Taxes on the way

Without revision we're headed for big increases in taxes at all levels except the nearly 50% who pay no taxes now!

Reversion to the Clinton tax hikes: Time to rethink what our government has become

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POSTED AT 8:03 PM ON NOVEMBER 14, 2011 BY J.E. DYER 
[ CRONYISM ]    PRINTER-FRIENDLY

As we read more and more about the US federal government handing out money – borrowed-against-our-future money – to the private enterprises of Obama’s campaign donors, it is heart-warming to remember that the tax code is scheduled to revert on 1 January 2013* to what it was under Bill Clinton.

This means that unless the Super Committee comes to an agreement to avert it, you are almost guaranteed to have a larger federal income tax bill after next year.

Money-manager-types explain, each time we reach this precipice, that going back to the Clinton tax code means virtually everyone who pays now will pay more.  It also means some who don’t currently pay net federal income tax will have a balance owed in 2013 after exemptions.

It’s not just rate increases for the “rich.”  The 10% bracket goes away, with the lowest rate reverting to 15%; the child tax exemption goes from $1000 per child back to $500; the “marriage penalty” comes back in terms of personal exemptions – and those are just the changes that will be felt by the most people.  Taxes on dividend income will go up as well, and all exemptions will be phased out as income rises (which will hit the small-business proprietors and professionals whose activities with their own money make an outsize contribution to economic growth and prosperity – not to mention dealing a blow to charities).

Bob Jennings at Fox Business ran some numbers for a young couple with two kids and combined income of $100,000.  (H/t: Lonely Conservative.)  Their tax bill would go up by nearly $3600 between 2012 and 2013, or about $300 a month.  And that’s just federal income tax:  they’re also paying property taxes (they have a mortgage), probably state income tax as well, and sales taxes and special excise taxes (e.g., federal gas tax) – plus they’re sending 13% of each of their earned incomes to Social Security and Medicare.

The young couple will certainly feel the loss of $300 a month.  Estimates of tax bill increases suggest that they will be felt down to incomes in the upper $20,000s range, by typical single filers.  (With exemptions, multi-person households have lower tax bills at the same or higher incomes.)  Those most likely to be single filers with incomes in this range are either seniors on fixed incomes, or young people just starting out.  For either demographic, an increased tax bite of even $20-30 a month makes a difference.  That amount can easily equal the total monthly fees assessed on, say, utility bills and banking.  Few people in this income bracket can say they wouldn’t miss the amount.

For a household earning $150,000 a year, the tax bill increase will run to $6,000, $8,000 or more, depending on the household.  People with incomes in this range know that the loss of $500-700 a month will make a significant difference.  Assuming they’ve already cut way back on consumption, they’ll have to start cutting back on savings and investment.  That will do the opposite of create jobs and encourage economic growth.  (It will also minimize the additional revenues from increasing the tax rate on dividends.)

The higher you go in the income brackets, the more likely filers will be to simply take less individual income.  Why expose it to the tax man?  The discretion wealthier taxpayers have over their assets disappears, disproportionately with each increase in current income.  It’s not worth it on the margin to accept the greater tax exposure.

These filers will park a greater portion of their assets in low-tax-exposure instruments rather than taking as much current income or capital gains as they do today, and taking economically-productive risks with it.  This removes some amount of ready capital from circulation, leaving it latent:  too expensive to take out and use.  If there were not relatively tax-advantaged options for using it abroad, this might make less of a difference.  But there are.  For America, increasing tax rates on our capital sump will drive jobs and economic growth elsewhere (especially with the costs of regulation on a dramatic upswing in the US).

We can hope the tax increase won’t happen.  The threat was averted for 2011, after all.  But it ought to be especially galling for taxpayers, in the wake of the Solyndra revelations – and the now seemingly endless parade of crony beneficiaries of the Obama administration – to contemplate the very real pain it will inflict on their recession-shocked households if the Clinton tax code comes back.

