Taxable Talk

The House of Representatives passed legislation yesterday that would extend the current ban on taxes on the Internet for another four years. The vote was nearly unanimous–405 to 2. The legislation now heads to the Senate, where it likely will pass before year-end.

This legislation will inhibit local government from adding connection taxes for Internet use. For example, you likely pay a city tax for your telephone and cellphone but you don’t for your cable modem. Nine states that had taxes in place before 1998 can continue their taxes under this legislation.

Three Congressmen proposed on Monday a war surtax—a measure that would increase income tax rates from between 2% and 15% (the top tax bracket would become 50% if enacted). The move is a publicity stunt that has no chance of passage.

Even Speaker Nancy Pelosi (D-CA) is against the measure. In an election year, raising taxes is a sure way to raise your opponents’ vote totals. Democrats David R. Obey of Wisconsin, John P. Murtha of Pennsylvania and Jim McGovern of Massachusetts are very much in the anti-war section of the Democratic party, and would like to bring all the troops home immediately.

Along with Charlie Rangel’s proposals to increase taxes, measure like this will do much to help the Republicans in 2008. Don’t expect anything like this to become law until a Democrat is in the White House.

Today’s Wall Street Journal has an interesting article about a phone tax battle in Missouri. [Note: $Pay$ Link] Various municipalities have claimed that their city telephone taxes apply to cellular phones; the cellular carriers disagree. On Thursday, a St. Louis County Circuit Judge will rule on whether or not he can rule on the case by summary judgment or whether a full trial will have to be held. No matter how he eventually rules, the case will likely be appealed.

You may remember that I wrote in May about the City of Los Angeles’ cellular telephone tax increase being illegal. One of the arguments that the carriers are making is very similar: a popular vote is required under Missouri law for a new tax to be approved. Cities are arguing that the tax isn’t new. Legislation was passed capping the cell phone tax, but it was ruled unconstitutional by the Missouri Supreme Court.

The carriers could owe as much as $500 million, including interest and penalties. One thing is certain, though. If the tax ends up being owed, the bill will be passed on to consumers. That’s the nature of all taxes.

If I told you that you were going to get hit by a massive tax increase, you would rightly ask, “Why haven’t I heard about it on television? Why haven’t I read about it in the media?” But it really is coming…just in two years.

Congress passed, by a party-line vote, the Democrat’s version of the budget. This budget lays the groundwork for the elimination of the Bush tax cuts. What happens when you eliminate a tax cut? In the Democrats’ world, nothing. For you and me, it’s a $200 billion tax increase.

I try hard in this blog not to single out one political party. Frankly, they’re both quite capable of underhanded ways of budgeting. The Republicans had twelve years of running Congress, and are only now managing to understand the wisdom of being fiscally conservative. Unfortunately, it appears that the Democrats have no idea what that means.

President Bush is threatening to veto any appropriation bill that exceeds the amounts in his budget. I expect he’ll be using that veto pen frequently.

As Congressman Paul Ryan (R-WI) stated, “But I’d hardly consider a $200 billion tax hike a ‘win’ for American workers.” It’s not. Democrats have claimed that the Bush tax cuts led to the budget deficits. That’s not the case; federal government revenues increased by 46% since they were enacted. Unfortunately, spending increased by even more.

We have bloated government, bloated bureaucracies, and a Congress that wants more of the same. I suggest that anyone who cares about this issue—and it’s a major one in my opinion—read the Porkbusters website. Join with me in trying to take the pork out of government.

The Presidential election in still 18 months away, but campaigning is in full swing. I haven’t decided who I’m going to vote for, but I have decided on one candidate I won’t vote for.

Former Senator John Edwards (D-NC) is offering a lot of policy proposals. Unfortunately, when you spend money, you’ve got to get it from somewhere. Edwards’ proposals appear to cost at least $1 Trillion. Edwards is also against continuing the Bush tax cuts, and is for increasing tax rates except for the lower class. Given that most of the income tax paid in the United States comes from the middle and upper class, that means that you and I will be seeing more of our money go for a big bureaucracy should Mr. Edwards be elected President.

