I awoke about 0400 this morning and as I lay there the subject of Taxes floated onto my slumbering mind's billboard. Not sure why but as I opened up today's Wall Street Journal I found numerous writings on the topic. Hum, am I losing it? (don't answer that, please.) Perhaps the thoughts flamed up because of a phone call I received yesterday in which, on my flat screen TV cable system, the caller's ID popped up and it said, "US Government" thus my attention was immediately focused.
Could it be Obama needed me? Perhaps the State Department needed and envoy to Alabama or maybe Karzai was asking for me in Afghanistan to advise him on how to lead a nation? My mine was whirling for some noble cause the U.S. Government was calling me ... maybe I was being recalled to active military service so I grabbed my brass cavalry crossed sabers and looked for my can of polish ... oh what would the U.S. Government be calling me?
So, with hands shaking and heart rate elevated, my sweat glands in hyper drive, I picked up the phone and said, "yes sir, may I help you?" What I heard was a very nice gentle female voice that said, "hello Mr. Williams, this is April from the Social Security office in Chicago and hope you are having a wonderful evening." Deflated I went forward with the call that lasted somewhere between 10-15 seconds about a check mark on question 4 of a form I had received about six months ago. Deflated with all I have envisioned, downtrodden from the valuable contribution I no doubt could have given my US Government is only asked. But alas, one question, one answer and a thank you, CYAH goodbye ... Deflated but then a mountain top experience ... realized it could have been the IRS. YESSSSSSSS!
So I went to bed thinking not about Social Security but on the multifaceted dilemma our nation faces with the burgeoning mountain of borrowing to pay for government, such as Social Security, that is unfixable, I believe, with eh current revenue generation system called the US Tax Code. So it was taxes that awakened my brain this morning. So the article below, one of several on the topic, was selected for Mr. Reynolds is an excellent writer and the article goes to the very core of the matter; we are trying to patch or band aid a gushing well of red debt.
If you listen to the rhetoric, the politicians, the pundits, the soothsayers, anyone, some realities strike home.
- everybody hates to pay taxes
- the government is funded by taxes
- the government outspends the inflow of taxes
- the government wants to increase taxes but does not want to call it that
- the tax code structure of this nation is, well, defunct and is the problem
- the US is the only nation of the G20 that uses income as the basis of taxation
- the tax code is a hodgepodge of legislative culminations of years of pork belly philosophies
- the tax system is BROKEN
- everybody hates to pay taxes
So today, please, think about taxes not as burden but as part of the price we must pay for living in a democracy. I think the paying of taxes, like the tithe to your church, is right and noble but it must be fair and not confusing nor lend itself to corruption and political meandering which our system reflects blatantly. Yes, the system is COMPLETELY BROKEN. Hey Washington ... FIX IT!! If you need help, I will be looking for US GOVERNMENT to pop up on my flat screen again and I will do my best, honest, I will.
The Spend Now, Tax Later Jobs Bill
The president says we can lower the corporate tax rate if we get rid of 'special deals.' But his plan doesn't include a lower rate.
The president's "Plan for Economic Growth and Deficit Reduction" mainly hinges on persuading Congress to trade $447 billion in temporary payroll tax cuts and spending increases—the "jobs plan"—for permanent income-tax increases of $150 billion a year. Mr. Obama also calls on the 12-member congressional super committee to undertake "comprehensive tax reform," which he defines in peculiar fashion as trading lower deductions for higher rates.
According to the Sept. 19 White House fact sheet, "The President calls on [the super committee] to undertake comprehensive tax reform, and lays out five principles for it to follow: 1) lower tax rates; 2) cut wasteful loopholes and tax breaks; 3) reduce the deficit by $1.5 trillion; 4) boost job creation and growth; and 5) comport with the "Buffett Rule" that people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay."
But the administration's tax plan violates these principles. It raises rather than lowers tax rates, shrinks tax deductions to pay for more spending, makes no believable contribution to economic growth, has nothing specific to say about the Buffett Rule, and allocates a third of the proposed $1.5 trillion tax increase over the next decade to such miscellany as the temporary payroll tax break, more subsidies for state and local government jobs, and prolonged unemployment benefits.
