ataxingmatter

Unemployment Benefit Extension with Lard--Doggett's Lone Charge

LindaMBeale — Thu, 05 Nov 2009 14:07:17 -0800

Congress knew it needed to pass a bill to extend unemployment benefits. We are in the midst of a Great Recession that has toppled families by cutting jobs, putting public employees on "furlough" and cut back hours for those who still have jobs. For some states, like Michigan, the blood is everywhere. The toll in terms of human suffering is enormous, and has a cascading effect. As laid off workers cut back spending, small businesses suffer and themselves face catastrophic losses. The more are hurt, the more get hurt. The Big Banks may be back to their same old games--speculating like crazy with other people's money, high leverage, and even info borrowed from their customers (cf. flash trading) and raking in big bonuses for their activity--but Main Street is still hurting from the economic disaster brought on by the Banks' speculation.

So we need to extend unemployment benefits. A person that was laid off last November who supports a family of four may have been able to get an odd job or two, but may be unemployable in this economy. If we, his collective neighbors, don't come to his rescue, what happens will be bad. Violence and crime are possible. Degradation and reliance on individual and group charity is unavoidable. So we need to extend unemployment benefits.

I wish, just once, that Congress could pass the bill that needs to be passed without larding it with giveaways for their lobbyist cronies and the lobbied-for industries. As noted in a recent post on the homebuyer tax credit extension and expansion, the unemployment benefits, which cost very little and are considered a great spur to economic growth, would only be about $2 billion. But the giveaway to huge multinational and other large firms that made oodles of money several years ago but happened to lose some in 2008 or 2009 is huge--about $10 billion. And those kinds of provisions (a smaller version of which was included in the stimulus package earlier) don't do much to stimulate.

Doggett said it all in a speech on the floor of the House today. The remarks (distributed by his office staff) are excerpted below.

This bill represents a textbook example of how not to deal with the economic challenges that our country faces. While previously approved by the House solely to address the needs of the unemployed in America's most economically depressed areas at a cost of $1.4 billion, the Senate has taken the good work of Chairman McDermott, delayed it, and mushroomed this bill's cost to $24 billion.

Economists advise that every dollar we invest here on unemployment benefits spurs economic growth (GDP) by $1.61 cents--very effective, a winner.

But the corporate giveaway added to this bill--the so-called 'loss carryback provision'--yields, according to the same economist, 19 cents for every dollar we invest--a real loser.

After noting that the bill rewards $10 billion to some of the same corporations that "brought us to the brink of economic ruin" Doggett asks:

If this is such a great idea, why don't we first apply loss carryback to workers, who have lost their jobs[?] Give them a rebate check for a big chunk of whatever they paid in taxes when they had a job? That would certainly be more [stimulative] than asking some corporations to pay nothing for our national security.

Right on, Doggett. You remind me a little bit of Paul Wellstone. If only we had more people in Congress willing to talk truth to power, we might be able to unseat these financial megacompanies from their protected perches, as well as the corporate lobbyists that are able to get Congress to do tricks on command for their corporate bosses. If Congress really wants to turn this country around, it cannot continue to apply an economic understanding that looks only to providing what they want to the big corporations, no matter the result to ordinary Americans.

Warren Buffet and taxes

LindaMBeale — Wed, 04 Nov 2009 15:05:24 -0800

Tax Prof reported today on a critique of Warren Buffet. As many will recall, Buffet was outspoken during the presidential campaign about the problem of a tax system that favors the super-rich over the middle class. He noted that he paid tax at a rate considerably below that of his secretary, suggesting that we have a distorted tax system that should be addressed.

The Wall Street Journal reports on Buffet's recent deal for his Berkshire Hathaway firm to buy the Burlington Northern railway. See Behind the Decision, a Lesson from a Mentor (Nov. 5, 2009). The author notes the perhaps unique problem perennially plaguing Berkshire--lots of cash on hand to invest. He states that

Mr. Buffett would rather not resort to the simplest way of solving this problem--paying excess cash out to shareholders in the form of a dividend. Since he owns roughly 26% of Berkshire's shares, a cash dividend would saddle Mr. Buffett with one of the largest personal-income tax bills in American history. That's not the kind of thing at which he likes to excel.

