But 2009 was a bad year for investments, so his income dropped to a little over $200,000. His federal income tax bill was a little more than $2,000. “I simply point out to people, `Do you think this is reasonable, that somebody in my circumstances should only be paying 1 percent of their income in tax?’” Schoenberg said. Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, said he has a solution for rich people who want to pay more in taxes: Write a check to the IRS. There’s nothing stopping you. “There’s still time before the filing deadline for them to give Uncle Sam some more money,” Hatch said. Schoenberg said Hatch’s suggestion misses the point. “This voluntary idea clearly represents a mindset that basically pretends there’s no such things as collective goods that we produce,” Schoenberg said. “Are you going to let people volunteer to build the road system? Are you going to let them volunteer to pay for education?” The law is packed with tax breaks that help narrow special interests. But many of the biggest tax breaks benefit millions of American families at just about every income level, making them difficult for politicians to touch. The vast majority of those who escape federal income taxes have low and medium incomes, and most of them pay other taxes, including Social Security and Medicare taxes, property taxes and retail sales taxes. The share of people paying no federal income tax has dropped slightly the past two years. It was 47 percent for 2009. The main difference for 2010 was the expiration of a tax break that exempted the first $2,400 of unemployment benefits from taxation, Williams said. In 2009, nearly 35 million taxpayers got a tax break for paying interest on their home mortgages, and nearly 36 million taxpayers took the $1,000-per-child tax credit. About 41 million households reduced their federal income taxes by deducting state and local income and sales taxes from their taxable income. About 36 million families cut their taxes by nearly $35 billion by deducting charitable donations, and 28 million taxpayers saved a total of $24 billion because their income from Social Security and railroad pensions was untaxed. “As a matter of policy, there would be a lot of ways to save money and actually make these things work better,” said Leonard Burman, a public affairs professor at Syracuse University. “As a matter of politics, it’s really, really difficult.” ___ Online: Tax Policy Center: http://www.taxpolicycenter.org National Taxpayer Advocate: http://www.irs.gov/advocate United for a Fair Economy: http://www.faireconomy.org

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No-Tax-Hike Pledge Creates Republican Rift

April 15, 2011

Republicans are feuding over whether to abandon the party’s long-held opposition to higher taxes in pursuit of a deficit-cutting deal with Democrats.

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Obama Tiptoes On Proposed Tax Increases

April 14, 2011

WASHINGTON — With his striking choice of words, President Barack Obama clearly outlined the greatest perils for Republicans – and for Democrats – in the nation’s high-stakes debate over spending and social programs. Obama used vivid, populist language in a forceful speech Wednesday to denounce the GOP plan for cutting spending and revamping Medicare and Medicaid. The Republicans, he said, have concluded that “even though we can’t afford to care for seniors and poor children, we can somehow afford more than $1 trillion in new tax breaks for the wealthy.” But the president’s language was tortured and opaque when it came to one element of his own proposal: raising taxes for certain Americans, mostly high earners. Obama said he wants “to reduce spending in the tax code.” That code, he said, is “loaded up with spending on things like itemized deductions.” By any measure, “spending in the tax code” is a curious phrase. It likens tax revenue to a source of money that “spends” down its total when tax cuts are enacted and conversely “reduces spending” when taxes go up, including cases in which temporary tax cuts are ended. Long gone are the days when Democrats employed frank language on taxes, as presidential nominee Walter Mondale did in 1984. “Mr. Reagan will raise taxes, and so will I,” Mondale said in accepting the nomination. “He won’t tell you. I just did.” Obama left no doubt he believes some taxes should go up. But he couched it in careful terms designed to distance himself from proverbial “tax-and-spend Democrats” almost as much as he distanced himself from what he suggested are heartless Republicans. Throughout his 43-minute speech, Obama portrayed himself as a fair but frugal leader willing to trim popular agencies, including the military, and to raise taxes only on wealthy people who have benefited disproportionately in recent years. It’s part of a broader appeal to independent voters, who swung dramatically from Democratic candidates in 2008 to Republicans in 2010 and who hold the key to his re-election hopes next year. Americans are showing increased alarm at the fast-growing federal debt. It’s coupled with concern, along with sometimes conflicting emotions and beliefs, about the nation’s biggest social programs, Medicare and Social Security. Both parties face political opportunities and risks as they confront these issues. And both parties are seeking phrases and slogans to best exploit their openings while minimizing their weaknesses. House Republicans plan this week to pass an ambitious 10-year plan that would convert Medicare to a voucher program and turn Medicaid into a state block grant program, saving the government billions of dollars. The bill would reduce tax rates for corporations and high earners, while ending some tax-avoidance loopholes. Democrats feel the GOP is overreaching, chiefly in its proposed changes to Medicare, the rapidly expanding federal health care program for older Americans and the disabled. They think voters will recoil at the notion of higher medical costs for the elderly, especially if income tax rates are falling for high earners. Obama ripped the Republican plan. “It’s a vision that says America can’t afford to keep the promise we’ve made to care for our seniors,” he said. “It ends Medicare as we know it.” Republicans, meanwhile, have virtually perfected their attacks on any Democrat who suggests a tax increase of any kind. Several top Republicans criticized Obama’s long and multilayered speech on that topic alone. Obama “doesn’t get it,” said Mississippi Gov. Haley Barbour, a likely presidential candidate. “The fear of higher taxes tomorrow hurts job creation today.” “The real problem is that Washington spends too much, not that it taxes too little,” said Sen. Lamar Alexander, R-Tenn. Numerous bipartisan and nonpartisan analysts say it is almost impossible to solve the nation’s debt problem without some combination of tax increases, spending cuts and substantial changes to Medicare and Social Security. After calling for an array of spending cuts Wednesday, Obama made the case for targeted tax increases, albeit in roundabout language. Because Medicare and Social Security are popular with both parties, he said, “and because nobody wants to pay higher taxes, politicians are often eager to feed the impression that solving the problem is just a matter of eliminating waste and abuse, that tackling the deficit issue won’t require tough choices.” He said he would not repeat last year’s decision to extend Bush-era tax cuts – now scheduled to expire before 2013 – for families earning more than $250,000 a year. “We cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire,” the president said. He renewed his call for limiting itemized deductions “for the wealthiest 2 percent of Americans.” Such deductions apply to money spent on mortgage interest payments, charitable gifts and other items. Obama described such goals as “reducing tax expenditures.” “I think it was very, very smart” to use such unfamiliar and indirect language, said Matt Bennett, vice president of Third Way, a Democratic-leaning think tank that praised Obama’s speech. “Why not put it in those terms?” he said in an interview. “It’s what the Republicans’ Frank Luntz would do.” Luntz is a GOP adviser known for pushing carefully crafted political terms, such as referring to levies on estates as the “death tax.” Bennett said Republicans have demonized even reasonable and necessary tax increases to the point that “it’s a gigantic problem” for solving the nation’s fiscal woes. If a “term of art” will blunt GOP attacks, he said, it could help Obama advance his agenda and give political cover to Republican lawmakers who believe some element of tax increases must be part of a deficit-reduction drive. In his closest brush with an explicit call for tax increases Wednesday, Obama chastised the most insistent Republicans. “Some will argue we shouldn’t even consider ever, ever raising taxes, even if only on the wealthiest Americans,” the president said. “It’s just an article of faith for them. I say that at a time when the tax burden on the wealthy is at its lowest level in half a century, the most fortunate among us can afford to pay a little more.” It fell far short of Mondale’s candor. But it was enough to unleash a barrage of GOP criticisms, certain to resound through the fall of 2012. ___ EDITOR’S NOTE – Charles Babington covers Congress and politics for The Associated Press.

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Budget Deal Vote Thursday, Boehner Tries To Keep GOP Together

April 14, 2011

ANDREW TAYLOR, Associated Press WASHINGTON – The House and Senate are ready to vote on legislation cutting almost $40 billion from the budget for the current year, but President Barack Obama and his GOP rivals are both eager to move on to multiyear fiscal plans that cut trillions instead of billions. ( SCROLL DOWN FOR LIVE UPDATES ) Lawmakers were to vote Thursday on a long-overdue spending measure funding the day-to-day budgets of federal agencies through September. Later in the day, Republicans dominating the House will launch debate on a 2012-and-beyond plan that promises to cut the long-term budget blueprint Obama laid out in February by more than $6 trillion. The budget deal has drawn high-profile opposition from some in the GOP. The Washington Post reports : Thursday’s vote will be closely watched as an indicator of fissures between Boehner’s leadership team and the party’s tea party adherents, who had pushed aggressively for deeper spending cuts. “This is our day of reckoning,” said Rep. Ann Marie Buerkle (N.Y.), another swing-district freshman Republican. She, too, was undecided. Obama countered Wednesday with a new call to increase taxes on wealthier people and impose quicker cuts to Medicare, launching a roiling debate in Congress and the 2012 presidential campaign to come. Obama fired a broadside at the long-term GOP plan, which calls for transforming the Medicare health program for the aged into a voucher-like system for people under the age of 55 and imposing stringent cuts on Medicaid, which provides health care to the poor and disabled, including people in nursing homes. More immediate, however, is the 2011 spending measure. It combines more than $38 billion in cuts to domestic accounts with changes to benefit programs, like children’s health care, that Congress’ own economists say are illusory. Thursday’s measure is a compromise between Obama, GOP House Speaker John Boehner of Ohio and Democratic Senate Majority Leader Harry Reid of Nevada. As such, it’s a split-the-differences compromise that considerably smooths a much more stringent version that passed the House in February. Click here to continue reading The bill cuts $600 million from community health programs, $414 million from grants for state and local police departments, and $1.6 billion from the Environmental Protection Agency’s budget. Community development block grants, a favorite with mayors of both political parties, take a $950 million cut. And construction and repair projects for federal buildings would absorb an almost $1 billion cut. Obama, however, was able to ease cuts to favored programs like medical research, family planning programs and education, while largely ridding the bill of conservative policy initiatives to block last year’s health care law and new environmental regulations. But the measure would have little direct impact on the deficit through the Sept. 30 end of the fiscal year, according to the Congressional Budget Office, since about $8 billion in immediate domestic program cuts are more than outweighed by increases for the Pentagon and ongoing war costs. Later Thursday, the GOP-dominated House will kick off debate on its long-term budget plan, a measure promising stiff cuts to domestic agency budgets that total $1.8 trillion over 10 years. The GOP measure, a non-binding blueprint that sets a theoretical framework for future legislation, would also sharply cut Medicaid and transform it into a block grant program runs by the states. It doesn’t touch Social Security, however, or immediately cut Medicare. But the GOP plan calls for transforming Medicare in the future by replacing the current system, in which the government directly pays doctor and hospital bills, into a voucher-like program in which future retirees purchase private insurance plans. People 55 and over would stay in the current system but younger people would receive the insurance subsidies, which economists say would gradually lose value over time because they wouldn’t keep up with inflating costs of medical care. Obama and Democrats say the GOP Medicare plan, devised by Budget Committee Chairman Paul Ryan, R-Wis., would “end Medicare as we know it.” On Wednesday, Obama said spending cuts and higher taxes alike must be part of any deficit- reduction plan, including an end to Bush-era tax cuts for the wealthy. “We have to live within our means, reduce our deficit and get back on a path that will allow us to pay down our debt,” the president said in a speech at George Washington University, a few blocks from the White House. “And we have to do it in a way that protects the recovery, and protects the investments we need to grow, create jobs and win the future.” Obama’s speech was salted with calls for bipartisanship, but it also bristled with attacks on Republicans. “What we got was a speech that was excessively partisan, dramatically inaccurate and hopelessly inadequate to addressing our country’s pressing fiscal challenges,” Ryan said. “What we heard today was not fiscal leadership from our commander in chief. What we heard today was a political broadside from our campaigner in chief.” Obama’s plan relied on some of the same deficit-reduction measures proposed in December by a bipartisan fiscal commission he appointed. The president is scheduled to meet Thursday at the White House with the co-chairmen of the commission, Democrat Erskine Bowles and Republican Alan Simpson.

