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The United States used to have comparatively low corporate taxes relative to the rest of the world. No longer. Over the last 20 years, as other countries lowered their tax rates to encourage business growth, we stood still. In fact, since 2006, some 75 countries have cut their corporate tax rate. http://bit.ly/j10TcR Today, the United States has the second-highest corporate tax rates in the world, second only to Japan. http://bit.ly/i88DHe Our combined corporate tax rate (federal, state and local) stands at 39.4% while the average corporate rate for the rest of the world is nearly 26 percent. http://bit.ly/b9dZIL
If Congress does not act soon the already unraveling social safety net created by the New Deal and Great Society programs will be no more within our lifetime. In fact, according to the government programs’ trustees, Medicare's trust fund will run dry in 2024, and Social Security's will be exhausted by 2036.
These gloomy findings are all the more pessimistic, given that less than a year ago Medicare’s trust fund wasn’t forecasted to run out until 2029 and Social Security was projected to have a surplus until 2014. This past year, Social Security ran a deficit and it is now expected to run deficits every year.
With the White House and Republicans on another collision course over the federal budget—this time due to the looming expiration of the country’s authorization to borrow—there is renewed attention on taxing the rich to solve our fiscal dilemma. President Obama, in his April 13 speech outlining his plan to reduce the deficit, urged eliminating the Bush tax cuts for people making more than $200,000. Democrats are quick to point out that federal taxes in 2011 will be 14.4 percent of the gross domestic product—the lowest since 1950. http://bit.ly/gbVTg6 Many on the left are looking forward to the expiration of the Bush tax cuts at the end of 2012 as an opportunity to get a “fairer” amount of taxes the rich and help lower the deficit at the same time.
This week it was announced that Democrats in the Senate want to legislate a 3% tax on income over $1 million to raise federal revenues and decrease the nation's budget deficit. This tax would be in addition to the higher income tax rates that will result from the cancellation of the Bush tax-rate reductions and, according to Stephen Moore at the Wall Street Journal (http://on.wsj.com/m8boKE), could push the top federal income tax rate over 60% of earnings.
In arguing this proposal the pundits, politicians, and wonks will, without fail, discuss the importance of two economic propositions: the Laffer Curve and Hauser’s Law.
Look at the graph below and it is easy to see what is wrong with that picture.
Combined Corporate Tax Rate
The US government is signaling to business that if they have a choice there are better places than the U.S. to invest new jobs and grow. Any first year financial analyst would recognize that the return on investment needed to invest in America must be at least 13% better than other OECD (Organization of Economic Co-Operation and Development made up of countries with established, emerging, and developed economies committed to global development) countries in order to make sense.
In times of trouble, Americans should work together to solve our problems; fighting amongst each other just creates more troubles. While the U.S. has been brought to its knees by the worst economic period since the Great Depression, states continue to fight with each other to attract businesses. Their weapon of choice, the state-level corporate income tax rate.
Debt, Deficit, Taxes are the talk of the town right now. Whether government spending and taxes are too high or too low is a confounding issue. Right now there is a consensus that the current corporate tax rates scare away foreign business and push U.S. companies into investing abroad. Neither of these actions helps the U.S. get out from under its mound of debt. In all of the confusion, there is a solution that helps both businesses and the U.S.
Many economists agree that in order to get America back on the horse, both parties must be willing to share the sacrifices necessary to successfully transform the U.S. Income Tax System.
The most sensible compromise to reform the income tax removes deductions and lowers the tax rate.
To better understand why Congress should make these changes, think of the government as a supermarket.
It’s been more than a week since President Obama made his big
plea speech to Congress on how he wants the government to help create jobs. As one would expect, the announcement of the President’s “American Jobs Act” has been met with a mix of opinions.
While there are many proposed policies in the jobs act, the $240 billion payroll tax cut is the biggest component and deserves a deeper look.
Before delving into Herman Cain’s 9-9-9 tax plan, I want to give the presidential candidate some credit. It’s not easy for a politician to come out and propose a radical overhaul of the tax code, especially not in this political climate.
