Saturday, December 29, 2012

Want to Make Sure The Top 1% of Americans Really Pay Their 'Fair Share'?

'And especially you rich people!' 
Support the move to replace our corporate and personal income tax code with a national consumption-based tax.


Because it will be far simpler than the current sclerotic byzantine income-based tax structure that has been in place since 1913. It will return the United States to the preferred tax revenue-generation method favored by our Founders who thought a tax on someone's income could be capricious and ruinous to a person's freedom and productivity.

They were right on the 'capricious' part.

Most of all, it would be a far better measure of someone's use of all the freedoms and accoutrements of our publicly-supported infrastructure and telecommunications networks in America. The more someone consumes, the more they need a solid defense and homeland security to protect their ability to do so, correct?

We are not that concerned about 'the rich' not paying 'their fair share' simply because the facts of the matter show quite clearly that they already are paying a huge share of federal income taxes each year. The top 1% pay 42%+ of all income taxes as it is today; the top 5% pay 59%%; the top 10% pay 71%.

That is enough for us. What should the top 1% pay, 100% of all taxes so the rest of us don't pay a dime to live in this free country?

When you think about it, the very wealthy and rich do a lot of business and transactions every single day. They buy and sell businesses before most of us wake up in the morning. They buy a new mansion every year it seems if you pay any attention to People magazine. Throw in a few hundred thousand stock trades and 10 new Mazeratis each year on top of the jewelry and bling-bling they seem to sport on themselves, well, you have got a virtual cash machine if you plop a consumption.transaction tax on each and every purchase.

'What do you mean?' you might be thinking. 'Are you saying that the federal government should get a 15% upfront tax on every home that is sold each year in America?'

Precisely. We are saying that those who purchase a lot of things, which would include the afore-mentioned 'rich', would pay a 15% transaction tax on every single thing they purchase each year. As a result, they would pay far, far more in tax than someone who doesn't make a lot of transactions.

Think about it. How many stock trades does a poor person make each year? 45% of all Americans don't own any stock at all. They will not ever pay any consumption tax on any stock trade, leveraged buyout, credit default swap, derivative or any other financial vehicle that has caused the economy such grief over the past 4 years.

How many homes do moderate-income folks buy? 1 in a lifetime if they are fortunate.

How many cars? Maybe one every 10 years and most likely a used one at that. Let the rich guy pay the 15% tax on the full price of a $40,000 car in year 1. The moderate-income person can then buy it used for $19,000 several years later and pay the tax again on his/her purchase.

'What about food and the essentials of life, fella?' some of the more socially-conscious folk might have churning in their brains right about now.

How about them?  Why not exempt the mere basics of life for everyone, namely fresh food from the grocery store, prescription drugs and perhaps a few other necessities in life that everyone uses and can agree upon?

However, not the food purchased in restaurants and fast-food joints. Super-Gulps and Whoppers surely need to be taxed since they are so unhealthy for people and have contributed mightily to the Obesitification of America over the last 40 years. They are most definitely not 'necessities' of life no matter how much we might like them.

We tried to ask the Census Bureau and the Bureau of Economic Analysis in Washington for some information detailing the consumption patterns of Americans by income quintile. The analyst from the BEA got back to us in a matter of minutes (so there is a case of an enterprising federal public servant) and said that there was no such data available from the federal government.

Perhaps there is some private sector data that can be found to ascertain just how much economic activity is conducted by the rich people on down the economic totem pole. It stands to reason that wealthier people buy more stuff each and every year, doesn't it? If they don't want to pay the tax, then they can save their money and invest it in a new technology or enterprise that will hire the rest of us and provide more jobs with more income and benefits (if there will be any in the post-Obamacare apocalyptic world, that is)

We might be getting a real-live petri dish experiment of whether this will work or not in the good Old North State of North Carolina. About 1 week from now, newly-elected Republican Governor Pat McCrory and super-majorities for the Republicans in both sides of the state legislature in Raleigh will be sworn into office.

They will be considering replacing the state corporate and personal income tax with a stepped-up excise tax. If passed, North Carolina would become an income tax-free zone for new business and enterprise to pop up or move here from a high tax state such as California which is apparently a real basket-case on the order of Greece today.

If passed, North Carolina will join only 2 other states without corporate or personal income taxes, Wyoming and Nevada. North Carolina will even exceed the statutes of states such as Florida and Texas in terms of tax freedom, both of which have long been considered havens of tax free investment and entrepreneurial activity.

North Carolina might become the bellweather state in terms of showing how and if a new steamlined tax system can help generate vibrant new economic activity. With a 9.4 unemployment rate, 4th highest in the nation, why not try something different to get out of these economic doldrums?

Taxing transactions rather than income makes a whole lot of sense. Rich people might even pay more in taxes, not less.

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Wednesday, December 26, 2012

"We Are One Decision Away From Restoring Our Fiscal And Moral Authority From Around The World" - Jamie Dimon

Why Can't Obama and Boehner Get Along?
It is almost impossible to put the name of a Wall Street banker such as Jamie Dimon of JPMorgan in the same article with that of theologian Reinhold Niebuhr and statesman Winston Churchill, but he is correct about the US making 'one decision' to restore some dignity to our fiscal process.

The essence of politics, according to 20
th century theologian Reinhold Niebuhr is 'finding approximate solutions to basically insoluble problems'.

But as Winston Churchill said in one form or another: ‘Democracy is the worst form of government, except for every other one that has been tried form time to time’.

So, then, basically we have the ‘worst’ form of government trying to find ‘approximate solutions’ to 'basically insoluble problems’, don’t we?

All we are looking for is one decision between President Barack Obama and House Speaker John Boehner not to save the world but just to get the US back on some small track to fiscal sanity once again.

This is not as complicated as it seems to be. It is much more of a problem of real principled leadership on the behalf of our nation rather than just trying to game the federal budget for political purposes.

Balancing  budgets is easy: You either reduce spending or you have to raise taxes to pay for what you like to spend. It is that simple.

I used to work for Congressman Alex McMillan of Charlotte, North Carolina who every now and then would muse: 
‘Why is so-and-so even in elective office if he doesn’t want to do something now, today, to make things better?  It takes far too much work and takes far too much effort to get to Washington to then punt these issues down the road to the proverbial ‘someone else’ to take care of the problem.’
He’s right.  Why do we continue to elect people who will not solve our collective problems?  We can do that all by ourselves without them!

He also made a subtle point about leadership, and the lack thereof.  True leaders make decisions based on what is in the best interests of the nation as a whole first and foremost, not their own political career. 

Theoretically, all of our elected officials in America are supposed to be basically 'temporary' in nature as well. 'Citizen-politicians' we used to call them.  Do something significant of some importance in your private life and then run for office hoping to bring your talents to the greater good so we can all live better lives together, not tear each other apart with class or race warfare.

Perhaps the ancient practice of drawing lots to see who would serve for a 2-4 year term might bring about more sanity in our legislative system. No more 'seniority'. No more campaigning. Just send people to Washington to do the nation's business and come home. 

