Archive for the Taxation Category

The Economic Surge: Pushing On A Rope (February 11, 2008)

Posted in China, Debt/Deficits, Economics, Taxation on February 11, 2008 by e-commentary.org

The proposed “economic surge” seeks to inject about $150 billion into the economy.  Some note that the $150 billion will be borrowed from China to buy toys and other goods from China.  They give us the dollars and the goods.  They have the goods on us.  And the dollars.  Business as usual.

Some observe that the recent rise in gasoline prices has increased the cost of living for citizens by about $150 billion.  They say that the economic surge will offset that expenditure.  However, the additional payment for gasoline should be seen as a direct payment–foreign aid–to many dangerous political regimes.  The U.S. is directly funding terrorist activities rather than taxing gasoline and both keeping the additional taxes and reducing consumption of oil.  [See the e-ssay dated December 18, 2006 entitled “Pass The ‘Terrorist Tax’”].

Few are saying that the $150 billion dollar economic surge is a tax.  It is a tax.  It is a tax on the kids.  The “Kid Tax” is more important that the “Terrorist Tax.”

The problem with the economic surge is that it is a chimera.  The Federal Reserve action may prevent a panic on Wall Street in the short term, yet it is creating a greater problem on Main Street now and in the intermediate run.  The fundamental problem is not just the number of dollars available for circulation in the economy, it is the individual consumers who are the fuel of the economic engine.  The public, like its government, is spent.  All are in debt up to their tonsils.  More debt, private and public, is not the intermediate run answer.  The lowered interest rates are creating a disincentive for saving when everyone of every political strip states that we should be saving.  The impact of lower interest rates is being felt again by the elderly who are now earning less.  [See the e-ssay dated April 25, 2005 entitled “Our Friend The Fed”].

Bumper sticker of the week:

They matter (Budget Deficits, Personal Deficits, Trade Deficits)

Housing And The IRS (August 27, 2007)

Posted in Housing, Taxation on August 27, 2007 by e-commentary.org

Taking the first of what may be a dozen steps to address the housing collapse cannot be done until the extent of the addiction is admitted.  Looking up and around and conceding the truth might create panic.  The monthly mortgage payments must be made this month, and next month, and next month, and next month, and next month, and next month, and next month, . . . . . . . . . . . . and then they are adjusted upwards and must be paid the next month, and next month, and next month, and next month, and next month, and next month . . . . . . . .  and yet there is little money to make the payments.  There are no easy solutions.

The Internal Revenue Code should be amended to eliminate the tax on debt forgiveness.  Few taxpayers realize that a debt forgiven either by the action of the creditor or a foreclosure or the like is still considered taxable income by the IRS.  The New York Times recently ran an article discussing the tax provision and its consequences for taxpayers who have lost their homes.  Individuals either must file bankruptcy at the right time or prove insolvency.  Eliminating the tax would perforce reduce tax revenue, although the provision is not taxing what most individuals generally and reasonably regard as income.

Pursuant to section 121 of the Internal Revenue Code, if a taxpayer lived in a “principal residence” for two out of the five year period before it is sold, the taxpayer can exclude up to $500,000 of gain if married and filing a joint return or up to $250,000 of gain if filing a separate tax return.  There should be some consideration to changing the residency requirement to five out of the ten year period before the residence is sold.

The mortgage interest deduction is the last major tax relief for the middle class.  The interest deduction for other consumer purchases was eliminated years ago.  Taxpayers simply refinanced their homes, used the funds for consumer purchases and took one obese mortgage interest deduction.  (See the e-ssay dated February 7, 2005 entitled “The Microeconomics of Suburban Subsistence”).  The deduction phases out at higher income levels.  Revisiting and fine tuning the deduction seems prudent.

These suggestions are not adequate.  There are no easy solutions.

Bumper sticker of the week:

It will get worse

Pass The “Terrorist Tax” (December 18, 2006)

Posted in Gas/Fossil Fuel, Global Warming, Taxation, The "Terrorist Tax" on December 18, 2006 by e-commentary.org

Tax terrorists.  By taxing gasoline.  The tax should be implemented incrementally to allow adjustments to spending and driving habits and raised enough to reduce demand purposefully.  Americans are directly financing hostile political activities because dinosaurs made the unfortunate decision to die in regions that sprouted unfriendly regimes.  Profits from the sale of gas profit some terrorists.  That must stop.

