Tag: tax increases

It Depends on What the Meaning of “Tax” Is

The print edition of the Washington Post and the online Real Estate home page feature this headline:

Debunking rumors of a housing sales tax

The article begins:

Rumors are flying that the health-care legislation Congress passed this year will impose a sales tax on all real estate sales.

So I’m thinking, OK, more crazy Glenn Beck tea-party stories about mythical Obama tax hikes, and the Post is going to debunk them. Then I keep reading:

But the rumors are based only partly on fact. Although there is a new tax, it will not apply to everyone, and existing tax breaks for home sales will remain in place.

The Health Care and Education Reconciliation Act of 2010, which President Obama signed into law March 30, is comprehensive and complex. Section 1402, “Unearned Income Medicare Contribution,” imposes a 3.8 percent tax on profits from the sale of real estate – residential or investment.

But the levy is aimed at high-income taxpayers, leaving most people untouched. And it will not take effect until Jan. 1, 2013.

Let’s look at the facts of this new law.

First, it is not a sales tax, nor does it impose any transfer or recordation tax. It is called a Medicare tax because the money received will be allocated to the Medicare Trust Fund, which is part of the Social Security system.

Next, if your adjusted gross income is less than $200,000, you are home free….

How is the tax calculated? Through a complex formula that could be called “the accountants’ protection act.” As a taxpayer, you (or your financial adviser) must determine which is less: the gain you have made on the sale of your house, or the amount by which your income exceeds the appropriate threshold.

So let’s recap here. Post contributor Benny Kass promises to “debunk” the “rumors” that “the health-care legislation Congress passed this year will impose a sales tax on all real estate sales.” And he concludes, “In the meantime, don’t believe the rumors.” But in fact the health-care law did include a new tax on real estate profits. It’s not exactly a sales tax, and it won’t apply to most people. But the only real inaccuracy in the “rumors” that he said “are flying” was the word “all.” It’s only a 3.8 percent tax on some real estate sales, no doubt only a minority of sales, though perhaps affecting more readers of the Washington Post Real Estate section than people in less-affluent regions where housing prices didn’t soar and then remain high. Frankly, I’ve seen more effective debunkings.

This “rumored” real estate tax is also discussed on page 20 of Michael Tanner’s new study “Bad Medicine: A Guide to the Real Costs and Consequences of the New Health Care Law.” But if you’re really going to try to understand the new health-care legislation, you may want to clip the Kass article to keep with your copy of the Tanner paper, as no one study can guide you through every detail of a 2000-page law. Journalists and HR experts will be kept busy for years tracking down every sub-reference and interaction in the bill.

Top House Democrat Calls for Middle-Class Tax Hikes (and the real reason why)

Smart statists understand that there are very strong Laffer Curve effects at the top of the income scale since investors and entrepreneurs have considerable ability to control the timing, level, and composition of their income. So if higher tax rates on upper-income taxpayers don’t collect much revenue, why is the left so insistent on class-warfare taxation? The answer, I think, is that soak-the-rich taxes are a “loss-leader” that politicians impose in order to pave the way for higher taxes on the middle class. Indeed, I made this point in my video on class warfare taxation, and noted that are not enough rich people to finance big government. As such, politicians that want to tax the middle class hope to soften opposition among ordinary people by first punishing society’s most productive people. We already know that tax rates on the so-called rich will jump next January thanks to higher income tax rates, higher capital gains tax rates, more double taxation of dividends, and higher death taxes. Now the politicians are preparing to drop the other shoe. Excerpted below is a blurb from the Washington Post about a member of the House Democratic leadership urging middle-class tax hikes, and let’s not forgot all the politicians salivating for a value-added tax.

Tax cuts that benefit the middle class should not be “totally sacrosanct” as policymakers try to plug the nation’s yawning budget gap, House Majority Leader Steny Hoyer (D-Md.) said Monday, acknowledging that it would be difficult to reduce long-term deficits without breaking President Obama’s pledge to protect families earning less than $250,000 a year. Hoyer, the second-ranking House Democrat, said in an interview that he expects Congress to extend middle-class tax cuts enacted during the Bush administration that are set to expire at the end of this year. But he said the extension should not be permanent. Hoyer said he plans to call for a “serious discussion” about the affordability of the tax breaks. …The overarching point in Hoyer’s remarks is the need for a bipartisan plan that includes spending cuts and tax increases, in the tradition of deficit-reduction deals cut under former presidents George H.W. Bush and Bill Clinton. Drafting such a plan would require a reexamination of tax cuts enacted in 2001 and 2003, Hoyer says – cuts that benefited most taxpayers.

Chilean Government Now Wants Higher Taxes on Junk Food

Following Rahm Emmanuel’s advice of not letting a crisis go to waste, the new center-right government in Chile now wants to extend the permanent rise in tobacco taxes—supposedly adopted as a measure to finance post-earthquake reconstruction—to foods with high concentrations of salt and trans fat [in Spanish]. Jaime Malañich, the Health Minister, said that the earthquake is opening up an opportunity to implement a measure that would increase the government’s revenue and fight obesity and that has been considered for many years.