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Poll: Most Americans Say Taxes They Pay Are Fair

April 14, 2011

WASHINGTON — For all the complaining this time of year, most Americans actually think the taxes they pay are fair. Not that they’re cheering. Fewer people expect refunds this year than in previous years, a new Associated Press-GfK poll shows. But as Monday’s filing deadline approaches, the poll shows that 54 percent believe their tax bills are either somewhat fair or very fair, compared with 46 percent who say they are unfair. Should taxes be raised to eat into huge federal deficits? Among the public, 62 percent say they favor cutting government services to sop up the red ink. Just 29 percent say raise taxes. That’s sure to be a major issue as Congress takes up budget legislation for next year and the 2012 presidential campaign gets under way in earnest. On Wednesday, President Barack Obama revived his proposal to raise taxes on the wealthiest Americans to help reduce government borrowing. In the poll, Democrats were more likely than Republicans to think their tax bills were fair. Liberals and moderates were more likely to think so than conservatives. Women more likely than men. Most whites thought their tax bills were fair; most non-whites didn’t. The young and the old – adults under 30 and seniors 65 and above – were much more likely to say their taxes were fair than those in their prime earning years. Surprisingly, there was little difference in the perception of fairness across income levels. But just because people say they pay a fair amount doesn’t mean that they think others do. Sandra Jennings, a retired teacher in South Bend, Ind., said her federal taxes are fair, but she thinks rich people get off too easily. Rich people, she said in an interview, “get all these loopholes. The middle class does not have loopholes.” Mari Lemelson of Edison, N.J., said, “I have a big problem with the millionaires, at least what I understand to be the millionaires’ tax breaks.” Jim Martel, an electrician from Weymouth, Mass., said his tax bill is already unfair, but he would be willing to pay more if he thought the money would be spent wisely. He’s not optimistic. “If I thought people in office had the right thing in mind and they were doing the right thing with the money instead of blowing it and wasting it and funding these stupid projects that are totally ridiculous, I wouldn’t have a problem with it,” Martel said. “But they don’t, so that’s what bothers me.” Monday is the filing deadline for federal tax returns – three days later than usual because a local holiday is being observed in the nation’s capital on Friday, the traditional deadline. Federal tax receipts are projected to hit their lowest level in 60 years when measured as a share of the overall economy. Tax receipts dipped during the recession and have stayed low in part because Congress has extended Bush-era tax cuts at every income level, leaving federal rates unchanged for much of the past decade. Residents in many states, however, have faced higher taxes because – unlike the federal government – states, school districts and municipalities must balance their budgets each year. The share of the public believing their tax bills were fair was nearly identical to an AP poll taken in 2007, even though fewer people than in the past said they expect to get refunds this year. Fifty-one percent of those polled said they expected refunds this year, down from 57 percent in 2009 and 66 percent in 2007. Many people who don’t expect refunds could be in for a pleasant surprise. Through March 25, about 87 percent of the individual returns processed by the Internal Revenue Service qualified for refunds. That’s about the same rate through the same period as last year. Ultimately, about 85 percent of individual returns qualified for refunds last year, totaling about $360 billion. The refunds averaged $3,000, about the same amount as so far this year. Economists say tax refunds typically provide a boost to the economy each spring. This year, however, more people say they plan to save, invest or use their refunds to pay down debts. Only 27 percent of the people surveyed said they plan to simply spend their tax refund, down from 38 percent in 2009. Forty-five percent said they would save or invest their refunds, compared with 35 percent in 2009. Forty-four percent said they would pay down debt, compared with 37 percent in 2009. “A lot of people got caught with too much debt going into this recession and may well take this as an opportunity to reduce their debt level rather than go out and rent that summer house,” said David Wyss, chief economist at Standard & Poor’s in New York. “When they’re scared, they are more likely to save it than if they are happy and feel like the good times will continue forever.” The Associated Press-GfK Poll was conducted March 24-28 by GfK Roper Public Affairs and Corporate Communications. It involved landline and cellphone interviews with 1,001 adults nationwide and had a margin of sampling error of plus or minus 4.2 percentage points. ___ AP Polling Director Trevor Tompson, Deputy Director of Polling Jennifer Agiesta and AP News Survey Specialist Dennis Junius contributed to this report. Online: . http://www.ap-gfkpoll.com

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Dan Solin: Your Broker Can Eliminate Your Tax Liability

April 13, 2011

It’s tax time, so I thought I would blog about a little known benefit of using major brokerage firms. A huge profit center for the brokerage industry is its willingness to assist clients who wish to engage in tax evasion. It’s a very lucrative business. You may remember the conduct of UBS, which agreed to pay $780 million and hand over customer details to settle charges of tax fraud in the U.S. UBS allegedly set up shell accounts to assist U.S. based customers in hiding assets from the IRS. Its scheme involved 250-300 U.S. citizens. This conduct is not limited to UBS or to U.S. citizens. I recently experienced it firsthand. A foreign citizen asked me to review his portfolio which was held in the Cayman Islands, in a trust set up by a foreign subsidiary of a major U.S. brokerage firm. The account was managed by another affiliate of the U.S. broker, based in the Caymans. The portfolio was the typical broker fare: high expense ratio proprietary mutual funds, and a mish mash of individual stocks and bonds. I advised the client to extricate himself from the clutches of the broker and to set up another trust in the Caymans, so that he could invest in a globally diversified portfolio of low cost index funds. I referred him to a prominent law firm in the Caymans. Nice plan, but it didn’t work. The law firm, in compliance with local law, insisted on proof that taxes had been paid on these funds. The client could not produce this proof. The firm refused to set up the trust. When I asked how the U.S. brokerage firm was able to create a trust without complying with local law, he told me “everyone knew” how the big brokerage firms use their resources to avoid tax liability for their clients and skirt local laws. It would have been a lot cheaper for this client to pay his taxes and implement a portfolio based on sound principles of finance. Instead, he is essentially held hostage by a brokerage firm that can do whatever it wants with his portfolio, without fear of redress. The experience of this foreign citizen is repeated countless times in the many tax havens in the world. U.S. based brokerage firms, and their foreign counterparts, stand ready to help anyone with sufficient assets avoid their tax obligations, in exchange for taking over “investment management” of their money. For their clients, it’s a Faustian bargain. For the brokerage firms, it’s another day at the office. The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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‘Tax Freedom Day’ May Overstate Middle-Class Tax Burden

April 12, 2011

One hundred and one days. That’s how long it will take Americans to earn enough income to pay off their total 2011 tax obligation to the U.S. government, according to the Tax Foundation, the fiscally conservative think tank that will celebrate April 12 as the day of completion, labeling it Tax Freedom Day. The Tax Foundation’s calculation, however, doesn’t account for America’s richest citizens paying taxes at significantly higher rates than middle- and low-income taxpayers. Instead, they simply divide total taxes collected ($3.628 trillion) by the net national product of the country ($13.107 trillion). But while this year’s tax revenue as a percentage of national income is higher than 2010 (26.9 percent) and 2009 (26.6 percent), it remains lower than any other year since 1966. This recent trend toward earlier Tax Freedom days largely results from declining tax revenues since the recession, the study’s author, economist Kail Padgitt, said in an interview. Tax Freedom Day has sparked debate over middle-class taxes, with the Center on Budget and Policy Priorities arguing , the Tax Foundation figures exaggerates the tax obligations of “typical middle-income workers. Only the richest 20 percent of Americans pay taxes at or above the level indicated by the Tax Foundation, CBPP notes, while the other 80 percent pay a considerably lower percentage, citing the most recent data available from the Congressional Budget Office: Still, the Tax Foundation says their Tax Freedom Day is a useful indication of the state of the country’s overall tax burden. The calculations, the foundation notes, don’t account for Americans’ estimated future obligations to the nation’s $14 trillion deficit . Here’s a Tax Foundation chart on the gap between the deficit and tax revenue. What Tax Freedom Day also doesn’t take into account, though, is that the U.S. has also seen a rapid rise in the amount of income that is exempted from taxation. Over the last 50 years, non-taxable annual U.S. income per capita has grown by 600 percent to $12,528 from $2,007. Taxable income has only doubled in that span — to $31,303 from $15,368 — placing an additional strain on the federal deficit. Some, including University of Maryland political science professor Robert Stoker, argue that the Tax Foundation’s indicator builds an unfair bias against progressive income taxes and other taxes that actually lift the tax burden off of middle-class households. “As [long as] income [becomes] more and more concentrated at the top, Tax Freedom Day will fall later and later in the year,” Stoker says. “That is, unless we shift the tax burden on to working Americans. Among the states, Connecticut (May 2) has this year’s latest Tax Freedom Day, while Mississippi (March 26) has the earliest. Of course, how states and cities obtain revenue for governments differs drastically by region. As explained in Taxing the Poor , a 2011 book by Katherine Newman and Rourke O’Brien, the South tend to rely on sales tax (a regressive tax) while the Northeast is dependent on revenue from income taxes (more often progressive): The largest percentage of income ever dedicated to taxes was 33.0 percent, recorded during the Clinton administration. President Bill Clinton, who benefited from a surging dot-com economy, balanced the budget from 1998-2001.