Further, Buffett's firm is bidding for Fannie Mae's low-income tax credits, which are not of use when Fannie is losing money but can be sold for a significant boon to the buyer in reduced taxes. See this Wall STreet Journal article (noting that credits used to sale for about 95 cents on the dollar, but recently the market has dropped to 65-79 cents on the dollar).

So now Ira Stoll (a former New York Sun editor and Wall Street Journal consultant), in his website on the future of capitalism (which suggests, in its "about" page, that it is exploring the "financial downturn" and that way the "big argument" about "communism and socialism" versus "capitalism" had been thought to be settled prior to the "financial downturn" that was turned into a "crisis" and "panic" "in part" by "government regulators) suggests that Warren Buffet is a tax hypocrit. See post, here.

When Warren Buffett was critical of the way the tax system works, he didn't say that he planned to personally redress the imbalance in our system by paying lots more taxes to make up for it, nor would one have expected him to do so. A vow of poverty (which could be accomplished by giving all of one's assets to the state) is a mode of action for some who protest the excesses of capitalism, but not within the fortitude of most and certainly not in any way a price of credibility--or treatment as not being a hypocrit-- when merely stating the obvious fact that those of us who are better off pay relatively too little in taxes under our system.

Buffet was using his personal situation of high income/low taxes to illustrate a system gone awry, one that favors the titans of financial wealth over the Everyman and Everywoman who are the bulwark of this country's economy and its society. The fact that he prefers to keep cash in the business, and invest that cash in businesses that he thinks will be here for the long term, rather than paying out dividends to himself and others (which, by the way, would be taxed a very preferential low capital gains rates) doesn't make him a hypocrit.

And in spite of my dislike for the way low income housing tax credits work, it's quite clear that the credits are available for businesses that can take advantage of them and owners of those businesses might well object to a "principled" refusal to do so. I'd prefer to eliminate them from the system (I'm not convinced that subsidies like that make sense at all), but I'm not in a position to fault anyone for taking advantage of them, any more than I can fault a neighbor for using the homeowner's tax credit, in spite of my view that it is a frivolous waste of taxpayer money that gives an unfair subsidy mostly to those who would buy anyway and real estate professionals.

What would be genuine hypocrisy, from my perspective, is for someone to claim that they are supportive of tax policies that favor the lower and middle income classes and then to actually lobby for or enact policies that are predominantly of value to the upper class and super-rich. Think of all those legislators claiming that they were concerned with ordinary Americans, family farmers, entrepreneurialism and small business owners, while they were busy trying to pass a zero income tax rate for capital income and eliminate the estate tax for estates of the rich.

Homebuyer Credit Extension and Expansion

LindaMBeale — Tue, 03 Nov 2009 14:12:16 -0800

In a recent post on Angry Bear, I note that the Senate is moving closer to extension and expansion of the homebuyer credit. Here's the start of the post (read the rest at Angry Bear, along with a number of thoughtful comments).

Part of the reason for our ongoing Great Recession is that we have had so many measures in the tax code to favor home ownership that (i) banks started to think of mortgage securitization business as money growing on trees and (ii) homeowners started to think of their homes as money-growing trees. The bubble burst when the whole house of cards almost came tumbling down--it was revealed that banks had lent money through sub-prime mortgages to people who couldn't afford to make the payments, that people were hoodwinked into getting subprime mortgages (at higher costs) that could have afforded a regular mortgage, that house prices could not just keeping climbing.

Nobody liked the way the "market correction" worked--foreclosures, evictions, job losses and home losses heaped on top of each other. Made especially bad when banks foreclosed on individuals for falling short on payments, refused to accept "short sales", and then ended up letting the houses deteriorate and selling them for much less in foreclosure sales. Made worse when we watched the bailout drama unfold, with investment banks and companies like AIG (investment banks' friendly insurer and credit default contract counterparty) saved with trillions of dollars of federal tax money on the line, while home foreclosures for ordinary people continued.