The consumption of much gas in America really does not result in the production of any goods or services; other countries consume gas to produce goods and services.  Consuming gas while driving to work results in the production of some goods and services, yet driving alone is inefficient.  Gas must be used more efficiently.  The market is the answer.

The market will respond in particular if there is certainty that the tax increase is permanent.  The higher resulting price for gas alone will spur research and investment into other sources of energy without the need to create any additional specific tax credits and deductions.  (There should be a concensus that the Terrorist Tax is not to be coupled with any specific tax credits or deductions.  Otherwise, a lobbyist will grab a representative’s ear and obtain an earmark for some pet technology that may not otherwise be marketable.)  The tax revenue can be used to address our obscene national Debt of almost Nine (9) Trillion ($9,000,000,000,000.00) dollars or for other purposes.

To his credit, Bush spurred debate by noting in his State of the Union address that America is “addicted to oil.”  “Addicted to Oil” is a documentary narrated by Thomas Friedman addressing the world’s competition for a decreasing pool of crude oil.  “A Crude Awakening – the Oil Crash,” a recent film directed by Basil Gelpke and produced by Ray McCormack, explains why the collision of insatiable demand for oil and the “limits of geology” is producing dire consequences.  Others have written about the problem; see the Internet.

Others have made the argument that taxes must be increased.  Mr. Friedman has championed the cause for years.  Dispensing credit for the idea is less important than selling the idea to the public.  Implementing the tax is economically and politically painful, yet failure to implement the tax is economically and politically fatal.  Paying a substantial tax on gas is one of the most patriotic sacrifices each one of us could make.  Convincing the American public to accept the “Terrorist Tax” will require astute and bipartisan statesmanship.  Those Americans who believe that taxes should be raised during a time of war may be the first to enlist in the campaign.  Present it as a tax that provides a double punch.  A single dollar provides a double return because we keep it and the terrorists don’t get it.

There is only one person who could pull it off in the short term.  Bush could shock the world by announcing the Terrorist Tax as a means to 1) deny funds to Terrorists, 2) confront global warming, and 3) generate much needed revenue.  The sales campaign requires an observation that some sympathetic countries provide oil to the United States; this country does not need to generate more enemies.  “Tax Terrorists Today.”

When the Bubbles Burst (December 4, 2006)

Posted in Economics, Housing, Taxation on December 4, 2006 by e-commentary.org

When the technology bubble burst in March, 2000:

     1.     Individual investors who had invested post-tax or pre-tax (SEP; IRA; 401(k), etc.) funds often were left with marginal or worthless investments;
     2.     The invested funds were transferred to those individuals, usually Americans, who were clever or tenacious enough to sponsor an ipo (“initial public offering” of stock) and offer their “blue sky” ideas to the public;
     3.     They spent some of the money on yachts, polo saddles and large vacation homes and likely on other productive investments that spurred economic growth;
     4.     A few of the ideas endured, gained traction and contribute to growth and productivity today;
     5.     The taxes on the economic expansion resulted in more bountiful federal and state treasuries for a time;
     6.     The investors who lost money soldiered on and consciously or unknowingly delayed some purchases and/or other investments and deferred their retirements by a few years; and 
     7.     Life went on.

Direct tax impact:  The federal and state governments taxed the earnings each year and added substantially to their coffers.  The decline after March, 2000 negatively impacted federal and state revenue.  The local governments typically do not tax earnings; a few may have benefited from revenue sharing provided by the state.  Some taxpayers are able to take capital losses of up to $3000 a year on their federal returns which impacts somewhat on federal tax revenue.

As the real estate bubble deflates and bursts today:

     1.     The last domestic American industry (the real estate industrial complex) which was jump-started by the Fed (Federal Reserve) in 2001 ran its course by 2006 [See the e-ssay dated April 25, 2005];
     2.     Many houseoccupiers are saddled with investments they are not be able to afford particularly those who purchased at the peak with interest-only or adjustable rate mortgages (ARMs) and those who used the houses as an ATM (automatic teller machine) to finance other purchases [See the e-ssay dated February 7, 2005];
     3.     The size of the average house may be too large for the typical family, unless the house is occupied by two or three generations of a family [See the e-ssay dated April 24, 2006];
     4.     The house likely is not as energy-efficient as economically possible and desirable which is impacting and will impact the economy/environment for decades [See the e-ssays dated May 8 and June 19, 2006];
     5.     The structures are in the nature of durable consumer goods not productive investments that provide jobs and growth; 
     6.     The financiers, both domestic and foreign, likely will confront many foreclosures and suffer substantial uninsured losses;
     7.     The resulting dislocations and forced moves will weaken families and undermine community ties and involvement (PTAs, Little Leagues, etc.);
     8.     The Bankruptcy Code is now a more expensive and inaccessible safety valve [See the e-ssays dated March 21, 2005 and October 16, 2006];
     9.     Consumer spending remains the double-edged sword because it drives current economic growth but also increases personal debt owed to foreign nations [See the e-ssay dated January 17, 2005];   
     10.     The taxes on the appreciation in the value of real property filled local and some state treasuries while negatively impacting federal tax revenue slightly; 
     11.     The federal deficit and debt are growing exponentially while the unfavorable trade deficit continues to expand;
     12.     There is no other major domestic industry to stimulate; and 
     13.     Life will go on, because it goes on; however, it will go on very differently.

