Tax Issues – Page 2 – The Wrongologist

What’s The GOP Plan For Negotiating On The Debt Limit?

The Daily Escape:

Dream Lake, Estes Park CO – January 2023 photo by Rick Berk Photography

(Wrongo and Ms. Right send healing thoughts to friend and blog reader Gloria R.)

We’re all aware that House Republicans are refusing to lift the debt ceiling unless Biden gives them well, something? And Republicans still haven’t decided what they want. The GOP also wants a balanced budget, but they can’t say what should go, or what should stay.

From the WaPo: (Brackets by Wrongo)

“They [GOP] say they want to reduce deficits — but meanwhile have ruled out virtually every path for doing so (cuts to defense, cuts to entitlements, wiping out nondefense discretionary spending, or raising taxes).”

The fact that Republicans are up in the air about what to do highlights the likely Democratic strategy is against their threats about the debt ceiling. Again, from the WaPo:

“Sensing Republicans are on the verge of a blunder in their schemes to use the debt ceiling to hold the economy hostage and try to extract draconian spending cuts, the White House has developed a two-part response strategy.

Part 1: Lay out the simple argument that Republicans are recklessly inviting an economic meltdown even by talking about a possible default.

Part 2: Force House Republicans to put forward a plan on the table and watch as they struggle with the fallout.”

The Democrats along with Senate Minority Leader McConnell (R-KY) are daring Republicans to put forward a plan. Senate Majority Leader Schumer (D-NY) said:

“If House Republicans are serious about taking the debt limit hostage in exchange for spending cuts, the new rules that they adopted require them to bring a proposal to the floor of the House and show the American people precisely what kind of cuts they want to make….”

Everyone who follows politics knows that Republicans never take much interest in fiscal sobriety when their Party is in control. They agreed to raise the debt limit three times while Trump was in power.

It seems that Republicans are doing the Democrats’ job for them. They are asking for an economic catastrophe and seeking draconian cuts that their base doesn’t want.

Consider the Republican desire to reduce our deficits. They have pledged to balance the budget (that is, to have a zero annual budget deficit) within 10 years. But they haven’t laid out any plausible mathematical path for getting there. And of the current debt ceiling, 90% of it was committed before Biden took his job.

Some Republican House members want to cut military spending, an idea that both Speaker Kevin McCarthy (R-CA) and Rep. Jim Jordan (R-OH) are on board with. But others, including House Appropriations Chair Kay Granger (R-TX), have said defense spending cuts aren’t on the table. Rep. Michael Waltz (R-FL) said:

“We’ve got to get spending under control, but we are not going to do it on the backs of our troops and our military,”

Waltz thinks Republicans should focus on “entitlements programs,” such as mandatory spending programs like Social Security, Medicare, and Medicaid. But the bi-partisan popularity of these programs makes them hard to cut.

And last Sunday, Rep. Nancy Mace (R-SC) was asked to name one thing she was willing to suggest as a spending cut. She instead stated things she wouldn’t put on the table:

“Well, obviously no cuts to Medicare or Medicaid or Social Security….That’s a nonstarter for either side.”

Wrongo has repeatedly suggested tax increases which would help lower deficits, but Republicans have ruled that out.

Instead they’ve changed the House rules so tax cuts will be much easier to pass, and tax increases harder to pass. The House’s rules package now says that any increase in taxes would require a three-fifths vote (60%) rather than a simple majority as previously.

They’ve also proposed doing away with income taxes, payroll taxes, estate taxes and even the IRS itself in favor of a supersized sales tax that would provide most revenue to the government. Republicans would substitute a 30% sales tax on all purchases and in exchange, do away with income, Social Security and Medicare taxes.

That means workers would keep the gross amount of their paychecks. But it also means that buying everything from groceries to automobiles would be hugely more expensive. It also provides a big tax cut for the wealthy and businesses.

The result is a smaller tax burden for the highest earners and a bigger one for people in the middle.

Once you reject trimming entitlements or defense spending and bake in the cost of the GOP’s proposed tax cuts, you’re left with an additional $20 trillion hole in the Federal budget over the next decade.

OTOH, the White House is expected to release its detailed budget in early March. It will build on budgets it has released previously. Republicans want Biden to negotiate on what to do about money we’ve already spent.

Try doing that with YOUR creditors.

Monday Wake Up Call – November 14, 2022

The Daily Escape:

Bison at Grand Teton NP, WY – October 2022 photo by Kerry Key

As we peel the onion of the midterms we learned something from Massachusetts that’s worth thinking about:

“Massachusetts voters approved an amendment to the state constitution that will increase taxes on those earning more than $1 million a year…. The state’s constitution currently requires all income be taxed at uniform rates. The $1 million threshold will be adjusted each year to reflect cost-of-living increases.”