Americans are not undertaxed.  Government at every level is, rather, overspent – and the people’s lives and commercial activities are stupendously overregulated, which discourages economic activity – as well as income mobility – by raising the cost of literally everything.

Before we collect one additional penny in taxes from anyone, we need to cut spending and regulation.  Start with the federal grants to Obama’s political cronies; the current prohibitions on drilling for oil and gas; and 100% of the discretionary activities of the Environmental Protection Agency, including the new air quality standards set to go into effect on 1 January.  Whether you want to add a new regulation or modify an old one, you should have to fight in Congress for every single change, using your own money, not the people’s – and lose your battles if  you can’t get the votes.

The basis of government has gone badly awry in America.  The bottom line is that the taxpayers should not have to accept pain so that we can fork over more to keep funding it on its current basis. Michael Bloomberg is wrong about that.  Government is what has gone wrong, and it’s government that needs to change.

* Aw, heck.  I meant the tax code reverts to Clinton’s in 2013, as several alert readers have pointed out.  No excuse; brain flatulence.

J.E. Dyer’s articles have appeared at The Green Room, Commentary’s “contentions,” Patheos, The Weekly Standard online, and her own blog, The Optimistic Conservative.

Tax increases baked in the cake

From the WSJ is a partial list of tax increases thus far under the Obama regime.  Mind you, he want to increase taxes much more on the so-called wealthy and will accomplish an across the board tax increase when the Bush tax decreases expire in 2012.  Sounds like he wants to get us to the 50% of GDP rate of Sweden and other socialist states during his tenure.

Taxpayer cost over 10 years: $210 billion.

• Also starting in 2013 is a 2.3% excise tax on medical device manufacturers and importers. That’s estimated to raise $20 billion.

• Already underway this year is the new annual fee on “branded” drug makers and importers, which will raise $27 billion.

• Another $15.2 billion will come from raising the floor on allowable medical deductions to 10% of adjusted gross income from 7.5%.

• Starting in 2018, the bill imposes a whopping 40% “excise tax” on high-cost health insurance plans. Though it only applies to two years in the 2010-2019 window of ObamaCare’s original budget score, this tax would still raise $32 billion—and much more in future years.

• And don’t forget a new annual fee on health insurance providers starting in 2014 and estimated to raise $60 billion. This tax, like many others on this list, will be passed along to consumers in higher health-care costs.

There are numerous other new taxes in the bill, all adding up to some $438 billion in new revenue over 10 years. But even that is understated because by 2019 the annual revenue increase is nearly $90 billion, or $900 billion in the 10 years after that. Yet Mr. Obama wants to add another $1 trillion in new taxes on top of this.

In addition to the above Steven Haywood offers the following:

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POSTED ON JULY 12, 2011 BY STEVEN HAYWARD IN FEDERAL BUDGET

“MISTER, WE COULD USE A MAN LIKE WARREN HARDING AGAIN!”

Baby-boomers and watchers of the TV Land channel will recall the line from “Those Were the Days”—the custom version written as the theme song for “All in the Family,” not the more familiar Charles Strouse/Lee Adams composition—which runs, “Mister, we could use a man like Herbert Hoover again!”  Norman Lear no doubt thought the invocation of Hoover, the Democratic Party’s go-to whipping boy for decades, would help hammer home his main purpose of mocking conservative middle class Americans.

Of course, he, like most liberals, had Hoover wrong.  For all of Hoover’s virtues, we cannot count sound economic policy among them.  As Dan Mitchell and others have pointed out, Hoover increased government spending 47 percent in his one term, raised taxes, and signed off on the disastrous Smoot-Hawley tariff, which first caused Franklin Roosevelt to run against Hoover’s profligacy, but later caused Rex Tugwell to say later that “practically the whole New Deal was extrapolated from programs that Hoover started.”

If Lear really wanted to raise hackles, he would have changed the lyrics to, “Mister, we could use a man like Warren Harding again!”  Now that would have raised some eyebrows and hackles alike.  No president is held in lower regard than Harding.  Yet watching the Obama Administration’s economic performance makes me think Harding is exactly the kind of president we need today.