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Potential State Takeover Looms Over Detroit

April 12, 2011

Detroit must cut $200 million in spending or face a takeover by the state of Michigan, Mayor Dave Bing said on Tuesday. With the city’s population dropping to a 100-year low, while its budget deficit is projected to climb to $1.2 billion by fiscal 2015, Bing outlined a plan to the city council to balance Detroit’s finances over five years. That plan includes cuts in personnel costs, a one-year suspension of a payment to employee pensions, and a temporary gambling tax increase. “If we are unable or unwilling to make these changes, an emergency financial manager will be appointed by the state to make them for us. It’s that simple,” Bing said in his budget address. In March, Governor Rick Snyder signed into law a bill that bulks up the state’s ability to intervene in fiscally troubled local governments and appoint someone to oversee them. The new law also gives state-appointed financial managers the power to modify or end collective bargaining agreements with public sector workers — a move that sparked pro-union demonstrations in the state capitol earlier this year. Bing, who pegged the current deficit at $155 million, said the city council, unions and the pension boards had to work together to turn around Detroit’s finances. Otherwise, he said, the state will step in and “existing contracts will be voided, legislative powers will be stripped and decisions will be made without the input of elected officials or residents.” That reality was not lost on members of the city council. “I want to make sure we’re not the group that’s the answer to the trivia question — Who was in charge of the city of Detroit when the emergency financial manager came in and took over?” said Council Member James Tate. Detroit’s shaky finances are a major concern in the $2.9 trillion municipal bond market, where the city’s bonds are rated in the junk category. Detroit was also cited in a recent Reuters poll as a potential candidate for rarely used municipal bankruptcy. The mayor’s proposed fiscal 2012 $3.11 billion all-funds budget includes nearly $1.22 billion of general fund spending, according to budget documents. Some of Bing’s budget-balancing proposals depend on getting bills passed through the Republican-controlled Michigan Legislature. They include the higher tax on Detroit casinos, pension reforms, the suspension of state driver licenses for three unpaid Detroit parking tickets and the continuation of the city’s ability to collect income and utility taxes. Detroit’s population under current state law must be at least 750,000 to collect the taxes, which generated $265 million last year, Bing said. U.S. Census figures released last month showed Detroit’s population fell to 713,777 in 2010 from 951,270 in 2000, as the region suffered from a struggling automotive industry, plant closures and job losses. Bing said while he believes the final census count will be revised upward, the city must deal with the reality of a shrinking population base and the loss of state and federal funding. State revenue sharing has already been dropping and Detroit expects to receive less than half of the $332 million it got in 2002, according to Bing, who added that talks with the legislature and governor were ongoing. But Council Member Saunteel Jenkins said she will be pushing for revenue alternatives in case Michigan lawmakers don’t pass needed legislation. Detroit, which sold nearly $250 million of deficit financing bonds last year, begins fiscal 2012 on July 1. (Reporting by Bernie Woodall, writing by Karen Pierog, Editing by Chizu Nomiyama) Copyright 2011 Thomson Reuters. Click for Restrictions .

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IRS Funding Cut Days Before Report Shows $330 Billion In Uncollected Taxes

April 11, 2011

WASHINGTON — As part of the budget deal hashed out on Friday evening, lawmakers agreed that no additional federal funds would be used to hire new IRS agents. Then on Monday, the Government Accountability Office publicly released a study showing that, as of the end of fiscal year 2010, roughly $330 billion in federal taxes had never been paid — an amount that, if collected, would represent nearly nine times the amount of savings as the budget itself. The dual developments arenât shocking. Despite evidence that a single dollar spent on enforcing the tax code could result in up to ten dollars in revenue, politicians, naturally, are reluctant to align themselves with tax collectors. And yet, the sacrificing of funds for IRS agents in the continuing resolution deal underscores a particular problem that seems bound to confront fiscally conscious lawmakers. âCutting back on IRS enforcement could easily cost the treasury much more in revenue than it saves,â said Chuck Marr, Director of Federal Tax Policy at the Center on Budget and Policy Priorities. The GAO report, which looks specifically at the issue of passport holders who have failed to pay their full share of taxes, underscores Marrâs point. Titled âFederal Tax Collection: Potential for Using Passport Issuance to Increase Collection of Unpaid Taxes,â the study labels poor enforcement of tax laws and the tax code as a âhigh-riskâ hole in government policy. In fiscal year 2008, passports were issued to about 16 million individuals. Of those, more than 224,000 owed more than $5.8 billion in unpaid federal taxes. A good chunk of the evasion, the GAO concluded, was committed by individuals with âsubstantial personal assetsâ including multi-million-dollar homes and âluxury cars.â One passport recipient bought a house for $2 million and another property for $1.5 million despite owing $1 million in federal taxes. âIf you look, you can find records of most capital gains income,â said Rob Shapiro, former U.S. Undersecretary of Commerce. âPeople deposit it in their bank accounts or the institutions may issue reports if it is capital gains on stock transactions. So it is not hard to pick it up if you have the manpower to look for it. And again, given that the salary of an IRS agent is at least as high as the average salary in America, the fact that there is a ten-to-one ratio for the returns on auditing tells you that [tax evasion] is coming from the high-income brackets.â Regardless of who the worst evaders are, the GAO concludes that âIRS enforcement of federal tax laws is vital,â not just to pinpoint the offenders but to promote âbroader compliance.â And what do the studyâs authors cite as a compelling reason to beef up IRS functions? A âfederal deficitâ that âcontinue[s] to mount.â Indeed, several close observers of the budget debate have wondered exactly how lawmakers can shudder at going after tax evasion while simultaneously preaching fiscal responsibility on the stump. Marr, for one, noted that Congress has already disbanded a tax reporting provision in the presidentâs health care reform law that would have resulted in stronger compliance. That was scuttled for politically obvious reasons: the paperwork it placed on small businesses was deemed well beyond burdensome. But the decision to deny funding for more IRS agents doesnât have such an easy-to-distill an explanation. âHiring more IRS agents would have allowed the Obama administration to enforce its agenda, insofar as its agenda is to make sure that people don’t cheat on their taxes,â wrote Jonathan Cohn in The New Republic . Obama has made buffing up the IRS a relative hush-hush plank of his tax reform agenda. Upon entering office he advocated for more funds for the agency, and as part of his 2012 budget, he proposed a 9.4 percent increase so that it could hire roughly 5100 new employees. The proposal, which pivoted off of previous studies that reached similar conclusions as the GAO’s, was met with somewhat frenzied pushback from conservative circles — the specter of black-suited tax collectors roaming the streets undoubtedly on the mind. And almost immediately, the suggested increase in IRS funds became a target of cut-happy legislators.

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Julian Block: Travel Deductions for Gamblers

April 4, 2011

The tax rules for gamblers can be summed up simply: “Heads, the IRS wins; tails, gamblers lose.” The faux-friendly feds routinely nail gamblers for taxes on their entire winnings from horses, lotteries, slot machines, cards or other games of chance. But their losses are deductible just to the extent of their winnings. What’s more, losing bets that undergo IRS scrutiny generally are allowable only when they’re corroborated by records that pass muster with the agency — a requirement that’s neither more nor less stringent than for other kinds of write-offs The Form 1040 instructions mandate separate reporting for winnings and losses. Gamblers can’t reduce winnings by losses and report the difference, the way investors do for capital gains and losses. They must report the full amount of winnings for the year on the 1040 line for “other income” (line 21 on the 1040 for 2010). The instructions also tell them to specify “gambling” as the source of the winnings in the box to the left of line 21. This remains the case even if winnings are less than losses. The tax code mandates that under no circumstances can a loss deduction exceed reported winnings for the year in question. This holds true whether those losses are incurred by recreational gamblers or professional gamblers. Moreover, the law absolutely bars any use of excess losses to offset wages, dividends, interest and other kinds of income. These rules are similar to the ones for hobbies. Hobby expenses are allowable only up to the amount of income generated by the hobby and can’t offset income from other sources. Gamblers can’t deduct losses if they use the standard deduction. Gamblers can deduct losses only if they itemize on Schedule A of Form 1040. Year in and year out, gamblers get tripped up by this limitation. Gambling losses are considered miscellaneous deductions that are claimed at the bottom of Schedule A. But gambling losses aren’t subject to the nondeductible floor of two percent of adjusted gross income that applies to other kinds of miscellaneous expenses–for instance, unreimbursed employee business expenses, such as employment-related educational expenses and dues for unions or professional associations, and fees for return preparation and tax planning and investment advice. Several imaginative taxpayers have tried to sidestep restrictions on loss deductions by claiming write-offs for their spending on trips to local tracks or longer jaunts to places like Las Vegas. For instance, John Shigeta made regular pilgrimages from California to shoot craps at the Sands Hotel and other establishments in Las Vegas. John’s losses at the crap tables ran to $50,000 over a 10-year period, despite “dogged” efforts to improve his skill. For 1967, his score was $1,300 won and $10,000 lost. In addition to subtracting losses of $1,300 from his winnings, John decided to reduce his tax bite by writing off $1,230 spent traveling to Las Vegas and staying in hotels there as an expense “for the production of income.” But the law says such expenses are deductible only if an activity is profit-motivated. Consequently, the judge, though sympathetic, concluded that John flunked this test and threw out the entire $1,230. His honor reasoned that the main motivation for any crapshooter with an abysmal record like John’s wasn’t profit but pleasure. *** Julian Block is an attorney and author based in Larchmont, N.Y. He has been cited as “a leading tax professional” (New York Times), “an accomplished writer on taxes” (Wall Street Journal) and “an authority on tax planning” (Financial Planning Magazine). His books include Julian Block’s Easy Tax Guide for Writers, Photographers, and Other Freelancers: Trim Taxes to the Legal Minimum

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Margaret Heffernan: GE: Forget CSR, Pay Your Taxes

March 28, 2011

Rejecting the gloom and that which so many corporate antics inspire, business writers of late have taken to praising the companies that pursue purpose, articulate values and see for themselves higher values than just boosting the bottom line. And we admire those who embrace corporate social responsibility (CSR) and attempt to give something back to their communities through volunteering and charitable donations. I’m all for this — though there will always be a part of me that still wonders that we celebrate those who simply try not to be evil. But it seems to me that before we start celebrating all these added extras, we should require of our corporations that they do one basic thing: they should pay their taxes. This seems obvious to most of us. But it isn’t obvious to everyone. GE is not alone in making no tax contribution to the American economy. I have worked with several companies now whose stated aim (at least within their treasury departments) is a $0 tax return. And when the creative bean counters achieve this, there are slaps on the back all round and big bonuses. In the UK, there’s now a movement to identify and shame companies that pay no UK tax. Some leading retailers, like the popular Top Shop and Fortnum & Mason, have been the target of mass consumer protests; in other instances, shoppers have simply demanded that since the company doesn’t pay tax, they shouldn’t have to either. Kraft’s decision to move some of its operations to Switzerland to avoid tax, Merrill Lynch’s move to Monaco , Barclay’s sacking of a whistleblower unhappy with the bank’s tax policy: these are all corporations using ‘shareholder value’ as the excuse for refusing to contribute real value to society. The implication of these policies is that the businesses themselves have no role and no connection to society. This is dangerous stuff. No business is an island; every company depends on society for it to function. Every business has a deep, vested interest in a community that is legal, decent, honest, peaceful, healthy and educated. Without that, it has no employees, no customers — and no need of lofty, higher purposes. If businesses believe they can separate themselves from society, they invite the response that we are beginning to see on UK streets: a profound hatred of business, and a belief that unless you are a social enterprise, you must be an anti-social corporation. If this trend is allowed to continue, no amount of CSR or citizenship websites will restore faith in business. GE prides itself on making a difference “ethical actions, beyond formal requirements” and that’s nice. But I’d prefer to see it pay its taxes. For the rest of us, that is a formal requirement. Only, apparently, for large corporations is it an optional extra.