Fifty-two percent of voters approved the amendment which will add a 4% tax on annual incomes above $1 million, on top of the state’s current 5% flat income tax. It takes effect in 2023, and will fund public education, roads, bridges, and public transportation.

It’s expected the new tax will affect roughly 0.6% of Massachusetts households, according to an analysis from Tufts University. The new tax also applies to “one-time millionaires,” including people who make more than $1 million in taxable income from selling their homes or businesses. It’s estimated to bring in roughly $1.3 billion in revenue during fiscal 2023, according to Tufts.

Supporters applauded the new tax as a necessary step to address MA’s income inequality gap. The Economic Policy Institute ranks Massachusetts as the sixth-worst state in the country when it comes to income inequality.

It is true that the US is one of the most economically unequal nations in the developed world. Most of the income and wealth gains of the last decade have gone to the richest 0.1%—households with annual incomes of $2.4 million and wealth of at least $32 million.

So it isn’t surprising that a similar idea has floated around DC for some time. In October 2021, Biden introduced a “millionaire’s surtax,” bill that would raise taxes on all forms of income, including wages, capital gains, and dividends. It would have imposed a 5% tax on incomes above $10 million and an 8% tax on incomes above $25 million, raising $230 billion over 10 years from the wealthiest 0.02% of Americans.

Naturally, it didn’t pass.

So the effort moved to the states, with success in 2022 Massachusetts and failure in California, where its millionaire’s surtax was defeated, 59%-41%.

In some ways, the millionaire tax debate is emblematic of the nation’s deep political divide. Republicans everywhere only want to see taxes go down, and Democrats are seeking to raise them to fund long term problems like battling climate change and adding better infrastructure.

The GOP asks: If climate change is an existential issue affecting us all, does it make sense to address the issue by taxing only a handful of households? Your answer may be different from Wrongo’s who sees the question as a way to deflect the discussion into an endless loop of “whataboutism” regarding who pays taxes.

Republicans have refused to support carbon use taxes. They’ve refused to support cap-and-trade carbon taxes. Most of them deny that climate change is happening and refuse to pro-actively plan to moderate greenhouse gas emissions, here or anywhere else. So they aren’t engaging in a serious discussion when they ask the question.

Although efforts to raise taxes on millionaires have stalled in Washington, they haven’t gone away. That will happen if Republicans control the House in January 2023.

Time to wake up America! Deficits can grow to the sky at the national level but states have to balance their budgets yearly. That’s why some states are making the choice to raise taxes on millionaires, the very people who have gained the most in the past 50 years. Raising taxes is a must in most states for the remainder of this decade.

To help you wake up, watch, and listen to Molly Tuttle channel Grace Slick while covering the Jefferson Airplane’s “White Rabbit“. Tuttle was just named the International Bluegrass Music Association’s Guitar Player of the Year, so you’re seeing “White Rabbit” done as bluegrass, performed in October 2022 in Portland, ME:

Tuttle is an amazing performer. You can learn more about her here.

Monday Wake Up Call – October 3, 2022

The Daily Escape:

Baxter Lake, Baxter State Park, ME – September 2022 photo by Laura Zamfirescu Photography

“We moved to a better neighborhood”. That’s the story of millions of Americans whose lives tracked toward success. In a way, that IS the American Dream, to escape from where you are to someplace better, safer, more upscale.

That version of the American Dream dovetails with our 21^st century desire to be isolated from other people. We order dinner from Doordash. We buy housewares from Amazon. We buy automobiles online to avoid talking to the manager at the dealer.

Many of Wrongo’s grandkids say that they hate people, meaning that they only wish to speak with their friends, and not to anyone who might be their customer.

So is alone in a better neighborhood now the American Dream? What about billionaires? They already live in the best neighborhoods. They have battalions of staff insulating them from the rest of us. Have you ever had a meeting with a multi-billionaire? It isn’t an easy thing to do. Over the years, Wrongo has worked for two of them, and they were perfectly fine individuals. But they were completely insulated.

And they made their money the old-fashioned way, inheriting it from their Robber Barron parents.

Today’s mega-rich have mostly found ways to extract value from consumers and businesses via software. Take a look at Bloomberg’s Billionaires Index. It’s a list dominated by people who have made money from the digital technology revolution.

And what are they doing with all this wealth? Many are quietly plotting their own survival against the world’s demise. Wrongo heard an interview with Douglas Rushkoff, author of “Survival of the Richest: Escape Fantasies of the Tech Billionaires”. Rushkoff is Professor at City University of NY, also a founder of the Laboratory for Digital Humanism, and a fellow at the Institute for the Future.