Direct tax impact:  The federal government does not tax real property, but it does allow homeowners to write-off local and state property taxes which may cost the federal government as much as 20 billion dollars a year.  State governments typically do not tax real property.  Local governments typically tax real property and received a tremendous influx of funds from the inventory of more expensive real property within their jurisdictions.  However, as the value of the houses declines, the local tax revenue will decline.  

The “Marketplace” radio program produced by American Public Media and available on National Public Radio presented a program “Local budgets rise and fall with housing” on November 29.  The program notes that the public desires roads without pot holes and safe streets without additional tax increases.  “This dilemma is motivating some like [Scott] Peterson [with the National Association of State Budget Officers] to look at how governments are funded: cities and counties mostly count on property taxes.  States, on the other hand, tend to rely on sales and income taxes.  And it was just a couple years ago that states battled horrible budget crises as those revenues plummeted after 9/11.  Peterson believes it shouldn’t be boom for one and bust for another.  So he’s taking a tax proposal to Indiana’s state legislature that would allow local governments to also charge sales or income taxes if they cut back on property taxes.  The state, in turn, would get a share of cities’ property taxes.  These are big new ideas.” 

Bumper stickers of the week:
 
If it can’t go on forever, it won’t.

If it sounds too good to be true, it is.

Death and Taxes: $10 M and 33 1/3 % (April 18, 2005)

Posted in Economics, Entitlements, Estate Tax, Taxation on April 18, 2005 by e-commentary.org

(Now that the taxes are filed, it is time to deal with death)

Ben F., the key and kite guy, observed that there are two certainties in life.  Americans are so arrogant that they believe they are entitled to repudiate their mortality, although they do not believe they are entitled to pay for the effort.  Now the Congress wants to repudiate life’s other certainty, the payment of taxes upon death.  Is there no certainty in life?

Estate taxes (E taxes) are paid on the loot before anyone gets their paws on it.  Most Estate taxes are paid to the Feds, although the states will need to reach into the pot and grab a handful to survive in the near future.  Inheritance taxes (I taxes) are paid by the individuals after they get their paws on the lucre.  Most Inheritance taxes are collected by the states, although the Feds savor taxing any income from any source.

Contrary to the suggestions of their phalanxes of lawyers, lobbyists, lackeys, accountants and publicists, the rich often never paid tax on large chunks of their bounty.  Those who can afford almost anything should be afforded the opportunity to be first-class citizens.  Getting by on $10 million per couple and 66 2/3 % of the remaining stash is fair and balanced.  Anything below ten million per couple should be exempt; anything over should be taxed at 33 1/3 %.  A typical $20 M estate would yield $16 2/3 M for the kids.  That is the definition of fairness.  Fooling around with life’s certainties is foolish.  And improvident.

Boycott Red America (January 3, 2005)

Posted in Blue States / Red States, Boycott Series, Economics, Elections, Immigration, Law, Philosophy, Politics, Society, Spending, Taxation on January 3, 2005 by e-commentary.org

The U.S.A. is engaged in an uncivil civil war, a war between the states of mind. At core, the dispute is between urban and suburban/rural Americas, although the voting boundaries are crudely demarcated by state and region. America revealed its true colors once again in the tragic events surrounding 11/2. Cooperation and compromise, albeit usually virtues in these situations, are now futile, counterproductive and self-destructive. A condominium divided against itself can stand. Appomattox condemns unilateral secession but condones voluntary realignment. We as a nation must summon the honesty and courage to hoist a national white flag and agree to realign the red states and the blue states. The blue states should form three Azure Provinces known as the United Provinces of America (U.P.A.). The red states should form the United States of Aggression or perhaps the United States of Fear, Ignorance and Greed (U.S.G.). The red states will demure when they realize that the reds cannot subsist without the massive subsidies funneled to them via the tax dollars confiscated from the blue states. Without a worldwide boycott of red America and diplomatic recognition of blue America, realignment is not possible.