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Bob Meighan: Tax Saving Tips for Procrastinating Filers

March 23, 2011

With just a few weeks left to go, millions of taxpayers are scrambling to meet the April tax deadline. If you’re among them, you’re not alone. An estimated 27 percent of taxpayers wait until the last two weeks to file their return. This year, there’s some good news for all the procrastinators out there, an extra three days to file your federal taxes. The federal tax deadline is Monday, April 18 instead of April 15. Double check with your state as not all state tax deadlines are the same. For those who are waiting until the last minute, there’s still time to reduce your 2010 tax bill. Here are a few things to remember: Go online. Taxpayers can go online to prepare and e-file taxes up to the last minute. Online tax preparation is fast, easy and convenient E-file your return. You avoid long lines at the post office and with direct deposit, get your refund back in as little as eight days. Contribute to your IRA. Even procrastinators can save money on their taxes. Taxpayers have until the April 18 deadline to contribute to an IRA and get a deduction on this year’s return. Remember charitable contributions. Cash and in-kind donations made in 2010 are deductible for itemizers. Even mileage to and from volunteering is deductible. Take advantage of higher education tax breaks. Tax credits like The American Opportunity Credit and The Lifetime Learning Credit are available if you or your children were in college in 2010 – don’t miss the potential tax savings available to you. Don’t just take the standard deduction if you think you’re running out of time. It may be worth more to itemize. Software programs like TurboTax can compare both and help you decide which is best for you. Need more time? Taxpayers can get an extra six months to file (until Oct. 17, 2011). But remember, an extension to file, is not an extension to pay your tax bill. Individuals still need to send the IRS a payment for taxes owed, within 90 percent accuracy, to avoid late penalties. What if you can’t pay? You’re not alone. Taxpayers who can’t pay the full amount they owe can ask for a streamlined installment plan. You may qualify for a streamlined plan as long as you don’t owe more than25,000, and you must be able to pay your tax bill off within five years. See here . These simple tips can provide even the most procrastinating taxpayer with real savings on their 2010 tax bill. Despite the temptation to put off taxes until the very last minute, the clock is ticking so it’s time to get going. Spending a few minutes to take advantage of any of these tips can help you get big savings on your tax return. As vice president for consumer advocacy for Intuit’s TurboTax business, Bob Meighan works with customers to help ensure TurboTax products meet their needs. A Certified Public Accountant, Meighan holds a bachelor’s degree in business administration from the University of North Carolina.

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Kit Yarrow, Ph.D.: The Behavioral Economics of Tax Refunds

March 21, 2011

If you were about to get a check for $3,000, what would you do with it? If you’ve already thought about it, you’re not alone. It’s tax refund time and two thirds of Americans have received or are anticipating a refund. Last year 119 million Americans received refunds totaling more than $358 billion. So far this year the average tax refund is close to $3,200. Obviously a large refund means you’ve overpaid your taxes during the year. Yet only 19 percent of Americans receiving refunds plan to reduce their withholdings. Why? Some overpay out of fear they’ll owe money at tax time. A few are surprised to be getting a refund. But most use Uncle Sam as a savings enforcer. Debt reduction seems more dramatic when it happens all at once, savings feel more meaningful in large chunks and vacations are easier to save for if the money’s automatically set aside. Having money deducted from your paycheck before you can spend it is a tried and true savings method. But with all that technology has brought to banking, it’s easier than ever to do it yourself and gain the advantage of making the savings work for you in the meantime. Here’s how Americans plan to use their tax refunds this year, and why they should have withheld less instead. Spend It Tanya admits that she looks forward to “splurging” when she gets her refund. “It’s always gone before I know it, it seems like so much money — but after dinner out, a couple bills paid and a little shopping, it’s gone.” While most people logically understand that a tax refund is simply the return of their own money, emotionally it can feel like a windfall. And windfalls are typically spent more frivolously and extravagantly than hard-earned cash. Over half of those getting refunds plan to spend it. Stacy is getting a new iPad. “Perfect timing,” she says. Rudy is getting his dog’s teeth cleaned, and Jay just bought a bigger television. According to a study conducted by BIGresearch for the National Retail Federation, 12 percent plan to use their refunds for a vacation. The same survey finds that 30 percent plan to spend their checks on “everyday expenses” and 13.2 percent on big ticket items like furniture or electronics. Save It But 42 percent plan to sock it away. That percentage has been growing since the start of the recession. In 2007, 38 percent planned to save their refund. Savers could have saved even more if they’d been tucking it away (with interest) or investing part of a bigger paycheck all year long. Pay Down Debt A “tax refund savings plan” makes the least sense of all for the 42 percent of Americans who plan to use their refunds to pay down debt. “I usually use my tax refund to pay any leftover holiday bills,” says Carrie. But if Carrie had withheld less and paid her bills when they arrived, she would have avoided finance charges. Debt reduction is normally the top pick in annual tax refund surveys. This year the lowest percentage since 2006 are using their refunds to pay off debt. Which might mean that survey-takers are getting more honest. Federal Reserve statistics show that credit debt is typically reduced or slowed around refund time but it’s nowhere near the numbers you’d anticipate by the percentage found on previous year’s surveys. BONUS STAT: Wondering if you’ll get audited? Last year the IRS examined 1.5 million individual tax returns. Sources: IRS 2010 Data Book National Retail Federation 2011 Tax Survey Federal Reserve Statistical Release on Consumer Credit IRS Tax Stats Bankrate.com 2010 Tax Survey

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Mark Plant: Raising Government Revenue in Africa: A Road Out of Poverty

March 21, 2011

Governments in Africa have a prime objective–to reduce poverty. To improve living standards and create jobs, they need to provide their citizens with better health care, better education, more infrastructure. They need to build hospitals, schools, and to pay doctors, nurses, teachers. All this costs money. How to pay for this–in a way that is both fair and efficient–is a question that all governments face. There are limits to how much a government can receive as grants from donors or borrow from donors or the private sector. So raising tax revenues is a necessary element for governments to spend on providing more of these essential services and, in turn, reduce poverty. Building on progress While African countries have made important strides in boosting revenue collection in recent years–from around 11Â½ percent of gross domestic product (GDP) in 1995 to 15 percent in 2009–they continue to lag behind most other regions. Yet African countries that have had successes on this front demonstrate clearly the importance of stronger revenue performance for making in-roads into poverty reduction. Take Mozambique, for example. An impressive near doubling of tax revenues relative to the overall economy since 1992 has allowed substantial increases in social spending with tangible rewards–in increases in enrollment in primary education, better vaccination, and better basic water and sanitation infrastructure. In Liberia, revenues increased from only 6 percent in GDP to 2003 to 20 percent in 2009, even after a very difficult history of civil war. In addition to significantly better primary enrollment rates, numbers of teachers, and child and the maternal mortality, spending for infrastructure has increased. To help capitalize on country successes such as these, a conference on Revenue Mobilization in Sub-Saharan Africa is being co-hosted by the IMF and Kenyan government in Nairobi on March 21-22. The primary goal is to provide African policymakers with an opportunity to learn from each other, and to identify lessons on what has and has not worked in their efforts to mobilize revenues. Priority issues There are, of course, a wide range of issues for countries to contend with in improving tax revenues, but to help frame the discussion, we see the following as some priority areas for action. First and foremost, countries should avoid taxes that hamper economic development or job creation. Instead they should be designed to be pro-development and pro-jobs. There are two pieces to this puzzle: improving revenue administration; and better tax policy. 1. Revenue administration reforms should concentrate on reducing corruption and addressing the problem of what we call non-compliance. That’s when people just don’t pay their taxes. As much as half of the tax base is lost because taxpayers escape taxation. 2. Tax policy reforms can be incredibly wide-ranging, but here are five issues to look at: First, eliminating tax exemptions. In African countries these are often quite substantial and can rob the government of quite a bit of revenue, and inevitably they favor some people, which isn’t fair. There are also better ways to protect the poor on the spending side, through well-targeted safety nets. Second, making value added taxes (VATs), which many countries have, less complicated through fewer tax rates, fewer exemptions, and a reasonable threshold that keeps small taxpayers out of the VAT system and assures equity across individuals. Third, countries need to find ways of compensating for the loss of revenues resulting from trade liberalization, including trade revenues within customs unions such as in the East African Community where our conference is taking place. It’s also important to adopt clear laws and regulations that include strong taxpayer protection against harassment from tax officials. Again, this ensures that taxes are administered equitably. Finally, many African countries need to ensure that governments get a fair share when negotiating deals on exploitation of their natural resources, like oil, natural gas, and minerals. Ongoing Assistance The IMF has a long history of providing technical assistance in tax policy and revenue administration in Africa and throughout the world. We will continue to offer assistance to countries in the region, benefiting from the lessons to be drawn in Nairobi. We aim to provide technical assistance that is close to our customers, the governments of the region, through our regional Technical Assistance Centers –what we call our AfriTACs . We have three located in Africa and two more will open soon. This Nairobi event coincides with the launch of two Topical Trust Funds created specifically to support the delivery of IMF technical assistance in tax matters: one in the area of tax policy and revenue administration , the other for the management of natural resources . Our discussions in Nairobi will inform a global conference on resource mobilization to be held on April 17-19, 2011 in Washington, DC, and responds to an ongoing initiative by Group of Twenty industrialized and emerging market economies on enhancing revenue mobilization in developing countries. From iMFdirect blog

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Jan Schakowsky Introduces Bill To Raise Taxes For Wealthiest Americans