I’ve been delving into Harding biographies and histories of his time for my current book project (more about this in due course as it gets closer to publication next year), and most everything you think you know about Harding is wrong, except for the bit about his assignations in a White House closet with one of his mistresses.

Did you know, for example, that Harding was the person most responsible for popularizing the now commonplace phrase, “the Founding Fathers”?  Or that he gave speech in Birmingham, Alabama that shocked the segregated audience when he called for racial equality?

There’s much more in this vein to recommend Harding, but what concerns us most acutely today is Harding’s economic policy, especially his response to the economic crisis of 1920-21 that can only be described as a depression.  World War I had left the nation with runaway inflation and a soaring debt.  The national debt had increased from $1 billion in 1914 to $24 billion by 1920—a spending growth record that Obama must surely envy.  The economic collapse of 1920 saw GDP shrink by a quarter, unemployment rise to about 15 percent (there were no official unemployment statistics in those days), and business bankruptcies soar.

So what did Harding do?  A “stimulus”?  A jobs program?  “Targeted” tax cuts?  Government bailouts for ailing companies?  Nope—he cut government spending sharply and rapidly (by almost 50 percent), began cutting tax rates across the board, and allowed asset values and wages to adjust freely as fast as possible.  Harding’s administration, Paul Johnson observed, “was the last time a major industrial power treated a recession by classic laissez-fairemethods, allowing wages to fall to their natural level . . .  By July 1921 it was all over and the economy was booming again.”  The Cato Institute’s Jim Powell offers a more complete summary of Harding’s soundness on economic policy, but suffice it to say that Harding’s traditional approach prevented the depression of 1920-21 from becoming a Great Depression, and in fact set the stage for the roaring twenties.

All of this comes to mind noting how just about every policy of the Obama Administration has chosen has extended the economic doldrums of the moment.  The Wall Street Journalreminds us again this morning about how Obama recently expressed bewilderment that the housing market “hasn’t bottomed out as quickly as we expected.”  One of the principal reasons for this was Obama’s $8,000 home-buyer tax credit in 2009 and 2010 that, like all Keynesian-style narcotics, juiced the market temporarily, but had the effect of prolonging our pain by delaying the necessary adjustment of housing values to their intrinsic level.  Now the Administration is said to be “ramping up talks on how to revive the housing market.”

Here’s a suggestion.  How about just staying out of the way.  Just stop.  And follow Harding’s lesson in reducing debt, too.  I know, the thought Obama could be half the president Harding was is too much to ask.

FINALLY YET MORE ON TAXATION FROM JENIFER RUBIN ON REP. RYAN'S PLAN

Once again, Paul Ryan takes on Obama

By Jennifer Rubin

Rep. Paul Ryan (R-Wis.) again and again has proved himself to be the most effective proponent of conservative economic principles.

Last night he sent around to budget committee colleagues a memo, a copy of which was obtained by Right Turn, setting forth some key facts and arguments. His central point is that “balance” doesn’t require tax hikes. As he puts it, “The House already passed a budget that puts us on the path to balance, and will vote next week on a Balanced Budget Amendment. To get to fiscal balance, the two critical elements required: spending restraint and economic growth. Tax hikes adversely undercut both of these key ingredients.”

The memo then provides some much needed context for the arguments on the debt ceiling:

A “Balanced Plan”?

l During the past two years Democrats enacted huge tax increases (see today’s Wall Street Journal editorial, “Taxes Upon Taxes”), which were accompanied by unprecedented increases in spending, deficits, and debt.

l While insisting on additional tax increases, the Obama Administration opposed revisiting the huge spending increases in the new health care law or implementing fundamental entitlement reform that would get spending on these programs under control.

l The last time there was a bipartisan budget agreement, it balanced the budget by cutting spending and cutting taxes. The 1997 bipartisan budget agreement between President Clinton and a Republican Congress balanced the budget by bringing spending down to 18.2% of gross domestic product.

