Nutter's Washington

Tax Spending and Tax Reform

Oh boy, tax reform is back. Reform. How can one dislike the concept?   That has to be good, right? Both political parties are talking about, almost drooling over, it. Merriman-Webster’s Dictionary defines reform as “amendment of what is defective, vicious, corrupt, or depraved”. Therefore, the term tax reform assumes the current system is indeed in such a state. Is this what our Congress has given us?

The fundamental question to ask when discussing tax reform is what is the purpose of imposing taxes in the first place. Is it to raise revenue to fund essential and necessary functions of the government? Is it to redistribute wealth from the have enoughs-to-the have-not-enoughs? Is it to encourage or punish specific conduct by it citizens? Is fairness a criterion, however it is defined?  Is there a limit to the amount a person should have to pay? What about those who pay no income tax at all which could be an uber-rich person or an impecunious hobo. What about an efficient and simple system?

"Name that Tax": I'll take a 1040 and a Schedule M

Once a year I get together with a friend of mine. He is a real tax wizard and has an intense love for the working of the US Federal Tax System. He describes it as a beautiful complication of long flowing sentences understood by few people. In spite of its poetic nature, he believes it can be used like a weapon against the very government which enacted it. Like Hannibal Barca at the Battle of Cannae, he devises strategies in a military fashion to save his clients millions by employing some bold but subtle techniques. He always reminds me that  “tax avoidance” is legal; there is no duty to pay a fair share -- however that is defined.  I always remind him there is no difference between “mere fraud” and “overt fraud.” I have to add my friend is so good at what he does, that he has no reason to step over the line with dubious advice.

Tax Simplification, Anyone?

For most American taxpayers, the US income tax filing deadline has come and gone. The dreaded 1040, W-2, 1098 and 1098 forms are a distant memory until next year. Many taxpayers spent hours gathering information and then filled out the appropriate forms on a computer program, by hand or they paid a professional service for the privilege of contributing to this great Republic. Some taxpayers will get a refund but many others will have to write a check to the U.S. Treasury.  Almost everyone will be grumbling for one reason or the other.

At this time of year, politicians, tax advocacy groups, small business and individual taxpayers wail about the complexity of the tax system. While it is true the overall tax code is a labyrinth of laws, for most taxpayer it is relatively simple. If a person is not itemizing deductions, the process is merely filling in a form, much like filling in a credit card application (well, maybe not that easy). For those that itemize, the process for the most part is slightly more time consuming but usually does not present difficult tax questions. Overall, taxpayers collectively spend a few measly hundreds of millions of hours and billions of dollars to create the fuel for this great engine of voluntary tax collection. 

Alka-Seltzer time? The Deficit Speech

The speech given yesterday by the President on his plan to reduce the projected Federal accounts deficits is a lot to digest and think about. I am not sure yet if I need an alka-seltzer.

Before my day job, I read the text, saw a few video clips and reviewed the fact sheets put out by the White House. The specifics of the plan, according to news reports, will not be available until late June. I am not sure what the Administration has been doing for the past few months other than defending current spending levels that it cannot release specifics. In reading the document it seems more time was devoted to what the President was against rather than what he was proposing. Perhaps this approach can be chalked up to the negotiating process or some White House political strategy and if so then it begs the question was this a political speech or one of “vision” and a real plan?  

 

"Nothing Burger" or "Something Burger"

I was driving to work this morning and listening to the radio as I hovered in gridlock in my car, which I had recently filled up to the tune of $85. The commentator warbled the phrase “nothing burger” in reference to some pet peeve. My senses picked it up as I had just used that phrase yesterday to a colleague of mine and it is one that I rarely hear in our modern cyber speak. I was also thinking about the speech the President was going to deliver this afternoon outlining his approach to reducing the deficit.

 A recent convert to deficit reduction, the President intends to say something along the line that the $1.65 trillion federal deficit this year and future red ink beyond the pale can be reduced by lowering spending in Medicare and Medicaid, raising taxes on the wealthy and cutting defense costs. Now, there is a revelation.

Centime Budget Deal

The popular political reality show entitled “Shut the Government Down” is over. The agreement reached in the waning minutes of Friday night between House Republicans, Senate Democrats and The White House purports to “cut” or “not spend” $38 (or so) billion from federal outlays for the remaining fiscal year. In observing the events over the past few weeks, the agreement can be viewed as the end of the world and a cold cruel act or a great beginning towards fiscal sanity. It is neither. It is a centime. A drop removed from the sea of red ink. 

There is no question there are profound differences in the approach of the political parties. If I may stereotype them, Democrats have never met a government program they do not like, believe the current account deficits are not really important, have no intentions whatsoever to cut federal spending and would like to tax everyone into oblivion to maintain federal largess. Republicans on the other hand would like to gut most of the federal government except for the military and border enforcement, eliminate most regulations and set a marginal tax rate hovering around 5 percent. 

Congressional Pyrrhic victory over EPA regulation

The regulation of greenhouse gases (GHG) has been a contentious and divisive issue. The emission of mainly carbon dioxide from fossil fuels use has been blamed as the source for “climate change” by one side and largely dismissed by the other. The current Administration upon taking office 2 years ago supported by a Democrat Congress put forth an aggressive program to regulate GHG through a complex system of emissions ceilings and allowances, known as “cap-and-trade”. The details and history of the program are beyond my comments now but suffice it to say, if enacted into law “cap-and-trade” would have had an enormous impact on energy costs, energy use and energy production. 

 In the last Congress, cap-and-trade legislation fashioned by a Democrat majority passed the House, but failed to move in the heavily Democrat Senate.  As the legislation died, the U.S. Environmental Protection Agency (EPA) stepped into the void to promulgate administrative rules to regulate greenhouse gases from major emitters of carbon and carbon equivalents under the guise of the 1970 Clean Air Act. The result of the rules is to impose a quasi-cap-and-trade system by regulatory fiat. EPA’s authority and the validity of the regulations are being challenged in multiple lawsuits. However, this is just the background as the real struggle is about political power.

Tax Games should end

In the waning moments of last year’s lame duck session Congress passed and the President signed into law legislation giving the beleaguered taxpayer a patchwork, unsettled tax regime for the next 2 years. It was the culmination of a political rhetorical barrage and stalemate in which both political parties blinked. The legislative process and the result turned out to be an ugly display worthy of many unflattering adjectives. The political parties drew lines in the sand, both failing to undertake a through examination of the real questions as to what is the best tax and economic policy for the country.

 The tax code affects almost every business and personal investment decision. It subsidizes certain activities, and punishes others. It shapes our retirement, employment, and business structures. Yet, what has developed is a system largely put together by fiat, yearly trickery and a broken- down process. We all deserve better.