Tags: Taxes

Washington Post: Vote for Mark Warner Because He’ll Raise Your Taxes


Today’s Washington Post endorsement of Democratic Virginia senator Mark Warner is not surprising, but the editorial board’s case against Republican challenger Ed Gillespie is a revealing window on how people think in the city that takes what America makes:

We understand that Mr. Gillespie, who faced a competitive GOP primary, is loath to alienate Republican hard-liners. Yet his opposition to any new taxes — read: any compromise — is exactly the sort of promise that produces congressional paralysis and would defeat a bargain to cure the nation’s fiscal ills . . . 

Mr. Gillespie, a former lobbyist, national and state GOP chairman and top adviser to President George W. Bush, has deep political and policy experience. Unlike many Republicans who have been content to attack Obamacare, he proposed an alternative — albeit one that would offer far less protection to vulnerable patients.

Mr. Gillespie has the skills to be a bipartisan player in the Senate, as Mr. Warner has been. Yet by promising never to compromise on taxes, he has taken himself out of the hunt for an exit from America’s fiscal impasse.

If only the voters — who are constantly telling pollsters that they’re fed up with Washington business as usual and forcing lifelong politicians to make improbable claims to “outsider” status — were as reasonable as the Post’s editorial board. The argument seems to be that what’s good about Gillespie is that he is another get-along-go-along pol; but unfortunately, he’s not quite as easy as Warner.

The equation of “new taxes” with “compromise” — which the paper should really be embarrassed to make after the stunning non-apocalypses of the budget sequester and the partial shutdown of some non-essential government services last year — also elides a point the two campaigns have been arguing over. Though Warner claims Gillespie signed the tax pledge created by Americans For Tax Reform’s Grover Norquist, and his campaign even flooded the press room with literature to that effect at Monday’s debate, Grover himself has shot that story down. As Post Virginia reporters Jenna Portnoy and Laura Vozzella point out, “Norquist tweeted late Monday that Gillespie did not sign the pledge: “Gillespie told me he would not sign pledges. He didn’t. He told the people of Virginia he wouldn’t raise their taxes. He won’t. Warner did.’”

The ed board’s case for Warner also mentions his successful governorship, “ability to cross partisan lines,” and the fact that many people still think he’s John Warner. (OK, not that last one.) But the only case against Gillespie is his opposition to “new revenue” to “tackle the nation’s fiscal problems in a balanced way.” In fact, as Ohio University economist Richard Vedder demonstrated in a 1980s study that has been repeated with the same results many times since, every dollar of tax revenue raised leads to more than one dollar of new spending by Congress. Studies of revenue-based deficit reduction efforts in other countries have shown the same.

Gillespie has closed some of his very wide polling gap against Warner, but other than a September Quinnipiac poll that showed him trailing by nine points, he has never come within double-digits of the incumbent. But the power of incumbency is not a ratification of bad math. Raising taxes only makes the country’s fiscal problems worse. Americans know that. Washingtonians don’t.

Tags: Mark Warner , Taxes , Senate Democrats , Senate Elections , 2014 Midterms

GAO: Taxpayer-funded Website to Track Fed Grants Only Covers 2 to 7 Percent of Grants Properly


A recent Government Accountability Office report estimates that a taxpayer-funded website launched to track the awarding of taxpayer-funded grants and contracts only has accurate and complete information for 2 to 7 percent of all contracts.

The federal government makes over $1 trillion in grants and awards annually, of which, according to the report, about $620 billion worth in 2012 were not recorded with the proper information.

The transparency requirements that are almost never being met were created by a 2006 bipartisan bill meant to achieve greater transparency in federal funding. It created a website called in 2007 to report how the federal government spends money on loans, grants, contracts, and other awards.

GAO released the report on Friday.

Tags: Taxes

Washington Suddenly Notices the Economy Still Stinks for Most People


President Obama pivots to the economy . . . arguably for the second time this month. The RNC collected these “pivots” for a while, until they became as numerous as his statement expiration dates.

Sure, the unemployment rate is down to 7.6 percent, after peaking at 10.1 percent; of course, that’s a slow decline since the beginning of 2012 (8.3 percent). This is still high by historical standards (the unemployment rate was below 7 percent from June 1993 to December 2008) and the unemployment rate’s drop is fueled in part by a steep decline in the labor-force participation rate, from 66 percent of all Americans over age 16 to close to 63 percent.

If you’ve got money in the stock market, you’re enjoying a bullish run. About 30 percent of American households have $10,000 or more in stocks. But for most of the folks who suffered the biggest fall in the Great Recession’s start, back in autumn 2008, economic security is hard to find. Wages are stagnant, and actually slightly less than at the end of 2009.

Asked about the issues that will dominate the 2014 races, the heads of the NRCC and DCCC tell Chuck Todd the economy first, before Obamacare and immigration (admittedly related to the state of the economy), gun control, social issues, etc. The issue of our continuing economic troubles never went away; it’s just that the narrative-setters lost interest. To the political class of both parties, the pain is far away (Washington’s economy is comparatively thriving, even in the Age of Sequester) and their preferred options are blocked by the opposition’s role in government.

White House senior adviser Dan Pfeiffer assures us, “Over the next several weeks, the President will deliver speeches that touch on the cornerstones of what it means to be middle class in America: job security, a good education, a home to call your own, affordable health care when you get sick, and the chance to save for a secure, dignified retirement.”

What holds back the economy?

These problems are not likely to be solved by another big-spending “jobs” bill; some of them are probably beyond the capacity of Washington to solve. But the president needs to say something about it — so he will give more speeches, and assure his followers that “if those mean House Republicans would just pass another version of the stimulus I passed in 2009, everything would be fine.”

Tags: Economy , Barack Obama , Taxes , Jobs , Stimulus , Green Jobs

Trading a Sales Tax Hike for Eliminating the Gas Tax?


The midweek edition of the Morning Jolt offers a look at the ambitions of Stanley McChrystal, the predictable pattern of Obama meetings with foreign leaders like this week’s one with Karzai, a strange entertainment event at the White House, and then this breaking news out of Richmond…

Could Virginia Become the First State to Completely Eliminate Gasoline Taxes?

