Wednesday, April 28, 2021

Cancel Biden's Capital Gains Tax Grab

"This farm has been in my family for 
200 years. And Democrats want to take
away half the capital gains"
President Biden, with the help of the same old gang who did such a great job holding back the economy under President Barack Obama, last week unveiled his proposal to double the capital gains tax rate to 39.6% and “really stick it to rich people!” for a second time in as many weeks. 

Democrats like to tax things they hate, such as cigarettes and gasoline, so people will use less of each. Apparently, they don’t understand the same principle applies when applying higher tax rates to corporate and capital gains taxes as well — they will get far less of both with much higher rates.

Biden’s first attempt was to raise the corporate tax rate to 28%, which will not even cover the cost in lost revenue for their repeal of the Trump SALT restrictions. Rich people in New York and California will receive most of the SALT tax-repeal benefits, not the average taxpayer.

President Biden didn’t say exactly how he and the IRS were going to outsmart the smartest financial people in the world on Wall Street or in any major corporation. They think they can browbeat sophisticated investors into paying every cent they think rich people owe without them changing any behavior or finding new ways to shelter income from taxation.

Capital gains taxes are perhaps the most volatile of all tax revenue since they are totally dependent on economic conditions at time of sale. Capital gains tax collections in a given taxable year have ranged from a high of 5.9% of all federal revenues to a low of 2.8%.

In 2018, federal capital gains tax revenue from all sources, including average-income Americans, was $158.4 billion. Overall tax collections are expected to be $3.7 trillion in 2020.

Biden’s proposal will affect anyone making over $1 million per year, which can, and will, ding hundreds of thousands of moderate-income farmers and small businesses that sell assets after a lifetime of hard work and investment. Depending on how long an asset has been held, a good part of capital gains is nothing but good old inflation, not real capital gains.

Close to 86,000 people with incomes over $1 million filed a Schedule D in 2020 declaring capital gains or losses. Many are very sophisticated investors who can outsmart any congressional representative, U.S. senator, Capitol Hill staffer or president when it comes to maximizing profit and minimizing tax payments.

What White House and congressional Democratic leaders don’t seem to realize is that uber-wealthy people have a plethora of options to minimize their tax exposure. About half of all capital gains reported each year are offset by capital losses, which lowers capital gains tax payments by 50%. 

One wealthy investor has told me his investment fund hasn’t paid any capital gain tax in years due to sophisticated programs that match portfolio gains with losses. Wall Street has smart people who know how to use computers as well as any in the Silicon Valley.

Wealthy investors should band together to “cancel” Biden’s capital gains tax hike by pairing as much loss as they can against capital gains profit and essentially drive any new projected tax revenue gains by the Biden White House to zero over the next three years. They should “go on strike,” in effect, against the ravenous taxing and spending spree leftist Democrats and Biden are on right now.

The left may feel better about their futile attempt to soak the rich and bask in the accolades of their fellow comrades in arms. However, sophisticated investors will have the last laugh, again, as they always do. 

When all is said and done, the only people who are going to be hurt by the Biden capital gains tax hikes are the same people who get hurt by any tax hike: average-to-marginally-higher-income taxpayers who cannot afford to pay expensive lawyers and tax accountants to avoid getting hit by adrenaline-fueled Democratic tax spasms.

Wait until they see what Biden and the Democrats want to do with inheritance taxes and stepped-up basis, which is a subject Kelly Johnston deals with on the opposite page.

Many of them are probably #NeverTrumpers and moderate Democrats and Republicans who voted Joe Biden into office in the first place. 

C’est la guerre.

(first published in North State Journal 4/28/21)

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Wednesday, April 21, 2021

Liberals Just Know So Much That Isn't So

After decades of watching Democrats enact tax policy from close-up and afar, the only conclusion anyone can come to is this: Democrats have no over-riding, over-arching higher order principle when it comes to tax policy. 

Democrats just like to tax everything. Just like Republicans don’t like to tax anything. They are yin and yang when it comes to tax policy. 

For decades, liberal Democrats have screamed the same thing: “Make the rich pay their fair share!” without ever defining exactly what is their “fair share” in numerical percentage form.  

How do they “know” what the magic “fair share” is for anyone to pay in taxes? They seem to “know” what to do with your money better than you do, so you must give them as much as they demand to do it for you. 

Most of the time, Democrats use class warfare as the bloody shirt to wave for scoring cheap political points that keep them in political power; and that is about it. They really don’t want to tax rich people out of existence as they preach. They need rich people to pay for as much government spending as possible. They need rich liberals on Wall Street and in Hollywood and the Silicon Valley to contribute hundreds of billions to their campaigns and to dark money independent committees to do their political work for them behind the scenes.  