Congress couldn't get the will to pass a bill to permit modification of home loans in bankruptcy--the one bill that would have done the most to save current homeowners from losing their homes and the social/economic disruption such a loss causes.

But somehow it managed, as part of the economic stimulus bill, to pass a tax cuts to encourage people to buy homes who hadn't owned one before. I thought that bill was problematic from the beginning. ....

I had my costs wrong. I'd seen an estimate for the cost of the homebuyer extension and expansion at $17 billion. Today, the JCT issued new documents about the Worker, Homeownership, and Business Assistance Act of 2009: Estimated REvenue Effects (JCX-45-09) and Technical Explanation (JCS-44-09). Over the next ten years, the homebuyer tax credit is estimated to cost about $10.8 billion (but almost $10 billion in 2010 alone) and the NOL carryback about $10.4 Billion (but more than $33 billion in 2010).

More on the homebuyer credit. The extended credit applies as before, providing $8000 or 10% of the purchase price (with no credit allowed on a house costing more than $800,000) but now starts to phase out at $225,000 for joint filers (and is not available to those making more than $245,000) and applies to purchases with binding contracts before May 1, 2010 and closings before July 1, 2010. Those who purchased under the 2008 credit are supposed to repay the credit, while those who purchased with the 2009 credit aren't subject to the recapture if they live in the home for three years after the purchase (even though--remember--gain on the sale of a home is completely excluded from profit). That the credit can be bought for such an expensive home, that the credit is available to taxpayers with almost a quarter of a million of annual income, and that the 2009 and 2010 credit need not be repaid--all these factors suggest that this credit is a boondoggle that continues the market distortion in favor of housing while favoring some taxpayers over others and not even restricting such a ridiculous giveaway at least to those who are in the lower middle class. The expansion is even more absurd. Long-time residents (five out of eight years) can get a $6,500 credit as though they were first time homebuyers.

More on the NOL provision. The temporary rule allowed businesses satisfying the $15 million gross receipts test to have an extended carryback period for 2008 NOLs. The expansion allows the same extended carryback to most businesses with 2008 or 2009 NOLs (with limits for the amount that may be carried back to the fifth preceding taxable year), suspends the 90% AMT limitation, increases the carryback for life insurance companies. Small businesses that elected the 2008 carryback also can elect the 2009 carryback. Generally, businesses in which the Federal government has an equity interest are not eligible; financial institutions in which the government acquires an interest after the provision is enacted under the 2008 economic stimulus legislation are excepted.

How does the Congress pay for this giveaway? Primarily by delaying yet again, for seven years, the implementation of another tax cut originally passed some years ago as part of the Bush Administration's package of big-business-friendly tax packages--the 2004 misnamed "American Jobs Creation Act" provision that permitted multinational corporations to elect to allocate interest expense on a world-wide basis, thus reducing, in most cases, their overall US tax liability. That raises slightly more than $20 billion over ten years (though it won't raise anything in 2010, when the other provisions are costing the most). And by accelerating the corporate estimated payments for 2014 (33% increase in the July, Augus or September 2014 estimated payments), with next required payment decreased accordingly. That'lls raise about 18 billion in 2014 (and it is not shown as a negative for 2015-2019, since it is just a fake revenue increase from accelerating the timing of when payments are due).

Other provisions of interest. The bill also includes a change to the penalty for failure to file a partnership or S corporation return, increasing the penalty from less than $100 per partner or shareholder to almost $200 per partner or shareholder. It also mandates electronic filing by professional tax return preparers who file at least 250 returns during the calendar year. (That should probably be 100 rather than 250.)

2009 e-file statistics

LindaMBeale — Mon, 02 Nov 2009 13:54:21 -0800

The IRS released today information about e-filing in the 2009 tax season. See IR-2009-99 (Nov. 2, 2009).

Here are the most interesting stats:

1) in 2000, 27.57% or 35,412,000 returns were e-filed, whereas in 2009, more than two-thirds--67.18% or 94,980,000 our of 141,376,000, were e-filed;

2) The total number of returns shrank, however, from 153,650,000 in 2008 (a drop of 8%);

3) More taxpayers were doing their own e-filing--almost 20% more prepared and e-filed their own returns rather than using tax preparers to do so;

4) The government gave $303.069 billion back to taxpayers in refunds this year, an increase of more than 20% over last year's refunds; and

5) The 73 million taxpayers who got electronically deposited refunds got them at least a week sooner than those waiting for a paper check, and cost the government less at the same time.