My colleague Ian Vásquez wrote a few days ago that, by announcing unnecessary tax increases as post-earthquake reconstruction measures, the recently-inaugurated administration of Sebastian Piñera was quick to disappoint those who expected a bold move toward strengthening free market policies that have made Chile a Latin American success story. If these announcements are any guide, expect more disappointments.

Conrad’s Budget Proposal

Senate Budget Committee chairman Kent Conrad has released his budget plan for the next five years. The following are some thoughts on the proposal:

  • Conrad proposes total federal spending for FY2011 equal to 25 percent of GDP, which would match the current fiscal year’s post-war record.
  • Conrad says his proposal will cut spending as a share of the economy by 11 percent. This sounds okay until you realize that out-year spending would still be substantially above the norm at 22 percent of GDP.
  • Conrad says his plan will cut the deficit as a share of the economy by 70 percent. But he’s starting from a Mount Everest-sized deficit of $1.4 trillion this year. Besides, his projected deficits for the next five years would add another $3.9 trillion to the debt.
  • Conrad gets to his lower future deficits through tax increases. In addition to marginal tax rate increases on singles earning over $200,000 ($250,000 for couples), the alternative minimum tax would increase starting in 2012, and estate taxes in 2011. Conrad says “lawmakers will have to find revenues elsewhere in the budget” to provide AMT and estate tax relief in future years. Assuming Congress doesn’t suddenly find the gumption to offset the tax relief with spending cuts, more debt or tax increases elsewhere will be its solution.
  • Conrad includes Obama’s proposal to freeze non-security discretionary funding for three years. Unfortunately, this segment of spending only amounts to 13 percent of the budget. As Chris Edwards has pointed out, actual spending will be higher as previously authorized stimulus spending sloshes forward.
  • Conrad supports throwing more taxpayer money down the drain for failed federal experiments like education and Head Start.
  • Conrad’s proposal includes a $2 billion reconciliation instruction, which could be a vehicle for getting more big government with 50 Senate votes. Last year’s budget resolution also contained a $2 billion reconciliation instruction that was used to facilitate passage of the gargantuan health care bill.
  • With regard to the nation’s long-term fiscal woes, Conrad punts the ball to the president’s National Commission on Fiscal Responsibility and Reform. But this commission might be just a stalking horse for huge tax increases, which aren’t “responsible” and isn’t “reform.”

In sum, there’s not much difference between Conrad’s proposal and the President’s. Both would continue the massive spending, deficits, and debt that are bankrupting the country.

Kent Conrad and Fiscal Federalism

Senator Kent Conrad (D-ND) has a reputation for being a “deficit hawk.” But the bar is apparently so low in Washington that merely paying lip service to “fiscal responsibility” is enough to earn you the hawk title in the press. In reality, Conrad is a tax and spender as a story in today’s Wall Street Journal demonstrates.

These examples illustrate Sen. Deficit Hawk’s commitment to deficit reduction and fiscal responsibility:

  • “Like many in Congress, he is conflicted. He boasts a 23-year record of looking after North Dakota voters with ample farm subsidies, aid for drought-hit ranchers, defense spending and scores of pet projects. He has done little to help rein in Medicare and Social Security expenses—the U.S.’s biggest budget busters.”
  • “He has been a defender of the state’s grain farmers ever since [his election to the Senate in 1986]. He voted last April against a proposal to cap federal payments to the nation’s farmers at $250,000 per farmer per year, a measure that Mr. Conrad criticized as disastrous but that supporters said would have saved $1 billion a year.”

  • “He also helped draft a five-year, $300 billion farm bill in 2008 that boosted overall farm subsidies. The bill created a $3.8 billion emergency ‘trust fund’ for farmers who lose crops or livestock to natural disasters, which was Mr. Conrad’s idea. Since 2008, North Dakota ranchers have received $23 million under the fund, second only to Texas.”
  • “Mr. Conrad also has used legislative earmarks—provisions inserted into bills by lawmakers to fund local projects—to deliver federal money to North Dakota businesses, cities and schools. He secured $3 million last year to build a new terminal at the Grand Forks airport, and $13 million more for a fire station at a nearby air base. Dickinson State University got $600,000 to build a Theodore Roosevelt Center, while a Navy research project got $1.2 million to develop a ‘chafing protection system.’ ”
  • “In 2003, Mr. Conrad joined most Democratic senators to support Mr. Bush’s plan to provide Medicare prescription-drug coverage to seniors, at a cost of around $40 billion a year. The plan required Congress to scrap the spending controls Mr. Conrad once championed. Republicans won the votes of Mr. Conrad and other rural senators by agreeing to expand the program by pumping $25 billion more into rural hospitals and doctors over 10 years.”
  • “Mr. Conrad helped negotiate the 2005 highway bill, which critics blasted as a bipartisan exercise in spending excess. The $286 billion bill contained 6,371 earmarks. Even before Mr. Bush signed it, Mr. Conrad told constituents that the bill would deliver $1.5 billion to North Dakota communities. ‘That equates to North Dakota receiving $2 for every $1 in gas tax collected in the state,’ Mr. Conrad said in a news release.”

