Nutter's Washington

Summer is over in Washington: Political Lessons and What's Next?

The end of summer is fast approaching. I know some believe summer is officially over after Labor or when schools reconvene but for those involved in the machinations of Washington, summer is over. Congress will adjourn for it August “work period” and the President gave up doing anything to help the country months and months ago.

The list of government unfinished business-some of it urgent- is long and complicated. No budget was passed, no appropriation bills will be pass, the current tax code more or less expires at the end of the year and automatic budget reductions will also be implemented in January. It is a feckless state of affairs.

Budget Sequester: Careful what you vote for

This was featured on MarketWatch.com on July 23, 2012 in an edited version and title

http://www.marketwatch.com/story/let-the-budget-sequester-take-effect-2012-07-23?dist=beforebell

 

There are two important, very important, issues facing the Federal Government in the next few months.  The decisions made or not made on these issues will set the direction for the country for years to come. I am not talking about the election, but the Budget Sequester and all the expiring tax provisions, both taking effect at the end of the year.

Unless Congress and the Administration act, tax rates for all taxpayers will increase next year and a host of other tax provisions will dramatically change. This is the so-called tax cliff. It is complicated and more than significant.

Also, unless Congress acts and the Administration cooperates, automatic budget reductions affecting defense and certain domestic programs will go into effect as a result of the Budget Control Act deal made last year. Due to the failure of the Super Committee to come up any agreed-upon deficit reductions as called for in the “budget deal”, the decision to make certain spending reductions was taken out of the hands of the government and put on automatic pilot to make the landing. 

Carbon Tax: Resurrected Idea that will not go away

Some ideas in Washington never seem to go away. They lie dormant, hibernate, and kept alive by the cottage industries supporting them. They rise now and again, chains rattling, grandiose plans set forth. The last few days has seen such a resurrected idea in the form of the “Carbon Tax.

Imposing a tax on energy, carbon or otherwise, has been around since the 1970’s. Initially proposed by the Carter Administration, it was again put forth in the early days of the Clinton Administration. It received additional attention from global warming advocates during the consideration of the ill-fated Cap and Trade bill in the last Congress.

Congress should go Home: Waste of time on the HIll and by Obama

What a ridiculous week in Washington. The week demonstrateS that futility and political differences between liberal and conservative cannot be clearer. The inability to seriously address any possible solutions that could actually help the country is more than obvious. Congress should pass a Continuing Resolution to fund the government until the election and adjourn. There is nothing left for them to do.

This week the House of Representative voted to repeal for the thirtieths plus time the Affordable Health Care Act. (one of my all time great misnomered pieces of legislation) The Republican House voted on party lines to repeal it but it is not going to matter, has no legislative effect, did not really serve any purpose other to grandstand. The merits of the legislation will be decided after the election. Everyone knows that and everyone knows that once monster entitlement programs becomes law, they are impossible to get rid of, even if they are terrifically flawed.

Over on the other side of the HILL, the U.S. Senate under Senator Harry Reid (D-NV) decided not to take up the offer made by Republicans to ACTUALLY vote on the extension of Bush-era tax cuts. Of course, the President has been urging the tax rates be extended for a year for those making under $200,000 a year and Senator could have voted on this measure with our impediment. The tax game of chicken will continue until November. 

It is crucial to the country Mr. Obama told all of us on Monday, in a pathethic staged event, to pass his proposal. We must have tax fairness, he crowed.  Well, here was the chance. His main water carrier, the protector of democracy, the champion of the beleaguered, chose not to have a vote. Not sure if he was afraid of losing, not sure if his endangered members up for re-election did not want to take a stand, not sure even Senator Reid knows himself. I can only conclude in the spirit of bi-partianship, it must be if the Republicans want to vote, he has to be against it.

The President has shown for more than a year, he is neither capable nor willing to lead on anything. He only wants to be re-elected. He can then rule by executive fiat in his second term, so why do anything now? Picking and choosing which laws to obey, enforce and which new edits to make up are preferable to dealing with the Constitution.  He thinks by making Bain Capital the focal point of his tenure in office, voters will not judge him on his set of accomplishments or lack thereof. Not reason to explain, just change the subject and ignore the rest.  It is hard to watch.