Deficits as far as the eye can see--what's the story?

LindaMBeale — Sat, 31 Oct 2009 12:32:37 -0700

Let me tell you a story of the passage of time, the passage of tax cuts, and who really cares about deficits or the impact of tax cuts or deficits on the middle class.

Back in 2001, Bush and the Republican controlled Senate and House passed a huge tax cut, purportedly targeted at middle income Americans. Americans had not been clamoring for tax relief. The tax relief planned by the Bush Administration and Congress didn't result from long deliberation about how to achieve a less distorting tax and fairer tax system, like the 1986 tax reforms. Bush merely took advantage of the relatively decent economic years under Clinton (much of which, we now know, was a mirage caused by the fevered frenzy of big banks speculating in the market through securitizations, derivatives, and other means and generating profits for wallstreet financial institutions and their Wall Street trader barons, but only phantom gains in housing for ordinary mainstreeters). There was (at least on paper) a budget surplus (for the first time in years). And instead of using that surplus to spend on public infrastructure projects or to pay down public debt, Bush said we should "give it back" to those who created it through tax cuts. There was some fidgeting about deficits, but ultimately enough of the spineless Dems went along with the Republican rush for tax cuts galore to pass what was projected (with the use of sunsetting gimmicks) to be a $1.3 trillion tax cut.

Interestingly, once a tax cut is offered, Americans are generally quite willing to grab onto it. It will be liked...

So in most of the rest of the years of the Bush administration there was additional tax cut legislation, in spite of the fact that Bush had engaged us in what now seems an endless state of war--with the huge, long-term costs of war including transportation to overseas locales, training of soldiers, providing care til death of wounded (both physically and psychologially) veterans, and payment for the many privatized military services instituted since Reagan (Blackwater mercenaries made many times the salary of enlisted soldiers--proving that private enterprise does not do government work more efficiently than government does, which was the original justification for privatization). And in spite of the fact that tax cuts (ultimately mostly benefiting the wealthy) and war increases meant record deficits. Congress whimpered a little about the deficits, but they didn't dampen the Congressional appetite for tax cuts. Various Republicans didn't bother to whimper--they just justified them with their (now disproven) rhetoric that tax cuts would actually increase tax revenues (the laughable line based on the discredited Laffer Curve arguments). See these ataxingmatter posts for a discussion of the Laffer Curve and why it doesn't even count as theory, much less as generally accepted theory: CFP's Laffer Curve Video; Laffer Curve II--proof?; Reagan's Trickle Down Economics Doesn't Work: tax cuts don't pay for themselves.

Moreover, most of these cuts were set up as "temporary" provisions that would sunset in a few years, reversing to their pre-2001 tax cut stage. That was done not because the Republicans in Congress didn't intend to make these cuts permanents but because they wanted to hide the real impact on the budget and the huge deficits that the tax cut packages would create. So they claimed they would "only" cost $1.3 trillion over ten years.....

Of course, that they would make them permanent if at all possible was clear from the outset--both in explicit statements and in the actions over the next few years, as various provisions were offered again and again as permanent revisions to the Code. Take the estate tax as an example. The Bush change lowered the rate and increased the exemption amount over several years. That was then speeded up, with the estate tax being "repealed" for one year in 2010 and then the law would sunset, bringing the pre-2001 estate tax back from the dead in 2011. Every year, some Republican would introduce a bill to repeal the estate tax that year once and for all or, once that got to be very expensive, to change it to a 35% rate only applicable to amounts above $10 million. And even now, even the Dems are considering making the 2009 estate tax provisions ($3.5 million exemption for one, $7 million for a couple, 45% rate) permanent! See "Estate TAx: Why don't the Dems get it?" on ataxingmatter.