Rushkoff explained that billionaires worried about the end of the world know their money will likely be of little value. They’re thinking about political instability, social breakdown, and environmental catastrophe. A number of the world’s richest people are preparing for these events by building bunkers in New Zealand and in other remote locations. From Rushkoff:

“Most of these guys that we think are going to save us are actually wishing for the apocalypse. This is not just something that they fear. It’s something that at this point they’re ready to bring on.”

The book came from a meeting between Rushkoff and five billionaires at a desert resort. The topic? How to survive the catastrophe they know is coming. More from Rushkoff:

“And they spent the rest of the hour asking me really to…test their survival strategies…Do we go underground? Do I get an island?….What about space? And we ended up spending the majority of the hour on the single question, How do I maintain control of my security force after my money is worthless?…..because they’ve all got this money, they’ve…contracted Navy SEALs to come out to their compounds. But then they’re thinking, well, what do we do if our money’s worthless, then why are the Navy SEALs not just going to kill us and take all the stuff?”

Remember the back-yard bomb shelters of the 1950s: With that threat, how big would you want your bomb shelter to be? How luxurious and well-guarded? If the world were destroyed, you would try to live in that shelter full-time. Same thing with these billionaires.

Think about it: They want to use 21st century technology to revive a 13th century social order and impose it on the land and people who live around their protected fortresses. Missing from the plans of tech billionaires? Ideas to stop authoritarianism, decrease inequality, heal social divides, or slow climate change. Rushkoff explains:

“Even if we call them genius technologists, most of them were plucked from college when they were freshmen….They came up with some idea in their dorm room before they’d taken history, or economics, or ethics, or philosophy classes, and so they lack the wisdom needed to oversee their own perverse amounts of wealth.”

So maybe we shouldn’t rely on these guys to protect our future. In fact, Rushkoff says that these people who have the most power to change our current trajectory have no interest in doing so.

At this point in human history, making money is all that matters. In capitalist societies your worth is directly correlated to how much money you have. Everybody understands this. Billionaires are the most prominent symptom, but they aren’t the disease. Capitalism is the disease.

Time to wake up America! There is absolutely zero downside to relieving these people of a big slice of their wealth and putting it toward rehabbing our society. To help you wake up, watch, and listen to Carlos and Cindy Blackman Santana lead a Playing for Change global group of musicians in “Oye Como Va”:

Saturday Soother – August 20, 2022

The Daily Escape:

Stormy view from House Mountain, Sedona, AZ – August 2022 photo by Ed Mitchell

Tens of thousands of teacher openings are unfilled as students head back to American classrooms. That’s prompting states and school districts to try everything they can to address the teacher shortage.

Except increase their pay. The Economic Policy Institute (EPI) has tracked teacher compensation for 18 years. Here’s the headline:

“…teachers are paid less (in weekly wages and total compensation) than their nonteacher college-educated counterparts, and the situation has worsened considerably over time.”

EPI tracks what they call the relative teacher wage penalty, the relative wages and total compensation of teachers compared to other college graduates. Here are the EPI’s findings:

Inflation-adjusted average weekly wages of teachers have been relatively flat since 1996. The average weekly wages of public school teachers (adjusted for inflation) increased just $29 from 1996 to 2021, while inflation-adjusted weekly wages of other college graduates rose from $1,564 to $2,009 —a $445 increase.

The relative teacher wage penalty reached a record high in 2021. It was 23.5% in 2021, up from 6.1% in 1996. The penalty was worse for men than for women. The penalty for men rose from 18.6% to 35.2%.
The great portfolio of teachers’ benefits used to be a selling point, but it hasn’t been enough to offset the growing wage penalty. The teacher total compensation penalty was 14.2% in 2021 (a 23.5% wage penalty offset by a 9.3% benefits advantage).
The relative teacher wage penalty exceeds 20% in 28 states. Teacher weekly wage penalties estimated for each state range from 3.4% in Rhode Island to 35.9% in Colorado. In 28 states, teachers are paid less than 80 cents on the dollar earned by similar college-educated workers.

The EPI has a chart showing the relative erosion of teacher wages vs. other college graduates since 1980:

The EPI focuses on “weekly wages” to avoid the comparisons of length of the work year (i.e., the “summers off” issue for teachers).

Add to this the general decline in working conditions for teachers, and many who are eligible for retirement are leaving. Republicans in particular are politicizing education. Some are pushing the idea of “parental rights.” That is happening in Florida, Texas and in other states. It’s clear that in some school districts parents want the right to censor what’s being taught. Some Conservatives are pushing for a camera in every classroom across America. Tucker Carlson called for cameras in classrooms to “oversee the people teaching your children, forming their minds.”

This comes under the guise of “transparency in the classroom”, parents keeping an eye on teachers, so they won’t teach the dreaded Critical Race Theory (or groom kids to become trans, or gay). Teachers naturally bristle at the idea of video auditing.

