Continuation of a theme

I will be very busy the next few days with errands and other business. Today’s post will be short and it’s likely there will be no post tomorrow.  Life should return to something like normal by Friday.

***

Yesterday’s post topic was about all the new, higher taxes that will be appearing on paychecks. The Heritage Foundation itemized and clarified some of those new, higher taxes.

13 Tax Increases That Started January 1, 2013

Tax increases in the fiscal cliff deal:
1. Payroll tax: increase in the Social Security portion of the payroll tax from 4.2 percent to 6.2 percent for workers. This hits all Americans earning a paycheck—not just the “wealthy.” For example, The Wall Street Journal calculated that the “typical U.S. family earning $50,000 a year” will lose “an annual income boost of $1,000.”

2. Top marginal tax rate: increase from 35 percent to 39.6 percent for taxable incomes over $450,000 ($400,000 for single filers).

3. Phase out of personal exemptions for adjusted gross income (AGI) over $300,000 ($250,000 for single filers).

4. Phase down of itemized deductions for AGI over $300,000 ($250,000 for single filers).

5. Tax rates on investment: increase in the rate on dividends and capital gains from 15 percent to 20 percent for taxable incomes over $450,000 ($400,000 for single filers).

6. Death tax: increase in the rate (on estates larger than $5 million) from 35 percent to 40 percent.

7. Taxes on business investment: expiration of full expensing—the immediate deduction of capital purchases by businesses.

Obamacare tax increases that took effect:

8. Another investment tax increase: 3.8 percent surtax on investment income for taxpayers with taxable income exceeding $250,000 ($200,000 for singles).

9. Another payroll tax hike: 0.9 percent increase in the Hospital Insurance portion of the payroll tax for incomes over $250,000 ($200,000 for single filers).

10. Medical device tax: 2.3 percent excise tax paid by medical device manufacturers and importers on all their sales.

11. Reducing the income tax deduction for individuals’ medical expenses.

12. Elimination of the corporate income tax deduction for expenses related to the Medicare Part D subsidy.

13. Limitation of the corporate income tax deduction for compensation that health insurance companies pay to their executives.

Each of these 13 tax increases will slow the economy, meaning that businesses will create fewer jobs. Fewer jobs will make it even more difficult to land a job than it already is for the more than 12 million Americans looking for work.

President Obama demanded these higher taxes. Obama’s tax increases, in Obamacare and through the fiscal cliff deal, will not curb deficits and debt, because growing spending is driving America’s budget crisis. Congress needs to immediately turn its attention to the actual cause of our deficit and debt problem: too much spending. The proper way to address this problem is through reforms to entitlement programs.

However, the taxes above aren’t enough for the democrats. They want more. One Trillion Dollars more! Their rapacious appetite for money and spending is criminal.

Dems look for up to $1T in new revenues

By Alexander Bolton – 01/07/13 05:00 AM ET

Democrats say they want to raise as much as $1 trillion in new revenues through tax reform later this year to balance Republican demands to slash mandatory spending.

Democratic leaders have had little time to craft a new position for their party since passing a tax deal Tuesday that will raise $620 billion in revenue over the next 10 years.  

The emerging consensus, however, is that the next installment of deficit reduction should reach $2 trillion and about half of it should come from higher taxes.This sets up tax reform as one of the biggest fights of the 113th Congress, which began on Thursday.

Republicans say tax reform should be revenue-neutral. Additional revenues collected by eliminating or curbing tax breaks and deductions should be used to lower rates.

If you read that last paragraph carefully, you’ll see that the ‘Pubs are proposing tax increases, too. Their method is just a bit different. They want to eliminate some long-time tax deductions—mortgage interest, charitable giving, tithes, perhaps. If that is their plan, why not just institute an across-the-board flat tax like that proposed by Malcolm Forbes, jr.? A flat tax works and is used around the world from Ecuador to Russia to Communist China.