Further, in spite of cutting individual taxes and then given corporations the dream package they'd been lobbying for for years, and in spite of reducing taxes on dividends down to the capital gain rate (giving wealthy investors part of what they'd been asking for for years--close to zero taxation), and in spite of continually offering bills to cut something new, resulting in even less government revenues while watching the deficit spiral out of control, Congress also knew that the alternative minimum tax (AMT) would gradually claw back the reductions for those at the bottom of the distribution. See earlier ataxingmatter series on the AMT in which this is explained in detail: The Senate and the House on the AMT (July 12, 2005); What Should Congress Do About the AMT (Part I, Part II, Part III, Part IV, Part V, Part VI).

So it seems fairly clear that Congress didn't really care much about deficits (it would not have cut more and more revenues to the government while spending more and more money on war and "homeland security" --remember those giddy military contractors during the heyday of the Bush free flow of money) or about the middle class (it would not have cut taxes with one hand and taken them back with the other AMT hand or cut taxes that primarily benefited the wealthy--such as capital gains and dividends).

Now, of course, Congress--the Republicans and the "blue dog" Democrats--are mouthing their concerns about deficits at every turn of the Great Recession and health care reform discussions. You'd think their hypocrisy would concern them, but apparently it doesn't. They are likely to pass a health care reform bill that gives a windfall to private insurance (mandatory premiums from all those who are relatively healthy and have chosen in the past not to be covered) while costing the federal government (coverage of the vulnerable, which will be picked up by government)--a repeat of the privatization of gains/socialization of losses that has been the norm for our handling of the financial crisis. And part of the reason we did so much of the economic stimulus bill as tax cuts that really don't do much for stimulus--instead of infrastructure building and other projects that would have aided everyone with both REAL PERMANENT infrastructure projects and REAL job creation--was to apease the Republicans who wanted all tax cuts and no infrastructure spending. Again, some were arguing that infrasturcture spending was deficit-creating and tax cuts were an inherent good.

So it is nice to see someone now looking back to note what the real facts are about the Bush tax cuts. David Cay Johnston, Easing Impact of a Tax Rise, NY Times (Oct. 28, 2009), writes that the Bush tax cuts have cost us $2.34 TRILLION in revenues, according to new calculations done for the Times by the Tax Policy Center, a nonpartisan research institute whose research is respected by both Democrats and Republicans.

Just to understand what the cost of those tax cut goodies was when it dug a $2.3 trillion hole--next year, Johnston says, we'll need to dedicate every penny in taxes paid by individuals for one month just to cover the interest on the financing of the federal debt needed to make up for that shortfall. Id.

Johnston goes on to highlight some of the ways that high-income taxpayers can save on taxes, assuming that the Bush tax cuts are allowed to lapse for them. (Obama has--somewhat foolishly, from my perspective--promised to hold anybody making less than $250,000 harmless from tax rises, and for that reason has supported making the Bush cuts permanent for quite well-to-do families. That is/was a mistake from my perspective--a quarter of a million in annual income is almost a quarter of a million more than most Americans have --about $50,000 is the median, and even those in the second quintile make much less than a quarter million annually.) So there's always delaying charitable contributions so you get them against higher taxed income in 2011 rather than against lower taxed in 2010; paying property taxes later (same goal); taking more income now and less then (if you own your own company and can set your own salary and if you think the IRS won't pursue you have paying an unreasonably low salary next year if your company's income is about the same--they should, but probably won't). These gimmicks are ones that wealthy people can afford to do, and ordinary Americans typically cannot, since they haven't got the luxury of paying themselves or they don't have enough to make significant charitable contributions int he first place, etc. And with this kind of planning, Johnston notes, the 400 highest-income taxpayers with an average of $266 million in annual income apiece in 2006, paid at an effective tax rate of only 17%, the same rate more or less as that paid by people with an average of $50,000 to $75,000 in annual income apiece in 2006. Id.

Now that right there is a pretty good reason for having a hefty estate tax. We should get progressive tax payments from the wealthy one way or another. A hefty estate tax--a reasonable exemption ($1 or $2 million) and a progressive rate structure (45% rising to perhaps 65%)--would be one way to address the fact that most wealthy taxpayers can manipulate their taxes by timing their income or deductions and in other ways.

estate tax: why don't the Dems get it?