Would you trade eliminating your state’s gas tax for an increase of eight-tenths of a percentage point in the sales tax?

That’s what Virginia Gov. Bob McDonnell is proposing. His spokesman, Tucker Martin, lays it out:

The Governor will eliminate the gas tax and instead tie future transportation funding to Virginia’s sales and use tax, which will move from 5% to 5.8% with the new .8 dedicated completely to transportation.

 This will make Virginia the first state in the nation without a gas tax. Virginia will be a national leader.

 The switch from the gas tax to the sales tax is essentially revenue neutral in its first year.  And Virginia’s sales tax will remain lower than all of our neighbors and the District of Columbia.

 This change simply ensures that transportation receives the new funding it needs in the years ahead by tying it to a mechanism that moves in tandem with economic activity and inflation. That is how every other tax (corporate income/personal income) works. That is what will make transportation funding sustainable again.

 Right now Virginia’s transportation challenge breaks down like this: Virginia is sending $364 million a year from our construction account to our maintenance account. So instead of financing new projects, we’re having to use that money just to repair old roads. That crossover amount is anticipated to grow to $500 million by 2019. Long and short, Virginia needs new transportation funding to the tune of at least $500 million a year by 2019. This plan does that.

 This plan generates $844 million in new, additional annual transportation funding in FY 2019. It eliminates Virginia’s crossover issue. It provides $3.1 billion in new funding for transportation over the next 5 years, including $1.8 billion in new funding for construction projects.

Further, by eliminating the gas tax, Virginians will pay $3.5 billion LESS at the pump over the next 5 years. And there will be no sales tax on gasoline either.

Grover Norquist doesn’t like it. His group, Americans for Tax Reform, offered a counterproposal that, among other things, pulls more money for transportation from the state’s general fund, calling transportation a “core function of government” that must be met before other spending interests of state lawmakers are considered.

The greens are likely to scream bloody murder, as shown on the blog, Bacon’s Rebellion: “The new tax would punish pedestrians, telecommuters, cyclists, carpoolers and mass transit riders, who are doing the virtuous thing of driving less, while subsidizing the voracious appetites of drivers.”

Here’s the thing: all of those virtuous non-drivers still get the benefit of all of those roads and bridges that the state maintains; those groceries don’t just magically appear on the supermarket shelves, nor do the employees of every business they use just teleport into their jobs. So if transportation benefits everyone – I seem to recall Elizabeth Warren emphasizing how universal the benefit of roads and bridges are this summer – why shouldn’t everyone pay for them?

On the other hand, I might prefer paying a tax on something specific rather than a higher sales tax on everything I buy here. Why do I get the feeling swapping one tax for another will amount to a wash?

Pat Mullins, chair of the Republican Party of Virginia, offered this statement:

“Big ideas don’t come along that often in politics. Yet Governor McDonnell’s proposal to end the gas tax and still put more money to transportation is just that – a big idea that addresses one of our Commonwealth’s most serious problems.

 This plan acknowledges the reality that gasoline use has likely peaked, and higher mileage vehicles will only drive those numbers lower and lower. At the same time, it provides a dedicated stream of revenue that will grow as our economy expands.   

 I applaud the Governor for bringing this big idea to the table, I look forward to working with both Governor McDonnell and the General Assembly to both end the gas tax and improve our Commonwealth’s aging roads by seeing this proposal enacted into law.”

Tags: Bob McDonnell , Gas Prices , Taxes , Virginia

You Cannot Raise Taxes on the Rich


Thanks to the fiscal-cliff deal and the Obamacare tax, we now have a tax code that is more “progressive” than at any time since Jimmy Carter was president. It will be interesting to see what long-term effect that has on household-income trends. The results may prove counterintuitive.

Tax increases on high-income people may be redistributive, but not always in the way intended. That is because we pay taxes individually in the short term, but in the long term we pay taxes collectively: Individuals and firms pass on tax costs to employers and consumers to whatever extent they can, just like any other cost. But the same factors that make any given worker a high-income wage-earner in the first place are likely to make that worker one who can most effectively pass on tax expenses. Likewise, the most profitable firms in many cases will be the ones that have the most power to pass on tax expenses to consumers or suppliers.

A high-income worker is one who by definition is in high demand. The same factors that make him a high-income worker also enable him to demand higher wages in response to tax increases or other factors that diminish his real income. You see this all the time with financial and tech specialists who are recruited to positions in high-tax areas such as New York or California: Workers in that position, or headhunters recruiting them, simply add taxes and other cost-of-living factors into the starting point of income negotiations. A $100,000-a-year job in Manhattan is not the same as a $100,000-a-year job in Muleshoe.

Likewise, companies with very in-demand products (Apple, Mercedes-Benz) have the most ability to pass costs along to consumers, while equally powerful but price-constricted firms (Walmart) have the most power to pass expenses on to suppliers and other business partners. A tax hike on Walmart is not necessarily a tax hike on Walmart — it’s likely to be a tax hike on, for example, Cal Maine Foods, which relies on Walmart for a third of its business. In business as in love, the power in a relationship is always in the hands of the party with the least to lose by walking away from it.

Which is to say, it is not clear that you really can raise taxes on the rich, even if you try.

At the other end of the spectrum, low-wage workers are those who by definition are not in very much demand and therefore have the least ability to negotiate tax offsets. The same is true for less powerful firms.

So, let’s say you’re Walmart, and your top hundred inventory-management, systems, and finance guys all come to you looking for a 10 percent bump because of the fiscal-cliff tax hike and the Obamacare tax hike. Walmart does not live and die by greeters or Cal Maine eggs — it lives and dies by logistics and finance, and it really needs people who are good at that. It will work as hard to keep its top talent as Apple will to keep its top engineering and design talent. So where does Walmart go to get that money to keep its top talent? If you have 100 high-wage specialists you really need to keep happy and tens of thousands of low-skilled greeters, cashiers, warehousemen, etc., all of whom you are pretty confident you can easily replace, you are going to be tempted to shift some money from the big, low-skilled pot to the small, high-skilled pot. Likewise, if Walmart has a supplier that represents 0.01 percent of its sales but relies on Walmart for 33 percent of its own sales, who do you think is going to prevail if Walmart decides it needs to knock prices down by a nickel?