Nearly all of Mr. Obama's
The Treasury Department's more candid explanation of these same proposals in the 2011 budget estimated that raising the top two tax rates would bring in only an extra $36.4 billion a year from 2011 to 2020, which adds up to little more than $400 billion from 2012 to 2021. The administration's 2011 proposal to raise the tax rate on capital gains and dividends to 20% from 15% on upper incomes was estimated to raise an even punier $10.5 billion a year. But the 3.8% surtax in ObamaCare already raised those tax rates to 18.8% to finance health-insurance subsidies, leaving no meaningful revenue from that source.
In other words, most of that large, $866 billion 10-year tax hike comes from phasing out personal exemptions and deductions. These are not "tax breaks that small businesses and middle-class families don't get," as the president claimed on Monday in his Rose Garden remarks. The phase-outs apply to the same exemptions and deductions enjoyed by those earning less than $250,000, including deductions for mortgage interest, charitable contributions, and state income taxes.
Mr. Obama's second biggest tax increase, supposedly worth $410 billion over 10 years according to the fact sheet, comes from further reducing "the value of itemized deductions and other tax preferences to 28% for those with high income." The phasing out itemized deductions for upper-income taxpayers would shrink those deductions by as much as 80%, so this additional cap would limit any remaining deductions to 28 cents on the dollar. The combination would be severe. Ask any charity.
As for corporate taxes, Mr. Obama said in the Rose Garden that "We can lower the corporate rate if we get rid of all these special deals." But his plan does not include a lower corporate rate. Instead it earmarks the revenue from eliminating any loopholes and "special deals" to pay for the $447 billion jobs bill.
This brings us to the president's puzzling remarks about "the Buffett Plan," which has no clear connection to anything in his own plan. Mr. Obama has said that anyone who thinks "somebody who's making $50 million a year in the financial markets [i.e., Warren Buffett] should be paying 15 percent on their taxes, when a teacher making $50,000 a year is paying more than that" should "have to defend that unfairness. . . . They ought to have to answer for it."
Editorial board member Steve Moore on why some Democrats are opposing Obama's deficit plan.
Warren Buffett's large capital gains (mostly unrealized) and token $100,000 salary are by no means typical. IRS statistics show those earning more than $1 million paid 28.9% in federal income taxes in 2009, compared with 24.6% for those earning from $200,000 to $500,000 and 11.6% for those earning from $50,000 to $75,000.
However, if Mr. Obama is seriously suggesting that marginal tax rates should be the same for the working teacher's salary as for the retired teacher's capital gain, then he may be flirting with a rerun of George McGovern's 1972 presidential campaign theme that, "Money made by money should be taxed at the same rate as money made by men."
Unlike Mr. McGovern, though, Mr. Obama has not yet proposed a capital gains or dividend tax higher than 20%. If the rhetorical Buffett Rule has any meaning at all, it appears to be nothing more than a presidential hint to the congressional super committee that he would like them to propose (as he has not) that incomes above $1 million face a 28% tax on capital gains and dividends.
The trouble is that such a Buffett Rule would quite certainly reduce rather than enlarge federal revenue. That's because we know from experience that a 28% tax on selling stock or property greatly reduces the amount offered for sale. Wealthy people then sit on more unrealized capital gains rather than subjecting themselves to a stiff tax penalty on selling those assets. The 28% tax on long-term capital gains brought in only $36.9 billion a year from 1987 to 1997, according to the Treasury Department, while the 15% tax brought in $96.8 billion a year from 2004 to 2007.
Putting aside the seemingly empty threat of a Buffett Plan tax on capital gains, the president's new-old plan to raise income taxes on families and small businesses earning more than $250,000—to pay for temporary tax gimmicks and extra spending—is just stale wine in a new bottle.
Any plan that would impose permanently higher tax rates on income to pay for temporarily lower tax rates on payrolls is no stimulus or jobs plan under any sort of economics. Neither is a tax-financed extension of unemployment benefits. It's a tax-and-spend plan, and a bad one.
Mr. Reynolds, a senior fellow with the Cato Institute, is the author of "Income and Wealth" (Greenwood, Press 2006).
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