March 16, 2011

WASHINGTON — Rep. Jan Schakowsky (D-Ill.) announced new legislation on Wednesday that would create new tax brackets for earners who make significantly more than the baseline for the current top income bracket. Currently, the top marginal tax rate of 35 percent applies to income starting at $373,650, and the tax code fails to distinguish between earners making a few hundred thousand dollars a year and those making a few hundred million dollars a year. “LeBron James and LeBron Jamesâs dentist: same difference,” New Yorker financial columnist James Surowiecki quipped last year during early debate over the extension of the tax cuts enacted under former President George W. Bush. Meanwhile, income inequality continues to soar, as Schakowsky, one of the 18 members of President Barack Obamaâs debt commission, noted on Wednesday. âIn the United States today, the richest 1 percent owns 34 percent of our nationâs wealth — thatâs more than the entire bottom 90 percent, who own just 29 percent of the countryâs wealth,â she said during her prepared remarks at a press conference. âAnd the top one-hundredth of 1 percent now makes an average of $27 million per household per year. The average income for the bottom 90 percent of Americans? $31,244.” Schakowsky’s bill would create new tax brackets for earners making between $1 million and $1 billion annually, with tax rates starting at 45 percent with the millionth dollar and increasing on a sliding scale. The legislation would also tax capital gains and dividend income as ordinary income for those earning over $1 million in a given year. A full list of the new brackets appears below: $1-10 million: 45% $10-20 million: 46% $20-100 million: 47% $100 million to $1 billion: 48% $1 billion and over: 49% If enacted in 2011, Schakowsky’s Fairness in Taxation Act would raise an estimated $78.9 billion in its first year, according to Citizens for Tax Justice, a liberal lobbying group. CTJ was unable to provide further projections, however. Reps. Keith Ellison (D-Minn.) and Raul Grijalva (D-Ariz.), co-chairs of the Congressional Progressive Caucus, partnered with Democratic Reps. Jesse Jackson, Jr. (Ill.), Donna Edwards (Md.), Bob Filner (Calif.), Jerry Nadler (N.Y.), Steve Cohen (Tenn.), John Yarmuth (Ky.) and Peter DeFazio (Ore.) to cosponsor the bill. âThe middle class is shrinking and deficits are rising because Republicans are giving a pass to special interests who arenât paying their fair share,” Ellison said at the press conference. “This bill is part of a plan to level the playing field.â As the battle over the budget for the remainder of fiscal year 2011 continues to unfold on Capitol Hill, Schakowsky has been insisting that there are more progressive ways to reduce the country’s $13.7 trillion debt. She said she hopes her bill can broaden the focus of the debate, and Yarmuth offered similar sentiments in remarks to reporters Wednesday. “Yes, we have a spending problem,” said Yarmuth, “but we also have a revenue problem. We’re only asking that those of us who have done extremely well bear our fair share of the problem.” Yarmuth told reporters that a number of his Republican colleagues had told him in confidence that it would be difficult for them to vote against Schakowsky’s bill were it to come to a vote. “It will just be very interesting if we can get it up to a vote,” he said. A recent NBC News/ Wall Street Journal poll found that the most popular way to reduce the federal deficit was to place a surtax on federal income taxes for Americans making more than $1 million per year, with 81 percent of respondents agreeing with that statement. Katharine Myers, a Pennsylvania millionaire who made her fortune off the royalties from the Myers-Briggs personality test created by her mother-in-law, told reporters at Wednesday’s press conference that she believes the wealthy should pay substantially higher taxes — all of them. “Someone once said, ‘Why donât you donate money to the government?’ Well that would be like putting a grain of sand in a beach,” Myers said. “It needs to apply to everybody.”

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Robert Siciliano: Tax Related Identity Theft Scams up 300%

March 10, 2011

Cases of stolen tax returns have surged over the past five years, leaving many identity theft victims struggling to recoup their lost refunds. Approximately 155 million tax forms are filed annually. This provides identity thieves with an opportunity to come out of the woodwork and steal from Americans who are just trying to pay their taxes correctly. A recent Scripps Howard News Service investigation analyzed more than 1.4 million ID theft records from the U.S. Federal Trade Commission from 2005 through early 2010. In it they found that fraud complaints about stolen tax return-related identity theft jumped from 11,010 complaints in 2005 to 33,774 in 2009. That’s nearly 300 percent. Thieves may steal victims’ refunds, trick them into disclosing Social Security or credit card numbers, or even pose as the IRS. Below is more information for those common and lesser-known tax scams to watch out for. Employment Identity Theft Scams : If you ever receive documentation in the mail indicating earned income that you are not aware of, it may mean that someone else has used your Social Security number to gain employment. Account Takeover Scams : If, when filing your tax return, you receive a letter from the IRS saying that you have already filed, it it likely that someone else has filed a fraudulent return on your behalf, in order to steal your refund. Tax Preparer Scams: In an old scam that’s still in play, tax preparers tell clients they must pay back stimulus payments, and then pocket the money. Ads are also placed by scammers posing as accountants to get your returns. Make sure you do research and choose your tax preparer wisely. Late Payment Scam: As people fall behind on their taxes, lists are created and are printed in the local paper as public record. Thieves can use these lists to call unassuming people and pose as collectors. Internet Phishing Scams: The IRS doesn’t send emails. Phony IRS emails that try to lure taxpayers into giving out personal information are a common scam. The messages are generally intended to convince recipients to provide personal or financial information that enables the perpetrators to commit credit card or bank fraud, or other forms of identity theft. Unless you are actively engaged in dialogue with an IRS agent, do not respond to emails or phone calls supposedly coming from the IRS. IRS Scams : If a scammer posing as an IRS agent ever contacts you, they may already have some of your personal information, which they can use to try to convince you that they are actually from the IRS. This data could come from public records or even your trash. The scammer will often put pressure on you to comply with their request, or even offer you a tax refund. Here are some suggestions to protect yourself and make sure that you get your return: 1. Protect yourself by filing early. It seems crazy to think that someone would fraudulently file taxes in your name, but it’s being done. Once they find a few W2s or other tax-related documents, they can file in your name and claim your refund before you’ve even begun the process. File before they do. 2. Secure your mail with a locking mailbox. Mail is stolen every day, and tax forms tend to include Social Security numbers, making them especially valuable to a thief. Don’t send out your tax return by sticking it in your home mailbox. Instead, take it to the post office or use a big blue post office drop box. 3. Protect your PC. Whether or not you file online, securing your PCs is essential. Make sure you have updated antivirus software, a two-way firewall, that you run spyware removal software regularly, and that your wireless Internet connection is protected with a network key. If you are ever a victim of a scam involving the IRS, you may be disappointed by the way it is handled by government agencies. They simply don’t allocate the resources to fix this problem proactively, nor are they adept at responding once it has occurred. The biggest issue is the thief’s privacy. Even if you think you know who is responsible, neither the IRS nor any other government agency will release that information. All you can do is follow the IRS’s instructions for resolving the issue. Be patient, as rectifying it may take many hours, days, or weeks. If you subscribe to an identity theft protection service, a fraud resolution agent may be able to help. McAfee Identity Protection includes proactive identity surveillance to monitor subscribers’ credit and personal information, as well as live access to fraud resolution agents. For additional tips, visit CounterIdentityTheft.com . Robert Siciliano is a McAfee consultant and identity theft expert. See him explain how a person becomes an identity theft victim on CounterIdentityTheft.com (Disclosures)

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Janet Tavakoli: The Biggest Headache for Investors in Groupon and Facebook

March 2, 2011

Groupon makes its money by selling coupons for goods and services. It partners with local merchants. When you buy a coupon for a merchant’s discount on Groupon, it reportedly takes a 50% cut in the U.S. Groupon has had a few embarrassments . On Valentine’s Day, FTD’s flowers were priced lower than Groupon’s “deals” and the online discounter had to apologize to customers. Moreover, merchants often put conditions and restrictions on Groupon discounts that dilute the value of the deal, similar to restrictions on redeeming air miles. Even so Groupon’s valuations have ranged from $1.2 billion to $6 billion to $15 billion all in the space of a year. What’s it really worth? More on that later. Facebook is free and “always will be.” It makes its money from ads and revenues from games (if users don’t block them), albeit phone apps so far do not display ads. Michael Arrington at Techcrunch reported that Facebook is secretly building its own phone to control its own operating system. He noted that Li Ka-Shing is a Facebook investor, and he is an investor in the rumored INQ and Spotify phone project. While Facebook may remain free, it would have to figure out a way to get users to pay their phone bills. Facebook has tremendous potential to exploit its 500 million users. In fact, one of Facebook’s fundraisers is a genius at exploitation. Goldman Sachs, the Great and Powerful Oz of Finance (just don’t look behind the curtain), has already opined on Facebook’s value. In January 2011, it valued Facebook at $50 billion when it sought to raise $1.5 billion in Facebook financing. Rich Teitelbaum of Bloomberg News reminded the financial world that Goldman Sachs Asset Management’s anemic track record suggests that Goldman may not be the best go-to source for putting a value on an asset. Despite Goldman’s public relations hype that it employs the “best and brightest,” it trailed the average return of its peer group in every category. Goldman has an incentive to dangle a high valuation on Facebook in front of clients: Jim Clark of Netscape and Silicon Graphics fame was irritated that Goldman wanted to fee stuff its Facebook offering with a 4 percent placement fee, a half percent expense fee, and a snatch-back of 5 percent of investors’ potential profits. A few months earlier, Clark had invested in Facebook through another financial firm at a lower price, and the other firm wouldn’t potentially gouge him with Goldman’s 5 percent pleasure-of-your-company tax. “I don’t think it’s reasonable,” Clark told Bloomberg. “It’s just another way for [Goldman] to make money from their clients.” The question remains whether Clark bought his stake at a reasonable price. ” Blankfein Flunks Asset Management as Clark Vows No More Goldman ,” by Richard Teitelbaum, Bloomberg News , January 24, 2011 In January 2011, SharesPost Inc. valued Facebook at $82.9 billion on the secondary exchange. Whatever price the market will pay today, one has to be concerned about what it will pay tomorrow. Even if the future value of Facebook is say, $4 billion, Goldman will rake in fees. Impermanent Value Both Facebook and Groupon became successes because they are web based networks that required few management skills, minimum capital to start, and there were no barriers to entry. That is also their biggest problem. The ugly truth is that no one can tell you what they are worth as businesses. Groupon’s successful-so-far revenue model is its curse. It’s both trying to hold its position in “established” markets, and it’s trying to expand. The problem is that web users in other countries have noticed Groupon’s success and the fact that Groupon has been paying high premiums for local established discounting web sites just to get at the client distribution lists. Groupon’s competitors are both buying sites for the same reason as Groupon, and local entrepreneurs can easily copy Groupon’s business model. It seems all it takes is a good web developer, a two-page merchant agreement, and an accounting firm that can handle the taxes as a site expands internationally. Groupon may have a head start, but it has no long-term competitive advantage. That puts its margins, its market share, and it’s ability to expand and hold its position in new markets at risk. Smart investors look for highly skilled managers in industries with a long-term competitive advantage in a stable industry run by decision makers with a “here-today, here-forever” mentality. Between Groupon and Facebook, it seems Facebook has the better chance of making a case, but it hasn’t made one so far. Facebook seems to be thinking of ways to create a loyal user base by penetrating deep within its user base. It certainly has a shot, but it is unclear whether it can maintain a competitive advantage. Users are fickle, and young users will gravitate to the next exciting new thing. The rapid success of Catherine Cook’s myyearbook.com has to give investors pause. She started the site 6 years ago as a 16-year old high school student with a $250,000 investment from her brother, and the site is valued at $20 million. While it’s no threat to Facebook, it has a fresh look, is responsive to users, and offers new spins such as allowing users to buy each other gifts and “lunch money.” Investors may wonder when the next bright young kid will eat Facebook’s lunch and make it look like a site for old fogies in comparison. Facebook may adapt, but it would do itself favors by disclosing its revenues, and how it plans to face up to potential competitors. Update: ” Groupon Singled Out in Lawsuit: Man Claims Chicago-based Website Offers Illegal Gift Certificates ,” by Lacy McCrany, NBC Chicago, March 2, 2011.