The main reason it’s received a lot of attention is due to its simplicity and easily digestible numbers. Every time someone says we should implement 9-9-9, it’s hard not to feel like it‘s as easy as ordering a pizza. However, what sounds simple turns out to have many complicated details that need to be better understood. And while it seems like lower taxes for everyone, early analysis declares the plan will mean higher taxes for many in the middle and lower classes.
U.S. economic growth is staggering toward a second recession because of unsound political ideas and shortsighted implementation of ideological policies. While there are those that insist that our economic problems stem from rising taxes, ever-growing regulations, and mounting uncertainty, the real fundamental problem is lack of demand.
It’s not a tax issue. While the top marginal income tax rate was lower between 1988 and 1992 than it is today, since 1950 top tax rates have been lower less than 10% of the time. And, since 1960, the effective tax rate for highest income earners is either the lowest, or very close to the lowest, due to the capital gains tax rate and other deductions.
More concerning is that the tax cuts for the wealthy and corporations, which Bush enacted and Obama continued, have shown no positive effect. In fact, the Congressional Research Service found that by "almost any economic indicator, the economy performed better in the period before the tax cuts than after the tax cuts were enacted.
It’s not a regulation issue. According to the Bureau of Labor Statistics’ Mass Layoff Statistics, a program that collects reports on mass layoff actions, layoffs caused by regulation has been insignificant and has actually been lessening under the Obama administration.
I came across an interesting 1996 annual report from the Council of Economic Advisers to then President Clinton. It included a section, titled “Characteristics of a Well-Designed Tax System,” qualifying a well-designed tax system on the basis of three main qualities: fairness, efficiency, and simplicity.
Considering the litany of flat tax proposals floating around Capitol Hill and the differences between them, I thought it would be a good idea to compare their progenitor, the Hall-Rabushka flat tax, with the current progressive income tax.
By Charles Kadlec
This blogpost originally appeared on Forbes.com, February 20, 2012.
The federal budget is a dense document totaling hundreds of pages of numbers. Yet, for all of the digital precision, the use of various “base line” budgets, numbers that span 11-year time frames and other arcana known only to Washington insiders and budget mavens obscure more than they reveal about what the federal government is up to.
To cut through the haze and spin, I chose to focus on President Obama’s “Proposed Budget”, and to compare all projections with actual 2011 levels. I came away with four observations:
Oh, temporary tax breaks, music to the ears of their beneficiaries and the bane of CBO Director Douglas Elmendorf who must make budget projections accounting for them.
If it weren’t for the recent explosion in the number of tax breaks, they wouldn’t be such pesky pieces of economic policy. In 1998, there were only nine temporary tax breaks. By 2009, there were 73; meaning that in more than 10 years the number of temporary tax breaks built into the tax code has increased by 711%.
By Charles C. Johnson
According to a recent study by the Government Accountability Office, Social Security will running out of money in the year 2036, the year most members of generation X will begin to draw on it after a lifetime of paying in. According to the study, this is because of a very simple fact that as "people are living longer and labor force growth has slowed." The dubious year of 2010 represented the first time since 1983 that the Social Security trust began paying out more in benefits than it collected in tax revenue. And, in the middle of a three-year recession where unemployment is perpetually above 8 percent, it doesn't look like it will be getting better anytime soon.
The problem: Social security’s demographics are in trouble and people are relying on wishful thinking to fund their retirement.
As the entire country (except for that area known as Washington, D.C.) works to get out of this financial rut, we are starting to see the same economic problems on the local level as we have seen on the national level.
Last week California Gov. Jerry Brown announced that the Golden State has a projected deficit of $15.7 billion. At least it wasn’t the same as our national deficit of $1.3 trillion.
In the days leading up to Tax Day 2012, CNN/ORC polled Americans about their opinions about the U.S. tax system. Over the last week, the press has highlighted that 68% of respondents agreed with the statement that “the present tax system benefits the rich and is unfair to ordinary working men and women.”
So have the message of Occupy Wall Street and the President’s calls for the rich to pay their “fair share” caused more Americans than ever before to be disgruntled with the U.S. tax system?
By James D. Agresti, Levi Morehouse, and Anna Harrington
This article orginally appeared in Just Facts on May 24, 2012
In stark contrast to a CBS News report declaring that Mitt Romney pays a “lower tax rate than most Americans,” a detailed analysis conducted by Just Facts and the accounting firm Ceterus has found just the opposite to be true. Romney’s federal tax rate is somewhere in the range of 29% to 82% higher than middle-class Americans, who in turn, pay appreciably higher tax rates than those with lower incomes.