The recent demise of the ‘fiscal cliff’ negotiations points out an inherent flaw of democratic republic rule in the Grand American Experiment. We have a President who says he was 'elected by a landslide majority’ (in the electoral college at least). He honestly seems to believe that we can tax our way out of this financial mess in which our national government is now mired.

We have a Congress controlled by the Republican Party which honestly believes we are over-taxed. They will not agree to any deal that has any hike in the tax rates for anyone, not even Warren Buffett who supported President Obama.

The 'flaw' both the Democrats and the Republicans have seemed to have forgotten?  Democracies don't work without principled leaders compromising in sane ways.

In other words: 'Finding Approximate Solutions to Basically Insoluble Problems'.

We have people looking for the 'perfect' deal.  There are none in politics, not on a grand scale at least.  So forget about it. You are making the perfect be the enemy of the good if you think that way.

Accumulation of federal debt is the ‘basically insoluble problem’ neither side has wanted to attempt to solve over the past 12 years and counting today: 
‘We are overspending our national tax revenue income by so much each year that we are now on-schedule to have a national debt of over $21 trillion by 2017 that will need to have interest payments made on it in cash or else everything really will go over the financial cliff if we don’t’.
This is the ‘forest fire’ that is behind every little tree of tax hike and entitlement cut that you hear every politician say they will ‘oppose with every fiber in my body!’ apparently like they are Patrick Henry in his ‘Give me Liberty or give me Death!’ speech.

Even a massive forest fire can be curtailed if a firebreak is cut through the forest ahead of the raging fire.  President Obama making a deal with House Speaker Boehner would be like cutting a wouldn't totally arrest the problem but would curtail it at least a little.

Here is the logical outcome if carried to its absurd extremes:
‘We will one day have a US federal budget made up 100% of entitlement programs for everyone 100% funded by debt borrowed from overseas because we will have cut all taxes to zero.’
Just how stupid and idiotic is that for a civilized people to act anyway?

Here's the sum total of the 'victories' by each side over the past 12 years if you count yourself a Progressive Liberal Democrat who sees not one single dime that can be cut out of any federal spending or a Tax Cut Conservative who can not see 1 single dime of taxes that can go up on anyone in any effort to reduce these ridiculous deficits:

'$5 trillion of new debt since 2008.  $10 trillion since 2000'

Congratulations to both sides!  Your intransigence and short-sightedness is putting the future of our nation in more jeopardy, not less. Your children and grandchildren will not look back on your 'principled courage' if they are living in lower economic standards with high unemployment, inflation and depreciated currency, all possible outcomes of excessive debt.

The American people want our elected leaders to ‘do something’ to address the debt and deficit problems. Inherently, everyone knows and understands that debt ultimately consumes anyone dumb enough to mishandle it.

Including the Roman Empire. The Soviet Union. The Ming Dynasty. None of them escaped the basic economic gravitational forces of debt and an empty treasury.

President Obama, despite acclaim for his oratorical skills, has proved to be incapable of negotiating a significant budget deal with legislators who do not share his own political beliefs and point of view. Presidents Reagan, Bush 41 and Clinton all signed budget deals with an opposing majority in Congress.  President Obama has failed to do one yet. 

The US Senate under the rule of Democratic Majority Leader Harry Reid doesn't even seem to know what a budget is since they haven't passed one in close to 4 years now.

There are solutions out there that are not 'cataclysmic' in nature and would get us back on the right track at least on a federal budget basis. There most obvious solution out there recently was the restriction in deductions for higher-end income-earners in exchange for significant entitlement reforms such as raising the retirement age for Medicare to equal that now of Social Security (66).

The next 'least painful' option would be to hold overall federal spending to annual growth of less than 2% per annum for the next 5 years.  By 2017, our budget will be balanced (if and) when the economy finally recovers and people start paying taxes at the rate they were before the economic crash of 2008.

Letting the ‘fiscal cliff’ happen in 5 days should shock many registered voters into reality.  Let the first 4 pay stubs paid to Americans in 2013 reflect higher income taxes and the loss of the payroll tax cut from 2012 and watch how many millions of people start howling for spending cuts across-the-board.

We think that is preferable to punting this issue down the road again, don't you?

Thursday, December 20, 2012

The Preposterous Position of President Obama on the Fiscal Cliff

Who's Hurting Who?
For a 'constitutional scholar', President Obama sure doesn't act like he knows who holds the cards in any negotiations on budget matters in Washington, DC.

Who does hold the cards?

The House of Representatives.  Period.  'All bills for raising revenue shall originate in the House' from Article 1 of the Constitution. There are multiple Committees on Authorization and Appropriations in the House and the Senate.  None in the White House.

Get the picture?  'The President proposes, Congress disposes' goes the old adage, which actually has its roots in Thomas a Kempis' great work, The Imitation of Christ, believe it or not.

'The President can propose all he wants until he is blue in the face but he can not get one thing done in our constitutional democratic republic until and unless 50%+1 of both the House and the Senate members at the time pass something he will then sign' is basically what the Founders demanded in the ratified Constitution.

No monarchs. No demagogues. No dictators. Their view of the President and what prevailed for almost 2/3's of American history was that Congress would pass laws (legislate) and the President would 'execute' their wishes from the 'executive branch' of our government.

It changed dramatically in 1932 with the election of FDR in the maw of the Great Depression. He consolidated power in the White House that, in truth, has only grown since then.

But President Obama is taking 'executive power' over the fiscal cliff with everything else it seems.

He says he was re-elected with a mandate (of 50.9%) to 'raise taxes on rich people!'

So what?  Congress was returned with a majority of Republicans who were also elected with a 'mandate' not to raise taxes on anyone. Congress is where the power to make decisions on raising taxes and spending lies in the Constitution, not 1600 Pennsylvania Avenue, we seem to recall.

Who holds the constitutional cards in that head-butting battle for supremacy, huh?

We never saw a President during our time in Washington who didn't yield eventually to the will of the people as expressed in the majority in Congress.  Didn't see Reagan get his way on spending cuts or taxes for that matter in 1982; Social Security Reform (sic) of 1983 or much anything else during his second term.


Because the Democrats held huge majorities in the US House up until 1994 when Bill Clinton basically paved the way for the GOP to take over the House for the first time in close to 50 years.  Tip O'Neill and then Jim Wright after him got Reagan and George Bush 41 to ultimately yield to their demands on most of the key points of contention.

Which is why President Obama's confrontational approach is so baffling right now when we need to get this fiscal cliff fixed and put to bed.  Forever hopefully.

Speaker John Boehner has already conceded as much as he will ever concede on raising taxes on the super-wealthy. Perhaps close to 60% of all the people making over $1 million per year in income voted for President Obama for some reason according to some polling data we have seen so maybe they deserve what they voted for in this case.

But that is it and as far as he is likely to go without causing a full-scale revolt among Republicans in the lame-duck session and the new ones coming in next month.

What core principle is President Obama and the Senate Democrats, who seem to be about as involved on guiding budget policy for the last 3 years as a flea can tell an elephant where to go, willing to 'give up' on as a concession to equate this concession by Speaker Boehner?