Forcing teacher compliance with imposed politicized curricula won’t make these jobs any more desirable.

Some states are relaxing licensing requirements to make it easier for people to fill some of those unfilled jobs. Florida, which has about 8,000 open teaching positions, is allowing military veterans without a bachelor’s degree and no prior teaching experience to apply for a temporary five-year teaching certificate while they finish their bachelor’s degrees.

The biggest issues to solve are better public school funding, which can help end the teacher wage penalty. That requires towns to raise taxes. Second, the politicization of education is changing the amount of parental control in the day-to-day operations in some school districts. That’s making teaching an even lower-status job than it is now.

According to the BLS, there are currently 300,000 fewer teachers nationwide compared to before the pandemic. Part of this is job satisfaction. A survey from the American Federation of Teachers found that 74% of teachers were dissatisfied with their job, up from 41% two years ago.

If teachers and staff are underpaid, under-resourced and are now being second-guessed in the classroom, they’re not going to stay. So replacing them will become an even bigger problem.

Enough of this week’s problems, it’s time for our Saturday Soother! Let’s put Trump’s secrets and Liz Cheney’s political prospects on pause. We’re facing moderate drought conditions here in CT, so lawn mowing has ceased, and our grass is brown and crunchy.

But, it’s time to empty our minds, so that we can begin filling them up again on Monday. Start by grabbing a cold glass of lemonade and a seat in the shade.

Now, watch and listen to Antonin Dvorak’s “4 miniatures”, for 2 Violins and Viola, played here by the Musicians of Lenox Hill at Temple Israel of the City of New York in April 2019:

Right-Wing Lobbying Group Designated a Church by IRS

The Daily Escape:

Sunrise, high tide, Sea Street beach, East Dennis, MA – July 2022 photo by Bob Amaral Photography

The fallout from the Trump years continues. On Monday, ProPublica reported that the IRS had decided that the Family Research Council (FRC), a Right-Wing political lobbying group, qualifies as a church for tax purposes:

“The Family Research Council’s multimillion-dollar headquarters sit on G Street in Washington, DC, just steps from the US Capitol and the White House, a spot ideally situated for its work as a right-wing policy think tank and political pressure group.”

The FRC is now a church, thanks to the IRS and its Commissioner, Charles Rettig. You can be forgiven for not remembering that Trump appointed Rettig to be Commissioner of the IRS in 2018. He got the job by writing a 2016 op-ed saying Trump didn’t have to release his tax returns, despite every major presidential candidate having done so since Nixon.

ProPublica noted that the FRC says on its website that it is a:

“…nonprofit research and educational organization dedicated to articulating and advancing a family-centered philosophy of public life. In addition to providing policy research and analysis….[the] FRC seeks to inform the news media, the academic community, business leaders, and the general public about family issues that affect the nation from a biblical worldview.”

Now that the IRS has blessed FRC as a church, it is no longer required to file a public tax return, (known as a Form 990), which reveals key salaries, the names of board members and related organizations, large payments and/or grants by the organization.

And unlike with charities, IRS investigators can’t initiate an audit on a church unless a high-level Treasury Department official has approved the investigation.

Right Wing Watch, an organization that monitors the activities and rhetoric of right-wing activists and organizations reported on the ties between FRC and Trump’s Jan. 6 effort to overturn the presidential election:

“The Family Research Council…was deeply involved in…Trump’s efforts to overturn the results of the 2020 election—a fact made all the more apparent by revelations during the June 23 public hearing of the House select committee investigating the conspiracy that led to the Jan. 6, 2021, insurrection at the US Capitol.”

You probably remember the head of the FRC, Tony Perkins (not the deceased actor) by some of his grandstanding in the culture wars:

In 2005, Perkins was against disconnecting life support for Terri Schiavo, a woman who had been in a “persistent vegetative state” for a number of years.
In 2008, Perkins called the passage of California Proposition 8 (which prohibited same sex marriage in the state) “more important than the presidential election”.
In 2018, Perkins said, regarding Trump’s adulterous past, he should be given a “Mulligan“, because Trump was “providing the leadership we need at this time…”

In 2010, The Southern Poverty Law Center (SPLC) designated the FRC as a hate group. From the SPLC:

“Part of FRC’s strategy is to pound home the false claim that LGBTQ people are more likely to sexually abuse children than heterosexual people. The American Psychological Association, among others, however, has concluded that “homosexual men are not more likely to sexually abuse children than heterosexual men are.”

Designating the FRC as a church for tax purposes is part of a disturbing trend. The WaPo reported in 2020 about the growing list of religious groups seeking church status from the IRS.

The potential cost of becoming a church is that the organization can no longer conduct political operations on behalf of politicians or lobby on legislation. In practice, that is simple to get around. The FRC now has its church arm alongside a separate lobbying arm called Family Research Council Action.