Romney’s 2010 personal tax return itemizes $3,009,766 in federal taxes on an income of $21,646,507, which equates to a 13.9% tax rate. Based upon this figure, Agence France-Presse (AFP) reports that Romney paid
a far lower [tax] rate than the average American paid, as his fortune is mainly based on investment and not salaried income
By Charles C. Johnson
“An unlimited power to tax involves, necessarily, a power to destroy,” Daniel Webster argued in McCullough v. Maryland (1819).
Obamacare, with its unlimited power to regulate health care, might just wind up destroying the medical devices market with its 2.3% tax.
The so-called “device tax” is expected to raise $28.5 billion from 2013 to 2022. It applies most deleteriously to gross sales, not to profits, affecting the startups and mid-sized companies most likely to advance well-being. The tax applies to everything from cardiac defibrillators to artificial joints to MRI scanners, affecting millions of Americans. To understand how harmful the tax is, consider a hypothetical company with a $1 million in sales with only $100,000 in profits. Thanks to the tax, nearly 25% of your profits would be taken. Given the long lag time idea to market, medical device companies often take a long time before they turn a profit, but under Obamacare, they would still need to pay profits on those sales. Indeed the $20 billion is nearly double the annual amount the medical devices company spends on research and development.
By Richard Callahan
President Obama is out on the campaign trail visiting colleges, union plants and other venues, where he expects to receive a friendly welcome, to energize voters to support him in his quest for re-election. As part of his message, he is focusing on what he terms the one percent of the population, or more realistically, those successful, affluent people he claims do not pay their "fair share" of taxes in support of his government. He deceives the American people with mis-statements such as "Why else would he want to cut his own taxes while raising them for 18 million Americans" when referring to his presidential opponent who is one of the one percent.
By Richard Callahan
Job creation almost nil, unemployment increasing, the left is angry, the right is up in arms and the center is grumbling. What is wrong with this great experiment that promised so much?
Almost 4 years ago an eloquent, energetic, charismatic political outsider, Barack Hussein Obama, burst upon the scene. He arrived at a time of great economic turmoil and dissatisfaction with the regime in power and promised sweeping change. He promised change from an economic downturn gripping the country. He promised new, forceful leadership in which all citizens of the country would be united as one and prosperity and economic vibrancy would once again be restored. He promised American international leadership and the restoration of the American dream. Sadly, his promises have proven to be empty rhetoric and his policies have wreaked destruction on the unity of America, it's economy and the hope of so many Americans who believed his false prophecy.
By Tammy Frisby
This blogpost originally appeared on Advancing a Free Society, on June 12, 2012.
This week’s installment of Data Matters features data presented by Tammy Frisby, a research fellow at the Hoover Institution who also teaches in the political science department and public policy program at Stanford.
This week on Capitol Hill, there was renewed attention to the looming Taxmaggedon (or Taxmageddon; take your pick), which involves, among other pending tax code changes, the scheduled expiration of lower tax rates on income, dividends, and capital gains, and the end of the extended payroll tax holiday. There is now more public talk from senators and members of Congress about using the threat of Taxmaggedon in January 2013 to build a legislative coalition for a sweeping tax overhaul that would preempt the economic and political damage that Taxmaggedon would wreak.
By James D. Agresti and Dustin Siggins
If the U.S. government continues with its current tax and spending policies, children born this year will be saddled with a crippling publicly held debt that is more than twice the size of Japan's by the time they turn 30 years old. This grim picture, projected by the Congressional Budget Office (CBO) in its newly published annual long-term budget outlook, expects U.S. publicly held debt to grow from 73% of GDP by the end of 2012 to 247% of GDP by 2042.
Worse still, the CBO projects that current policies will continue to drive the U.S. deeper into debt, and by the time today's newborns reach 38 years of age in 2050, the major federal healthcare programs and Social Security will consume all federal revenues, leaving nothing for any other function of federal government or even interest payments on the national debt.