It seems to us that some sort of commensurate deal would have to include the raising of the retirement age in Medicare.

Why again, you might ask?

Because it is ALREADY GOING UP IN SOCIAL SECURITY!  Today. You have to be age 66 to get a Social Security check now, not 65 as etched into stone by FDR when he came down from Mount Sinai to somewhere in 1935 when SS was passed.

How much pain and angst and sturm und drang has that caused really, in all honesty?

Not much.  The ones who need to retire early still do so on the 'early option' for SS.

Something very similar could be done for Medicare.  Today.  In this bill.  Make it immediate to correlate with SS and give some sort of early option for true hardship cases.

Savings over the next 10 years from that one provision alone would approximate $500 billion. 1/2 of $1 trillion.  It would start to change the structural deficits we have for the future. World markets would breathe a sigh of relief that Washington is finally doing something serious to address the only thing that really matters when it comes to attacking our deficits and debt: Spending.

We think it is time for President Obama to re-read the US Constitution and realize that it is he who needs to change his outlook on this debate because if the deal on the fiscal cliff is not done soon, it will be mostly his fault now that the GOP has offered a break on their tax stance.

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Monday, December 17, 2012

Lessons on Being Fiscal Grown-Ups...from Poland?!

Leszek Balcerowicz
"If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary."- James Madison 

After spending 22 years in and around Capitol Hill in Washington, DC, we can say without a shadow of a doubt that 'all men are not angels'.  And neither are the women.

Believe it or not, we did find that 90%, perhaps even 95%, of the people we met and worked with on Capitol Hill were good, well-meaning and very smart people. You just never hear about them. You only hear about the miscreants the media chooses to talk and write about because it helps drives sales of papers, subscriptions and ad revenues. 

Unfortunately, many of them are the leaders of both parties on both sides of Capitol Hill.

Here's a guy from Poland that everyone in Washington and you, the represented electorate, should listen to when it comes to being grown-ups about running our national federal government: Leszek Balcerowicz.

When you have a big problem, say with a losing football program, who would you rather have come in and turn things around, someone who has done it before or someone who says they can do it on their first try?

Mr. Balcerowicz has seen it all before.  As in Poland when it was breaking free of the shackles of communist rule and breaking into full-scale democratic and economic freedom.

Read this WSJ article where Mr. Balcerowicz gives out the formula for turning around an ailing economy, one that was far, far worse than anything the US economy has faced in recent years:

'Cut. Federal. Spending. First! Cut. Federal. Spending. Second! Cut. Federal. Spending. Third!' And so on.

He saw it work in Poland.  He sees the need for it in the current EU crisis, especially in Greece and the other PIIGS nations (Portugal, Italy, Ireland, Greece, Spain).  He sees it in the long-long-prolonged Japanese economic doldrums.

He sees the solution to the modern American economic dilemma the same as James Madison saw it: more limited government. Not expanded government as President Obama wants.
"If you reduce through reform current spending, which is too excessive, you are far more likely to be successful with fiscal consolidation than if you increase taxes, which are already too high."
Marcus Welby, M.D.
By comparison sake, it is like Mr. Balcerowicz is saying that we here in America needed to elect Marcus Welby, M.D. as the next president to help cure our ills. Instead, we elected Jack Kervorkian. Or re-elected him, that is.

Here's the kicker to all this: 'There is no such thing as fiscal austerity being proposed or talked about by any person or political party in America today!'

Why is that, you might ask?

What is 'fiscal austerity' anyway?  It is when your financial circumstances fall apart and you are forced to make do on less money next year than in this current year or years gone by.

How many of you out there would give your eyeteeth and other parts of your body to be at the same income level you were in 2006, let's say?  Many of you, we are sure.

Now, if any of the proposals put forth by the Republicans or the Democrats pass, aside from letting the sequestration sledgehammer fall on defense and discretionary programs as under current law, just how 'austere' would next year's spending be relative to last year, or 2011, 2010, 2009 or even 2008?

Not at all.  Zero. Nada. Zilch.  Federal spending would be far ahead of what they were in 2008, that is for sure.

There is almost no way for the federal government right now in America to become 'austere' in any way, shape, fashion or form! There is no 'fiscal austerity' being practiced in the US federal government right now, today!  Absent a massive dose of grown-up leadership from the White House and Congress, we will never accomplish what Mr. Balcerowicz says is needed in America and what worked in Poland.

In 2008, total federal spending was $2.982 trillion. (check out these charts from the White House yourself if your don't believe us:  'Historical Budget Tables'

In 2012, federal spending was $3.795 trillion. A 27.26% increase over these past 4 years.

Has your income gone up by 27.26% since 2008?  Think about it.

Projected spending for 2013 is expected to be $3.803 trillion.  In 2014, $3.883 trillion.  And in 2015, $4.059 trillion. You know that we will exceed those projections.

If we just held federal government spending constant at 2012 levels, and not cut one thin dime from current levels, we will balance the budget in 2017 due to the expected (don't count on it though) tax revenues generated by a recovered economy.

Unless President Obama has another Obamacare Joker's Wild card up his sleeve, that is.

Nope, no more Polish jokes.  Mr. Balcerowicz knows what he is talking about.  Can we replace Ben Bernanke with him now, please?

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Tuesday, December 11, 2012

Fiscal Tourette's Syndrome: 'Raising Taxes Will Solve Our Spending Problems!'

Georges Gilles de la Tourette
You have heard about Tourette's Syndrome.  It is a genetic trait that, for some unknown and still unexplained reason, makes some people say really bad things out in public at really inopportune times.

We knew a young man who unfortunately had Tourette's.  A fine young man, very kind, very nice.  Our son went to see him in the hospital one day to play video games and shoot some hoops to keep him company.

When they got back in the elevator, this young 10-year old started swearing like a sailor. The ladies' eyes in the elevator got real wide real fast.

No one knew how he may have learned such words.  They just 'came out of him'. He didn't even know what he was saying most likely and couldn't really even remember what he said or when he said them.

We think there is a new syndrome that needs to be studied by psychologists, neuroscientists and political scientists as well: 'Fiscal Tourette's Syndrome'

We think it is the genetic defect that causes someone in elective office reflexively to say things that just aren't true in the real world. Such as: "Raising taxes will somehow, someway solve all of our nation's spending addiction.'

Raising taxes won't solve our spending problems. Never has. Never will.

Not even in the vaunted 'Glory Days of Bill Clinton' did higher taxes solve our deficit problem.  You know what helped solve it the most?  The GOP Congress restraining the overall growth in federal spending to 2% per annum for over half the decade of the '90s.  A strong economy coupled with the internet boom made the revenue and expense lines of the federal government cross long about 1998 and stayed that way for 4 years.

Sure, Bill Clinton's tax hikes in 1993 got some delta revenue from rich people, those without very good tax accountants and lawyers anyway.  But the bulk of the tax revenues that were in place that helped these lines cross in 1998 were the very 'middle-class taxes' paid by the middle-class that we are talking about today in Washington.

$4 trillion of them paid over a decade approximately. By you and me.  Not Warren Buffett or Bill Gates.