The arms separate their messaging on two websites, with the FRC hosting issues-based content supporting its Christian worldview while the Family Research Council Action explicitly endorses candidates. Both arms are registered at the same address and both share all five of the part-time employees the FRC lists on its tax form, including Tony Perkins.

These “churches” sure have figured out how to run a scam on the US government.

It’s past time for the IRS to end this charade and tax churches. Biden should fire IRS Commissioner Rettig, who was also the guy in charge when the IRS politically targeted Trump “enemies” James Comey and Andrew McCabe for invasive tax audits.

These people and their “churches” are simply Republicans with a talent for abusing the bible and raising obscene amounts of money. Thomas Jefferson said it best:

“In every country and in every age, the priest has been hostile to liberty. He is always in alliance with the despot, abetting his abuses in return for protection to his own.”

Monday Wake Up Call – April 18, 2022

The Daily Escape:

Sunset, Sequoia Lake, CA – April 2022 photo by An Pham

Today is tax day, and Wrongo will get his in on time. But the question of how America deals with its taxing is rightly under scrutiny. Blog reader Ottho H. commented on Wrongo’s Sunday post about the IRS:

“To me it’s an enduring mystery, and a source of anger and disgust, why Congress starves the IRS…. Doubling the IRS budget (by, say, $12B per year) seems like the best and most “sure thing” ROI the gov’t can make….To the extent that the “starve or defund the IRS” movement is due to lobbies and Congressmen out to protect and further enrich the already rich, then at least that should be made more transparent to the public. This is a no-brainer cause that I can get behind.”

The IRS is chronically underfunded. Government data show that millionaires and billionaires are rarely audited, while lower-income families are disproportionately targeted (five times more likely) for enforcement actions. The agency is severely understaffed. It works with outdated technology, meaning that any paper returns must first be transcribed into a computer. It also means hundreds of billions of dollars in taxes go uncollected.

The answer to so many of the IRS’s woes: antiquated tech systems, congested phone lines, threadbare enforcement – is more funding. It’s one of the few federal agencies that would generate a large and nearly immediate return on investment if it could spend more.

But many Republicans don’t want to fix it. Yesterday’s WaPo article quoted Sen. Rick Scott (R-FL):

“This additional money for the IRS to target all Americans is absolutely wrong…It will target our families, it’s going to target our small businesses, and it’s going to go after them to get them to pay more money.”

And Sen. Todd Young (R-IN) about how new IRS funding would be used:

“We know that most of this $80 billion will be used to enhance the ability of the IRS to target middle Americans…”

The Economist says that the IRS entered this tax season with a backlog of 24 million returns, 20 times worse than normal. At the end of this tax season, it will be nearly two years late in processing many of our returns:

“Spending [at] the agency has declined by nearly 20% since 2010. At the same time, the number of tax returns has increased by 20%. The backbone of the system, a nationwide taxpayer database, is built on top of a 1960s computer language rarely taught in schools.”

The IRS is in the process of hiring 10,000 workers to help clear the backlogs, but the biggest challenge is retaining their senior auditors. About a fifth of agency staff are eligible for retirement. Many have already left as a result of Covid, and they were exactly the kind of people needed to maintain the agency’s enforcement efforts.

The Economist says that the IRS audited 0.3% of corporate tax returns filed in 2018, down from 1.6% in 2010. The number this year may be even lower. They quote Charles Rettig, IRS Commissioner, as estimating that the government loses about $1 trillion in tax revenues annually because of cheating.

Even if new funding is appropriated, it will take time to re-build the agency. Money that is appropriated now for that purpose would be spent over the course of the next fiscal year (which ends on 9/30/2023) and the effects of those reforms probably wouldn’t start to show in the statistics until then.

It’s always been easier to destroy than it is to build. Credit the GOP for understanding this truth.

Time for the Republicans in Congress to wake up! No one likes paying taxes. Even for those who recognize that there’s a societal gain when we all pay them, filing our tax returns is a hassle. It’s time we had a better funded agency that could return the enforcement efforts back toward the richest corporations and wealthy individuals first.

To help our Congress Critters wake up, watch and listen to Mavis Staples perform “Love and Trust” from her album “Live in London”, recorded in 2018 at London’s Union Chapel. She’s joined by Jump Bluesman Rick Holmstrom on his Telecaster:

Sample Lyric:

The simplest things can be the hardest to do
Can’t find what you’re looking for even when it’s looking for you
The judge and criminal, the sinner and the priest
Got something in common, bring em all to their knees

[Chorus]
Do what you can, do what you must
Everybody’s trying to find the love and trust
I walk the line, I walk it for us
See me out here tryin’ to find some love and trust
(Love and trust)
(Love and trust)

Saturday Soother – November 6, 2021

The Daily Escape:

Bear Canyon, Tucson AZ – October photo by Carla Mitchell

Way back in 2020 (remember 2020?), Democrats campaigned on raising taxes on the rich. It’s still something that polls show a majority of Americans want. But House Dems are now proposing to raise the state and local tax (SALT) deduction, rather than eliminate it. The SALT tax limitation was one of the few responsible measures in the GOP’s 2017 tax-cut bill since it raised revenue mostly from wealthy people.