We may not consciously plan that kind of thing down to the dime, but people know that there is a difference between their pre-tax income and their real income, and people with the market power to maximize the former also have the power to maximize the latter. Put another way: Even a very progressive tax code “does very little to alter the market distribution of income.”

It is transfers, not taxes, that really generate such progressivity as we have in the United States. As Lane Kenworthy shows, the overall U.S. tax system — federal, state, and local — is not all that progressive in its effects, despite a very progressive graduated federal income tax. What low-income workers don’t pay in federal taxes, they make up for in state and local taxes, particularly sales taxes, which are basically a flat income tax for the poor. Kenworthy finds that each quintile pays about 30 percent of its income in taxes. But the system becomes much more progressive when transfers are accounted for.

Tax hikes on the so-called rich may decrease the private sector’s share of income, but they probably will not do much to decrease the real income of high-wage workers and may in reality increase government revenue at the expense of low-wage workers in the long term, though it is very difficult to disaggregate the complex relationships between taxes, wages, and prices. But those who say that they are most interested in economic inequality would do well to follow Kenworthy’s example and look at transfers rather than taxes. Means-testing Social Security and Medicare would do more to make the total package of taxes and transfers more progressive than any tax hike likely to pass Congress in the foreseeable future. It is also a reform that many conservatives and deficit hawks could support. This should be persuasive to those on the Left whose interest in tax hikes on the high-income is not strictly punitive, but I am afraid they are a very small minority.

– Kevin D. Williamson is National Review’s roving correspondent. His newest book, The End Is Near and It’s Going to Be Awesome, will be published in May. 

Tags: Taxes

What Americans Are Finding in Their Pay Stubs Today


The good folks at Right Change have put together this chart of how much more each income level will pay under the new Social Security taxes.

(My only quibble would be that it’s not really the “fiscal cliff deal” that raised the taxes; it is the expiration of a two-year cut in the payroll tax from 6.2 percent to 4.2 percent. There was little enthusiasm from either party about extending that tax cut for another year. Having said that, it is fair to say that the “fiscal cliff deal” didn’t do anything to address this scheduled tax hike.)

As seen on Twitter and elsewhere, today millions of Americans are opening their pay envelopes and seeing smaller paychecks. (This is because the tax rates apply for the date the check is written, even if some of the work period was in the previous year.)

Take the sum in the above chart and divide by 26 if your pay period is biweekly; divide by 52 if your pay period is weekly. So someone making $50,000 who is paid biweekly is this morning opening up an envelope and looking at a paycheck that is $38.46 smaller than it was two weeks ago.

Tags: Taxes

POOF! The Democrats’ Favorite Tax Argument, Used Since 2001, Gone!


The final Morning Jolt of the week includes a quiet backtrack, a prominent conservative columnist taking an . . . unexpected turn, and this assessment of future tax debates:

After a Frustrating Tax Concession, Much Friendlier Political Terrain in 2013

So to those of us who want the federal government to tax as little as possible and control its spending, raising taxes on individuals making more than $400,000, or households making more than $450,000 from 36 percent to 39.6 percent stinks. But that 3.6 percentage point tax hike on top earners has been the alpha and omega of Democratic tax increase arguments since, oh, the Bush tax cuts went into effect in 2001.

They kept emphasizing that hiking to that rate couldn’t be economically harmful, because that was the top tax rate during the good old days of the dot-com boom of the late 1990s – as if tax rates were the only factor determining the strength of an economy.

Obama kept emphasizing how he simply wanted to “ask the rich to pay just a little bit more.” (If somebody asks you to give them 3.6 percent of your annual income, ask yourself if you would really see that amount as “a little bit more.”) Inherent in Obama’s approach is an acknowledgement that the argument, “we’re asking the rich to pay a whole lot more, gobs and gobs more in new taxes” isn’t a sure-fire applause line.

So as we head into the debate over raising the debt ceiling, Democrats find themselves without the rhetorical and policy tool that they’ve come to depend upon – almost entirely, when you think about it – for the past twelve years.


“This does settle the issue of rates for individuals,” Rep. Allyson Schwartz (D-Pa.) told POLITICO. “That’s good. That certainty and predictability is one of the gains” of the fiscal cliff legislation.

Michigan Rep. Sander Levin, the top Democrat on the tax-writing Ways and Means Committee, agreed. When asked whether more rate increases are in the offing, he responded, “I don’t foresee that.”

That Politico article goes on to quote Maryland Rep. Chris Van Hollen, the top Democrat on the Budget Committee as saying, “we’ve got to make some cuts going forward, but we also need additional revenue.”

Looks like a pretty slam-dunk counter-argument for Republicans: “Why the hell are you guys talking about raising taxes on the richest Americans again? We just did that at the beginning of the year! We haven’t even reached the annual tax-filing deadline of April 16, and your calcified one-track minds are coming back with the exact same policy recommendations that you insisted would fix the problem before!”

And just think, this debate will occur as everyone in America sees their paychecks get 2 percent smaller (at least on the first $110,000 of income) because of the expiration of the temporary reduction in the payroll tax from 6.2 percent to 4.2 percent. (Here’s one Democratic Underground commenter exclaiming with surprise, “My paycheck just went down by an amount that I don’t feel comfortable with.”)

One of the fundamental reasons that “raise taxes on the rich” is less popular than Democrats want is the public’s well-founded wariness of just what income level constitutes “rich” in the eyes of lawmakers.

Obama is proudly proclaiming that he saved the middle class from a tax hike, and that he only raised taxes on the rich. But since most voters perceive their taxes in aggregate – that is, what’s left on their pay stub after everybody takes their bite – they’ll probably perceive the opposite, that an income-tax hike supposedly targeting the rich made their paychecks 2 percent smaller. Thus, they’ll be even more skeptical than usual, since they’ll think the last tax hike on “the rich” hit them instead.