According to a poll, only 8% of Congress consider themselves Tea Partiers. This is down from 24% in 2010. It’s time for the Tea Party to flex its muscles, again, and remove these hypocrites come 2014.

No Sales Tax on Caucus Platform

I belong to a number of conservative groups in Missouri. Note, I said “Conservative,” not Republican groups although I belong to those too.  For the most part, quite a large part, I agree with their viewpoints—smaller government, fiscal and social responsibility, adherence to the Constitution as it was originally formulated and presented to the states.

But there is one area I vehemently disagree.

Many of these groups are on FaceBook.  I received notice of a post this morning concerning the ‘Pub party platform for this coming Caucus and what should be included.  Once again, the Hydra raised its head—the Federal Sales Tax.

I am continually amazed how people think this is a solution for their hatred of the IRS!  I don’t like the IRS either.  However, it has a necessary purpose.  As long as there are taxes, some agency must exist to insure the government gets its legal cut.  It’s true that often the IRS can give mob leg-breakers tips and lessons how to get people to cough up what is owed.  I don’t like those techniques either.

However, removing the IRS, which seems to be the primary motive of the Sales Tax crowd, won’t remove the need for the function served by the IRS.  Something WILL replace it.

Be that as it may, let me list the objections that I have about any sales tax.

It is a tax on consumption.  Read that again!  It a tax on consumption.  It will increase cost of the taxed item to the buyer.

When times are good, the personal impact is less and often ignored.  The personal bite has a lesser impact. When times are bad, like it has been since the fall of 2008, the tax bite grows longer teeth. 

When times are tough, people review their expenditures…and cut back.  Necessities come first, everything else is reduced or cut completely according to circumstances.

That has had a decisive impact to Cass County. A county sales tax is the sole revenue stream for the county.  Sales tax revenues have fallen short of forecast.  The budget was developed using those forecasts and now when the bills are coming due, the funds aren’t there.  Spending levels depended on that missing revenue. Now, for a number of reasons, the county could have bankruptcy.

That’s one danger of a sales tax, the “trickle-down” effect.  But let’s take another look at sales taxes—the unintended consequences.

Who and what will be required to be taxed.  The proponents say that a sales tax will be more equitable, that everyone will pay their “fair” (oh, how I detest that word) share.  Does anyone really think those on the lower end of the economic scale, those on various welfare programs, will pay their “fair” share?  I don’t.  They already receive food stamps, many receive free or subsidized housing, free medical care.  The liberals will immediately move to exempt this block from the sale tax and given the plethora of liberal judges in the state, I think it would be a matter of hours before some judge blocked the sales tax or exempted the welfare class. 

But that’s just an expected legal entanglement.  What about those working poor?  They must buy food, fuel, pay for housing just like every taxpayer.  The impact to them is higher prices for the necessities of life.  It matters not if the base price of those necessities doesn’t increase (they will), the bottom line is that with the additional sales tax, food, fuel and housing will take more of their limited dollars every month. The people will, in self-defense, cut spending for other items that can be deferred or ended. 

Then there is the impact of increased sales taxes on fuel.  Shall there be limits on who shall be taxed there.  Should fuel be taxed? There is already approximately $0.35 state and federal tax per gallon now and around $0.45 tax per gallon of diesel fuel. 

Increased taxes on fuel has a significant trickle-down effect on everything, everything that is transported by truck from food, fuel, delivery of manufactured items, from auto-parts to clothes at the local Target and Walmart stores. Everything that is sold at the retail level must be transported by truck. If fuel costs go up, so will those items.

Fortunately, we here in Cass County, live close to the Kansas State line.  Kansas has a higher sales tax than Missouri at this time.  If Missouri’s sale tax increases to that or higher than that in Kansas, what is the incentive to buy here, in Missouri?

None.

People will take their limited dollars to neighboring states with lower taxes and buy their necessities there.  Shall Missouri build guard posts on the state borders to impose a sales tax on people returning from shopping trips in other states? 