Wrongo lives in a state where the federal limitation of $10k on SALT taxes leaves him paying additional federal taxes. But most Americans are not impacted by the current limit on SALT deductions. Increasing it would primarily benefit America’s high income earners plus some middle class urban and suburban homeowners.

The WaPo was unhappy with the Dems new proposal:

“House Democrats released Wednesday a new draft of their big social spending and climate bill — tucked inside of which was a massive new payoff to wealthy people. The Democrats’ bill is supposed to make the nation fairer and more competitive. This cynical, wasteful policy should have no place in it.”

A handful of Democrats from Blue states say they will oppose Biden’s major social spending bill if it fails to include SALT cap “relief.” Once again, the fault lines within the Democratic Party are visible. Pelosi is in a bind. Refuse the demands for repeal of the SALT cap, and Dems won’t have the votes to pass either Biden’s big bill or the infrastructure bill. And since they already have a problem finding new revenue to offset the costs of their programs, so this will make that job a little harder. More from WaPo:

“Under the House plan, the amount of state and local taxes people can deduct would rise from $10,000 to $72,500. This gives high-income people a $23,000 tax break. The Tax Foundation, a think tank, estimates that 70% of the tax change would flow to the people making $250,000 or more. The Committee for a Responsible Federal Budget reckons that the plan would cost $300 billion, which would make it the third-most costly item in the bill — far more than it would devote to major anti-poverty programs.”

No one who owes $72,500 in state and local taxes is middle-income, but the SALT deduction does help many in the middle class, at least in the Blue states. Since most Blue states are also high tax states, not having a limitation literally saves $ thousands in taxes for some in the middle class. It had been that way for decades until the GOP capped it in 2017 and gave that money to the rich by lowering their taxes.

Finally capping the SALT hurts the resale possibilities for some otherwise modest homes in high tax areas. They’re not going to appeal to a purchaser when the mortgage payment is about the same as the tax payment every month. When a new buyer can’t completely deduct all of their property tax and local income taxes, it can make even a modest home look like a bad financial decision.

Sens. Robert Menendez (D-NJ) and Bernie Sanders (I-VT) unveiled an alternative plan that would keep the SALT cap, but exempt people who make less than $400,000 per year. That seems like a good idea. The House can repeal the SALT cap for those earning under $400,000 bringing it in line with the rest of Biden’s tax plan. This would help some in the middle class, although passing the Biden tax reform is still necessary.

It’s Saturday, and therefore, time for us to put away our concerns about what happened in Virginia or whether Manchin is simply a time-waster. And let’s calm ourselves as we kick off the weekend. It’s time for our Saturday Soother.

Here in CT, it was 29° Friday morning, making it three mornings of frost in a row. Our snowblower is coming back from the repair shop, and most plants are beginning their winter dormancy. At the Mansion of Wrong, we’ve finished repairs to our bluestone walkway.

With a cold, clear weekend on tap, we all should bundle up and sit in a comfy chair by a window. Today, let’s start with a hot steaming cup of Toasted Coconut coffee ($18.99/12oz) from BD Provisions in New Milford CT.

And after another tough week, let’s watch and listen to Sting perform “If It’s Love” from his 2021 album “The Bridge.” This song will put you in a good mood. And the dancers are wonderful. Watch it!

Biden Invites Sinema and Manchin to Talks

The Daily Escape:

Sunset, Cape Disappointment, WA – September 2021 photo by Rick Berk Photography. The lighthouse was built in 1856 and was the first in the Pacific Northwest.

In politics as in business, there’s theater, and then there’s the real work. Biden outlined his goal of raising taxes on the wealthy to strengthen the middle class and boost the economy in remarks on Thursday afternoon at the White House.

On Wednesday, Biden met with Sens. Joe Manchin (D-WVA) and Kristen Sinema (D-AZ), looking to find a path forward on the infrastructure bill, along with the big social spending package and Machin’s voting rights bill.

Democrats will use budget reconciliation for the social spending bill, bypassing Republican opposition. It allows them to win Senate passage with 51 votes, with VP Harris casting the tie breaking vote, rather than the 60 votes that would otherwise be required.