The message that we often hear come from President Obama and his side of the aisle boils down to this:
'We need to raise more order to solve our spending problems in America!'
It sort of doesn't make any sense, does it? Unless President Obama is ready to sock it to the middle-class in terms of higher taxes again like they got it under the Clinton years, he might want to stop saying he wants to return us to the 'Golden Clinton Years'.

Even President Obama has got to understand that even if he gets the full tax rates returned 'on the rich' (over $250,000 in income), that will only solve about 6% of our entire deficit problem going forward for the next decade!

The rest has to come mostly from savings in entitlements like Social Security and Medicare or your favorite domestic program will get gutted. (read Don Taylor's book: 'Balancing the Budget is a Progressive Priority' if you want to see what not balancing the budget looks like from the other end of the telescope)

Now if President Obama wants to return to the roughly 19.5% of GDP spending levels we had under Bill Clinton and the GOP Congress instead of the 24% of GDP spending levels he has presided over for the past 4 years, well, then, he would be talking some common-sense then finally.  We bet Speaker John Boehner would come running to the White House from Capitol Hill in his bare feet to sign a deal under those conditions.

Let's look at some other analogies from human behavior to see if doing more of one counterproductive thing solves another problem we might have:

1. I should eat more Twinkies, Ho-Hos and order to lose weight.
2. I should light up more Camels and Pall order to stop smoking.
3. I should drink more moonshine, hard cider and order to get sober.
4. I should read and study less order to get smarter.
5. I should sit on the couch and eat Cheetos by the bagful....and then I will get healthier.
6. I should bathe order to make more friends.
7. I should eat more candy, drink more sodas and not brush or floss....and I will not get cavities.
8. I should work less....and then I will make more money.
9. I should buy an Escalade or Denali...because I want to make America energy-independent.
10. I want to get rid of global warming.  Therefore, I should take a plane to DC to lobby for it.

You get the point.  The answer to our spending problems, class, is what?  Precisely. Stop spending more money than you take in each year in tax revenues.  It really is as simple as fifth-grade math.  Perhaps as simple as second-grade addition and subtraction, mostly subtraction.

'Fiscal Tourette's Syndrome' somehow taps into the deepest recesses of the human condition and spews out what we are really like as fallen human creatures.  We want something...for nuttin'!

We don't say it quite that way. But we all know it to be true.  Normal rules of decorum prevent us from doing so in polite company, just like anyone would feel around a Tourette's patient.

However, just as Tourette's Syndrome makes a person spit out epithets reflexively, 'Fiscal Tourette's' apparently makes many of our duly-elected leaders spit out crazy stuff that just is not supported by common-sense, facts, history or empirical evidence.  Perhaps they don't even know what they are saying.  Perhaps they really do have a genetic condition that prevents them from understanding the gravity of their delusion.

Raising taxes has absolutely nothing to do with mediating the one main problem we have in American self-government today: 'We have elected people who like to Over-Spend Way Too Much!'

At every single level of government. Take a look at Detroit.  Just about to declare bankruptcy.

Is California far behind?  Here's a story about a state taxpayer-paid psychiatrist making $822,000 in California today. If that doesn't convince you that Governor Jerry Brown's nickname, 'Moonbeam', should apply to the state of their government finances today, we don't know what else to tell ya.

Now, we wish it were true that all we had to do was wave a magic fairy wand over the heads of people like Warren Buffett and Bill Gates and LeBron James and gazillions of dollars would pour out of their wallets into the federal coffers in Washington DC and everyone can keep consuming all the federal services they want.

Which includes, but is not limited to the following:

Social Security
Environmental Protection
New Road Construction
Space Probes
Blind Albino Squirrel Research

You get the picture.

But we can't.  We will never tax our way out of our spending problems. Elected officials of a certain mindset will always find a way to spend more.

It is enough to make a God-fearing person swear.  Even if you don't have Tourette's.

Monday, December 10, 2012

Who In Washington Is Holding Middle-Class Tax Cuts Hostage Really?

Which One is Better..Or Worse?
To which guilty party can these words be assigned, Your Honor?

We are always surprised, although we shouldn't be, when we see the media attack the GOP in Congress for 'holding the middle-class hostage to getting tax cuts extended for the wealthy ('fat-cat, dishonest, conniving, Scrooge-like white rich) guys'. (That is the intimation, isn't it?  Tell the truth.)

Why is it taken as the Gospel Truth that the current impasse is solely the fault of the Republican Party in charge of the House of Representatives in Congress?

The narrative in the media goes like this: 'President Obama is a good guy. He just won re-election with a whopping 50.9% of the popular vote, which now means he won by a 'landslide of Biblical proportions'!  Now he has a 'mandate from the people' to do whatever he wants as President.  Because he is President Obama.'

The fact that he wants to see all the Bush tax cuts of 2002/03 extended in 3 weeks except for the wealthy is reported through the prism of the media as the act of a 'Benevolent Father of Our Nation', doesn't it?  FDR, you better watch out because Barack Obama is gaining on you in terms of national adoration.

'It is just those mean old Republicans in Congress who are preventing you, the great middle-class mass of America, from getting your $2,000/year in tax cuts starting on January 1, 2013!' sayeth The President.

Wait a minute!  Who gave the great middle-class a huge tax cut in the first place?

Right.  Much-maligned Republican President George W. Bush 43 and the 100% Republican-controlled House and Senate passed those tax cuts in the first place in 2002 and 2003 because they thought you were over-taxed 10 years ago, not just last year!

As a budget hawk, these tax cuts caused us a lot of heartburn for this reason:  They were never accompanied by the roughly $4.6 trillion in spending cuts between 2002 and this year, 2012 that would have made the tax cuts a completely deficit-neutral piece of legislation.  Our national debt would have stayed at roughly $5-$6 trillion had the GOP passed $4.6 trillion in attendant spending cuts to accompany the tax cuts instead of growing to close to $10 trillion when Bush left office in 2009.

To make matters worse, the GOP let PAYGO expire in 2002; the discretionary spending caps that started in the 1990 budget act die an ignominious death, and (get this), the GOP and 43 passed a dizzying run of higher federal spending and more entitlement growth in things like Medicare Part D, 2 wars in Iraq and Afghanistan and No Child Left Behind.

The combination of tax cuts and explosive growth in spending made the period of time under President Bush and the GOP Congress one of the most fiscally irresponsible in American history. They say they have 'learned their lesson'.

The only period of time that has surpassed that desultory fiscal Tourette's episode as being more fiscally irresponsible?  2009-2011 under Democratic President Barack Obama and a US House and Senate completely in control and dominated by Democrats. They passed Obamacare which is now expected to increase the national debt by upwards of $2.6 trillion...all by itself!  Let's not forget the $1 trillion+ in stimulus spending that failed to stimulate the economy one iota plus the panoply of other spending programs for which President Obama has heavily advocated.

We now have a declining unemployment rate only because far more people are leaving the workforce than the numbers of people who are finding jobs!

Here's our question of the day:  Why isn't President Obama getting the blame for blocking the extension of the Bush tax cuts for the 'great masses of middle-class America' because of his desire to stick it to the wealthy?

