Today the Citizens Against Government Waste came out with their list of wasteful and not wasteful legislators. Given Congress’ propensity to spend on pork, this is an interesting list, and you can find it here.
My Congressman, John Campbell, gets a 100% ranking from CAGW (100% is good in this poll). Our two Senators, Barbara Boxer and Dianne Feinstein get 22% and 35% rankings, respectively.
Thanks to the TaxProf Blog for the heads-up.
Senator Charles Grassley (R-Iowa) has proposed making some tax crimes felonies if the underlying issue is a pimp or sex trafficker who fails to file employment tax forms. The penalties would be a 10-year prison sentence and a $50,000 fine for each offense. Senator Grassley commented to the Associated Press, “The thugs who run these trafficking rings are exploiting society’s poorest girls and women for personal gain. The IRS goes after drug traffickers. It can go after sex traffickers.”
Grassley plans on introducing the legislation in his committee tomorrow.
States have seen tax revenues flourish this year, leading to budget surpluses of various sizes. So, if you have a budget surplus what do you do? Do you:
(a) Increase spending, to help the people who supported you or groups who may support you? (Think unions and other constituency groups.)
(b) Decrease taxes, because it’s our money that you’re spending?
(c) Vociferously announce that you’re going to decrease taxes, but do only a little bit of tax decreases while increasing spending as much as possible?
Never underestimate the cynical nature of politicians. Thus, (c) is almost always the correct answer, as this article in the Wall Street Journal notes (Pay $ Link).
Of course, we do need to point out that in Michigan, a state that is bleeding jobs with an industry in trouble (automobiles), a tax code that troubles business, and a dysfunctional state government, Governor Granholm, a Democrat, vetoed the Republican-led legislature’s move to eliminate the state’s business tax. Governor Granholm called the Wall Street Journal’s reporting that Michigan’s tax structure is anti-business “treasonous.” We call it honesty in reporting.
Here in the Golden Bronze State, Governor Schwarzenegger has proposed a $68 billion bond measure to pay for infrastructure improvements; this measure will be part of a very crowded November ballot. Of course, the state has again missed the June 15th deadline for passing a budget. The more things change….
Forbes magazine recently presented its annual comparison of taxes in the US to the world. So where does the US rank? More or less, in the middle.
Of course, that depends on what state you reside in. The comparison looked at two US states: New York (a relatively high tax state) and Texas (with no personal state income tax). New York ranks 115.7 on Forbes’ misery index; Texas is at 94.6.
As far as the rest of the world, leading the way in low taxes is the United Arab Emirates at 18.0 (not surprising, given their oil). The worst place for taxes? France, at 166.8.
That’s not a typo in the subject of this post. The tax bill that was signed last week by President Bush is titled “The Tax Increase Prevention and Reconciliation Act of 2005.” Apparently Congress didn’t look at a calendar….
Here are the good points of the bill, such as they are:
1. AMT Relief, but just for one year. The bill increases the AMT exemption to $62,500 for Married Filing Jointly and $42,500 for single filers for 2006. However, yet another tax bill will need to be passed in 2007 to further extend AMT relief or millions of taxpayers will find themselves in AMT hell.
That’s the long list, in my view, of the good points. Now, here are the probable good points of the bill…but these could change, as they’re all in the future:
2. Dividend and Capital Gains Cuts Extended. This bill extends the dividend and capital gains tax cuts (these were scheduled to expire in 2008) until 2010. Note that nothing prevents Congress from extinguishing this extension next year.
3. Roth IRA Conversions. In 2010 anyone will be able to convert a regular IRA into a Roth IRA. Regular IRAs give taxpayers a tax deduction today but distributions (upon retirement) are taxable. Roth IRAs do not give a tax deduction today but the proceeds (in retirement) are tax-free. The tax owed for these conversion must be paid in 2011 and 2012. It’s quite possible that this new tax break could itself be broken by Congress between now and 2009.
Now let’s examine the negative points of the bill.
4. Offers in Compromise. Do you want to make an Offer in Compromise (OIC) with the IRS? You had better do it very soon—you have until July 15th to make an OIC without making a 20% OIC deposit. If your OIC is rejected by the IRS you will lose that deposit. I doubt we’ll see many OICs after July 15th.
5. Kiddee Tax Increase. If you’re wealthy, one tax strategy is to shift income to your children. The kiddee tax used to end at age 14…but the new bill extends it until age 18.
6. Expatriate Tax Increase. While the new bill does increase the Foreign Earned Income Exclusion (to $82,400), it greatly reduces the housing allowance for Americans living abroad. Additionally, the tax rate for investment income of expatriates is increased dramatically. The International Herald Tribune has an excellent story on this.