Taxes and Revenues (Americans are not under-taxed)

l Expiration of 2001/2003 Tax Relief. Taxes will rise by $3.5 trillion if the 2001/2003 tax relief, the AMT patch, and the estate tax compromise expire at the end of 2012 as scheduled under current law.

l Health Care Law’s Tax Increases. The health care bill adds another $813 billion in taxes over 10 years. In addition to these taxes, other legislation has increased taxes (the SCHIP extension law included tax increases of $75 billion).

l Tax Engineering. The Obama Administration wants to extend the one-year temporary payroll tax cut (total cost of $112 billion), while increasing taxes on small businesses.

l Tax Increases and the Top Rate. As a result, these tax increases push the effective top rate from 35% today to 44.8%.

l Current Tax Burden. Under current law (before expiration of 2001/2003 tax relief and implementation of the new health care taxes), the top 1% of income taxpayers (over $380,000 in annual income) already pay 38% of income taxes. The bottom half of income taxpayers pay 3% of income taxes.

l Revenues Growing Without Tax Increases. Despite a weak economy and the temporary reduction in Social Security taxes, according to CBO, revenues grew by 8.5% through the first 9 months of this year and expect revenues in 2011 will be $75 billion to $85 billion higher than they estimated in March.

l Republican Budget & Revenues. Under the House Republican budget, which extended tax relief and repealed tax increases in the new health care law, revenues still grow by nearly $2 trillion over the next 10 years.

l President’s Budget & Tax Increases. The President’s budget increases taxes by $1.2 trillion.

Democrats and the left punditocracy often argue that “all” President Obama wants is to go back to the Clinton tax rate. If only. And if we are to take Sen. Kent Conrad (D-N.D.) seriously, Senate Democrats want a$2 trillion tax increase.

Ryan makes the case that the problem is spending and the ensuing debt, neither of which Obama is willing to seriously address:

Spending is the Problem

l 24% Increase in Base Spending. Non-defense discretionary spending grew by 24% for the first two years of the Obama Administration, adding $734 billion in spending over the next 10 years.

l Health Care Law Spending Increases. The new health care law included $1.4 trillion increase in spending, including expanding eligibility in Medicaid by one-third and creating a brand new health care entitlement.

l Stimulus. CBO currently puts the stimulus bill’s cost at $821 billion.

l Record Total Spending. The Federal government will spend $3.6 trillion this year, 24% of gross domestic product (GDP) and the highest burden on the economy since World War II. Spending has historically averaged a little over 20% of GDP.

l President’s Budget & Spending. According to CBO, the President’s budget never spends below 23% of GDP and by the end of the decade is right back at 24% of GDP.

l Republican Budget. The House Republican Budget would cut $6.2 trillion in spending from the President’s budget.

Deficits and Debt

l $1 Trillion Deficits. The deficit is on track to exceed $1 trillion this year, the third year in a row that deficits have exceeded $1 trillion.

l President’s Budget & “Framework.” According to CBO, under the President’s budget, annual deficits never fall below $700 billion and end the decade exceeding $1 trillion. When asked about the President’s April 13th new budget framework, Director Elmendorf testified, “We don’t estimate speeches.”

l Debt Explosion. Since President Obama took office, the total debt has grown from $10.6 trillion to $14.3 trillion, nearly a $4 trillion increase. This year total debt will exceed the size of the economy.

l Republican Budget. The Republican budget reduces the deficit by $4.4 trillion, puts the budget on a path to balance, and begins to reduce debt held by the public as a burden on the economy by 2014.

The president in public wants to operate on platitudes and generalities.Work together. A balanced approach. Eat your peas. The White House is avoiding specifics for a reason: The facts reinforce the public’s sense that the real issue is that we are spending too much. Republicans would do well to speak in specifics and to emphasize that real “balance” means spending at a slower rate (you’d think Ryan’s plan would actually halt the upward climb in spending; it merely restrains it a bit more than Obama’s) and keeping the size of the public sector in check so the private sector can grow and create jobs.