Which leads to their contradictory self-defeating tax policy of today. Out of one side of their mouths, socialist Democrats say they want to soak rich corporations for an additional $380 billion in taxes over the next five years. Out of the other side of their mouths, they say they want to repeal the SALT restrictions in the tax code that made millionaires in blue states, such as New York and California, pay much higher taxes under the Trump tax plan passed in 2017. 

Which is it? Do Democrats want to stick it to wealthy corporations owned and operated by really wealthy people, or do they want to let the rich in New York and California stick it to the rest of America’s taxpayers by subsidizing their enormous tax write-offs? 

SALT refers to state and local tax deductions. The Trump tax plan restricted the amount of state and local taxes a person could deduct to $10,000 per year. For high-income earners in states such as California and New York where state income and local property taxes are massive, the Trump tax plan was not a tax cut for the rich but a significant tax hike for people making over $1 million per year. 

The corporate tax rate is now 21%, down from 28% in the Obama/Biden era before 2017. Corporate tax collection in 2019 was $232 billion in a booming pre-COVID-shutdown economy, which still represented only 6.6% of all tax revenue sent to Washington D.C.  

Assuming Joe Biden and the Democrats pass a 28% corporate tax rate, theoretically an additional $76 billion might be collected in corporate taxes annually. Possibly $400 billion more in corporate taxes might be collected over the next five years, assuming smart corporate CFOs all of a sudden become dumber than dirt and can’t figure out how to avoid paying 28% corporate tax rates when they have avoided paying 21% today. 

Joint Tax estimates SALT repeal would cost the Treasury $88.7 billion in the first year alone. Repealing SALT would lose close to $500 billion in federal tax revenue over the next five years and make rich people in New York and California even richer. 

In other words, liberal socialist Democrats want to pry $400 billion more in taxes from corporations run by uber-wealthy people, so they can turn around and give $500 billion back to those same rich people who live mostly in New York and California. 

You can’t make this stuff up. 

Ronald Reagan used to say, “The trouble with our liberal friends is not that they're ignorant; it's just that they know so much that isn't so.”  

The trouble is they don’t know how to do basic math. Perhaps the math curriculum in our nation’s schools has been failing for longer than we thought. 

(first published in North State Journal 4/21/21)

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Wednesday, April 14, 2021

Biden's Infrastructure Boondoggle

The Erie Canal
Gateway to Explosive Economic Growth
Roads are infrastructure. Bridges are infrastructure. Things made of concrete and steel that help move people and product around the country in cheaper, safer modes are infrastructure. 

President Joe Biden’s so-called “infrastructure” proposal is not infrastructure. It is a colossal boondoggle. 

New York Sen. Kirsten Gillibrand tweeted her support of the bill by scrambling any normative understanding of the word “infrastructure”: “Paid leave is infrastructure. Child care is infrastructure. Caregiving is infrastructure.”  

Those programs are social welfare programs. They should be debated and funded separately from any bill concerning our nation’s highway, railroad and airport systems.  

Joe Biden proposed $115 billion to fix or replace aging bridges, re-pave or build thousands of miles of our highway network, and provide upgrades to our airports and rail-transport system. In 2019, the American Road & Transportation Builders Association (ARTBA) estimated it would cost $164 billion alone just to repair or replace all of the 231,000 bridges that are structurally deficient or in poor condition, roughly a third of all bridges across the nation. 

Let’s fix every bridge right away. No one wants to be driving across a bridge when it crumbles into the river below.  

While we are at it, let’s spend the entire $2 trillion to leapfrog electric vehicles completely and transition to a Jetsons-esque flying car transportation network fueled by hydrogen or the next generation of nuclear fusion cells. 

If we are going to modernize our transportation system, let’s make it future-oriented for the 22nd century, not backwards-looking to the mid-1900s. There is $80 billion in Biden’s proposal for Amtrak which has lost money every year since inception in 1971. Amtrak looks and operates as if it is run in Cuba, not the most technologically advanced country in the world. 

About 94% of the money in Biden’s Boondoggle is not going anywhere close to modernizing and updating the transportation system of America. Unless, of course, $400 billion for home-based care for elderly and disabled, $35 billion for climate-change-related R&D, $50 billion to monitor domestic industrial production, and $213 billion for home sustainability and public housing can somehow magically reduce the amount of time and money it takes to move people and product from Point A to Point Z in America. 

There is one example from history that clearly shows how spending money on true infrastructure would benefit us all as a nation.   

The Erie Canal was completed in 1825 and stretched 363 miles from Lake Erie through Buffalo to Albany, New York, to connect with the Hudson River to flow to New York City. The final cost of construction absorbed a third of all banking and insurance capital available in New York at the time.  