It is interesting that Kansas has, in past times, sent “spies” into Missouri looking for Kansas residents buying in Missouri to avoid the higher sales tax in Kansas.  Will Missouri now create an office to monitor our buying habits?

The proponents say, “We’ll exempt food and fuel.”  From everyone or just individuals?  If individuals are exempt, what about corporate entities?  Like restaurants.  Shall restaurants be exempt from sales tax on food purchases?  You do know they will then pass those costs along as increased prices for that steak, or hamburger you just bought, don’t you?

And what about the service industry?  Shall they be taxed, too?  They sell a service.  If we’re to be “fair”, the service industry must collect sales tax too.  Like your plumber, or your neighboring electrician.

Shall internet sales be taxes, too?  Many such sales already are.  There will be a significant impact to internet sales as well.  Amazon already has legal battles in some states over the collection of sales tax.  So much that Amazon has moved some facilities from those states.  A number of on-line dealers will no longer sell to California residents for similar reasons.

If the proponents say they’ll exempt every example of these taxed items, how will that meet the state’s revenue requirements?  How can the state properly project revenue to insure it has the funds to meet the budget?

They can’t.  That’s how Cass County got itself in the situation it is now for revenue.  They forecasted a very modest increase and discovered that instead of a slight increase of revenue from the county sales tax, the revenue decreased.  People cut their spending.

With every exemption, the sales tax system gets more complex, more difficult to stay in compliance.  Errors in collection, errors in accounting will increase.

That is the problem with income taxes—too much complexity, too much confusion, unequal application, unequal assessment, unequal enforcement.

A consumption tax can easily turn into a death spiral from negative feedback.  Taxes increase. People spend less. Revenues fall. The state then increases the sales tax to compensate for the lost revenue. People cut further, buy in neighboring states, move out-of-state. Revenues continue to fall.  That’s negative feedback.

So, what is to be done?  I agree the current progressive income tax is too complex and too unequal to continue.  At the federal level, it is supported by the 16th Amendment. To remove the income tax at the federal level, that amendment would have to be repealed.  The likelihood that of happening is remote to say the least.

If a federal sales tax is imposed without that repeal of the 16th Amendment, we would end up with both a federal sales tax AND a federal income tax the next dime the liberals gain control of a house of congress.  I have no expectation the establishment ‘Pubs would fight the revival of the income tax. Worst, the federal sales tax would morf into a Value Added Tax like Europe. At every stage of production, through the wholesaler, to the retailer, to the end user, every stage is taxed and the rolled up costs added to that of the end-user.

That last is exactly what the liberals and democrats want—turn the US into a welfare state like Europe destroying the Constitution in the process.

No, there are too many dangers in expanding scope of sales taxes to allow such to continue.  If you truly want equitable taxation, change the progressive income taxes into flat taxes.  Everyone pays, no exemptions, a flat rate for all, individuals and corporations.  The progressive tax can be changed to a flat tax by an act of Congress or the state legislature.  The trick is passing it in such a fashion to make it impossible (if that can be done) to revert to a progressive tax model.

That is the true fair tax.

All to often people seize on an idea without thinking it through. There are always unintended consequences to every act.  Most can be recognized and planned for.  Any risk manager knows this.

Let’s all be risk managers. Block any inclusion of a state and/or federal sales tax in our party platform come the caucus.

Tax Reform—at last!

Until Herman Cain brought forth his 9-9-9 plan, a 9% personal income tax, 9% corporate income tax, 9% national sales tax, no one in the GOP herd had the guts to bring forth this topic for national debate.  All that has apparently ended and it’s a good thing, too.

The State Media immediately attacked it.  The Atlantic called it three VAT taxes in one.  Clearly they’d never bothered to actually read the proposal but relied on what other libs said about it. 

ABC news said, “However, a much longer list of economists say Cain’s plan would be a tax hike for the lower middle class and a tax windfall for the wealthy.” In short, they’re against those who have never paid any income taxes, paying some and they’re also against the abolition of punishing taxes against those who are successful.