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Scott Bittle and Jean Johnson: Fiscal Follies: Can We Defuse the Debt Bomb Without Blowing Up the Economy?

February 27, 2011

We’re not the first to use the ” the ticking time bomb ” metaphor to describe the country’s ominously accumulating national debt and crushing obligations on Medicare and Medicaid. With U.S. debt on track to reach $15 trillion by 2012, and likely to be as big as our entire economy in only ten years or so, it’s time to get serious about tackling the debt. So the question now is how to defuse the bomb. In the movies and on TV, you can generally count on a scene where a sweaty explosives expert pores over a jumble of wires and decides which ones to clip — think Keanu Reeves in Speed or Ziva in NCIS. In real life, the U.S. Navy counsels recruits who want to become “explosive ordinance disposal technicians” that they’ll need ” steady hands and even steadier nerves .” There’s no time to spare, but you can’t just reach inside and start wildly yanking out wires. That’s pretty much where we are with the federal budget. Congress and the president need to act quickly, but also cautiously as they work to stem the red ink. Here’s where getting the balance right is crucial: We need tough action that doesn’t inadvertently trigger a debt crisis. Sometime between April 5 and May 31, the country’s debt will hit the current legal limit of $14.3 trillion, and unless Congress “raises the debt ceiling,” the government can’t borrow any more money. At first blush, that might seem like a good way to stop the insanity, but it’s extremely risky. For anyone worried that the United States might face a debt crisis like the ones that struck Greece, Ireland and Argentina, refusing to raise the debt ceiling might be the quickest way to do it. Just contemplating the possibility that the U.S. government might not be able to pay interest on Treasury bills or redeem the ones coming due, could panic bond investors worldwide. The biggest advantage we have in grappling with our fiscal problems is that people around the world still see the United States government as one of the safest places to park their money. People want Treasury bonds. If they stop wanting them, if they think that the U.S. government might not honor its obligations, then the party’s over. Right now, prominent Republicans are using the looming deadline to push for major spending cuts beforehand, and that’s certainly fair enough. But Bruce Bartlett, an advisor to both President Reagan and the first President Bush, warns that politicians are acting ” like children playing with matches ” when they “even hint at the possibility of a debt default.” The influential fund manager of Pimco, Bill Gross, says so too: “The signal it gives to countries that hold Treasurys is that their assets are hostage to a rogue Congress . That’s the message it sends. It’s unacceptable.” We need tough action that doesn’t cause massive layoffs. The U.S. economy is finally pulling out of the worst recession since the Great Depression, but we’re not home free yet. Big tax hikes can derail a recovery, which was a major argument for extending the Bush tax cuts for two years. But drastic, abrupt cuts in federal spending can have the same effect. Huge cuts to education, health care and other federal programs that pass money along to the states could spawn extensive layoffs among government workers. Cutting federal spending on contracts and grants that fund companies and nonprofits nationwide could also threaten jobs. With states and cities facing their own fiscal crises, and federal funding drying up, some economists predict that up to 400,000 government workers could lose their heir jobs over the next few years. Arguably, state and local budget cuts are already holding back the economy . We have to get a handle on government spending; there’s not much doubt about that. But with unemployment already unacceptably high, we need to think carefully about how fast to move. We need tough action that doesn’t harm the most vulnerable. Despite our budget problems, the United States is still a very wealthy country. This means we have choices about what we want the government to do and what we’re willing to pay in taxes. Right now, the focus is on cutting spending. That’s where most American say they want to start, and with a $3.7 trillion federal budget, surely there is ample room for slenderizing. But once we’ve cut out spending that’s excessive or optional, we’ll get to spending that protects the country in a dangerous world, safeguards health and safety here at home, and helps people who are poor or whose lives have been devastated by illness or misfortune. To us, that means higher taxes have to be on the table. Every legitimate, bipartisan fiscal plan we’ve seen includes both spending cuts and tax hikes, and right now top tax rates are at historical lows . Some politicians, of course, would probably rather defuse a bomb. So this may be the year for our elected officials to summon a little of their inner Keanu. By all means, do the cutting, but please, look and think carefully while you do it.

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Scott Bittle and Jean Johnson: Fiscal Follies: How Long Can We Procrastinate?

February 21, 2011

There’s no shortage of evidence that humans procrastinate when faced with unpleasant experiences. Most of us know this personally. We’ve put in all-nighters in college or done our taxes on April 15 — or this year , April 18. Procrastination is a common enough failing, but it’s the one thing we really can’t afford when it comes to the federal budget debate. This is a problem that gets more fearsome and tougher to solve the longer we put it off. Yet procrastination is what we’re getting. Or worse, procrastination posing as bold action. President Obama’s budget request offered both spending cuts and tax increases to reduce our deficits by about $1 trillion, but offered little on the long-term problems of Medicare, Medicaid and Social Security. The House Republicans are celebrating their vote in favor of cutting $60 billion in federal spending this year, but given that (a) the deficit is expected to be $1.6 trillion and (b) there’s little chance the Senate and President Obama will go along, it may not amount to much. Meanwhile, the risks of inaction just get higher. Consider this: The bond market could de-friend us. For lo these many years, the United States has been able to spend more than it takes in because investors worldwide have been happy to keep lending to us by buying our Treasury bonds. Given the economic mess in Europe and how dicey things can be in the developing world, the U.S. government is still seen as a good place to park your money. But how long will that last if we can’t get our act together on the budget? The scariest part is that bond crises have a nasty habit of popping up out of the blue–like the iceberg materializing in front of the Titanic . In the terse words of David Brooks , “The bond markets are with you until the second they are against you. When the psychology shifts… the shock will be grievous: national humiliation, diminished power in the world, drastic cuts and spreading pain.” We are being warned. Sheila Bair heads the FDIC which closes banks when they’re about to go under, so she knows a thing or two about what happens when investors lose confidence. Bair is well-respected, and she’s worried : “Financial markets are already sending disquieting signals,” she recently wrote . She’s not the only one. The big bond rating company Moody’s has also made rumblings that our triple-A bond rating isn’t immutable. We could shell out nearly 5 trillion in interest in the next 10 years. According to the Congressional Budget Office, the country will spend about $4.8 trillion on interest payments between now and 2020 . And since the CBO is required to make its projections based on current law, these figures assume that the Bush tax cuts, all of them, will expire at the end of the two-year extension period. Almost no one thinks that will actually happen. In a decade, Medicare costs will top $1 trillion a year. All the budget wonks say health care is the undertow that could drown the budget — and the U.S. economy along with it. In 2010, the country spent $528 billion on Medicare and $280 billion on Medicaid. Together, that’s more than we spent on defense. But with rising health care costs and an aging population, those numbers are set to zoom skyward. By 2020, they will almost double to $1 trillion for Medicare and $458 billion for Medicaid. These numbers are truly fearsome, and no matter what you think of the Obama health plan, at least it included some cuts and cost containment provisions for Medicare. Repeal it without replacing those, and the costs for Medicare will be even higher. 2011 is the time to start. It’s encouraging that there are specific proposals on the table and that the political debate has finally begun. But with elections coming up in 2012–and with straw polls already dominating the news — we don’t have much time before the country goes into its quadrennial “all campaigning all the time” mode. Big national elections are generally not the best times for honest discussions about the budget, and besides everyone is distracted–candidates, journalists, and voters as well. But we still have a few months. We can’t solve the budget problem in that short a time, but if we don’t start, we could lose another two years while the risks continue to mount. Cutting federal spending or raising taxes won’t be pleasant. Local governments will not get money they’re used to getting, and companies and non-profits nationwide will lose government contracts and grants that have, in some cases, been keeping them afloat. There will be layoffs of government workers. The chorus of disapproval greeting President Obama and the Republicans now that they’ve started to get specific on spending cuts shows just how painful and controversial this will be. As for raising taxes, even the smallest uptick is bound to get millions of Americans upset. But there’s simply no way to do this without cutting spending and raising taxes. If we start now, at least we get to decide what to do when. If we wait until the country is up against a bond market crisis or other financial emergency, we’ll have to slash in every direction and raise taxes in one fell swoop. Surely we’re a sensible enough nation to avoid that. So now you can take your pick of advice from two great sources: There’s Lewis Carroll who wrote “‘The time has come’ the Walrus said, ‘to talk of many things.’” That’s true enough here. Or if you’re a boomer, maybe you’d rather go with “The time to hesitate is through ” from Jim Morrison and the Doors. Either way, the message is the same. This time, this year, we simply have to reduce the red ink.