Over the next 25 years, the GDP of the United States tripled solely due to commercial traffic through the Erie Canal. It is estimated the Erie Canal added 2% more economic growth annually over what it would have been had the “Clinton Ditch,” as detractors labeled New York Gov. DeWitt Clinton’s favored project, never been constructed. The cost of transporting grain and foodstuffs from the Midwest plummeted by 95%, which opened up massive export markets to Europe. New York City became the finance and distribution center of the world almost solely because of the Erie Canal.  

If President Biden and socialist liberal Democrats could promise 2% annual increases to GDP growth baselines with their approach, there might be some merit in it. But they can’t. They would be insulting the intelligence of every American if they tried. 

The most troubling aspect of this misguided infrastructure bill, as well as the recently-passed COVID relief bill, is that 90%+ of both bills do not go directly to solve the underlying public-policy problem as advertised. It is false advertising at best and deceptive leadership at worst. 

It is really discouraging for the nation that hopes for sane leadership and federal public policy now solidly rest on the shoulders of West Virginia Democratic Sen. Joe Manchin and him alone. In days gone by, Biden’s infrastructure bill would have been laughed out of Washington by dozens of moderate Democrats who could count and understand economics. 

We should all hope and pray Sen. Manchin lives long and prospers… and does the right thing.  

(first published in North State Journal 4/14/21)

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Wednesday, April 7, 2021

The Calvin Coolidge North Carolina General Assembly

"Keep It Up, North Carolina Republicans!"

Republicans who run the NC General Assembly are following the same sober and mature approach toward spending North Carolinians’ tax money as our 30th president, Calvin Coolidge, did in Washington from 1923-1928.

We should be grateful.

North Carolina currently has close to $4.13 billion in so-called “over-collections” coming into state coffers which are surplus tax revenues expected due to stronger than expected economic growth during the COVID pandemic. When the state budget was vetoed, budgets reverted to prior year’s levels which contributed to the buildup of unrestricted reserve funds as well.

When combined with over $1 billion in the “rainy day fund,” North Carolina is in far better economic and fiscal health than many other states that have not been run as efficiently, despite the economic dislocations caused by the COVID pandemic.

The formula for success in North Carolina led by Republicans who have controlled the NCGA since 2011 closely follows the blueprint laid out by President Coolidge, who was elevated to the presidency when Warren G. Harding died of a heart attack. He followed his flinty New England inclinations and implemented traditional Republican principles that have been sadly forgotten in Washington and in big blue states around the nation.

Coolidge’s formula for success was simple: cut out wasteful and redundant spending first and then cut taxes second, which no Republican has done in Washington since 2001. His parsimonious approach to government is not even in the same planetary system as the Biden/Socialist Democrat plan to exponentially increase spending, raise taxes and debt at the same time, which is the biggest crapshoot America has ever seen under any president, including President Obama.

Once Coolidge and Republicans constrained government spending, the economy grew on its own accord due to the tax cuts and generated more tax revenue than anticipated. Coolidge’s formula included further budget-cutting each subsequent year which allowed more money to be spent in the private sector which generated more economic growth and subsequent surplus tax revenue to flow to Washington. Coolidge and the Republican Congress passed annual tax cuts to continue the upward cycle of more tax revenue due to economic growth, more budget-cutting and more tax cuts in each subsequent year.

Under Coolidge’s leadership, the federal budget was in surplus every year from 1924 to 1928. The top income tax rate was halved to 25%, and federal spending was cut more than 40%. Federal debt was retired by over 30%. Unemployment for all Americans hit a record low of 1.8% under Coolidge.

Since 2011, Republicans who have controlled the North Carolina General Assembly have followed similar traditional Republican policies. They established a flat income tax rate, now down to 5.25%, on individuals, and slashed corporate income tax rates by close to 70%, which resulted in over $2 billion staying with its rightful owners, North Carolina taxpayers.

With increased economic growth, they paid back $3 billion in unemployment insurance loans to the federal government, which had been accumulated under former Gov. Beverly Perdue, in less than two years. Over $1.4 billion in direct disaster relief assistance has been paid out of the reserve funds directly to victims for losses sustained from Hurricanes Florence and Dorian.

With over $4 billion in reserve, the N.C. General Assembly could continue the lather, rinse, repeat budget reduction and tax cuts cycle that President Coolidge enacted from 1924 to 1928 to bring North Carolina rapid economic growth and prosperity for decades to come.

Republican leaders in the NCGA should use this cushion in the reserve fund to continue to lower income tax rates and eventually eliminate both personal and corporate income tax rates. North Carolina would become an economic nuclear reactor for the 21st century, as Texas and Florida are poised already to become as zero income tax states.

Treasury Secretary Janet Yellen is calling for nations around the globe to raise corporate taxes to match the higher rates President Biden wants to install and avoid “the race to the bottom,” as she called lower rates.

Silent Cal would argue precisely the opposite. North Carolina should continue to follow his lead.

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