In that same vein, the Chicago Tribune went to more libs for their opinion. You shouldn’t be surprised, their opinion was negative.

But Bruce Bartlett, a former Treasury official under President George H.W. Bush who studied Cain’s plan and wrote an analysis Tuesday for the New York Times, said Cain “offers no evidence for this assertion; it is simply put forward as self-evident.”

Bartlett called the plan “a distributional monstrosity.”

“The poor would pay more while the rich would have their taxes cut, with no guarantee that economic growth will increase and a good reason to believe that the budget deficit will increase,” Bartlett wrote.

That’s because two of Cain’s three 9s – the income tax and the national sales tax — would disproportionately impact the 47% of tax filers who don’t pay any federal income tax under the current system – many of whom are elderly or poor.

Yes, those people who have never had skin in the tax game, suddenly would!  What’s fair for some, is fair for all.  If you had an income, you should pay tax on it.  That’s the spirit of the 16th Amendment that authorized the income tax in 1913.

The issue, as it seems to me, is that the proposal would have taxes applied equally to all. The existing code benefits 47% of the population that pays no income tax at all. The dems and libs think that, is fair.

I don’t.

But to continue,  the discussion about tax reform is continuing.  Rick Perry is about to introduce his version of tax reform—a flat tax.  The Christian Science Monitor has this short piece.

Rick Perry flat tax plan: Don’t expect a 9-9-9 retread

Rick Perry says his flat tax plan is a major part of his broad prescription to revive the economy and create jobs – a move he hopes will also revive his campaign.

By Brad KnickerbockerStaff writer / October 19, 2011
Republican presidential candidate, Texas Gov. Rick Perry, runs prior to delivering a keynote address during the Western Republican Leadership Conference, Wednesday, Oct. 19, in Las Vegas. Perry said he’ll be announcing details of a flat tax plan next week.
Isaac Brekken/AP

Enlarge


“It starts with … scrapping the three million words of the current tax code, starting over with something simple: a flat tax,” the Texas governor told GOP activists at the Western Republican Leadership Conference in Las Vegas Wednesday.
Like businessman Herman Cain, whose 9-9-9 plan came under fire at Tuesday’s debate, Mr. Perry wants to do away with the current tax system. Although Perry won’t reveal the details until a speech scheduled for next week in South Carolina, the similarities likely end there.
Personally, I have some concerns about Cain’s 9-9-9 plan. It includes a new tax, a tax we’ve never had before, a national sales tax.  There is great danger there and the potential of the dem/lib party raising that 9% sales tax in some future year to an intolerable level.
Don’t get me wrong, I like what I’ve seen and heard so far about Herman Cain. I’m just not sold on the totality of his plan.

On the other hand, I’ve become disillusioned with Rick Perry.  He had a good start, good credentials and a reasonably good record in Texas.  He also had some serious weaknesses in his stance on immigration and education. I’m open on his flat-tax plan. I’m a bit impatient to discover more.

Regardless, the topic of tax reform, is out of the closet and out in public view.  It’s about time.

                     

VAT

For all you “Fair Tax” folks who think you can eliminate the IRS and Income Tax and replace both with a National Sales Tax, here’s what the dems are already proposing.

Never forget, if you ever realized it, a consumption tax kills business and leads to illegal avenues to by-pass the tax. We’ve had a tax on liquor almost since the beginning of the republic (look up the Whiskey Rebellion) and there are still people making moonshine. Any form of consumption tax is filled with unintended consequences. Foremost is that you’ll end up with a larger IRS, the VAT tax and an Income Tax.

If you want to replace the Income Tax, your first goal is to repeal the 16th Amendment. A flat tax as proposed by Malcolm Forbes, achieves many of your goals without the unintended consequences.

Just so you don’t forget, here is Michael Ramirez’s opinion of the VAT tax.