It seems to us to be the opposite side of the same coin. 6 of one, half-dozen of the other. Obama's intransigence on raising taxes on the wealthy is at least the same as the GOP's reluctance to raise them on the same group of people. If Obama 'insists' on higher tax rates on the wealthy as a precondition for letting the Bush tax cuts be extended for the middle-class, as his Treasury Secretary Timothy Geithner has said publicly, why isn't that just 'as bad' as the GOP insistence not to raise taxes on the wealthy?

The real kicker in all this is that the truly wealthy have no inclination to pay any higher taxes regardless, ever. They have armies of tax accountants and lawyers at the ready to be paid as much as it takes to find legal ways to shelter their income for years if they have to or at least until President Obama is Ex-President Obama.

We see this as a colossal waste of time and energy...unless and until one thing is achieved and one thing only:  A complete and utter breaking of the upward cost factors in health care that are driving up health care expenses across-the-board in private health care, private health insurance, Medicare, Medicaid and every military and veterans health programs in the federal government.

If President Obama want to cut a deal on raising taxes on LeBron James, Warren Buffett and Bill Gates that connects it to a higher eligibility age in Medicare; tort reform, malpractice insurance reform; a squeezing-out of duplicative medicine and a way to get everyone to lose 25% of the body weight, stop smoking, stop over-drinking, stop eating Twinkies and Ho-Hos and get some exercise everyday, then we say:

'Hallelujah!  We will have been to the mountain-top and crossed the River Jordan at the same time!'

We are not holding our breath that something of this magnitude is under discussion at the present time.  We wish it were but even Erskine Bowles gives only a 30% chance of anything getting done before the end of the year.

Maybe going over the fiscal cliff will shock everyone back into the reality of us having to pay our bills and the piper when the time comes due.  Now is that time.

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Thursday, December 6, 2012

'Raising Taxes Before Cutting Spending Is As Dumb As...'

President Bullwinkle and Speaker Rocky
You hear some funny things when you serve on a congressional committee.  Any congressional committee.

We were honored to work on the House Budget Committee, Republican side, from 1991-1994 when the GOP had about as much power in Congress as, well, the Democrats now have in the North Carolina state legislature where both houses have Republican veto-proof majorities and Republican Governor Pat McCrory starts work in the Governor's Mansion in about 4 weeks.

It has 'only' been about 140 years since that last happened back in 1872 when the Lincoln Republican Carpetbaggers ran the state after the Civil War. No, that is not a typo. It was not 1972 but 100 years earlier in 1872 since that last happened in North Carolina.

This current impasse over the 'fiscal cliff' brings to mind some of the great lines we used to hear in the Budget Committee about the folly of raising taxes before seriously addressing the reduction of spending in many (all) of the existing federal programs.

  1. 'Raising taxes before cutting spending is as dumb as eating more Twinkies, Ho-Hos and Ding-Dongs when you want to get skinny!'
  2. 'Raising taxes before cutting spending is as dumb as drinking more booze to get sober!
  3. 'Raising taxes before cutting spending is as dumb as smoking crack cocaine to get off your addiction!'

From our buddy Jim Dornan, distant cousin to former Congressman Bob 'B-1' (he loved the B-1 Bomber) Dornan of California:
'The White House saying they are 'saving money' from defense when everyone knows the wars in Iraq and Afghanistan are already winding down is like a college student telling his parents he is 'saving' them a year's worth of tuition because he is graduating in 'only' 4 years instead of 5!'
Who says fiscally responsible budget tightwads don't have a sense of humor?

You gotta believe that there is some slack in every single program, except the payment of the net interest on our burgeoning national debt, that can be ferreted out and cut if Congress and the President would work together to get this done first, don't you agree?

Many of the comments we heard were said behind closed doors in the Republican meeting room behind the committee room.  Some were not for repetition in polite society.

But many were said out loud and in public by various brave members of that intrepid minority of fiscal hawks at the time which included (hold onto your hats for some of these cause you might not believe it):  Then-Republican Leader and later-Budget Chairman and now-Governor John Kasich of Ohio, Alex McMillan (NC), Olympia Snowe (Maine), Dave Hobson (OH), Jim Kolbe (AZ), Jim Bunning (KY) and so on down the line.

Believe it or not, they comprised the Band of Brothers (and Sister) which produced a spending reduction proposal of $500 billion over 5 years right on the money in 1993, all spending restraint, no tax hikes.  'Cutting Spending First' eventually became the core of the 1997 Balanced Budget Act signed into law by President Bill Clinton after Erskine Bowles negotiated with the GOP Congress and the likes of Newt Gingrich, Dick Armey and Tom DeLay...without one stitch of higher taxes anywhere to be found in the document.

See?  It can be done.  Even on a bi-partisan basis. If everyone in the White House and the leadership in both the House and Senate wants to do it, that is.

We don't think the Obama White House or the Democratic Senate 'wants to' reduce spending at all. They want to raise taxes, especially 'on the rich' as fully evidenced by Treasury Secretary Timothy Geithner yesterday on CNBC when he almost 'gleefully' said:

'The White House is willing to go over the cliff unless we get higher tax rates on the wealthy'.

How is that any better than the GOP if they say they are willing to go over the cliff 'if we don't keep tax rates the same as they are today?'

The Republicans have already signaled they would accept some limitations on tax deductions at the high end of the income scale that will yield as much revenue as President Obama said in the past he wanted to raise.  Yet, there is no solid proposal on the table from the White House or Senate Democrats on what specifically they would accept as reductions in spending in entitlements in return for these revenue concessions.

Negotiating with this White House is like negotiating with a will-o'-the-wisp that beckons travelers to leave the path of safe travels and enter the world of the unknown.

We think the Republicans under Speaker John Boehner have actually come about as far as they can by proposing the limitations on deductions which will raise about $800 billion over 10 years in additional tax revenue as part of their deficit-reduction proposal. This amounts to about $60 billion per year in year one and scales up over the next decade.

There are close to $1 TRILLION in lost revenues to the US Treasury, ladies and gentlemen, each and every year due to the convoluted, byzantine, sclerotic income tax system that shelters income from taxation known as 'tax expenditures' we now have in place.  $60 billion out of $1 trillion represents 6% of the annual amount of lost tax revenues due to excessive tax shelters.

If you are a 'more tax' advocate, if this is not another great reason to can the entire income and payroll tax system in America and move to a simple consumption tax, we don't know what other 'proof' we can show you. Moving to a pure consumption tax would expose far greater avenues to generate the tax revenue we need to keep our country safe and provide a sound social safety net.  Oh, and yeah, pay down this massive debt we have allowed to accumulate, especially over these past 12 years under both parties in Congress and the White House and frighteningly so in these last 4 years under President Obama.

Now, if we could just stick to the 4-to-1 spending cut (that people can see, touch and make sure are in effect right off the bat in Year 1, not Year 1000) to enhanced revenue ratios typical of most other budget deals which includes reductions in entitlements, we can get this fiscal cliff solved and move on.  Today.