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S. Korea Mulls Lowering Taxes, Tariffs on Oil

February 1, 2011

S. Korea Mulls Lowering Taxes, Tariffs on Oil

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Robert Reich: American Competitiveness, and the President’s New Relationship with American Business

January 22, 2011

Whenever you hear a business executive or politician use the term “American competitiveness,” watch your wallet. Few terms in public discourse have gone so directly from obscurity to meaninglessness without any intervening period of coherence. President Obama just appointed Jeffry Immelt, GE’s CEO, to head his outside panel of economic advisors, replacing Paul Volcker. According to White House spokesman Robert Gibbs, Immelt has “agreed to work through what makes our country more competitive.” In an opinion piece for the Washington Post announcing his acceptance, Immelt wrote “there is nothing inevitable about America’s declining manufacturing competitiveness if we work together to reverse it.” But what’s American “competitiveness” and how do you measure it? Here are some different definitions: It’s American exports. Okay, but the easiest way for American companies to increase their exports from the US is for their American-made products to become cheaper internationally. And for them to reduce the price of their American-made stuff they have to cut their costs of production in here. Their biggest cost is their payrolls. So it follows that the simplest way for them to become more “competitive” is to cut their payrolls — either by substituting software and automated machinery for their US workers, or getting (or forcing) their US workers to accept wage and benefit cuts. It’s net exports. Another way to think about American “competitiveness” is the balance of trade — how much we import from abroad versus how much they import from us. The easiest and most direct way to improve the trade balance is to coax the value of the dollar down relative to foreign currencies (the Fed’s current strategy for flooding the economy with money could have this effect). The result is everything we make becomes cheaper to the rest of the world. But even if other nations were willing to let this happen (doubtful; we’d probably have a currency war instead as they tried to coax down the value of their currencies in response), we’d pay a high price. Everything the rest of the world makes would become more expensive for us. It’s the profits of American-based companies. In case you haven’t noticed, the profits of American corporations are soaring. That’s largely because sales from their foreign-based operations are booming (especially in China, Brazil, and India). It’s also because they’ve cut their costs of production in the US (see the first item above). American-based companies have become global — making and selling all over the world — so their profitability has little or nothing to do with the number and quality of jobs here in the US. In fact, it may be inversely related. It’s the number and quality of American jobs. This is my preferred definition, but on this measure we’re doing terribly badly. Most Americans are imprisoned in a terrible trade-off — they can get a job, but only one that pays considerably less than the one they used to have, or they can face unemployment or insecure contract work. The only sure way to improve the quality of jobs over the long term is to build the productivity of American workers and the US overall, which means major investments in education, infrastructure, and basic R&D. But it’s far from clear American corporations and their executives will pay the taxes needed to make these investments. And the only sure way to improve the number of jobs is to give the vast middle and working classes of America sufficient purchasing power to get the economy going again. But here again, it’s far from clear American corporations and their executives will be willing to push for a more progressive tax code, along with wage subsidies, that would put more money into average workers’ pockets. It’s politically important for President Obama, as for any president, to be available to American business, and to avoid the moniker of being “anti-business.” But the president must not be seduced into believing — and must not allow the public to be similarly seduced into thinking — that the well-being of American business is synonymous with the well-being of Americans. Robert Reich is the author of Aftershock: The Next Economy and America’s Future , now in bookstores. This post originally appeared at RobertReich.org .

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Dan Dorfman: The Jobs lost in the Great Recession May Return… By 2018

January 9, 2011

The charade in the bloodied jobs market just won’t quit. That’s the growing contention–strongly promoted by the White House and Wall Street–that the employment picture is on the verge of taking a decided turn for the better and that it’s only a matter of time, thanks to a peppier economy and government stimulus, before the roughly 8.5 million jobs lost during the recent recession will be restored. Friday’s bum employment news–the creation of only 103,000 new jobs in December, nearly 50% lower than the generally expected 150,000–was an unmistakable sign to the contrary, namely that the folks holding such exuberant job expectations are not doing it with a full deck. The key reason: The economy, though on the way back and gnawing away at unemployment, is by no means ready to transition into robust growth. Nor is Corporate America, though sitting with oodles of cash on their balance sheets (about $2 trillion) in a gradually improving economy, ready to commit to more aggressive hiring on a national level. Nor, for that matter, are banks, whose death rate continues at brisk pace (157 failures in 2010, the highest number since 1992), and saddled with a lofty level of overly stated assets, especially in real estate, ready to offer an abundance of cash to would-be buyers to speed up the recovery, in turn leading to more job creations. So it all raises some obvious questions: How long should it realistically take to recover the jobs lost during the recession and get us back to a normal unemployment rate? And what will it cost Uncle Sam to achieve such a goal? For some thoughts, I rang up Madeline Schnapp, the economic skipper of West Coast liquidity tracker TrimTabs Research, partially owned by Goldman Sachs. Sharp, incisive, perceptive and thought-provoking, she is no stranger to my HuffPost contributions, having made a number of timely and on-the-money economic calls. Sorry to say, her words won’t be pleasing to the 14.5 million jobless Americans or the nearly 26 million job seekers, including those who’ve quit the work force and would like full-time employment. For starters, Schnapp figures it will take four to seven years to recuperate all the jobs lost during the recession, which means the timetable could be as far out as 2018. She believes four is probably too optimistic, given such ongoing economic-stifling problems as high unemployment, a dead housing market, a deleveraging consumer, the financial plight of state and local governments saddled with gigantic budget gaps, meaning more layoffs and higher taxes, and a 14% jump in prices at the gas pump over the past three months, equivalent to a $60 billion tax on consumption on an annual basis. Actually, Schnapp thinks there’s a possibility that 20% to 25% of the lost jobs may never come back because of the damaging effects from the eventual collapse of the hyper-charged housing market between 2003 and 2007. Over the past two years, the federal government has spent about $3.5 trillion in bailouts, stimulus and quantitative easing. In 2010, after almost two consecutive years of job losses, the economy generated about 1.1 million jobs. That means each job that year cost taxpayers $3.2 million. Going forward, Schnapp estimates the economy will produce a total of 2.8 million jobs in 2010 and 2011. If that’s right, each job will cost taxpayers $2 million. She further notes that if the Fed keeps printing dollars ad nauseum and the government keeps running trillion dollar-plus deficits, the total price tag to replace the 8.5 million jobs could run $13-$15 trillion. Given her economic concerns, our worry-wart looks for a muddling-along 2011 economy, with anemic growth, say in the 2%-2.5% range. Goldman Sachs, more positive than Schnapp, recently predicted the S&P would wsind up would wind up this year at 1,500. She disagrees, looking for an uninspiring year for investors, with the index trading in a narrow range of 1,050-1,100 on the low side and 1,300 on the high side. Another 2011 thought from Schnapp: She expects another round of quantitative easing or QE3. No, not to further fuel the economy, but to provide bailout money for insolvent states, such as California, Illinois and New Jersey. “They say it can’t happen, but we’ve heard that before,” she says. “I guess deficits work, until you run out of other people’s money.” What do you think? E-mail me at Dandordan@aol.com

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Richard (RJ) Eskow: The GOP and the Banks: Cutting the Garlic Budget as the Vampires Attack

December 22, 2010

Van Helsing: “The strength of the vampire is that nobody will believe in him.” America’s debt to Wall Street has soared since 1945 — and although the banks were rescued at the public’s expense, the public’s been left holding the bag for the recent drop in housing prices: Hmm… How many times has the word “vampire” appeared in books during the same period [1]? What does this mean? Does it reflect the public’s subconscious response to predatory banking? Or is it just some guy having nerdy fun with data sets by juxtaposing two trend lines that have nothing to do with one another? We report, you decide. Here’s what we do know: Like their fictional counterparts, America’s banks are revenants, re-animated creatures who were brought back from the dead through the public’s generosity. Now they’re feasting on the rest of us again, while politicians in Washington work to rob us of the few tools we can use to defend ourselves. With some Democratic complicity, Republicans are fulfilling the promise of Rep. Spencer Bachus, who said that “Washington and the regulators are there to serve the banks .” And what they’re serving them is you . The Count: “Listen to them! The creatures of the night. What music they make… ” The rap sheet against America’s banks grows longer and longer. They keep stringing people along with phony foreclosure negotiations, and then foreclose anyway. And we’re hearing more and more stories about bank agents who, as they’re invading and padlocking illegally foreclosed homes, also steal the private property inside them. In

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Richard (RJ) Eskow: The GOP and the Banks: Cutting the Garlic Budget as the Vampires Attack

December 22, 2010

Van Helsing: “The strength of the vampire is that nobody will believe in him.” America’s debt to Wall Street has soared since 1945 — and although the banks were rescued at the public’s expense, the public’s been left holding the bag for the recent drop in housing prices: Hmm… How many times has the word “vampire” appeared in books during the same period [1]? What does this mean? Does it reflect the public’s subconscious response to predatory banking? Or is it just some guy having nerdy fun with data sets by juxtaposing two trend lines that have nothing to do with one another? We report, you decide. Here’s what we do know: Like their fictional counterparts, America’s banks are revenants, re-animated creatures who were brought back from the dead through the public’s generosity. Now they’re feasting on the rest of us again, while politicians in Washington work to rob us of the few tools we can use to defend ourselves. With some Democratic complicity, Republicans are fulfilling the promise of Rep. Spencer Bachus, who said that “Washington and the regulators are there to serve the banks .” And what they’re serving them is you . The Count: “Listen to them! The creatures of the night. What music they make… ” The rap sheet against America’s banks grows longer and longer. They keep stringing people along with phony foreclosure negotiations, and then foreclose anyway. And we’re hearing more and more stories about bank agents who, as they’re invading and padlocking illegally foreclosed homes, also steal the private property inside them. In

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Robert K. Lifton: The Real World vs. The Make Believe World

December 20, 2010

These thoughts were inspired by an exchange I watched on CNBC this morning between Tom Friedman, Pulitzer prize winning author and columnist for the New York Times and Joe Kernen, a co-anchor on CNBC’s Squawk Box. Friedman commented that although the extension of the Bush tax cuts may have been necessary given the state of the economy, they added billions of dollars to our debt to China. He argued correctly that the only way for the U.S. to get out of our difficulties is to find a way to create jobs, reduce debt, innovate products that allow us to become competitive, improve education and increase immigration of highly qualified people. Kernen didn’t see why the tax reduction should be characterized as increasing the debt to China since it was “our money” and thought the real solution to all the problems was to just “get the government out of the way.” As I see the political structure of America both of these concepts fall into the realm of the make believe world. Yes, Friedman is right on target as to what is needed for this country to regain its financial and political position. It would be great if the nation would be able to gird its loins and face the realities of the huge competitive and structural unemployment, the debt, the failure of our education system and the damaging restrictions on immigration. Unfortunately, the simplistic formulation by Kernen explains why all that will not happen. I previously noted that creating jobs, reducing the debt and making America competitive cannot be accomplished without enormous sacrifices by every elements of our society. It will require that labor gives up hard earned health and pension benefits, that managements very sharply reduce their salaries and benefits; that federal, state and city governments pare down costs across the board, including pension payments for retired employees; that taxes be raised far beyond merely eliminating the Bush tax cuts; that social security and Medicare benefits be adjusted to reduce costs. All will feel the pain of reduced standards of living — labor, management, the affluent, the old and the young. I raised the question: “Can the American democratic system manage such painful change… Can our democracy survive when it has to take from each constituency something of great value? The first test of our willingness to make tough choices came up in the extension of the Bush tax cuts and we saw part of the answer. True, there was a rationalization for not increasing taxes on the middle class during this stressful economic period but the extension of benefits went well beyond the middle class to the very wealthy and included reducing estate and other taxes. It is not a great leap of the imagination to expect that when the cuts expire in 2012 — an election year — they will be extended again. We also witnessed the reaction to the efforts by the Simpson-Bowles led National Commission on Fiscal Responsibility and Reform. Even fourteen members of the Commission could not agree on the recommendations in order to bring them to the floor of Congress. Moreover, its recommendations were immediately denounced by elements on the left and the right. The Kernen mantra that we should just “get government out of the way” disguises the problem with misdirection. The bulk of pubic spending is on Social Security, Medicare, the military and interest on the debt. There is no way that in our system the government will get out of the way of those activities and, in addition, we will always need services and programs that only the government and not business can deliver. There is also no possibility that the American electorate will vote for such a drastic approach. But repeating the mantra as if it were a solution, allows the cop out on what realistically could and must be done – the belt tightening sacrifices from all the American constituencies to reduce debt yet allocate resources to carry out the kind of recommendations that Friedman made. This is reality. Until it happens, we will continue to live in a world of “make believe” and neither “get government out of the way” nor carry out Friedman’s recommendations. Robert K. Lifton has written extensively on political, business and economic issues. He is presently writing a memoir titled: Life’s Stories and Lessons from a Member of the ‘Greatest Generation.