But that means Manchin and Sinema need to vote for the big bill, something they have said they won’t do. No one who was in the room when the talks took place came out and said that a deal was pending. But there’s still time for that to emerge.

The House Ways and Means Committee unveiled a tax proposal this week to pay for the $3.5 trillion package, which includes Democrats’ plans for universal pre-K, expanding Medicare, child and elder care, and the environment. The committee approved its portions of the big bill in a near party-line vote Wednesday, which included the new tax provisions.

Predictably, the WSJ’s editorial board weighed in on the proposed tax plan, saying:

“…this bill looks like a House Democratic suicide note.”

More from the WSJ: (Emphasis by Wrongo)

“If Americans are successful, Democrats want to tax more of their income. The top individual tax rate will rise to 39.6% from 37%, as Mr. Biden promised. But wait: The higher tax rate will kick in at a mere $400,000 for individuals and $450,000 for married couples. That’s down from $523,600 and $628,300 under current law.”

A mere $450,000. They trot out their “pity the poor rich” trope any time the possibility that tax rates might be raised shows up. Let’s unpack this:

The 98th percentile of household income is $387,116 and the 99th is $531,020,

This opens the possibility that there will be some families that are below the 99th percentile of household income and above the 98^ththreshold. Under the new law, they would be forced to pay about $700 more in taxes than they do now. That’s assuming the Democrats’ latest effort at socialism in America is enacted. This paltry tax increase might cut into the nanny’s Christmas bonus. Why are Democrats so cruel?

Lobbyists Are Hiring Democrats to Kill Tax Reform

The Daily Escape:

Sunset, Acadia NP, ME – 2021 photo by Rick Berk Fine Art Photography

From the NYT:

“The wealthiest 1 percent of Americans are the nation’s most egregious tax evaders, failing to pay as much as $163 billion in owed taxes per year, according to a Treasury Department report released on Wednesday. The analysis comes as the Biden administration pushes lawmakers to embrace its ambitious proposal to beef up the Internal Revenue Service to narrow the “tax gap,” which it estimates amounts to $7 trillion in unpaid taxes over a decade.”

The Treasury Department estimates that its tax gap proposals could raise $700 billion over a decade.

This is crucial, since Democrats are counting on collecting unpaid taxes to help pay for the $3.5 trillion spending package they are drafting. The House is set this month to begin advancing the spending package, but liberal and moderate factions of DC Democrats are divided over how much to spend and how to offset the cost.

Republicans are unified in opposition to the legislation, and the US Chamber of Commerce has vowed to defeat it. Among the other players are the Business Roundtable and Americans for Tax Reform. And fronting for them is a former Democratic Senator, Heidi Heitkamp. They have unleashed a lobbying operation targeting a small number of moderate Democrats in Congress who hold the balance of power.

Democrats hold a fragile majority in both Houses of Congress. Any hope to enact an ambitious domestic reform program requires that all Dems be on board. Moreover, increasing taxes on corporations and the very rich will be heavy lifts, given the opposition.

From NY Magazine’s Jonathan Chait: (brackets by Wrongo)

“Last week, Democratic senator turned anti-tax lobbyist Heidi Heitkamp, who represented North Dakota for one term before losing in 2018, appeared on CNBC to make a surprisingly emotional appeal against President Biden’s plan to close a notorious loophole for the wealthy. The loophole, called “stepped-up basis”…[that] allows capital gains to escape any tax at all as long as the owners pass the asset on to their heirs before they sell it.”

It turns out that Heitkamp is one of several Democrats lobbying against the Biden tax plan. Chait cites former Democratic Congressman Nick Rahall, who published an op-ed in his hometown West Virginia newspaper advising Democrats that they:

“…can avoid alienating rural states by keeping family-owned businesses and farms in mind.”

Former Democratic Senator Max Baucus (MT) has also stepped forward to write an op-ed advising Democrats that their political fortunes hinge on maintaining low tax rates for wealthy heirs.

The NYT reported that Heitkamp was recruited to the anti-Biden side by superlobbyist John Breaux, a former Louisiana Democratic Senator and Congressman, who once confessed:

“My vote can’t be bought, but it can be rented.”

Washed up politicians all move on to their second act: Monetizing their influence.

Heitkamp told the NYT that she’s finding a receptive audience among potential swing voters in rural areas, especially owners of family farms, even though Democrats say those voters would never be affected by the proposed tax changes:

“This is very consistent with my concern about revitalizing the Democratic Party in rural America….You may want to do this…but understand there will be risk….”

Is her point that if Democrats don’t preserve the loophole that allows fabulous amounts of wealth to escape taxation when passed down to wealthy heirs, they might alienate hardscrabble rural voters?

Will Dems risk losing more of those voters if they put a crimp in the elites’ efforts to maintain entrenched and inherited privileges across generations? Whatever happened to the narrative that rural Real Americans™ voted for Trump to protest America’s rigged economy?

