Taxable Talk

Measure S is titled the City of Irvine Personal Information Privacy Act. The City Attorney’s analysis states that measure S will comply with state and federal privacy regulations. Proponents believe this measure will aid in privacy for Irvine residents. Opponents argue that the measure is a secrecy ordinance that is unconstitutional under the California constitution.

Remember to Vote on Tuesday.

There are lots of advertisements on local television for Measure R…but they’re for Los Angeles County Measure R. In Irvine there is also a Measure R that’s far different than the Los Angeles County R.

Irvine Measure R would adopt the City Council’s recommendations for the Great Park. According to the city attorney’s analysis, the measure should keep separate funds for the Great Park.

Proponents of the measure state that the measure will protect Irvine taxpayers. Opponents argue that the proponents have already spent $115 million of the $200 million allocated for the project and if the measure is approved other taxpayer funds could be tapped.

[Note: Because the Orange County Sample Ballot is interactive, I cannot link to it. If you are an Orange County voter, go to this site to read it.]

Measure J on the Orange County Ballot would require voter approval of county pension changes. Proponents of the measure believe it would help protect taxpayers and would prevent possible future pension meltdowns. There is no organized opposition to the measure.

Remember to vote on Tuesday.

There are many reasons to vote for a candidate for President. Even though taxes are important they may not be, for you, the most important issue. I strongly advise everyone to review both candidates’ records, their views, and their character, and make your decision. And do vote—we’re blessed in the United States to be able to exercise the privilege.

That said, there are major differences between the two candidates on taxes. (Though I have opinions on other issues I’m only an expert on taxes. I’ll leave the other issues for you to research.) Both candidates promise tax cuts. Senator Obama is generally against extending the Bush tax cuts while Senator McCain want to extend them. Senator Obama has about a trillion dollars worth of new programs; he hopes to fund these by “closing loopholes” and likely by cutting military spending. Senator McCain proposes fewer new programs but his revenue collections would be lower.

Actually, all of this misses an important issue—perhaps the most important issue of all. Under the Constitution, all tax legislation must start in the House of Representatives. Under the rules of the House, said legislation will start in the House Ways and Means Committee. The chair of that committee, Congressman Charles Rangel (D-NY) will end up dictating, to a large degree, what gets in the bill. And here we can look at history to see what this will be like.

In 2007 Congressman Rangel proposed a major tax overhaul. His plan was purportedly revenue neutral. We’re likely to see legislation similar to this. In some ways this looks like Obama’s proposals; in other ways it doesn’t. The major changes (many of which are positive) impact businesses.

So what’s likely to happen if Obama wins? First, the Bush Tax Cuts will die in 2011. There’s no way they can pass Congress, and even if that happened Obama would veto them. That means everyone will have a tax increase in two years.

Second, we’re likely to see even more income redistribution. Wealthier taxpayers will be more heavily taxed. Under Rangel’s 2007 proposal marginal tax rates would have exceeded 50% for the wealthiest taxpayers. Expect that to occur, and this will definitely hurt small businesses and the economy at large. Taxes are just another cost, and if taxes increase, either prices will increase or expenses will be cut. Generally, this will lead to lower employment.

Third, assuming Republicans have more than 40 seats in the Senate the proposals will require GOP support to pass. This will blunt somewhat their impact.

Fourth, given that the Democratic leadership in Congress is far to the liberal side you can throw Obama’s $250,000 figure into the trash can. Today, Governor Richardson stated that the real number is $120,000. In my previous post I said it was $125,000. No matter, it’s not $250,000.

No matter who is elected I do expect a permanent estate tax exclusion to be agreed upon. I expect it to be $3 million, with the estate tax being 50% above that figure. Both Obama and McCain want to see permanency here, so this is the one area where I actually expect bipartisanship to rule.

If McCain is elected the extreme redistribution plans are dead. There’s no way McCain would sign such legislation.

McCain would be able to veto legislation with earmarks, and the Democrats would not have enough votes to override the vetoes. Thus, that’s one plank of McCain’s program that would go through (and it’s a big positive).

The rest of McCain’s proposals would likely never pass unless the American people rose up and forced the issue. They did this in Ronald Reagan’s first term, and he was able to get a major tax proposal through Congress. I think that today’s legislators are far more dogmatic in their stances and I don’t see that happening.