By James D. Agresti
The 2012 Social Security Trustees Report—the authoritative source on the program's finances—states that the program's "trust fund assets" will "continue to grow" through 2020, a claim that has been repeated by numerous sources as varied as US News & World Report, the AFL-CIO, and the American Academy of Actuaries. However, as revealed by data buried deeper in the 252-page Trustees Report, this assertion disregards the effects of inflation, which are projected to overrun any expected trust fund gains and contribute to an accelerating decline that will start in 2013.
With the momentous Supreme Court decision upholding the Affordable Care Act, we enter a brave, untested and highly controversial new world of health care, while all Americans now face the burden of higher taxes and small businesses confront another major headwind towards recovery.
Many of us thought that even if parts of the law were Constitutional, the individual mandate would not survive. But the Court ruled the mandate is actually a tax, meaning the President and Congress have just enacted one of the largest tax increases on the lower and middle classes in recent memory.
(CNN) -- For the past week, the political fireworks surrounding the landmark decision by the Supreme Court to uphold the Affordable Care Act rivaled the excitement of Independence Day pyrotechnics.
President Obama is facing heavy criticism from Republicans that he has raised taxes on working- and middle-class Americans because the court upheld the individual mandate based on Congress' power to tax. The president and the Democrats are arguing that the mandate is not a tax but rather a penalty, since those who do not buy health insurance are paying a penalty in the form of a tax.
Meanwhile, on Monday a top adviser to Mitt Romney raised consternation among Republicans by saying that the individual mandate is not a tax, countering the prevailing conservative view.
Soon after, Romney himself made his much anticipated statement on the issue on TV, saying that since the Supreme Court has declared that the individual mandate is a tax, then it must be a tax.
Tax? Not a tax? What's going on?
The campaign rhetoric about government as our guardian against abuse by big business distracts us from its burdens upon small business. And those should concern us more—partly because government is a monopoly and therefore inescapable. In addition, the big guys in the marketplace can usually live with more regulation and higher taxes. The little guys can’t.
President Obama’s “you didn’t build it” remark, blurted out in a pro-government riff at a recent campaign stop, was a defiant response to small-business owners’ natural tendency to claim moral stature based on their hard work
By Charles Kadlec
The crisis of the governing class is intensifying. Last week:
• The 100 billion euro bailout of Spanish banks and massive tax increases to narrow the government’s budget deficit are followed by a rise in interest rates on Spanish government bonds to a euro-record high.
• San Bernardino became the third California city in the past month to file for bankruptcy.
• Faced with a budget crisis that threatens to eliminate thousands of teachers, California’s government voted to spend more than $3 billion on a high-speed train to nowhere.
• New research showed strong evidence that increased government spending reduces economic growth.
Their effort to refashion society by redistributing income and regulating markets is now hitting the reality of insufficient cash flow. Even worse, the governing elite’s self-love, sense of noble entitlement and arrogant belief that their good intentions trump bad results have led to a series of policy blunders that have destroyed jobs and businesses in the productive private sector, intensifying the government debt crises here and abroad.
"I’d like somebody to get rid of the death tax. That’s what I want. I don’t want to get taxed just because I died. I just don’t think its right. If I give something to my kid, I already paid the tax, why do I do I have to pay again just because I died?"--Whoopi Goldberg
“This study confirms that the cost of the estate tax far exceeds any benefits it produces.”
So begins “Cost and Consequences of the Federal Estate Tax” published last week by the Republican Staff of the Joint Economic Committee, whose vice chairman, Representative Kevin Brady of Texas, continues to make his mark as a leader of the pro-growth wing of the House GOP. The report’s documentation of how the death tax fails as both fiscal and social policy stands as a timely rebuttal to the politics of envy promulgated by President Barack Obama and the leadership of the Democratic Party.
My conclusion: the death tax deserves the sobriquet: the “dumb tax.”
By Bill Zeiser
Much has been made lately of public sector unions, from the recent bankruptcies of several California towns unable make payroll, to the failed, union-led bid to recall Wisconsin’s Governor Scott Walker. Most people, depending on their politics, cast this as either a fiscal issue—union pay and benefits are costly, and we are in an economic downturn—or as worker’s rights issue—government workers should be allowed to organize like other employees, and to deny them that right is un-American.