(By the way, “rich” may be in the eye of the beholder, but I think you’ll find more consensus that a household income of $450,000 or single income of $400,000 annually is a fair definition of “rich” than defining it at $250,000. There are nearly five million households that earn between $200,000 and $500,000 annually.)

Megan McArdle:

Overall, I don’t see a lot of Democratic enthusiasm for further actual tax increases. I see a lot of enthusiasm for “raising taxes on the rich” as a theoretical construct which, like “American exceptionalism”, can be vigorously waved in speeches and then put back in the vault for safekeeping as soon as everyone’s seen that you’re the right sort of person who believes in good things.

The problem, of course, is that Democrats want a big government that does a lot of things. For the past few years there’s been a widening disconnect between the tax cuts that Republicans say they want, and the spending cuts they are willing to actually deliver. Having achieved the tax hikes on the rich that they campaigned on, Democrats are not in exactly the same boat–but it does look pretty similar. They want a big government with a generous welfare state, and a tax base that’s about half the necessary size.

Peter Orzag, President Obama’s former budget director said on CNBC Thursday morning that, “I think the White House in this second-best world won that round, but by not insisting that the debt limit be tied to that package it’s entirely possible they’re going to win the week and lose the quarter. You can’t know yet until you see how February and March play out, and I think there’s no doubt they have somewhat less leverage than they did in the round that just completed.”

Tags: Barack Obama , Chris Van Hollen , Payroll Taxes , Taxes

A Long Cliff-mas Break Comes to an End


The first Morning Jolt of 2013:

Welcome back! I don’t know about you, but this holiday season seemed to stretch on forever — a school vacation that kept the kids at home for eleven days, an awful cold that kept getting passed around our family, a lost cell phone, a logistical and paperwork nightmare to replace the cell phone, and a steady stream of mostly miserable weather. On the bright side, I didn’t have to deal with covering the fiscal-cliff negotiations, so God bless Bob Costa.


The fiscal cliff drama is over — for now:

After exhaustive negotiations that strained the country’s patience, the House approved a bill to avert the dreaded fiscal cliff, staving off widespread tax increases and deep spending cuts.

In the 257-167 vote late Tuesday, 172 Democrats and 85 Republicans favored the bill; 16 Democrats and 151 Republicans opposed it…

While the package provides some short-term certainty, it leaves a range of big issues unaddressed.

It doesn’t mention the $16.4 trillion debt ceiling that the United States reached Monday.

It also temporarily delays for two months the so-called sequester, a series of automatic cuts in federal spending that would have taken effect Wednesday and reduced the budgets of most agencies and programs by 8% to 10%.

This means that come late February, Congress will have to tackle both those thorny issues.

Yuval Levin: “This deal is projected to yield $620 billion in revenue over a decade — increasing projected federal revenue by about 1.7% over that time. And that’s about it. The Democrats have made the Bush tax rates permanent for 98 percent of the public, which Republicans couldn’t even do when they controlled both houses of Congress and the presidency.”

The righty grassroots expressed a lot of anger, frustration, and dissatisfaction in the past few weeks. Over the past week I saw a lot of comments on Twitter in the vein of, “we have a spending problem! Why won’t Republicans insist we deal with that first!”

Fume at Speaker Boehner and Senate Minority Leader Mitch McConnell all you want, but here’s the problem: The chance to gain leverage in these negotiations was on Election Day, and the GOP came up with bubkes that day. Sequestration and the expiration of all of the Bush tax cuts presented an awful status quo to begin with, and there was really no better alternative that would get A) passed in a Senate controlled by Harry Reid and B) signed by President Obama. They don’t want what we want, and we don’t want what they want. And time was on their side in several ways, not least of which was that as of noon Thursday, a new Congress, with even more Democrats, is sworn into office.

There was and is no magic argument, anecdote, policy detail or chart that could change that dynamic. What was worse — or perhaps, if you look at it a certain way, liberating — was that Republicans were and are just about certain to get the blame from most of the public, either for the failure to reach a deal or for the unpopular parts of any deal reached. Some of this is because of the power of the presidential bully pulpit, and some of this reflects people’s enthusiasm for taxing somebody making more money than they do. But a lot of this dynamic is because a large segment of the public just doesn’t pay attention to budget fights and doesn’t want to pay attention to budget fights. So no matter what the numbers actually say, they’re inclined to blame the party they already consider to be the problem.

Allahpundit examines those who wanted the House to vote down the deal passed by the Senate about an hour and a half into the New Year:

It’s worth driving a hard bargain to get something important done, even at the price of a backlash. Just remind me again what “important” goal will be achieved by forcing a new round of negotiations. What sort of spending cuts do you expect to see here? A trillion dollars over 10 years when we’re running trillion-dollar deficits annually? Even if they got Obama to agree to that, why would you believe that future Congresses would allow those cuts to happen down the line? This entire process is an elaborate charade designed to postpone the ultimate reckoning on entitlement reform, and you’re simply not going to wring serious entitlement reform out of the Democrats given the two parties’ current postures. Obama just won reelection; the Democrats expanded their numbers in the House and Senate; entitlement reform remains depressingly unpopular among the public despite attempts to educate them about the role mandatory spending plays in driving the national debt. House Republicans aren’t going to hold out for weeks on end in the futile hope of revamping Medicare against that backdrop while middle-class voters stew over their new, higher tax brackets. Why risk some of the GOP’s small reserve of political capital on a deal that’s only negligibly less terrible than this one? I understand the “let it burn” strategy, to force the public to fully absorb the cost of big government. I don’t understand this one.

