Tax Tsunami Coming to you!!!!

[ShockBand]

Good article, DU. I think we are in enough of a pickle that we do need to cut spending (including having the big monkeys of SS, Medicare, and defense on the table), get the economy going better, and one way or another increase tax revenue, even if that means an overhaul/simplification of the tax code to the point that we all might have to pay a little more. Not necessarily a lot, but a little. We simply cannot kick the can down the road anymore.

[ISASO]

Everyone should pay something.

[1979Shocker]

A Second Stimulus
By DAVID LEONHARDT

The apparent deal over the Bush tax cuts highlights why the Democrats probably had to accept the extension of all the Bush tax cuts. No politician is likely to use this word — at least no Democratic politician — but the deal amounts to a second stimulus bill.

Subtract the $400 billion cost of the Bush tax cuts. Subtract another $140 billion or so, which is the cost of extending the Alternative Minimum Tax patch (and almost certainly would have happened regardless). You’re then left with more than $300 billion in net stimulus over two years. And while that sum will not be enough to fix the economy all by itself, it is serious money. The original stimulus bill cost about $800 billion, and most of the money will have been spent in the first two years after its passage.

[DUShock]

Sadly it's a mind set of "I win, you win, we lose" and the mind set seems to permeate most of legislative branch regardless of party. In its most simplest form the executive branch (regardless of party) is primarily about the delivery of service while the legislature is suppose define what the scope and breadth of the service to be delivered. Some of what POTUS commented on yesterday is spot on and deals not with politics but with getting things done. Of course the muck & mire begins when determining when to push, when to pull, and when to pass, which is of course politics. :)

May God Bless America…

[SubGod22]

White House Makes Economic Case for Stimulus-Sized Deal, Dems Slam Price Tag

The president is getting an early boost from economists who say the package will fuel post-recession growth. Moody's celeb Mark Zandi said this week that the package should help propel 2011 GDP growth to 4 percent -- that's up from 2.7 percent. He also predicted the unemployment rate would fall to 8.5 percent by the end of next year.

[Smooth007]

Sub, can you provide the details of the estate tax and how it is affected here? To me, this is the most annoying and punitive tax there is.

Sometimes it's the government's third, fourth and even 10th bite at the apple, so to speak.

This is the most blatant kind of socialism. Why should the government be involved in what a family wants to do? They have collected tax upon tax upon tax in these cases, then at the end they want to take even more.

I also wish politicians would be thrown in jail every time one of these idiots say they are "giving" money to the rich. They aren't GIVING the rich anything. They just aren't fleecing the rich as much. It's ALWAYS been the "rich's" own money, and never belonged the government in the first place. I think that phraseology is borderline criminal. A tax cut isn't giving the rich anything (and I use the term "rich" in their context, not mine).

Rant over.

I can help you out on this topic. In prior years, the estate tax generally operated with a top marginal rate of 45%. Thus, an estate would be taxed 45% on assets over the applicable exclusion amount (In 2009, that amount was $3,500,000). So, in 2009, if your total estate was under $3,500,000 you would pay no taxes (tax exemption). In addition, the heirs of an estate would receive a "step up in basis" of about 1.45 million.

What is a "step up in basis?" - Let's say your grandfather died in 2009 with one asset - stock portfolio worth $3 million that he paid $200,000 for in 1966-1980. The $200,000 is his basis. His estate would pay no tax because he was under the $3.5 million exclusion and the heir would receive a step up in basis on the stocks to about $1.65 million($200,000+$1,450,000). When the heir goes to sell the stocks for their market value of $3 million he will only pay tax on 1.35 million ($3 -1.65 million). That is generally how it works....

However, in 2010 we currently have no estate tax or step in basis - NONE (until they get around to actually passing the law). So follow this example.
George Steinbrenner died with a billion dollar estate in 2010. Due to the current laws, he would pay no tax on his estimated 1.5 billion dollar estate. In comparision, in 2009 he would have paid $675,000,000 in tax potentially forcing changes in the Yankess organization.

Generally speaking the death tax rules are favorable for middle income America and highly progressive for the wealthy. Estate planning is essential.

[SubGod22]

Morning Bell: Freeze Taxes, Freeze Spending, and Go Home

These are bad policies. Heritage has long opposed any return of the death tax, which is bad for small business and wrong on principle. The unemployment benefits are not only bad for job growth but increase spending at a time when we need to be reducing it, and, as economists have long recognized, perpetuate long-term unemployment. As for temporary tax holidays, they have proven to be completely ineffective.

To truly freeze taxes, Congress should completely abolish the death tax instead of raising taxes. And to truly freeze spending, Congress would need to offset the spending increases for unemployment benefits.

[SubGod22]

The Good, the Bad, and the Ugly of the Tax Deal

The Good

The good parts of the agreement is the avoidance of bad things, sort of the political version of the Hippocratic oath — do no harm. Tax rates next year are not going to increase. The main provisions of the 2001 and 2003 tax acts are extended for two years — including the lower tax rates on dividends and capital gains. This is good news for investors, entrepreneurs, small business owners, and other “rich” taxpayers who were targeted by Obama. They get a reprieve before there is a risk of higher tax rates. This probably won’t have a positive effect on economic performance since current policy will continue, but at least it delays anti-growth policy for two years.
...