Former Congressman McMillan, whom I worked for in Congress, introduced $177 billion in federal health care spending reductions/reforms in 1993 for the Republican Budget Alternative...and lived to talk about it.

Republican Fearless Leader Kasich almost had a coronary when we showed the committee these $177 billion in Medicare/Medicaid reductions over 5 years (not the 10-year time frame now used) which constituted over 35% of the entire savings of the Republican Alternative at the beginning.

'We can't do that!' other Republicans almost screamed in the ante-room of the Budget Committee.

'We have to do that!' Congressman McMillan almost screamed back at them. 'Where do you think the savings of that magnitude will come from, the elimination of the blind albino squirrel research program at Frostbite Falls University?'

Indeed.  We are not in Frostbite Falls anymore, Rocky.

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Tuesday, December 4, 2012

We Need An 'Enrichment Society' to Replace The 'Entitlement Society'

Live like the 'Beverly Hillbillies'!
Our many discussions over the past 4 years have led us to conclude the following things:

1) Our current tax code and federal budget are messed up.
2) We can do a whole lot better, on an individual basis and government basis.

We propose the following to aim at for the future majority, whoever it may be. We think it will be the growing numbers of millions of registered Independents across the nation.  They tend to be more socially-libertarian and more fiscally conservative than either of the major parties today which stands to reason because:

'If the Democrats or the Republicans were 'doing such a great job', no one would ever register as Independent, would they?'

We think the cornerstone of this new 'majority' should be this: 'The Enrichment Society'

This will put to shame the 'Great Society' put forth by LBJ or even the 'New Deal' of FDR based on the concept of giving 'entitlements' to everyone.

Putting the name 'entitlement' on anything doesn't seem to be very 'American', does it?  The very word 'Entitlement' gives off a sense of English royalty or something, doesn't it, at its very core?  We think there are Constitutional words against such designations of entitlement in Section 9 of Article I of said sacred document.

On the other hand, 'enrichment' connotes a very American sense of self-reliance, industriousness and understanding of what Albert Einstein allegedly called 'the most powerful force in the universe': compound interest.

Here's what we think can and should happen in some sort of logical framework going forward:
  1. We should move to a pure consumption tax nationwide to fund the federal government.  (States can do whatever they like in accordance with the states' rights intentions of the Founders)
  2. The consumption tax should be enough to only cover the following parts of the current federal budget: Defense. Discretionary social programs. Interest on the national debt. About 47% of the current $3.7 trillion budget. Or about 12.5% of current GDP
  3. That would mean that a national consumption tax on every purchase, excluding food bought at a grocery store, would be subject to approximately a 12.5 % consumption tax at point of purchase or signing of contract. (Yes, homes and cars would be included since they represent 'consumption' of the use of steel and wood and plastic for the most part in order to get shelter and mobility)
'Hey!  Wait a minute!  What about my Social Security and Medicare benefits?  I paid into those programs you know with my hard-earned money!'

That you did, my friend, that you did.  Except it went into the pockets of people who long-ago retired and have now since died.  Your current payroll taxes are now being paid into the bankrupt (literally) SS and Medicare programs that can not even meet the costs and demands of the current retiree generation.

How in the heck do you think you are paying into a private fund that will provide any benefits for you down the road?  If you believe that, then you have most certainly been lied to and cheated by politicians for decades now.

There is a solution.  It will take a lot of guts and a lot of nerve to propose, advocate and then pass into legislation.  But it will lead to an 'Enrichment Society' unlike the world has ever known.  It will make every past recipient of Social Security and Medicare green with envy that FDR and LBJ didn't think far enough ahead in time to do this for them...and their families...and their children's children.

You will notice that we have deliberately limited the 12.5% consumption tax to only cover defense, discretionary items and interest on the national debt.  Most people we know would pay a 12.5% federal tax today in a split second and go home screaming with delight and joy to the world.

The rest of what you currently pay in payroll taxes for SS and Medicare would be converted into tax-deferred savings plan that can be used for future retirement and medical needs when you retire. The entire amount.  7.85% of your salary plus the employer match of 7.85% if you work for someone, 15.7% if you are self-employed.  All of it.

Where would this be?

Well, if we are smart about it, it would be directed to the nation's financial services sector to manage along with the current trillions of dollars now under management in current IRA and 401k plans.  It could still have the guarantee of the federal government to provide a floor for benefits for anyone who retires during an economic downturn such as the one that started in 2008 and just doesn't seem to want to go away.

We already have the case of Chile which has moved to such an 'enrichment' society in 1980.  Most of the top-ranked nations ahead of the US in terms of retirement all have a large component of their national retirement programs in some form of self-directed, individualized IRA or 401k model.

Today, we have nothing of the kind as part of our Social Security structure.  Nada. Nothing.  The blind adherence by many in the Democratic Party today to the 86-year old format of the current SS system is preventing you from retiring with far greater wealth and security than you will ever get from SS in its current form.

Would you buy a used 1935 Packard today and expect it to perform as well as a 2013 Nissan for example?  Doubt it very much. But that is what we are doing by relying on the old SS/Medicare format instead of moving to a more modern version that will yield far more in benefits than a measly monthly stipend of about $1700 can ever afford anyone.

On top of that, part of the current payroll funds could be invested into a 'health savings account' starting at age 18 when people start to work.  Once again, through the miracle of compound interest, each person would have more than enough to pay for high-end catastrophic health coverage for the bulk of their lives; long-term health care insurance and basic medical coverage once they retire.

Huge amounts of resources are spent in the last year of life, predominately for the roughly 5% of Medicare patients who pass away each year.  These could be covered by the institution of these new health savings plans as long as they are instituted at the beginning of a person's work life, not at the end of it.

These are not pipe-dreams or pie-in-the-sky musings by a crazy person (we hope).  We have the technology and financial instruments now in place in America to set up a retirement plan for every citizen such that when any person, rich or poor alike, reaches their golden retirement age, he/she can provide for their own needs and take this burden off of a centralized government in Washington that currently can not meet the demand and is bankrupting our country as we speak.

As an added golden egg bonus, if you happen to be one of the millions of people who will die suddenly of a heart attack, stroke or accident at any age, all of the money in these tax-deferred savings accounts can and should be willed to your spouse and family so they can use them for their purposes later.  Today, if you die of a heart attack 1 minute before you become eligible for SS or Medicare, you get nothing back from all of that money you complain about putting into the system in the first place.

Imagine that.  An 'Enrichment Society' where each successive generation leaves the next generation better off.

Instead of the opposite as we are doing today. Bankruptcy and despair.

Which will you choose?

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Sunday, December 2, 2012

Why Poor and Lower-Income People Should Be Tax-Cutting Conservatives

The Poor Pay Too Much in Taxes
Something about the inherent 'unfairness' and 'regressive' nature of the Powerball lottery got us to thinking:

'How much do poor and lower-and-middle income people pay in taxes anyway each year?'