Once again we see that Ryan is the most effective spokesman and advocate for Republicans, in part because he is thoroughly versed in the details. Imagine if he were to debate Obama. In the fall of 2012. On national TV. With the presidency at stake. Is there any doubt who would come off better?

Thomas Sowell on taxing the rich

Facts and the truth have never deterred politicians, especially democrats (socialists) from wanting to raise taxes on the rich.  Call it envy, call it expediency, call it demagoguery, call it what stupidity, and you'd be right on all fronts.  But never mind the real world where when taxes are raised beyond a certain point the wealthy seek ways to "shelter" income often to the point where they remove assets entirely from taxing authorities who want to confiscate their wealth.  This fact has been in play for decades and generations as Thomas Sowell points out here in his usual very clear and very straightforward manner.  But as long as envy is one of the seven deadly sins we will have Obamas trying their best to take from the rich and give to the voters who support them.  At this point in time there are now about equal numbers of citizens who pay any income taxes and those who pay none.  So right of the bat there's the possibility of 50% of the voting population to demagogue.  No wonder the career politicians like this approach.

Who's paying taxes and why

Democrat demagogues are on the march these days, led by the head demagogue himself, Obama.  Their subject?  The old standby of raising taxes on the rich.  Why these people keep beating this drum is difficult to comprehend inasmuch as the evidence suggests that a) it wouldn't make that much difference in solving the debt problem and balancing the budget, and b) whenever tried in the past this policy has not worked.  Here is a post by an economist/blogger who has done his homework and provides a revealing graph and the facts (heaven forbid) that prove that this policy prescription can't solve a), and with respect to b), demonstrates that lowering rates on the rich actually increases the taxes they pay.  A key sentence in this post reads:

"In 1979 the top marginal income tax rate was 70% and 18.3% of the total taxes paid were collected from the top 1% of taxpayers.  By 2007 the top tax rate was 35% (half of the 1979 rate), and the tax share of the top 1% had more than doubled to 39.5% (from 18.3% in 1979."

Don't imagine that Obama and co. will be deterred by this graph and these facts, however.  They will march in lockstep, pillorying the successful producers, until they find a way to push the economy over the cliff.  At which point, we assume, they will reconstruct it into a more fair, equitable and just system where wealth is spread around more evenly and we get an economy more like......Cuba's?  Maybe not Cuba's, but how about Europe's where they've "enjoyed" almost no significant growth for several decades, persistent 10% unemployment rates, and where the population is declining as a result.

The Nanny State

We can dance around the problem all we want but the end game is exactly like David Warren of the Ottowa Citizen outlines here.  We, the West, have to dismantle the egregious Nanny State that has evolved over time into a debilitating debt creation machine that is burying us alive.  As Warren points out, no one signed on to comprehensive daycare, which is where we are now.  Warren is right too, when he says the only ray of light on the horizon in terms of coming to grips with this problem is the Tea Party Movement.  This spontaneous uprising on the part of average, main street Americans, suggests the American people get it and are ready for a real change in the system, not just this dangerous game of piling on more debt and finding a new way, say a value added tax,  to cover the the ever growing shortfall.  One way or the other, the entitlement generation is in for difficult years ahead.

New taxes coming on January 1, 2011

This schedule brings home loud and clear how much taxes will increase in January of the coming year, unless the current laws are extended once again.  All of the tax repeals dating back to early 2000 will be reinstated and there will surely be new ones on top of these.  Say goodbye to small business growth.  Most small businesses are taxed at the individual rate and roughly one-half of all employees work for small businesses.  Think they can expand when their taxes are going to rise dramatically?  The forces of big government are now in control.  The private sector will continue to shrink, unemployment will not improve, the US will look a lot more like Europe, where 10% unemployment is the norm, innovation at all levels has shrunk, the administrative state reigns.  Thanks democrats!