The Washington Examiner’s Phil Klein sees the conglomeration as a mix of some modest good and some considerable bad and ugly — but points out that perhaps nothing was uglier than how this mess came to be presented to the public as the best option:

Conservatives believe that higher taxes are a bad thing, that the tax code needs to be dramatically overhauled and that the true driver of long-term debt is out of control spending, particularly on entitlements. For those who thought it was possible to emerge from the “fiscal cliff” showdown without tax increases, with genuine tax reform and with real spending cuts that made fundamental changes to entitlements, this deal is obviously a nonstarter. For those who assumed that President Obama’s reelection and continued Democratic control of the Senate at a time when the nation was facing an automatic $4.5 trillion tax hike would inevitably mean higher taxes without actual tax or entitlement reforms, the deal is less bad.

. . . Beyond the specifics of the deal, the process was awful. Even though lawmakers knew this reality was coming for two years (on the tax side) and a year (on the sequester side), they waited until New Year’s Eve to strike a deal that passed through the Senate at 2 a.m. on New Year’s Day. The public has had no chance to review — let alone understand — the legislation. So much for transparency.

But since you deserve to hear dissenting voices, who loathe the agreement that passed the Senate, here’s Deroy Murdock:

President Obama repeatedly has called for a “balanced approach” to deficit relief and debt reduction. H.R. 8, the bill in question, is less balanced than the Leaning Tower of Pisa. Amazingly, as the Congressional Budget Office calculates, for every $1 that this proposal cuts spending, it hikes taxes by $41! In total, $15 billion in spending cuts are dwarfed by $620 billion in tax increases. Meanwhile, America’s $16.42 trillion national debt roars relentlessly on, since this measure does not even attempt to fill this Grand Canyon of red ink.

And Ben Howe: “My problem with ‘pass whatever as long as taxes don’t go up’ position is that it’s a shining example of the can-kicking that got us here.”

Tags: Barack Obama , Debt , Fiscal Armageddon , Harry Reid , John Boehner , Taxes

New York Times Editors: Wait, Save the State-Tax Deduction!


Last week we talked about the “Blue State Tax Hikes,” which would be limiting or eliminating deductions for state and local taxes and the deduction on mortgage interest. Of course, those tax changes would go into effect nationwide, but taxpayers in the blue states would see the biggest increases in their tax bills.

Friday morning, the editors of the New York Times suddenly realized their readership would be hit the hardest under these proposals:

In their fiscal-cliff offer, Republicans have proposed raising $800 billion by capping deductions for the wealthy, though their proposal would inevitably affect the middle class in expensive states like New York and California. President Obama would prefer to raise tax rates, but he has also proposed deduction limits that would affect states that have chosen to impose higher income taxes. Governors, mayors and representatives of those states need to make their voices heard in support of that choice.

So after supporting tax hikes on “the wealthy” for ages, the editors now recognize that some who would be paying more taxes under the president’s ideas — i.e., every household making more than $250,000 annually — aren’t really at the income level most people think of “wealthy.”

The Times editors prefer to think of the deduction as the federal government’s way of rewarding “states that support their most vulnerable citizens and neediest cities.” But if the editors believe that the burden of funding government should fall upon those who can “most afford” to pay it, these are precisely the states that should pay more, as they’re among the country’s wealthiest by most measures: Maryland, New Jersey, Connecticut, Massachusetts, New York, California, etc.

So the Times editors support raising the tax rates on the rich, but not capping or eliminating their deductions, even though they have the exact same effect, which is these taxpayers sending more money to the government.

Tags: Taxes

How Many Wealthy Democrats Really Want to Pay Higher Taxes?


In the Morning Jolt, further thoughts on structuring the tax hikes so that they hit the blue states hardest:

Of course, there are some wealthy right-leaning folk living who will get snared under this plan. But they will have at least two options to alleviate their tax bill: first, move to red states with lower real-estate prices, lower state and local taxes, and lower costs of living. Secondly, move as much of their money into investments so that they pay the lower rate on capital gains as a larger share of their income.

(Yes, yes, I can hear you shouting, “Why are we even talking about raising taxes?! Why can’t we focus on cutting spending!?” The short answer is because right now we have a president hell-bent on avoiding any spending cuts outside of defense and who is convinced that going over the cliff is a win for him — and it probably is. So you can keep insisting that we shouldn’t raise taxes; I’m throwing this out as a way to make the Democrat-demanded tax hikes as politically painful to them and their donor base as possible.)

It was rather fascinating to see the lefties on Twitter denouncing my proposal, as it consists of three ideas from President Obama that they hadn’t previously opposed. You could almost hear the gears in their minds turning as they realized that the soak-the-rich ideas they’ve been demanding for years now are going to hit the “cool” rich people that they like: the Silicon Valley tech folk, the successful lawyers, the Hollywood crowd, the the folks who paid to go to all those $35,000-per-plate fundraising events for Obama for the past two years. There might be a lot of Susan Estriches out there, looking at their potential tax bills and feeling sudden, intense pangs of buyer’s remorse:

I did not vote for Obama because I think I am paying too little in taxes.

Like many people I know, I am “rich” by Obama’s standards. I pay more taxes, percentage wise, than Mitt Romney and Warren Buffett, because I earn virtually every penny of my income.

I work. And yes, all those deductions that allow the truly rich to not work, or at least to not work all the jobs I do, make me angry.

I am all for closing loopholes. I am all for ending deductions for things I don’t even understand. But I am not for putting a low cap on deductions that would make it all but impossible for the charities I support to raise funds. I am not for putting a limit on the mortgage deduction that would mean, as a practical matter, that “middle class” (not rich) people in California would be priced out of the housing market, and the charities I support would not be able to raise what they need to survive.

And frankly, I don’t think I’m alone. As a matter of fact, on this one, I don’t think 51 percent of all Americans are to my “left” — if that’s how you define the higher tax constituency.

You may not be alone, Ms. Estrich, but you are too late.

In fact, as the sharper lefties gradually noticed, just about any tax hike plan is going to hit the blue states harder than the red states. It’s just a question of which provisions of the tax code change, and in the deductions for mortgage interest and state/local taxes, we have as close to “Obama state” provisions as we can find. Heck, if you think limiting or eliminating these deductions is a bad idea, just keep calling them the “Blue State Tax Hike” and you might get some liberals denouncing an idea they supported just a short while ago.