We fully put lottery payments into the 'tax revenue' category since they go to support government functions such as public education at the state level.  (read 'Lottery As Tax Revenue')

Here's a little ditty from Henry Fielding in 1732 about the folly of lotteries:

'A Lottery is a Taxation, 
Upon all the Fools in Creation; 
And Heav’n be prais’d, 
It is easily rais’d, 
Credulity’s always in Fashion; 
For, Folly’s a Fund, 
Will never lose Ground; 
While Fools are so rife in the Nation' 

Somehow the Powerball includes funds from all over the nation so in essence, that is some sort of 'national tax' when all is said and done, isn't it?

We all want better schools, right? Well, the lottery provides those funds in most states nowadays on top of other appropriated funds in the normal budgeting process.

So right off the bat, we can count lottery purchases as 'taxes paid' each year, mostly by lower and moderate-income folks who unfortunately don't realize that they have a far better chance of being struck by lightning than they do winning the big jackpot...ever.

Let's take a look at the taxes paid by someone making $11,170/year.  That is right at the poverty level for a single person according to the Department of Human Services. We are deliberately ignoring any government benefits this person may be receiving or are eligible for right now so we can focus solely on this one question:

'How much of their income does this person pay in taxes each and every year?'

We know upfront that this laborer or menial clerical staffer is going to be socked with a 7.85% FICA payroll tax right off the top of their weekly or bi-weekly paycheck. There's $871 right there being deducted no questions asked.

We have seen estimates of poor people spending a range of 5-9% of their annual tax-home pay per year on various lotteries. There's another $558-$1005 per year in 'lottery taxes' right there.

We are up to $1876 of their $11,170  in annual income being gone already.

What about cigarette smoking?  Many lower-income folks smoke, some as much as 2 packs per day.  We used to work with many who smoked so much it was hard to believe they could get any work done.

Cigarette prices range all over the place from state to state but on average, a pack of cigarettes costs about $6 around the nation (They are over $11/pack in New York!) State and federal taxes can represent close to 40% of every pack or let's say over $2/pack nationwide.  A pack/day habit amounts to 30 packs per month or about $60/month paid out in cigarette taxes alone.  $720 annually in cigarette taxes.

Up to close to $2500 in taxes paid by this poverty-level worker so far.

How about gas taxes?  This poor person probably has a dated truck to drive to and from work 60 miles every day due to this recession or 300 miles per week.  The old truck gets 10 mpg...maybe.  They fill up the tank every 3-4 days and use 120 gallons of gas per month.

State and local taxes on gasoline are about 31 cents/gallon.  Federal gas taxes amount to 18.4 cents per gallon for a total of let's say, $0.50/gallon of gas.

This poor person is paying close to $60/month in federal, state and local gas taxes or another $720/year.

Close to $3300 in taxes..and counting.

What about sales taxes?  They cover a wide range but generally sales taxes can amount to 8% of any items bought during the year, on food bought at restaurant or fast-food joints, (Big Macs, Whoppers) but generally not on food bought at grocery stores.  Many lower-income people eat at McDonald's and Burger King frequently due to the perceived lower cost of the food, further complicating health problems with unhealthy food.

For argument's sake, let's assume that this person eats out a lot or $100/week or $400/month or $4800/year.  There is maybe $240/year in taxes paid doing so.

We are already up to $3540 in taxes paid in a year by this one poor low-income person.  We are sure we have missed some tax along the way so we are going to make it a round $4000/year this person at the poverty level of income is laying out in taxes every single year (since we are counting lottery purchases as 'taxes')

Almost 36% of their income paid out in taxes to every level of government imaginable.

That is their 'effective' tax rate, ladies and gentlemen.  36% paid out in taxes annually. By some of the poorest people in America.

To corroborate this line of reasoning, check out this article from the left-of-center Center on Budget and Policy Priorities. They conclude, with far more academic research than I have done here with my perhaps exaggerated example that the lowest quintile of American income-earners pay at least 16% of their income in some form of taxes. The second-lowest quintile pay 21% of the income in taxes.  Before counting the purchase of lottery tickets which, in some cases, could reach another 9% of their take-home pay.

No wonder poor people need government assistance!  Aside from having generally lower levels of education and coming from disadvantaged backgrounds, they also have the subtle, subversive power of the government at 3 different levels coming at them to pick their pockets even at meager levels of income!

Here's what we are aiming at today:

'Poor people would be far better off if they didn't have to pay ANY taxes in the first place so they could be able to take care of themselves and their families first with the incomes they make on their own.' 

It would seem as though it goes against the best interests of the poor to keep voting for Democrats who promise to give them 'more' in the way of benefits and then raise taxes on them to pay for it.

Wouldn't it be far better to allow a poor person the opportunity to work hard and provide for him/herself and their families? One of the problems in America today Charles Murray points out in his excellent book 'Coming Apart: The State of White America' is that many lower-income white people have lost the sense of industriousness and achievement that goes with becoming self-sufficient and self-reliant.*

Maybe we should abolish all of these lotteries too which prey on the lower-and-middle income classes as well.  They are inherently 'unfair' and 'regressive in nature'.  Where's the outcry on that score from the Progressive Liberal side of the aisle?

* Charles Murray is highly recommended as a source for you if you are interested in the impact of culture, faith, community and government on America.  His book 'Losing Ground' which came out in 1984 led directly to the welfare reform bill passed by the GOP Congress and signed into law by President Clinton in 1996

Thursday, November 29, 2012

Lotteries: 'An Appealing Tax On The Mathematically Challenged'

National Lottery To End All Deficits
'I find the concept of taxes that target the mathematically challenged to be especially appealing. 

This is in contrast to our present situation where the mathematically challenged design our tax code.' - Anonymous Ph.D

We caught a bit of lottery fever this week amidst all the hysteria about the $550 Million+ Powerball game that ended last night with 2 winning tickets sold in Arizona and Florida.

As the night went on, we found that the more and more we thought about the lottery, the more and more we think it might be the solution to our federal budget problems. And one that even conservatives might weigh in on positively.

No kidding.  Think out-loud and outside-the-box with us for a moment.

The quote above comes from a good friend of ours who is a double Ph.D in the sciences (engineering) and whom we think really wants to be a raging fiscal conservative but can't stand the social conservatism of the current Republican Party.

In fact, I would nominate him as one of the poster children for the budding 'new majority' that is building right now before our very eyes, the socially-libertarian/fiscally-conservative Independents who are registering as unaffiliateds by the millions across the nation where they can.

He is a math wizard so when I somewhat sarcastically noted that all we had to do was run a huge national lottery to balance our budgets, he responded with the quote noted above: 'I find the concept of taxes that target the mathematically-challenged especially appealing'.

Here's our line of thinking on this:
  1. Lotteries typically run on a 50/50 split:  50% of the revenues go to the government for whatever purpose their legislature and governor deemed 'appropriate' in the public interest. Enhanced financial support of public education usually comes first in each state.
  2. 50% of the revenues go to the lucky winner of the outrageously slim odds of lining up the right numbers for that particular drawing
  3. If last night's Powerball lottery generated over $1 billion in total revenues, what would it take to balance the federal budget with a similar stream of lottery money?
  4. $2 trillion since 1/2 or $1 trillion would go to the federal government to balance the budget. The other 1/2 or $1 trillion would go to some unbelievably lucky person or persons who band together to buy the tickets.
  5. What order of magnitude would that have to be relative to last night's Powerball?  'Just' 2000 times larger.
Ok.  That is a lot of money.  So is our current deficit situation.  Taxing the rich ain't gonna get us anywhere near balance. Maybe just over 5% of the way there if President Obama gets his Christmas wish come true and Donald Trump and his buddy Warren Buffett get stuck paying the same rate of tax they paid under President Bill Clinton.