Meanwhile, CNN correspondent Jack Cafferty reported that, “John Edwards says he worked for a hedge fund primarily to learn more about financial markets and their relationship to poverty. Do you see any contradiction there?”

I notice that Professor Bainbridge saw the same things that I did. I don’t know if he saw the news from Illinois, though.

Governor Blagojevich proposed a huge business tax—a gross receipts tax that would have cost Illinois businesses $7.6 billion. Now, if that tax had passed who do you think would have paid it in the long-run? Consumers, of course; taxes get passed on. As Joe Kristan reported this morning, the tax didn’t pass…it was a “missed it by that much” moment: it failed 0 to 107.

If you’re a politician, you may want to look at what happened in Illinois and apply it to your next race. Taxes aren’t popular. There’s a perception that government is bloated, and, imho, there’s at least an element of truth in that. Taxpayers want lower taxes and tax simplification. Politicians who want to win elections should take this message to heart.

With the Democrats now in control in Congress, it’s time to watch our wallets. My district in Congress happens to be represented by one of the few accountants in Congress, John Campbell. Congressman Campbell is a CPA, and he’s not impressed at all with the Democrats idea of budgeting.

Congressman Campbell maintains his “Green Eye Shade Blog.” Last week he wrote about the proposed budget, and called it, “…a sham to the American taxpayer.” He believes it is a return to the “tax and spend days of old.”

Did anyone really believe that with a Congress controlled by Democrats we would be looking at lowered spending and/or a decrease in taxes?

Three Senators have introduced the “Stop Tax Haven Abuse Act.” Senators Carl Levin (D-MI), Norm Coleman (R-MN), and Barack Obama (D-IL) are targeting the 30+ offshore tax havens. Senators Levin and Coleman have led an investigation into these tax havens, and believe they shelter $100 billion in annual tax losses to the U.S. Treasury.

“It is simply unacceptable that some individuals are using offshore tax havens and secrecy jurisdictions to shelter trillions of dollars in assets from taxation,” said Coleman. “These tax schemes cause a massive revenue shortfall and, sadly, it is the honest American taxpayer who must bear a disproportionate burden of investing in areas like education and healthcare. We are introducing this bill to close these loopholes, shut down offshore tax schemes, and ensure that every American pays their fair share of taxes.”

I expect this bill has a good chance of passage this year. It may end up being tied to this year’s AMT relief act (whenever that’s introduced). The press release (from Senator Levin) lists the goals of the bill (available below).

Though this legislation targets the securities industry and the offshore trust industry, at least one other industry will be impacted by this bill (should it pass Congress): the offshore gambling industry. The Isle of Man and Gibraltar are two of those offshore tax havens, and they happen to be two of the main domiciles of offshore gambling firms. Depending on the actual text of the legislation (the bill is not yet available on the Thomas system) and any regulations promulgated by its passage, Americans might have even more difficulties in getting funds from the U.S. to the offshore gambling firms.

Thanks to the TaxProf Blog for the heads-up.

The Wall Street Journal on Friday headlines a possible attempt by the Democrats to enact middle class tax relief ($ubscriber pay link). With the Democrats now in control of Congress, they have enacted rules that require all tax legislation to be “revenue neutral.”

The big issue facing Congress is the extension of AMT relief. For the past several years, Congress has done one-year extensions of this relief. The Alternative Minimum Tax was designed to get 65 or so millionaires, back in the 1960s. If nothing is done, 25% of households will soon be paying AMT. If you’re unlucky enough to live in a high-tax state, and you have a large family (lots of dependents), you could be hit with the AMT even with an income of less than $100,000.

The Journal article suggests that the Democrats might enact long-term relief, but with corresponding tax increases to the wealthy. And the Journal hints that President Bush might go along with that idea.

I’ll keep you informed as the Congressional term continues.