A lot of the Lefties immediately began sneering that the red states already collect more in benefits and payouts from Washington than they pay in taxes. (Payouts can get measured pretty broadly, of course, from simple transfer payments and entitlement programs to spending on Indian reservations, military bases, federal research labs, farm subsidies, the space program, civil-service pensions, to poverty and nutritional aid.) To which I say, “so what?” All of those red states have voted, several cycles in a row, for the candidates who at least claim to support less federal spending. They’re willing to support budget cuts, at least in the abstract.

A few wanted to launch a cut-spending-in-red-states crusade, but I think they would be surprised to see who their allies and foes were in a crusade to cut, say, agricultural subsidies. (In fact, Obama learned this hard lesson back in 2009.) I and lots of other non-farming, non-benefiting conservatives would support cutting agricultural subsidies, and our lefty friends might suddenly find themselves taking fire from Tom Harkin and those Democratic senators in the Dakotas and Montana. Of course, agricultural subsidies have always been one of the ways the forces for big government could build broad coalitions in favor of greater spending everywhere; the day the farm state Democrats find their favorites are getting cut, they may get stingy with spending in the big cities. Who knows, we might even get a virtuous cycle of tit-for-tat spending cuts going.

Naturally, anytime Matt Yglesias agrees with you, it warrants some deep introspection upon how you’ve gone so wrong.

Tags: Barack Obama , Taxes

Can Congress Hike Blue-State America’s Taxes the Highest?


Hmm. Joel Kotkin of Forbes lays out how the tax hikes envisioned by Obama and congressional Democrats will hit blue states hardest.

From this, the GOP could conceivably propose a “tax Blue America” plan:

  • Keep the tax rate on capital gains the same.
  • Raise income taxes on the top income bracket for 2013, those making $398,350 and up (single filers, married joint filers, or head of household).
  • Means-test, or eliminate entirely, the mortgage-interest deduction (which benefits taxpayers in areas with the highest real-estate values and mortgages — i.e., Hawaii, D.C., New York, California, and Connecticut).
  • Means-test or eliminate entirely the federal deduction of state and local taxes, which is disproportionately utilized by those in high-tax blue states: “In 2005, taxpayers in California and New York together made up 20 percent of those claiming the deduction and accounted for 30 percent of its value. Itemizers in New York, New Jersey, Connecticut, and California claimed on average over $12,000 per household.”

The economic damage from these tax hikes would be bad, but the effect would hit hardest in the Northeast, the West Coast, Hawaii, and Washington, D.C.; high earners in those places would find yet another incentive to move to red states with lower real-estate prices, lower state and local taxes, and lower costs of living.

Since the election, many conservatives have grumbled that they wish there was some way to raise taxes on only the 50.9 percent of Americans who voted for the president in November. This may be the option that comes closest to that.

Tags: Barack Obama , Taxes

Shouldn’t ‘Millionaires’ Taxes’ Target Actual Millionaires?


This morning, Warren Buffett appears on the op-ed page of the New York Times, renewing his call for “Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that.”

It is an echo of his 2011 op-ed, “Stop Coddling the Super-Rich,” that called for Congress to “raise rates immediately on taxable income in excess of $1 million” and “for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.”

It’s worth noting that Buffett’s millionaire’s tax has the notion of taxing actual millionaires; remember that Obama wants to increase taxes on “the wealthiest,” defining it households with an annual income above $250,000. In some parts of the country, a couple or two parents making roughly $125,000 each may be considered wealthy, but in other parts, with a high cost of living, that may only support a relatively modest lifestyle — far from the multimillionaires evoked by this tax discussion.

Note that many states have enacted their own “millionaires’ taxes” that kick in at much lower levels of income — an 11 percent tax on income over $175,000 in Hawaii, a 9.9 percent income tax on income over $125,000 in Oregon, a 9.3 percent income tax on income above $48,029 in California, an 8.98 percent income tax on income above $66,105 in Iowa, and quite a few others.

Elsewhere, Susan Estrich laments that she voted for Obama to preserve Obamacare and Roe v. Wade, but “I did not vote for Obama because I think I am paying too little in taxes.”

Candidates are package deals, of course.

Tags: Barack Obama , Taxes , Warren Buffett

The Economic-Policy Debate: Not Rational, but Ritual


One thing that is missing from the debate about economic policy is the critical ingredient of humility. Humility isn’t critical for moral reasons, although humility is a virtue, and we would like our politicians to be more virtuous. Instead, humility is a practical good in the economic-policy debate, because if the effects of economic policies were decisive and predictable, then there would never be a recession or non-trivial unemployment. But there are recessions and widespread unemployment, which means either that politicians’ ability to manage the economy is much more limited than our political rhetoric suggests (more likely) or that incumbents are intentionally enacting bad policies that they know will produce recessions and unemployment (less likely).

Politicians have obvious incentives to pretend that they have more knowledge and power than they do. Nearly as much damage is done by the priesthood of professional economists and journalists, who for their own narrow interests also exaggerate what politics can achieve, be those interests professional or political or some combination of the two (assuming they can be distinguished).

This lack of humility produces headlines and sound bites like this one on Sunday from The Atlantic: “Tax Cuts Don’t Lead to Economic Growth, a New 65-Year Study Finds.” The piece itself, by business editor Derek Thompson, isn’t terrible, and one has to assume that, like most writers, he probably isn’t responsible for his headlines. But the headlines dominate political discourse, which is by its democratic nature shallow.

In fact, correlating tax-rate changes to growth rates is very close to being meaningless. That’s because the relevant comparison isn’t between observed growth rates under various tax regimes but between observed growth rates and the growth rates that we would have observed under different tax regimes. That more meaningful comparison has the academically and journalistically undesirable quality of being unknowable. Social scientists frequently measure the wrong factor because it is measurable, when the right factor is not.