Rural people, like everybody else, want elected officials who will have their backs and fight for them.

We’ve had this kind of manipulation for the last 50 years. It’s how we got a society where some can buy $3 million weekend “cottages”, while so many other Americans line up at food banks or can’t get basic health care.

It’s true that enacting a big tax hike comes with risks: Corporations and the wealthy will fund a lot of Republican TV ads attacking Dems over it.

The risk is worth it. Otherwise, for every dollar in tax hikes Democrats concede to Republicans and the US Chamber of Commerce, they will have to give up a dollar in spending on programs like Medicare, Medicaid, or the child tax credit.

Monday Wake Up Call – August 16, 2021

The Daily Escape:

Bear Sculpture, Kent CT – August 2021 iPhone photo by Wrongo

ProPublica reported that: “Secret IRS Files Reveal How Much the Ultrawealthy Gained by Shaping Trump’s Big, Beautiful Tax Cut”. The article shows how billionaire business owners deployed lobbyists to make sure Trump’s 2017 tax bill was tailored to their benefit: (emphasis by Wrongo)

“In the first year after Trump signed the legislation, just 82 ultrawealthy households collectively walked away with more than $1 billion in total savings….Republican and Democratic tycoons alike saw their tax bills chopped by tens of millions, among them: media magnate and former Democratic presidential candidate Michael Bloomberg; the Bechtel family…and the heirs of the late Houston pipeline billionaire Dan Duncan.”

Trump’s Tax Cuts and Jobs Act was the biggest rewrite of the tax code in decades. It is arguably the most consequential legislative achievement by any one-term president. It was crafted in secret, with lobbyist input, and then rushed through the legislative process.

ProPublica says that as the draft of the bill made its way through Congress, lawmakers and hired lobbyist friendly to billionaires were able to shape the bill’s language to accommodate special interests. The final version of the bill led to a vast redistribution of wealth to the pockets of a few wealthy families.

This siphoned away billions in tax revenue from the nation’s coffers. Here’s a chart of the tax savings of the big winners:

This gets a little technical. Corporate taxes are paid by what are known as C corporations, including large firms like AT&T or Amazon. But most businesses in the US aren’t C corporations, they’re what are called pass-through corporations. The name comes from the fact that when one of these businesses makes money, the profits are not subject to corporate taxes. Instead, the profits “pass through” directly to the owners, who pay taxes on the profits on their personal returns.

Pass-throughs include the full gamut of American business, from small barbershops to law firms to, in the case of Uline, #2 on the list above, a packaging distributor with thousands of employees.

Republicans touted the Trump tax cut as boosting “small business” and/or “Main Street,” and it’s true that many small businesses got a modest tax break. But a recent study by the Treasury Department found that the top 1% of Americans by income have reaped nearly 60% of the billions in tax savings created by the provision. And most of that amount went to the top 0.1%.

That’s because most of the pass-through profits in the country flow to the wealthy owners of a limited group of large companies. The tax break is due to expire after 2025, and Democrats in Congress want to end the provision early.

Senate Finance Chair Ron Wyden, (D-OR), has proposed legislation that would end the tax cut early for the ultrawealthy. He wants to end the gravy train for anyone making over $500,000 per year. It would be extended to the business owners below that threshold. Wyden’s proposal would make the policy both fairer and less complex, while also raising $ billions for priorities like childcare, education, and health care.

Time to wake up America! The current complaints by Republicans about the Biden efforts to rebuild the economy say that we shouldn’t have the nice things Biden has promised. They now (again) complain about the federal deficit. They continue to sit on their hands about raising taxes on their donors, despite those same donors reaping most of the benefits not only from the Trump tax cut, but from the surge of the national economy since it bottomed while Trump was managing the pandemic.

To help you wake up, watch and listen to “Patria Y Vida” (homeland and life) the song that has defined this summer’s uprising in Cuba. The title is a take-off on the slogan used by Fidel Castro, “Patria O Muerte” (homeland or death) for 62 years, since the start of the Cuban revolution.

This song of summer is also a deep protest song:

This is a rough time in Cuba. Trump’s sanctions policy sharply restricted the foreign remittances on which many Cubans rely. Then came the pandemic, which decimated the tourism industry. Cuba’s GDP has dropped roughly 11% since 2019.

In response to a recurring chorus saying, “It’s over now,” the singers call to Cuban officials and tell them: “Your time is done, the silence has been broken…we’re not afraid, the trickery is over now, 62 years of doing damage to our country.”

They add, “Let’s start to build what we’ve dreamed of; of what they destroyed by their own hand.”

The Wrongologist

Geopolitics, Power and Political Economy

Category: Tax Issues

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