'The National Super-Duper Powerball Lottery To End All Deficits Forever in the US'.

Even President Obama would support that, wouldn't he?

Everyone would be part of the solution.  Even those who now currently pay zero in federal income tax each year.

Why?  Because lotteries are well-known to be one of the most regressive of all taxes since lower and middle-income folks play the lottery at a much higher rate than upper-income, more educated taxpayers.

Apparently, no one on the progressive liberal side of the spectrum seems to worry too much about the negative impact lotteries have on the poor and disenfranchised.  They pour their meager resources into buying hundreds of tickets with the slim hope and prayer that it will lower their odds of winning substantially and no one seems to care about the 'injustice' of them doing that anywhere in the nation today, do they?

The odds of winning just doesn't go up appreciably by buying more tickets.  Just plain math tells you it is impossible to do.

As the professor says above, higher-income folks are less 'mathematically-challenged' and can recognize that you have about 170 times more of a chance to become President of the United States yourself or about 2000 times more of a chance to be hit by lightning than you do of ever winning such a big jackpot like last night.

The only fully 'mathematically-challenged' middle-or-higher-income people are the 535 individuals we send to the US Congress each session because they sure as heck can't subtract (but they sure as heck can add, can't they?)

One huge added side-side-benefit of this whole exercise?  When someone wins the $1 trillion in the jackpot by 'correctly' picking the string of 20 numbers in order like a long trifecta, roughly 30% of it would go right back to Uncle Sam in the US Treasury in the form of federal taxes!  How about that, ladies and gentlemen?

Not only would the government clear $1 trillion in new revenues to balance the budget each year, since apparently President Obama and the Senate Democrats don't believe that spending is the problem and neither are the entitlements (many of which go to benefit high-income people as well), but another big fat whopping check of $300 billion would flow into its coffers which would then be used to pay down the existing debt of $16 trillion...and climbing!

Do this national lottery for about 48 years...and we will have extinguished the debt forever.  And hope our great-great grandchildren has learned a sobering lesson in public finance.

We don't know about you but this 'national lottery to balance our budget' is looking like a simpler way to do so than Bowles-Simpson or any other plan out there right now.

Who could argue with that?

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Wednesday, November 28, 2012

Here's One 'Fiscal Cliff' You Will Not Be Able To Avoid

Here's the 'Real' Fiscal Cliff That Will Happen Jan 1, 2013
Do you know what the one new tax is that is going into effect on January 1, 2013....and there isn't a thing that can be done about it?

It is called the 'New Medicare Tax on Unearned Income'.  It is being assessed at a rate of 3.8% not on payroll or earned income as it has always been in the past but on the sale of personal or investment real estate, stocks, bonds, gold, farms, small business or anything else that might have a large capital gain over a prolonged period of time.

It was not passed as part of any normal budget reconciliation process on Capitol Hill.  That is almost impossible to do when you have a US Senate under the 'leadership' (sic) of Senator Harry Reid of Nevada that has not even tried to pass a budget for the past 3 years and doesn't look like it plans to do in 2013 either.

No, this ground-breaking tax was passed as part of the famous, or infamous, Obamacare bill of March, 2010. For the first time in US history, a payroll tax that has always been applied against earned income of a taxpayer has been freed from its moorings on salary and wages to roam to any and all sales of capital that may have large amounts of capital gains due to prudential investing on your part.

Now, proponents will rightly point out that this new tax will apply only to very high amounts of capital gains that are typically reserved only for high net worth individuals like Donald Trump and Warren Buffett.  You know, the guys who buy and sell billions of dollars worth of real estate before they have breakfast, companies before noon and gold bullion before they go to a gala in their honor at night.

The limits that have to be breached before the 3.8% Medicare tax is triggered is $200,000 for individuals and $250,000 for married couples filing jointly. That is a lot of money, the proverbial top 1% of all income-earners in the nation.

That sounds like a lot of money to the vast majority of Americans.

But here's our sincere question to you:

'When was the last time Congress and the President passed a new tax on anyone...that did not expand and filter down to moderate levels of income as time went on?'

For one thing, these 'limits' do not appear to be indexed for inflation.  Over a period of time, believe it or not, $200,000 will become considered 'middle-income' as long as we have a United States of America.  Once it does, this 3.8% Medicare tax will apply to every sale of stocks or bonds or anything that has any capital gain in it no matter how large or how small.

The second thing is that all it would take is another Congress with a like-minded higher tax advocate in the White House to lower the limits from $200,000 to say $100,000 or even $50,000 and get a large score from CBO for future deficit-reduction for higher revenues based on static analysis.  These things can get buried in a large omnibus tax bill somewhere down the road and many people might not even know about it until it hits them in the next tax year.

You didn't know about this 'floating' Medicare tax, did you?  Didn't think so.

Elections indeed have consequences.  The fact that President Obama was re-elected and the Senate Democratic majority was increased in the most recent election pretty much insures that this tax will not be repealed or even touched for the next 4 years at least.

According to the Annenberg Center's, there are actually two new taxes you need to be aware of:
'There will be a new 3.8 percent tax on “unearned” net investment income — such as capital gains from the sale of stocks or real estate, dividends, interest income, annuities, rents and royalties. Also starting Jan. 1 is a new 0.9 percent Medicare surcharge on top of the current Medicare payroll tax. Both taxes apply to taxable compensation that exceeds $200,000 for singles, or $250,000 for couples filing jointly. Those two taxes combined are projected to bring in nearly $210 billion over the next seven years, according to the nonpartisan Joint Committee on Taxation.'
We are not sure how much of this projected $210 billion will ever be collected by the US Treasury over the next 7 years. Our bet still lies with people making serious amounts of money over the $200,000 threshold finding smart tax accountants and lawyers to shelter their income or pair it off against other losses somehow so as to never pay these new taxes in the first place.

Anyone want to bet dollars-to-doughnuts that when we talk again in 2019 that the US Treasury will not have collected half of the $210 billion that CBO projected they would collect?  1/4?

Democrats trying to raise taxes on the truly wealthy is exactly like Wile E. Coyote trying to out-smart the Roadrunner and hit him on the head with an anvil or a Rube Goldberg contraption from Acme:

It Never Works.

The people that this tax will hit though are the ones not in the super-wealthy category who can't afford any fancy tax accountants or lawyers to shelter their income.  And the people who have a one-in-a-lifetime chance to sell the family farm or grandma's house that the grandchildren wanted to sell so they could send their children to a good college.

So get used to it.  The Obama Administration and the Senate Democrats have already got some time-bombs of higher taxes deeply embedded into the tax code where there is no way for them to be repealed or blunted for at least the next 4 years.

Plan accordingly.

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