It would appear that Conrad doesn’t really want to cut spending to rein in deficits. He wants to increase taxes. One might think a proponent of tax increases in a red state like North Dakota would struggle at the ballot box. However, the Wall Street Journal article cites Tax Foundation data showing that North Dakota receives $1.68 in federal spending for every $1 it sends to Washington in taxes. In other words, Conrad’s tax increases would allow him to buy more votes at the expense of taxpayers in other states.  A North Dakotan is quoted as saying, “The joke here is that we elect conservatives to state office because we don’t want them to spend our money, and liberals to national office because we want them to spend other people’s money.”

This is a precisely why a return to fiscal federalism is crucial to getting spending-driven deficits under control. In the meantime, let’s stop calling politicians who want to spend more money and increase taxes to pay for it “deficit hawks” or “fiscally responsible.”

Democrats’ Voracious Search for New Tax Revenue

Last year I tried to compile a list of all the taxes President Obama and his allies were maneuvering to impose. But each week brings new ideas. Just recently we’ve heard about a bank tax, applying the Medicare tax to capital gains and other “passive” or “unearned” income, raising the Medicare tax rate, raising or broadening the capital gains tax, an income tax “surtax,” a tax on tanning – and of course the tax on private health insurance to pay for the expansion of government insurance has moved to the top of the list.

And all of these on top of these ideas proposed or publicly floated by President Obama and his aides and allies:

Back in July the Wall Street Journal reported:

President Barack Obama’s health-care plan is in jeopardy because of serious concerns that costs will spin out of control. As much as anyone, it’s White House budget director Peter Orszag’s job to save it…

After his TV appearances, he went straight to the Senate Finance Committee, where he spent three hours with committee aides brainstorming about how to pay for the trillion-dollar legislation. At one point, they flipped through the tax code, looking for ideas.

Flipping through the tax code, looking for ideas on how to relieve us of more of our money. That’s a great visual of Obama’s Washington. President Obama and his allies look at the vast abundance in America, and all they see is wealth that they don’t yet control. It annoys them. They could do so much good with that money. How dare bankers and businesses, farmers and entrepreneurs, widows and foundations hold tight to their wealth, when government has so many plans to fund? “Let’s go and get it from those who’ve got it,” they cry, in the immortal words of Sen. Barbara Mikulski.

But perhaps Thomas Jefferson’s words are even more immortal and equally applicable: “He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our people, and eat out their substance.”

Obama’s Health Tax Conundrum

As President Obama is finding out, spending a trillion dollars on health care reform is easy; paying for it is a bit harder. 

Both the House and Senate versions contain huge tax increases.  But they take completely different approaches toward which taxes are hiked and who would pay them.  And, as President Obama discovered in yesterday’s contentious meeting with labor bosses, those differences will not be easy to resolve.

The Senate wants to slap a 40 percent excise tax on so-called “Cadillac” insurance plans, that is plans with an actuarial value of more than $8,500 for an individual and $23,000 for a family.  The tax technically falls on the insurance company that offers the plan, but there’s widespread recognition that insurers will merely pass that tax on to their customers in the form of still-higher premiums. The Congressional Budget Office estimates that initially about 19 percent of insurance plans would be subject to the tax, and union surveys suggest that it could hit as many as 25 percent of union workers.  Moreover, as inflation drives costs higher, more and more plans will be subject to the tax.  That is because the threshold for the tax is indexed to general inflation not medical inflation which runs higher. 

As today’s Washington Post editorial points out, economists and deficit hawks see this measure as one of the few cost-control provisions left in the bill.  Its goal is not just to raise some $150 billion in revenue over 10 years, but to discourage the type of “gold plated” insurance plans that encourage over utilization and drive up costs.  That is why the Obama administration has endorsed this approach.

However, as labor leaders made clear in yesterday’s meeting with the president, this middle-class tax hike is unacceptable.  AFL-CIO president Richard Trumka has even threatened to retaliate at the polls against Democrats who vote for it.  In addition, 124 House Democrats have signed a letter opposing the “Cadillac tax.”  With just a three vote margin, House Speaker Nancy Pelosi cannot afford to have any defections from tax opponents. 

The House, on the other hand, has gone with a “soak the rich” strategy, calling for a surtax on incomes of $500,000 or more a year.  But Democrats already plan to allow the Bush tax cuts to expire next year, raising income taxes for millions of Americans.  An income tax surtax on top of that would mean marginal tax rates of more than 50 percent in many states with devastating consequences for economic growth.  Moderate Democratic Senators like Ben Nelson (Neb.) and even liberals from states with high cost of living like Chuck Schumer (NY) are unlikely to go along with this tax.  And, in the Senate, Democrats can’t afford even a single “no” vote. 

The conventional wisdom in Washington is that a health care bill is inevitable.  But if the growing fight over taxes is any indication, inevitability is overrated.