So there it is—a disengaged, feckless President, an inane House of Representatives, and a cowardly U.S. Senate. Why are they still here going through the motions? Why not just go home, campaign, and let the enlightened voters make a decision in the fall. It certainly cannot hurt the Republic. 

Oh forgot to mention, 5 workdays this week. At about $4 billion in additional deficit each and every day, that means the total red ink of around $20 billion for the Federal Government for the workweek. Nice job, guys.

I realize I am being cattish and harsh but not by much.

 

 

Payroll Tax Reduction Expires: Time to Pay Attention

 

The last couple of days have seen a lively exchange between liberals and conservatives on federal income tax rates for next year. Should the current federal tax rates which have been in effect for the past 11 years be continued or extended for only taxpayers earning less than $200,000 or be allowed to increase for everyone to the rates in effect prior to 2001? Interesting question. Big policy differences, big economic consequences and big political decisions are involved. 

Each side is skewering the other. Republicans believe increasing the rates will have a negative impact on the economy. Almost to the politician, they are united in opposing any income tax increase. The President and key Democrats think it is a matter of fairness to raise rates for higher incomes in a vaguely disguised lust for more federal revenue to mask massive deficits and propel the philosophy of redistribution of national wealth.

If current income tax rates are allowed to revert to Pre-Bush levels, every taxpayer will pay more taxes and perhaps even a few non-taxpayers will start to pay some modicum and token taxes. However, it was interesting in the President’s appearance on Monday, he did not mention any real details of his proposal. He did not mention, for example, the Alternative Minimum Tax. (ATM) Does he want to ameliorate its effect on millions and million of taxpayers? There are so many other nuances involved besides the actual marginal rate, like the marriage penalty, reduced rates on investment income and investment write-offs.

The President, now back on the campaign trail, also did not mention corporate jets, oil companies and carried interests for hedge fund managers. Those are many of his old time favorites.  In other words, his proposal was incomplete and should be taken for the political sideshow it was. Mr. Obama is in total campaign mode, has been for some time and has no interest in seriously addressing any real problems. 

However, there is a subject that should be mentioned and one, if not acted upon, will impact everyone by increasing taxes for all no matter what happens on the rates. It is the two percent reduction in employee payroll taxes first effective in 2011.

An employee’s wages are subject to the 12.4% Social Security tax up to the annual wage ceiling. Higher-incomes get socked with even high employment taxes for Medicare.  Half the Social Security tax bill (equal to 6.2%) is withheld from employee paychecks while the employer pays the other half. Social Security taxes are a major tax hit. If you made  $100,00 (slightly below the wage base) Social Security taxes were before 2011, $12,400 (12.4% x $100,000) split between the earner and the employer.

For the last two years, there has been a two percent reduction in the employee portion with the employer’s rate unchanged. This mean our beloved taxpayer has been getting in this example a $2,000 reduction in his overall tax bill.

The reduction in the payroll tax rate and decoupling it from the employers match is unprecedented. This type of policy has been resisted in the past since reduced taxes means the so-called Social Security Trust Fund will have less money. Even thought the government used some budget gimmicks to show an illusion of an undiminished Trust Fund, the reduction remains controversial.

Now here is the largely ignore dilemma. The payroll reduction tax break expires at the end of the year. So if you earn wages of $60,000 a year, your taxes will go up $1,200 next year. You will have $100 less disposable income per month. 

Here is the other problem, continuation of the reduction will add to the federal deficit by $120 billion a year. If you couple this with the rate reduction and with an AMT fix, maybe throw a few of the $40 billion in other expiring provisions, the federal deficit goes from merely enormous and dangerous to gigantic and frightful for the 4^th year in a row since the election of Mr. Obama.