LindaMBeale — Sat, 24 Oct 2009 03:00:00 -0700

Charles Rangel has just announced (Oct 22, BNA Daily Tax RealTime) that he is putting together a draft of tax legislation that will make the current law on estate tax permanent--that's a law that provides a mere 45% flat rate on the taxable estate amount, which is the excess over the $3.5 million basic exemption (much more when you take various spousal items into account). Remember that for an estate of $10 million left by both spouses, that's an effective tax rate of less than 14%!

According to Rangel, making the current amount permanent is a "high priority." Why? Interestingly, there's nothing in the BNA article on this announcement that gives any reason at all.

The cost would be $233.6 billion over ten years.

Let me repeat that--if we make the current estate tax rates/exemption amounts permanent instead of allowing the estate tax to lapse back to where it was before George W. Bush and the Republicans in control of Congress decided to cut taxes on the wealthy to "ensure growth", it will cost us about a quarter of a trillion dollars over the next ten years.

This was a huge Republican priority since it is a bill that benefits ONLY the super rich who have estates worth more than $3.5 million. The GOP wanted to kill the estate tax entirely, but opted for doing it in in bits and pieces. They passed a bill that eliminated the estate tax gradually down to zero, then resurrected it from the dead back to its 2001 level in the next year. That way, they pretended that they weren't really creating the gigantic deficit hole that they were really digging for us, because they counted all that income from the estate tax, back at the 2000 levels, in the "out" years. Of course, they really intended to dig the huge deficit hole (remember that until the Democrats were in control and arguing for the need for deficit spending as a stimulus, there wasn't a tax cut-created deficit that the Republicans didn't like). They just hoped they could fool most of the people for most of the time into thinking this was something reasonable and that it was something that ordinary Americans should care about. Regretably, it works because many people who have no possibility of ever being subject to the federal estate tax are convinced that their small estates will be cleaned out by it. Clearly, the GOP strategy was that once they had gotten the estate tax down to zero, all those folks that hadn't managed to die in that year would raise hell unless they kept it at zero from then on. The Dems are clearly afraid to let the provision sunset under its own terms--they're too scared that the Republican strategy will successfully bite them when they let the estate tax come back in 2011, right as campaigning gets under way for the 2012 elections. So they're conceding half a defeat up front by planning to make the Republican's weak estate tax law.

In case no one noticed, here are a few relevant facts:

1) our national debt is more than $11 trillion and climbing

2) our economy is mired in a Great Recession that is leaving more people permanently dismissed from their jobs than we've seen in similar situations before, while the bankers that caused the global mess are raking in huge rewards in a banking business that is very little banking and lots of speculative trading, and one that wouldn't exist without the Fed and the government guarantee underlying their business

3) the nation need sto spend money on some very important things, like health care for war veterans, infrastructure repairs, public transportation, basic research, education

4) the Bush tax cuts were enacted at the same time as the nation was led into a "war of choice" requiring huge and ongoing expenditures and in the midst of a bubble economy for which a not-pleasant future could be predicted based on the early warning signs (Enron, Long Term Capital Holding, the frenzied growth in CDOs and credit default swaps) and which ultimately resulted in the Bush regime's multi-trillion-dollar bailout of the big investment banks and trillion-dollar deficits

As a consequence, the estate tax revenues really matter. They are not insignificant, and they come from a reasonable source (estates with multi-millions of dollars, that will otherwise go to beneficiaries/heirs who have done nothing to earn the windfall). We should not make the 2009 rates permanent. We should instead treat the 45% rate as the minimum rate on the lower-value estates, and enact a progressive rate structure, such as a 55% rate for estates over $20 million, and a 60% rate for estates over $100 million (etc.). We should lower the exemption level back down to $2 million--there is simply no reasonable justification for granting further tax largesse to huge estates.