7. Changes to Section 199. If you’re a manufacturer (or a business that qualifies for this deduction), the Section 199 Deduction is now limited to 50% of W-2 earnings.
What’s not in the bill? Plenty. Tuition deduction, educators deduction, estate tax…the list is endless. A second bill is likely to emerge from Congress this Fall.
Republican negotiators in Congress sent tax legislation out of conference committee. The highlights of this generally lackluster legislation:
– AMT Relief extended, with a new higher exclusion of $62,550 for 2006;
– 15% capital gains rate extended for two more years, through 2010;
– Section 179 depreciation at $100,000 extended to 2010, from 2008;
– Roth IRA conversions allowed for everyone. This, as Joe Kristan correctly notes, increases tax revenues today, but drastically impacts tax revenues in a few years. Roth IRAs are not tax deductible today. However, when you retire and starth withdrawing the funds, they are tax-free;
– The Section 199 Production Deduction (the deduction from hell) has been toughened. The deduction will now be limited to 50% of W-2 wages; and
– Mandatory payments for Offers in Compromise (OIC) of 20% of the OIC. This will discourage OICs.
There’s plenty more, but it’s mostly arcane stuff. There’s a lot of budget shenanigans. As Joe Kristan noted, corporate estimated tax payments are definitely being played around with:
“The 2006 estimated tax payment installments due in July, August or September (third quarter, for calendar year taxpayers) will be 105% of the amount otherwise due for the quarter. The same installment in 2012 will be 106.25% of the amount otherwise due; in 2013, the magic number will be 100.75% of the amount otherwise due.
-In 2010, 20.5% of the third quarter installment due September 15 will be payable October 1; in 2011, 27.5% of the third quarter installment is payable in October.
The government has a September 30 fiscal year, and these rules obviously shuffle income among the fiscal years to meet some arcane budget rule, at least on paper and in a laughably phony manner.”
Of course, the whole procedure is that way. Many of the delayed tax increases will never see the light of day. They’re only in the legislation so that it meets the $70 billion tax cut limitation; if the tax cut were larger than that, the bill would be subject to a fillibuster in the Senate. It cannot be fillibustered.
For more information:
Text of the Bill (HR 4297);
Los Angeles Times News Story;
Roth Tax Updates Post;
and TaxProf Roundup on the legislation.
A man condemning the income tax because of the annoyance it gives him or the expense it puts him to is merely a dog baring its teeth, and he forfeits the privileges of civilized discourse. But it is permissible to criticize it on other and impersonal grounds. A government, like an individual, spends money for any or all of three reasons: because it needs to, because it wants to, or simply because it has it to spend. The last is much the shabbiest. It is arguable, if not manifest, that a substantial proportion of this great spring flood of billions pouring into the Treasury will in effect get spent for that last shabby reason.
Rex Stout wrote this in 1948 (And Be a Villain). It’s arguable that little has changed.
The Congressional Pig Book was released yesterday by Citizens Against Government Waste. You can find this year’s book here. Here are some of the lowlights (randomly pulled):
I deliberately chose only items under $1,000,000. There are plenty over $1,000,000. Like $6,435,000 for wood utilization research. $1,000,000 for the Waterfree Urinal Conservation Initiative. Talk about money down the drain.
I urge you to read this list. Further, you should talk to your Congressional representatives so the amount of pork shrinks to a managable level. Go to Porkbusters and help with the cause. Remember, your tax dollars are at work!
According to the Wall Street Journal, the 2007 budget has $513,000 allocated to set up a “dynamic analysis” unit within the Department of the Treasury. Currently, the Congressional Budget Office uses static analysis to determine the impact of proposed changes in the Tax Code. The idea behind dynamic analysis is that tax changes can impact behavior.
News Story: Wall Street Journal [Paid Subscription Required]
The NAEA alerted me to a new act under consideration in my old home, Washington state. Acting on the success of the Tennessee Crack Tax, two legislators in Washington have introduced similar legislation. The act, if passed, would impose a stamp tax of $50.00/gram of cocaine, $200/gram of “other controlled substance or low street-value drug that is sold by weight,” $31.70/gallon (or fraction thereof) of illicit alcoholic beverages sold by the drink, and $12.80/gallon of illicit alcohoic beverages not sold by the drink.
You can find the text of the proposed legislation here.
The Senate’s top Democratic tax writer declared that the Tax Reform Report issued last year is dead on arrival. “That thing’s dead. That’s dead, Mr. Secretary,” said Max Baucus, D-MT.
When the panel’s recommendations came out last year, that’s exactly the same thing that I said; these “reforms” stood no chance of passage.