Further, the effects of tax changes probably are not immediate in the vast majority of cases. If our theory is that changes in the tax code change incentives for consumers, workers, investors, and firms, then you have a great number of factors that are going to have effects that become manifest over very different time intervals. If you eliminate the sales tax on computers for one month, then you might expect a spike in month-over-month sales for one month, and that is fairly easy to estimate. If you change capital-gains-tax rates, research-and-development credits, capital-investment-write-off rules, etc., then you have a whole different range of temporal variables, since developing a better artificial hip and building a factory to produce that improved artificial hip are very different enterprises, requiring different time commitments. In an economy as complex as ours, such factors probably are not predictable even in principle.

Which is why even very smart people, such as Atlantic writers, produce maddening paragraphs, such as this one from Mr. Thompson: “Well into the 1950s, the top marginal tax rate was above 90%. Today it’s 35%. But both real GDP and real per capita GDP were growing more than twice as fast in the 1950s as in the 2000s. At the same time, the average tax rate paid by the top tenth of a percent fell from about 50% to 25% in the last 60 years, while their share of income increased from 4.2% in 1945 to 12.3% before the recession.”

All of that is trivially true. The tax code in 2012 is different from the tax code in 1955. Lots of other things are different, too: Japan emerged from the postwar rubble to become a major economic power and then went into gentle decline during the subsequent years, the ruins of Europe were rebuilt, a European monetary union was created and then began coming unglued, Germany was reunited, the Soviet Union was disunited, China began to liberalize its economy, a globalized information economy emerged with India and South Korea winning significant places in it, the Internet became a critical economic reality, the population of the planet more than doubled, worldwide markets were integrated, standardized containerization revolutionized shipping, smallpox was eradicated, life expectancies grew in many parts of the world, U.S. birth rates declined . . . and so on. Telling us that tax rates were X in the 1950s and Y in 2012, while growth was A in the 1950s and B today, tells us something approximating nothing.

It certainly doesn’t tell us “Tax Cuts Don’t Lead to Economic Growth.” Try turning it around: What might the sentence “Tax cuts lead to economic growth” even mean? Maybe: “Tax cuts, independent of all other variables, consistently and predictably lead to economic growth”? I very much doubt that anybody who is not a political speechwriter or talking head would argue such a thing. How about: “In some well-defined circumstances, tax reductions may contribute to higher levels of economic growth than probably would have been observed had higher rates prevailed”? Here we have the opposite problem: Does anybody not believe that? Between the data and the headline falls the Shadow.

After 40,000 years of civilization, we very clever creatures still cannot predict the weather with any reliable degree of detailed accuracy more than about a week out. (But some of us still pray for rain.) Scientists who have spent their lifetimes working on extraordinarily specialized problems routinely are baffled by new and unexpected developments. (But some of us still believe the universe is turtles all the way down.) Our highest-paid stock-pickers routinely are outperformed by darts thrown at a board, by kindergartners, and by monkeys. (But some of us still believe in the sure thing.) On and on it goes: Executives reliably make disastrously bad decisions about their own businesses, and most entrepreneurs fail.

In spite of the massive piles of evidence surrounding them, politicians routinely tell us that if we will merely give them the power to do X, then Y surely will follow. The Obama administration predicted that if the stimulus and other policies were enacted, then unemployment would decline to 5.2 percent. (It isn’t 5.2 percent.) Mitt Romney says that if we enact his agenda, the result will be 4 percent growth. Personally, I think that politicians should be goosed with a Taser every time they use the word “percent” in a future-tense sentence. But to be more charitable, let’s instead conclude that such projections should be viewed skeptically.

Unhappily, many economists desire to play kingmaker and therefore lend the prestige of their discipline to the wishful thinking of politics, where arguments are oversimplified to a point that is indistinguishable from dishonesty. They are aided in this by journalists who provide a bridge from the rigorous world of academic research to the standards-free world of political discourse. The result is something like a fairy tale or just-so story. That voters choose to accept such fanciful promises is another piece of evidence that our politics is not rational but ritual.

Tags: Politics , Taxes

The 3 Percentage Points Between Unjust Catastrophe and Nirvana


A point worth noting, as President Obama continues to campaign on the notion that the single greatest problem facing the country is that the wealthy are under-taxed.

36 percent: Current tax rate on income above $388,350.

39.6 percent: The tax rate Obama would like to see on income above $388,350.

33 percent: Current tax rate on income between $178,650 to $388,350 for singles, or $217,450 to $388,350 for married couples.

36 percent: The tax rate Obama would like to see on income between $178,650 to $388,350 for singles, or $217,450 to $388,350 for married couples.

So, to sum up, for the highest tax bracket:

36 percent: Completely unfair, a national injustice that deserves to be the preeminent focus of a president’s reelection campaign.

39.6 percent: Not only totally fair, but a complete restoration of equitable treatment, a patching of the social fabric, economic utopia and long-term financial security for a nation whose debt is approaching $16 trillion.

For the second-highest tax-bracket — applying to a married couple where each spouse makes $108,725 or more:

33 percent: A prevailing wound upon our national finances that threatens all we hold dear.

36 percent: A most-needed extraction of funds from Americans that the president deems “wealthy,” who didn’t really build those businesses and so on.

It’s amazing what a difference those 3.6 percentage points and 3 percentage points make.

Obama tax hike supporters will look at these numbers and insist, “see, the tax hikes aren’t so big after all!” But they really indicate that just as the president over-hyped the results of his policies — a 6 percent unemployment rate! Shovel-ready jobs! A deficit cut in half during his first term! The number of uninsured will go down! 3 million to 4 million homeowners will avoid foreclosure! — he is once again over-promising what his desired policies will do, and ignoring the negative consequences.

Tags: Barack Obama , Taxes

Democrats: We Prefer Another Recession to Not Raising Taxes


What the heck? The Washington Post reports:

Democrats are making increasingly explicit threats about their willingness to let nearly $600 billion worth of tax hikes and spending cuts take effect in January unless Republicans drop their opposition to higher taxes for the nation’s wealthiest households. Emboldened by signs that GOP resistance to new taxes may be weakening, senior Democrats say they are prepared to weather a fiscal event that could plunge the nation back into recession if the new year arrives without an acceptable compromise.