Of course, we really should undo most of the Bush-era tax cuts, reinstating the law as it was in 2000 before the Republican assault on the federal fisc in the name of promoting growth began. The Bush tax policies, combined with the Bush deregulation regime, were a disaster. They did not promote growth; in fact, they promoted speculative frenzies in risky investment and enormous losses sustained by the nation to make up for that risky behavior. Ordinary workers' wages stagnated; only the rich got richer. Read Economist's View, What's Good for Goldman Sachs is Good for Everyone (Oct. 21, 2009) to understand better the mentality that thought (thinks) tax cuts for the wealthy would be the way to prosperity. The prosperity of the wealthy, yes. But of ordinary Americans? No way. (Read the comment by Richard Serlin, an adjunct at the University of Arizona. He adds some context to the WaPo article by Ezra Klein about the stagnation of incomes for the middle class.)

Link worth noting: Wall St.Journal and Golf Carts

LindaMBeale — Fri, 23 Oct 2009 02:00:00 -0700

Tax Prof noted the Wall Street Journal editorial titled "Cash for Clubbers" (Oct. 17, 2009), which suggests that "thanks to President Obama's stimulus plan", the government is now "paying Americans" to buy golf carts. The Journal notes that golf cart dealerships are enticing people in with the credit (which only applies to certain road-worthy carts) and that this "golf-cart fiasco perfectly illustrates tax policy in the age of Obama" when "politicians dole out credits" and "Democrats then insist that to pay for these absurdities they have no choice but to raise tax rates on other things."

The Journal is playing somewhat fast and loose with the credit and with who is responsible. As to responsibility, it was passed before Obama tood office, so surely it cannot "perfectly illustrate" Obama's policy. And the "politicians [who] dole out credits" have been members of the GOP during its majority control, because they argue for tax cuts of all kinds, including credits that are clearly unnecessary (the R&D credit, for example, that I think the Wall St. Journal has defended as one of those "extension" provisions that it claims is vital to competitiveness). The Republicans passed many of these boondoggle loopholes during the time they had control between Reagan and Bush with the underlying premise that tax cuts generate more tax revenues, while at the same time they had to raise the debt limit so that the government could borrow money to fund the tax cuts and the deficit grew by unprecedented amounts. While the Democrats have been far from perfect on these matters (e.g., including many more tax provisions than I think they should have in the stimulus bill, compared to direct spending on good projects in the public interest), at the same time Democrats have, to their credit, at least acknowledged that there is a cost to doling out credits--that tax cuts do not magically deliver more money instead of less and that we likely will need some tax increases after this long gorging on tax cut after tax cut that hasn't delivered either new jogs or high government revenues.

Tax Prof has a well thought out piece by Sue Altmeyer on the Journal piece. She notes that the IRS ruling that golf carts may qualify if they are street-legal dates to 2000 (put out in the early months, that is, of the George W. Bush administration by the business friendly Bush IRS). Similarly, the credit (section 30D) was enacted in 2008 (and doesn't permit the vehicle to be bought for resale, thus undoing the scheme discussed in the Journal whereby a Floridian self-styled "the Golf Cart Man" promises a special boon by combining purchases with his repurchases. Further, she notes that Notice 2009-54 (that's under Obama) states that the motor vehicles covered are supposed to be manufactured for primarily street use. And that notice also suggests that you should make sure that the credit being advertised by golf cart salesmen really applies by asking them for an IRS acknowledgement. The 2009 stimulus bill did make some changes (at whose urging?).

Hat tip to Tax Prof and thanks to Sue Altmeyer for a cogent piece.

More on the public option

LindaMBeale — Thu, 22 Oct 2009 11:53:09 -0700

Listening to NPR this morning, I heard that the debate about the public option is now heading towards compromise, though no one is quite sure what that compromise will look like. Those on the right seem to recognize that the majority of the American people want a real public option, so are less likely to insist on the silly "coops" in each state and more likely to support a national public option if the states can opt in or out of its applicability. Those on the left, according to NPR, are less strident about insisting on a "robust" public option (mention of Sen. Rockefellar's position in this regard) and more willing to consider a national option with an opt out clause. Even so, doesn't sound like it will be a real option--in other words, it won't be something available to everybody as a choice, but only available to those who satisfy the various restrictions. Not very good as a real public option, I fear.