If Obama wins I’ll have more business. Joe Kristan wrote an excellent post on what happens when the top tax rate is increased. It’s extraordinarily harmful to small business, and I don’t like that.

I wish one candidate would have proposed a huge simplification of our Tax Code. Ideally, I’d like to see a flat tax. Yes, it would drastically decrease my business but there are many other things I could do. Regrettably, neither candidate is proposing anything like that.

Instead, we have a choice between change that would harm the economy and likely gridlock. At least with gridlock we’re probably not going to get a worse Tax Code.

This is the second of a three-part series on the Presidential candidates. Today I take a look at what Senator John McCain proposes in his tax plan.

Here are the basics of what Senator McCain proposes (most of the following is taken from John McCain’s web site):
1. Keep Tax Rates Low. Senator McCain proposes keeping the current tax rates.
2. Phase out the Alternative Minimum Tax (AMT).
3. Lower the corporate tax rate from 35% to 25%.
4. Allow businesses to fully expense first year equipment and technology expenses.
5. Add a credit for businesses equal to 10% of wages that are spent on Research & Development.
6. Ban taxes on the Internet.
7. Ban new taxes on cellular phones.

John McCain also proposes to eliminate wasteful spending. Senator McCain wants to balance the budget by 2013 (conveniently right after his term in office would end).

Senator McCain’s health care plan involves eliminating the deductions for health care (mainly a business/corporate deduction) and replacing these with tax credits. For most Americans this would equate to a slight savings (based on after tax dollars).

Senator McCain wants, “a one year spending pause. Freeze non-defense, non-veterans discretionary spending for a year and use those savings for deficit reduction.”

Senator McCain has stated on various occasions he’d like to see the inheritance tax exclusion at $5 million. He has also publicly stated that he’s for extending the Bush tax cuts.

Unlike Senator Obama’s plans (which are somewhat detailed on his web site) Senator McCain’s plans are not as detailed. Perhaps that’s because he’s proposing far fewer new programs (and, thus, a much lower need of new revenues) and is actually proposing things like cutting all earmarks.

Yet without the meat it’s difficult for anyone to do anything but give a broad critique. No one likes to be pinned down and as I mentioned Senator Obama is as guilty as Senator McCain. Still, I think it’s a worthwhile exercise to see where Senator McCain’s policies on taxes would likely lead.

First, while I’d love to see corporate tax rates fall (since corporate taxes are always passed on to consumers, cuts in corporate tax rates always benefit consumers) I don’t see that happening. Most Americans are unaware of the economic impacts of corporate taxes, and most politicians like to criticize corporations.

Second, attempting to balance the federal budget is a worthwhile goal. Yet without major cuts in multiple programs it just can’t happen. Add in a probable recession (which will likely lead to more government spending) and you have an impossible goal. Senator McCain’s head is in the sand on this issue.

The one proposal of Senator McCain’s that I hope whoever is elected implements is the vetoing of all bills with earmarks. A million here and a million there and you soon have a leak in the system, so to speak. Will Senator McCain follow through on this if he’s elected if Senator Smith puts in a $10 million earmark on the defense appropriations bill? I’m actually optimistic on this issue.

But I think all legislators need to look at fiscal discipline. That’s a goal of Senator McCain’s but I don’t see it as a goal of many in Congress.

Yet Senator McCain proposes billions in tax cuts (according to the non-partisan Committee for a Responsible Federal Budget, it’s about $450 billion). Eliminating the AMT is a good goal, but where is the federal government going to replace that revenue? Sure, if enough federal programs are cut the revenue wouldn’t be needed but how often have you seen a federal department or program eliminated?

I don’t see many (any?) of Senator McCain’s proposals getting through an ideological Democratic Congress. That isn’t so bad—we’d have the current (flawed) system. Senator McCain also hasn’t identified any programs that he would eliminate (save earmarks). Cutting earmarks would save maybe a billion dollars, but that’s nowhere near enough money to fund his programs. Just saying that you are going to conduct a review of all programs (which will cost money, of course) and that there will magically be some that can be eliminated borders on wishful thinking.

Still, Senator McCain has some good ideas. The devil is in the details, and those are lacking today.

In part three I’ll examine the two candidates side-by-side. I’ll also note the impact that Congress will certainly have on each candidate’s goals.