And this from the party led by the man who called his opponents “hostage takers.”

Tags: Democrats , Taxes , The Economy

A Lot of Promises Reached Their Expiration Date Today


The great Ben Howe catalogues all the promises, pledges, assurances, and statements from candidate and President Barack Obama that reached their expiration date today.

It is no longer “Obamacare.” It is “the Obama health-care tax.”

Tags: Barack Obama , Obamacare , Taxes

DNC Spokesman: Some of Bush’s Tax Cuts Helped the Middle Class


The RNC chuckles at DNC communications director Brad Woodhouse finding himself defending the Bush tax cuts:

Broadly speaking, Republicans and Democrats don’t want to see, especially at a time where the economy needs all the fuel it can get, don’t want to see us raising taxes on the middle class. So for example, some of the Bush tax cuts did some good things for the middle class, and certainly don’t want to see, this time, tax increases on the middle class.

Bipartisan agreement!

Tags: DNC , RNC , Taxes

Perfect: $8.5 Billion Tax Hike on the Ballot in California in November


The chances of California being in play in the presidential election are close to nil – but if I wanted to ensure GOP turnout was as high as possible in all of the down-ticket races, I would want something like a referendum on a giant, giant tax hike.

Thank you, Governor Jerry Brown:

Gov. Jerry Brown is pleading with Californians to raise their taxes as part of his solution for solving the state’s budget deficit, but it’s uncertain whether voters will be in an accepting mood come November.

Polls show voters want more money for schools but don’t want to tax themselves to pay for it. They continue to be pessimistic about the economy in a state with one of the highest jobless rates in the nation. And they distrust the Legislature, which oversees the budget.

Brown is facing a tough environment after announcing over the weekend that the state’s deficit had risen to $15.7 billion, much larger than he said a few months ago, said Jack Pitney, a political science professor at Claremont McKenna College in Pomona.

“When the governor says devastating things are going to happen, people will say, ‘Look, you said the shortfall was going to be a lot smaller than it was. You were wrong then; why should we believe you now?’” Pitney said. “The governor is facing a trust deficit as well as a fiscal deficit.”

…Brown said the size of the tax is fair given that California’s economy is nearly $2 trillion and the measure would mostly impact the wealthy. When he released his $91 billion revised spending plan Monday, he did so with a plea, asking voters to “please increase taxes temporarily.”

Under Brown’s tax plan, California would temporarily raise the state’s sales tax by a quarter-cent to 7.5 percent for four years and increase the income tax for seven years on individuals who make more than $250,000 and joint filers who make more than $500,000.

The article notes the last seven tax increase proposals have been turned down, including a “temporary” sales and vehicle tax extension in May 2009 by a margin of nearly two-thirds, and that a recent poll indicated that 65 percent of likely California voters support taxing the rich, but a 52 percent oppose raising the state sales and 57 percent oppose raising personal income taxes.

As Margaret Thatcher said, the problem with Socialism… as well as California’s model… (perhaps I repeat myself) is that at some point, you run out of other people’s money.

Tags: California , Jerry Brown , Taxes

We’re Number One - in Corporate Taxes!


It sounds like an April Fool’s Day joke, but in one week – April 1 – the United States will have the highest corporate tax rate in the world.

One can argue whether corporations are people, and one can argue whether it’s worse to tax individual income than corporate income. But it shouldn’t be terribly controversial to argue that if we have the highest tax rate in this area in the world, that corporations that have the option of relocating elsewhere will explore that option.

I suppose that if no one looks too closely at the fine print, Obama can say he’s made America a global leader again.

To his credit, Obama wants to lower the corporate tax rate from 35 percent to 28 percent. That would still leave the U.S. at the higher end, but at least no longer the worst among our economic competitors. Mitt Romney wants to lower it to 25 percent.

Of course, Obama wants to eliminate all corporate tax breaks for particular industries except his favorites: manufacturing, research, and clean energy. And while reducing the corporate tax rate, Obama wants to simultaneously increase tax rates on dividends and capital gains – giving back with one hand and taking the money back with another.

Tags: Barack Obama , Taxes

Keep Your 3:16 Off of My 1040


From the final Morning Jolt of the week:

Obama Insists His Tax Hikes Are Simply Divine!

Look who’s now insisting upon pushing his religious values upon everyone in America: “And so when I talk about our financial institutions playing by the same rules as folks on Main Street, when I talk about making sure insurance companies aren’t discriminating against those who are already sick, or making sure that unscrupulous lenders aren’t taking advantage of the most vulnerable among us, I do so because I genuinely believe it will make the economy stronger for everybody. But I also do it because I know that far too many neighbors in our country have been hurt and treated unfairly over the last few years, and I believe in God’s command to ‘love thy neighbor as thyself.’”

I’m sure that ‘love thy neighbor as thyself’ is precisely what Obama was thinking when he urged his Latino supporters to “punish our enemies.”

Honest-to-God (pun not initially intended, but kept) headline in the St. Louis Post-Dispatch: Obama cites Jesus as inspiration for his economic policies

So, you Satanic conservatives, how do you feel about tax hikes now, huh?

Tina Korbe: “It surprises me to encounter the president using this tactic. In the first place, the specific example he cites above is misapplied. When the president establishes a policy direction — and Congress follows it — his decisions don’t just affect him. When he promotes increased taxation of ‘the rich,’ he’s not merely giving up his own tax breaks as he implies — he’s also suggesting the government should be able to forceothers to pay more in taxes, as well. That’s just obvious — and to say otherwise actually makes the president look more confused than anything. Here, we seem to have an out-of-water Obama who wants very desperately to pander but doesn’t quite know how.”

Ace summarizes the Democrats’ about-face about citing religion when they think it will help them win arguments:

The Absolute Separation of Church and State and Elimination of Religious Impulse from Government Policy

The Constitution demands no less.

Three out of every four years.

Tags: Barack Obama , Religion , Taxes


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