But for those who have been arguing against a public option based on "competition", Harold Meyerson's recent WaPo op-ed about "free market champions" is worth reading. Remember that the argument goes like this. Having a public option isn't fair because it forces private insurers (who, it is implied, do everything on their own without any government help) to compete with the public option (which, it is implied, will use tax funds to support itself and therefore be unfairly advantaged). There are several details this broad-strokes argument overlooks.

to the extent that people are forced to buy private insurance, that forced purchase is a form of subsidy of private insurers. It is a guarantee of future business, from people who might not otherwise have purchased. It is even more of a subsidy if the premium payment is in any way made by the government in lieu of the individual.
to the extent that the "public option" is restricted to those who cannot otherwise get insurance, it will tend not to take business away from public insurers and it will tend to take on the insureds who represent more risk (while leaving to the private insurers the (forced) clients who represent less risk--that's a form of guaranteeing gains to the private end, while expecting losses on the public end
to the extent that the public option is restricted in what it can do (e.g., whether it can negotiate prices like Medicare or even just "glom onto" medicare's negotiated contract prices), it is not advantaged compared to private insurers
to the extent private insurers work in markets that are near monopolies, they have no current competition, so that a public option might be the only significant competition they encounter (Meyerson notes that in Alabama, one health insurance company controls 90% of the market; the Blue Cross-Blue Shield conglomerate controls a significant share of the market).

One of the things that those opposed to the public option seem to discount is this--private companies are in the business to make a profit, the bigger the better, and they have every incentive to find ways to deny coverage. Public arrangements have an incentive to "offer[] Americans a better deal." Id.

Myerson makes an even bigger point. That the idea of a free market is one where there really is competition (not near monopoly status) and wehre products are transparent and openly comparable rather than sold "behind closed doors." In the case of health care and financial markets, it seems that the status quo big business participants are more interested in "few competitors" and "products for whcih consumers can't easily discern if they're paying a fair price". So just who is really in favor of a substantive free market operation???

The power of banks (plutonomy)

LindaMBeale — Tue, 20 Oct 2009 14:58:35 -0700

Read this post on Naked Capitalism. Does it make you angry? Do we really want banks and their wealthy clients ruling the world? Maybe it's time to do something like join the Chicago demonstration.

Public Option--resurrected from the dead?

LindaMBeale — Tue, 20 Oct 2009 14:36:51 -0700

The constant stomping on the public option by insurers and their supporters has made it look like it would take a miracle to get a real public option in health reform through Congress, although many commentators are convinced that the only way to reduce health care costs is by creating a possibility of a national system that people can opt into. Just passing a law that guarantees that private insurers will get a payload of premium monies from people who will have to be partly subsidized by the federal government to be able to afford it makes no sense at all. That's because the comparison with other countries suggests that one reason (among several) for our much more expensive health care is that we have private insurers in the mix with no incentive to cut premiums and every incentive to deny coverage.

I suspect that there has been a majority in favor of a strong public option all along, but the right-wing drumbeats suggested that the right's attack on anything governmental (and distaste for anything providing an "entitlement" to those who don't have much while supporting entitlements for private insurers whose business has to, apparently, be guaranteed a profit) had made inroads among those who bought the nonsense of death-panels, the "government will dictate your treatment", and "if it's government, it will cost more no matter what" couple with "if its government, the private insurers will be 'unfairly' deprived of profits for how can they ever be expected to compete with government" (the latter two pieces of nonsense being based on diametrically opposed foundational arguments, which somehow opponents of a public option tend to disregard).

But now "[a] new Washington Post-ABC News poll shows support for a government-run health-care plan to compete with private insurers has rebounded ...and wins clear majority support from the public." Balz & Cohen, Public Option Gains Support: Clear Majority Now Backs Plan, Wash. Post (Oct. 20, 2009). Regretably, the largest majority exists for a state-run, only-available-to-the-uninsured option--that is the most beneficial to private insurers and the least likely to have long-term inroads on increasing health care costs. Give them a little more time--eventually they'll all catch on, maybe, to the dumb-it-down game being played.