After the realignment, reds can continue to live, work, travel and own property in blue country, and vice versa. Anyone uncomfortable living and working in Paris (Illinois) can travel to Rome (Georgia) and buy property; vice versa for those forced to relocate from Paris (Kentucky) to Rome (New York). For those of us who are out of place, relocating will be wrenching and discomforting. Everyone will be afforded dual citizenship and provided two passports. A red flag with 31 white stars in the field; a score of white stars on a field of blue. “In God we trust” versus “In reason we trust.” Clergy versus clerisy.

Creative individuals can move to U.P.A. and design energy-efficient transportation modules. Pedestrian ones can move to U.S.G. and drive gas-guzzlers in circles. Reds can continue to sell bazookas and grenade launchers at their local pharmacies and hardware stores so that the terrorist at the end of their cul-de-sac can arm himself without delay or an inconvenient background check. Blues remain free to take granddad’s 30.06 from the safe each Fall and wander in the woods in pursuit of the elusive white tail. God knows gays have already suffered enough, but if they really want to get married, they can move to U.P.A. and spark the most massive urban renewal ever accomplished in the history of humankind without visiting the exchequer. U.S.G. can ban with abandon even secular civil unions because everyone knows that queers woke up one Tuesday morning and elected to be that way of their own volition and not because of God’s design.

The blues can reaffirm basic libertarian principles and allow each citizen to control the person’s person. The reds insist on more government dictating personal decisions for others. As soon as a baby crawls out of the hospital and makes a misstep, the reds dispatch the human being with extreme prejudice. Government in the bedroom is far more corrosive of individual rights than in the boardroom. The blues get the original Bill of Rights, because the reds would not even recycle the paper. Custody of the Constitution is joint, although in a few legislative sessions there will be scant resemblance between the two amended versions. Without realignment, the entire U.S.A. will continue to decay and fester to second world status within a generation. With realignment, the Michigan-Ohio State football game immediately becomes an international event of epic proportions. Go Blue.

On March 19, 2003, George Bush triggered World War III. Sans casus belli. America cannot win it, America alone cannot stop it. A group of radical Christian extremists declared war on a group of radical Islamic extremists who were eager to reciprocate. Those who would rather be red and dead should not be afforded the opportunity to absolve the rest of us of our mortality. Bush is skillfully recruiting terrorists for the cause, although he soon will not be able to recruit his own palace guard. U.S.G. will be free to impose a front door Draft on its populace allowing the reds to prosecute the doomed Second Crusades for the next one hundred years. Operation Iraqi Liberation alone will bestow thousands of American deaths, seven-fold that number of disfiguring and dismembering casualties, and a direct economic cost of half a trillion in two years. More than 150,000 innocent Iraqi civilians and brave red-blooded Iraqi freedom fighters will die doing what any red- or blue-blooded American would do if our country were invaded without provocation. Each Iraqi death produces a hydra effect because two more Iraqi patriots commit their lives to the cause.

The reds delude themselves into believing they hate us for who we are; they hate us for what we are doing. The current version of the Constitution does not say: “We must destroy the village to save it.” However, America is deploying tax dollars to destroy the villages and then committing tax dollars to rebuild them. The “Economics of Destruction and Reconstruction 101” is an emerging field. The cost of reconstruction will be twenty-fold the still escalating and untold cost of destruction that we are not being told. Both Fallujah and Flint (Michigan) are being destroyed for no purpose, although Fallujah is slated for urban renewal with a modern subway system and above ground swimming pools. The Secretary of Offense is not astute enough to take one of the few insightful pages from the Vietnam playbook by declaring victory and getting out. With the fires ignited by the U.S.A., the current Dien Bien Phu III will be a mere sideshow and a forgotten incident in a conflagration that the U.S.A. will not be able to lose gracefully.

Use by the U.S.A. of tactical nuclear weapons in the form of spent uranium threatens to beget more nuclear activity. Individuals in the physics departments and in the biology departments of this planet pose a far more devastating threat than kids throwing stones at invaders using nuclear weapons to destroy their homes. At home, the systematic and willful conspiracy to bankrupt the public fisc is a high crime and misdemeanor that does little “to promote the general welfare.” A ten trillion dollar debt should be unconstitutional and alone grounds for immediate impeachment. Taxing to match spending is at least balanced and responsible. Only the reds seem charmed by these prospects.