The point of all of this is the fiscal and economic health of the country, the integrity of the tax system and ability of the country to try inch anywhere even in the direction towards budgetary sanity is a complexed mix of issues, all inter-related. It in not just about the Bush tax cuts, the top marginal rate or rich vs. poor. It is stupefied political nonsense to treat the situation otherwise.

Ending the employee payroll tax reduction will have an impact. It will affect the paycheck of everyone. It will have a huge economic repercussion. It is twice the money that is proposed to be taken out of the economy from the Defense Department sequester reductions beginning on January 2 that many are saying will have a huge impact on the economy.

I do not see much support at this time to continue to reduction. No one, even the President, talks about it.  Therefore, all the more important to address the situation in totality. As for the deficit, well no one seems to care.  

 

Obama, Tax Rates and the Economy: Change the Subject

It is the start of a new week in Washington. Thank goodness. The prior “lost week” is now over. Lost because of the infernoesque heat, power outages, store closings, a metro derailment,  an airplane getting stuck in heat-induced soft asphalt tarmac, traffic signals out- just a few of the circumstances facing local residents in the past week or so. Glad it is over

Oh, there was a dismal jobs report last week also. It reflected for the third month in a row the anemic job growth in the national economy. The 80,000 new jobs added only accounts for population growth, thus the millions of unemployed are still frustrated, out of work.

To illustrate how things are back to normal this week is the fact President Obama-off his last Romney bashing trip to multiple locations- wants to change to subject. He wants to skip the economy and go back to the old tried and true, taxes. A subject he loves to raise. (Pun intended)

Mr. Obama is promoting again an extension of the Bush-era tax cuts for another year for those making under $200,000 annually. The other way to look at it, he wants to raise taxes from current law on everyone above that group.

In an elaborate staged appearance around noontime today complete with human props in the White House, the President gritted his teeth, snarled and screeched about “tax fairness”. I am not sure even after all the years of being involved in tax policy even how to define fairness. Is it fair almost half of people who earn income do not even pay income taxes? Is it fair that even people who do not pay taxes get money back from the government in the form of all types of refundable credits and gimmicks that do not belong in the tax system and are based on what they earn but do not pay?

On the other hand, what is the rate upper income taxpayers should pay? Under the rates suggested by Mr. Obama, and including the “investment surcharge” imposed by the Affordable Health Car Act”, is it fair to tax dividends received at a 44 percent rate after the income has already been taxed at the corporate level? Should someone making $20 million year-like professional athletes, film stars, investment bankers, and high tech gurus pay the same rate as someone making $200,000 a year?

In any event, none of this is about the substance. It is all about politics. If the Administration and the Congress were really interested in addressing any of these issues, then they would have done so. Merely debating the tax rates for political purposes without making fundamental changes in the tax system to make it fairer for everyone, simpler for everyone, eliminating ill-advise subsidies withhout having a system that collects adequate revenue without penalizing and distorting the economy is a waste of time. The problems are much greater than the simple solutions of the misguded notion of tax fairness, which will not create one additional job. 

Mr. Obama's push will pit him against Republicans, including Mitt Romney, who wants to extend all the Bush tax cuts for another year.

I may have missed it but I did not catch anything about the payroll tax two percent reduction set to expire at the end of the year. For those who do not pay income tax but do have to fork over Social Security taxes, this is a bigger deal. It is a big deal anyway, about $120 billion in increaed taxes next year if left to expire. 

I also missed the best parts about the deficit in the Obama dialogue, running at about $4 billion dollars a day. How will that ever get under control? One thing is for certain; it will never, ever be addressed by current Administration. I doubt it will be addressed by the Republicans who talk a good game but when it comes to making real progress (like the sequester) seem to lose their convictions.

The pundits love the politics of all of this but I would welcome some progress. The election may help decide the fate of the furture of the tax system but Mr. Obama in no longer the hope and change artist, wanting to bring all sides together for the good of the country. He is just another politician who cannot transcend a difference of opinion, and has decided, it is his way or no way. Given his track record; I can understand the desire to change the subject.