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Senate Passes Obama-GOP Tax Cut Deal

December 15, 2010

(AP) WASHINGTON — The Senate Wednesday overwhelmingly passed a sweeping tax package that would save millions of Americans thousands of dollars in higher taxes while also reducing their Social Security taxes and extending jobless benefits. President Barack Obama swiftly urged the House to pass the $858 billion bill without changes, a slap at Democratic liberals eager to toughen a part of the measure that permits up to $10 million to pass to heirs estate tax-free. A wide array of tax cuts enacted under President George W. Bush is scheduled to expire on Jan. 1 – just two weeks away – affecting taxpayers at every income level. The bill passed by the Senate, 81-19 , would extend those cuts for two years. Obama urged quick action in the House. “I know there are different aspects of this plan to which members of Congress on both sides of the aisle object. That’s the nature of compromise,” the president said. “But we worked to negotiate an agreement that’s a win for middle-class families and a win for our economy, and we can’t afford to let it fall victim to either delay or defeat.” House Democratic leaders said they expect to vote on the bill Thursday. Obama negotiated the package with Senate Republicans, and then administration officials worked for days to persuade congressional Democrats to support it, signaling a possible blueprint for future legislation. Because of November’s election victories, Republicans will take control of the House in January and gain seats in the Senate. “Middle class families need a boost in this economy, and that is exactly what this plan gives them,” said Senate Majority Leader Harry Reid, D-Nev. “It is not perfect, but it will create 2 million jobs, cut taxes for middle class families and small businesses, and ensure that Americans who are still looking for work will continue to have the safety net they rely on to make ends meet.” The bill would extend expiring tax cuts at every income level. It also would renew a program of jobless benefits for the long-term unemployed that is due to lapse, and enact a one-year cut in Social Security taxes. The bill’s cost, $858 billion, would be added to the deficit. “Opposing this bill is tantamount to supporting massive tax increases that threatens our economic future,” said Sen. Orrin Hatch, R-Utah. “Allowing middle-class families, small businesses and investors to keep more of what they earn, while denying Washington hundreds of billions in new tax revenue to spend, is the right thing to do.” Other Senate Republicans, however, balked at the price tag, noting that Obama’s deficit commission recently outlined the massive fiscal problems facing the nation. “The American people are going to be looking, and they’re going to say, does the Senate get it? Do they understand the severity and the urgency of the problems that face our fiscal future?” Sen. Tom Coburn, R-Okla., said Wednesday. At the insistence of Republicans, the plan includes a more generous estate tax provision: The first $10 million of a couple’s estate could pass to heirs without taxation. The balance would be subject to a 35 percent tax rate. The lower estate tax infuriated some Democrats who were already unhappy with Obama for agreeing to extend tax cuts for individuals making more than $200,000 and couples making more than $250,000. “This administration fights for nothing,” said Rep. David Wu, D-Ore. The estate tax was repealed for 2010. But under current law, it is scheduled to return next year with a top rate of 55 percent on the portion of estates above $1 million – $2 million for couples. House Democratic leaders want to bring back the 2009 estate tax levels. That year, individuals could pass $3.5 million to their heirs, tax-free. Couples could pass $7 million, with a little tax planning, and the balance was taxed at a top rate of 45 percent. House Democrats said they are considering a vote to impose the higher estate tax, perhaps as an amendment to the package. But even critics of the lower estate tax say they expect the package to be enacted without changes. “Let’s find out if Republicans really want to jeopardize income tax, payroll tax and estate tax relief for every American in order to provide a budget-busting bonanza to the country’s richest estates,” Rep. Chris Van Hollen, D-Md., wrote in an op-ed in Wednesday’s Washington Post. “House Democrats think this trade-off should be debated and voted on in the light of day.” Rep. Bill Pascrell Jr., D-N.J., said, “We can jump up and down all we want about the higher-end estate taxes, and I don’t think anything’s going to change because the Senate isn’t going to change it.” Thirty-one members of the conservative Blue Dog Democrats sent a letter to House Speaker Nancy Pelosi urging quick passage of the bill. “It is time for us to put aside the partisan talking points and accomplish what the American people sent us here to do,” said the letter.

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WATCH: Obama Says Tax Cut Deal Imperfect, But Still Worth It

December 11, 2010

Darlene Superville, Associated Press WASHINGTON – President Barack Obama calls his tax-cut agreement with Republicans far from perfect but a good deal overall for Americans, while acknowledging that many fellow Democrats aren’t happy about what he negotiated with the GOP. Pressing for passage by year’s end, he told lawmakers in his radio and Internet address Saturday that “our recovery will be strengthened or weakened based on the choice that now rests with Congress.” The deal would extend for all earners cuts in income tax rates that are set to expire next month. It would renew jobless benefits for the long-term unemployed and trim Social Security taxes for one year. Republicans support the plan because it would not impose higher taxes on the wealthiest, as Obama long had wanted to do. Democrats object to the pact on grounds that it is too generous to the rich. WATCH: Obama said the agreement will require that both parties accept some things they don’t like. But he said the agreement will help the middle-class families that he and others have argued should be spared further economic hardship. “The opportunity for families to send their kids to college hinges on this debate,” Obama said. “The ability of parents to put food on the table while looking for a job depends on this debate.” He said he was confident that Congress, where voting is expected to begin on the measure next week, “will do the right thing.” Obama won some high-profile backing for the agreement from former President Bill Clinton. The former president told reporters after an Oval Office meeting with Obama on Friday afternoon that “I don’t believe there is a better deal out there.” In their weekly address, Republican Rep.-elect Kristi Noem of South Dakota applauded the deal and said it’s good for small businesses. “With unemployment still rising, the No. 1 thing our family-owned small businesses need right now is certainty,” she said. “They need to know that the government is not going to come in and do anything to jeopardize their ability to keep their doors open. So it’s certainly encouraging to see that President Obama has proposed a potential agreement to stop all the tax hikes scheduled to take effect on Jan. 1.” But she said additional steps will be needed to spur economic growth, including spending cuts, making government smaller and repealing the new health care law.

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Wendy N. Powell: Washington: Extend the Tax Cuts to Create a Business-Friendly Environment

December 10, 2010

Our economy depends on It. Unemployment is still 9.8% and rising with no end near. Does anyone really think the unemployment rate is going to decline without aggressive relief to business? This 11th hour tax vote is inexcusable. Politicians have known about the pending expiration of these tax cuts for many years. They have recently abandoned their responsibilities to perform their “more important job” of political campaigning. We didn’t elect members of Congress to campaign; we elected them to support our country. Washington needs to listen to the American public. According to a December poll by Gallup.com , 66 percent of Americans support both extending the tax cuts for two years and extending unemployment benefits for another year. President Obama needs to create a fresh, new version of the knights of the round table with the nobility of the business world. Of course, he needs to bring on the critical thinkers who understand a sense of urgency that many congressional leaders fail to realize. Bill Clinton helps with the political implications, but we need the business experts. Bring them together as a new think tank to impart their business knowledge on the decision makers in Washington. It should be a requirement of our governmental leaders to have emphatic, grounded experience in American business to make decisions on behalf of their constituents. It makes me wonder what set of competencies our government officials have to fix our serious economic problems, particularly job loss. I know one thing, they either don’t have what it takes or at least they aren’t using business sense. They are adding “incentives” to this critical initiative, really? This will negatively impact the lives of not only business, but the American public. Senate Majority Leader Harry Reid has proposed a new tax plan that includes pork of sorts that includes relief for the rum industry, the film industry, and NASCAR. It is downright insulting to throw these types of enticements into this critical mix. This is not like going to the union bargaining table to reach an agreement by trading last minute proposals. This may be the most important vote of our contemporary time. If we don’t get the problem with joblessness under control, we will likely dive into a new economic abyss that will last for decades. Even the extension of the unemployment benefits, while is arguably critical, doesn’t have conditions in order for them to receive additional money. We need controls such as enhanced reporting of job searches and public service to work for the additional pay. The unemployed cannot sit and wait for their career knight in shining armor to knock on their doors. This sounds remarkably familiar; it is similar to the TARP money handed out without conditions and control. You can’t, can’t ignore the obvious fact that our government hasn’t been kind, nor attentive to the needs of the job creators. It is mid December and we still don’t know what we can count on for our 2011 budgets. October came and went and Congress went on a recess without consideration of the extension of the Bush Tax Cuts. The mid-term election was more important than the jobs they were elected to do. Think about it — October is a typical month for creating the final budget for the following year. And we expected to see job growth in the Fall after the “Summer of opportunity”? We did not give the tools to business to open up their budgets and fiscal hearts to potential employees. We did the opposite; we froze them. There is no surprise that businesses are in a frozen mode. They are trying to do more with less. As time goes by, they become more comfortable with their staffing levels and less likely to take risks or expand. Likewise, employees are doing more work with less opportunities, and in many cases less money. Businesses are making money, you may say. Their balance sheets are looking up. This is true, but American business still does not know their tax liability, their obligations for health care, or energy for 2011, not to mention their taxes on their rum consumption. There is no surprise that they aren’t hiring. They want to wait and see what tomorrow will bring. But think about it from the personal level of how you manage your household budget. If you are suddenly solvent, are you going to pack away money for the next freeze or are you going to spend it? The likely answer is the former. Like it or not, big business and small business alike hold the cards, and they will conserve until they can see that they can manage their taxes, borrowing power, and perhaps then their spending and risk taking. We don’t exist for political futures. I, for one, am sick of the political games. How about that filibuster that wastes valuable time and effort? Perhaps eating crow will be part of this voting process. We need the extension of the tax cuts now. The alternative is to wait until January and see if new sparks will fly.

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