By contrast, U.P.A. can reaffirm international law and the Geneva Conventions, issue a statement of non-participation in the Second Crusades, and execute a formal memorandum of re-engagement with the world. U.P.A. can assume one of the permanent seats on the Security Council without objection because the reds want nothing to do with U.N. pantywaists. U.P.A. must be liberated and divested to participate with and compete against the two rising colossuses that will define and dominate this century China and the European Union. U.P.A. will “provide for the common defense” by undertaking actions that contribute to the security and well being of the Provinces and the stability of the world. The Blue Provinces could unite with the E.U. to create the Transatlantic Alliance. With a mix of carefully calculated battles cum exeunt and a few shrewd modus vivendi, U.P.A. and the other two political empires may be able to limit or eliminate the causes of dissatisfaction that lead a desperate and rational person to employ terrorist techniques.

The U.S.A. has rarely been more vulnerable or the world less secure. The ruling ayatollah and his cabal of radical religious fundamentalist fanatics in Washington will not tolerate free elections, peaceful regime change or geographic realignment in America. Their devoutly anti-intellectual and anti-intellectually devout fans are in lockstep. However, they say that freedom is on the march. Little Napoleon motivated his own [al] Queda, his base, to continue on the path to world domination or destruction, whichever comes first. The world can and must just say no to the war criminal and his clutch of chicken hawks. Uniting one’s foes and dividing one’s friends (and countrymen) is not sagacious. With a few exceptions, the McMedia of every hue in America are effete, craven, servile and unavailing, but they are pretty. The last hope is for private citizens to unite the world and enlist its assistance to conduct a world economic plebiscite.

The world must boycott red America for one year. No visits to red states or contributions directly or indirectly to their economies. No vacations or holidays or conferences or conventions. Cranberries from the Eastern Province (Massachusetts and New Jersey), the Central Province (Wisconsin) and the Western Province (Washington and Oregon) should be imported and served once a day to support the peace movement. Washington apples but not Virginia apples. California oranges but not Florida oranges. Don’t mix apples and oranges. Oregon pinot but not Tennessee mash. Minnesota corn but not Iowa corn. Wisconsin beer but not Colorado or Missouri beer. Skip Alaska and explore New England and then Hawaii next year. Tour Washington D.C. and find lodging in the city or in Maryland. Spend too much time and money in New York. Circumnavigate the Adirondacks and the Sierras and circumvent the lower Appalachians and the eastern Rockies.

Tender Euros, the peace chits, to blue businesses to symbolize Europe’s permission slips for peace. After some initial resistance, blue Americans may adopt the Euro as their currency. English is the emerging medium of communication for the E.U.; the Euro rightly should emerge as the medium of exchange for the U.P.A. By 2006, the Euro will be the new two dollar bill. Vote for peace in the three Azure Provinces. We can all use Euros to buy the “English/Mandarin” and the “English/Cantonese” dictionaries and launch them to the top of The Beijing Times Best Seller List. Demand that all imported produce and products from the U.S.A. include a state of origin stamp. Provide your kinder with outline maps of the U.S. and crayons of rojo y azul, rouge et bleu, rosso e azzurro, or rot und blau to teach them the boundaries of the two Americas. Send letters and e-mails to the respective secretaries of state and convention bureaus and inform them that you are boycotting the red states.

On a grander scale, if the central banks in Europe (ECB), Japan and China create a true Coalition of the Willing and demand that the U.S.A. withdraw from its international excursions or face complete withdrawal of all financial support for and funding of the U.S.A., there will be change. Those who carefully save in Frankfurt (Germany) can save those who spend wildly in Frankfurt (Kentucky). The Coalition must implement this new and improved version of the Marshall Plan and impose a revised Containment policy to restrain and quarantine the red menace in this rogue nation. International economic sanctions will succeed against the American war machine impatient to unleash more of its weapons of mass destruction against the world. A trillion dollar (Euro?) economic impact in one year likely will garner some attention.

During its glory days, America was a generous and magnanimous Republic that came to the world’s aid in times of need and trouble in so many ways. We sane Americans now must ask the rest of the world to come to our aid. Diplomatic recognition of blue American is critical. You can save blue America and the rest of the world, and red America. Boycott red America now. Billions of lives and livelihoods are at stake. In due course, the boycott can be finessed to focus on the specific enterprises that advance the apocalypse. Thank you kindly in advance for your assistance and sacrifice in saving the world.