The Bad

The burden of government spending is going to increase. Unemployment benefits are extended for 13 months. And there is no effort to reduce spending elsewhere to “pay for” this new budgetary burden. A rising burden of federal spending is America’s main fiscal problem, and this agreement exacerbates that challenge.
...

The Ugly

As happens so often when politicians make decisions, the deal includes all sorts of special-interest provisions. There are various special provisions for politically powerful constituencies. As a long-time fan of a simple and non-corrupt flat tax, it is painful for me to see this kind of deal.
...

[1979Shocker]

Sen. Jim DeMint Not Happy With Tax Compromise

As Patricia Murphy reported, liberal Sen. Bernie Sanders (I-Vt.) "threatened to filibuster the agreement in the upper chamber, calling it bad politics and bad policy."

Now, some on the right are also speaking out against the compromise.

As HotAir's Allah Pundit noted during an appearance on Hugh Hewitt's radio show on Tuesday, "[South Carolina Sen. Jim] DeMint lists several problems he has with the deal, but the big one is the fact that the cuts are temporary. Quote: 'We don't need a temporary economy, which means we don't need a temporary tax rate. A permanent extension of our current tax rates would allow businesses to plan five and 10 years in advance, and that's how you build an economy.' "

[SubGod22]

Senate Tax Cut Package Filled With Sweeteners, Obama Predicts Passage

The sweeping tax cut bill introduced Thursday night by Senate Majority Leader Harry Reid is chock-full of sweeteners which could serve as a legislative pacifier for Democrats outraged over the concessions President Obama has handed to Republicans.

The stimulus-sized package includes about $55 billion worth of short-term tax extensions for businesses and individuals. They cover a host of alternative energy credits, a potential salve for environmentally conscious lawmakers, as well as targeted benefits for everything from the film and television industry to mining companies to rum producers.

Among the extra provisions are a tax credit for biodiesel, a tax credit for ethanol, extensions of tax credits for energy-efficient homes and appliances, and credits for training mine rescue teams.

It would allow millions of dollars worth of expensing for film and production companies doing work in the United States, give breaks for the rum trade in Puerto Rico and the Virgin Islands, provide incentives for investment in the District of Columbia and provide other benefits for the battered Gulf coast.

The 45-cent-per-gallon ethanol subsidy alone, extended through 2011, was estimated to cost about $5 billion. The issue is of particular interest to lawmakers from Midwestern states with grain crops.

[SubGod22]

Obama Weighs Tax Overhaul

President Barack Obama has instructed his economic team to draft options to close loopholes and lower income-tax rates ahead of what would be a multi-year effort to overhaul and simplify the U.S. tax code, administration officials said Thursday.

Lowering corporate tax rates could give the administration the opportunity to build an alliance with business leaders, though it would likely depend on which tax breaks officials propose to eliminate.

It'll be interesting to see what, if anything, comes of this...

[DUShock]

The flat tax is long overdue but will not likely gain any traction due to political constituencies...

[SubGod22]

The Cuts That Weren't

Under the commission's proposal, government spending would rise from roughly $3.5 trillion today to more than $5 trillion by 2020. So, under the terrible "cuts" that the commission is recommending, federal spending would still increase faster than inflation. This is the old Washington game of calling a slower increase than previously projected a "cut."

Much of establishment Washington is up in arms today because of the "cost" of the deal continuing the Bush tax cuts. One can debate the impact that keeping the current tax rates in place would have on the deficit, but if spending were brought down to Clintonian levels, we could more than accommodate an extension of the tax cuts. Nor would it then be necessary to raise the gas tax, the payroll tax, or other taxes as the commission envisions.

In fairness, many of the commission's tax proposals, such as closing loopholes and eliminating economically distorting deductions in exchange for lower rates, are something that should be seriously considered in the context of tax reform. But history suggests that Congress is likely to simply pocket any increased revenue and keep spending. A new study by economists at Ohio State University, for example, found that since World War II every dollar of increased federal tax revenue resulted in $1.17 of increased federal spending. And last week the Senate showed that it couldn't even bring itself to ban earmarks.

[SubGod22]

Take a Little (or a Lot) Off the Top: Plans to Cut Budget Envision Big Changes

"It's a big lift," said Chris Edwards, director of tax policy studies with the Cato Institute. "Some people are sort of defeatist ... but I don't think (their assumptions are) true."

Edwards just released a proposal that would slash 20 percent from the annual budget by the end of the decade. The proposal includes GOP wish-list items like repealing the 2010 health care law that are simply not possible in the current climate, as well as Reagan-era promises like eliminating the Education Department, but it also has a bundle of ideas hardly foreign to professional budget scrutinizers.

Among them: Edwards projects $57 billion in savings from cutting or ending farm, food and other subsidies. He projects $150 billion in savings from Defense Department cutbacks including a shutdown of extraneous overseas bases -- something libertarian Rep. Ron Paul, R-Texas, has advocated. He recommends cutting foreign aid by half for a savings of $12 billion and raising $93 billion by making changes to Social Security like raising the retirement age. He calls for a hefty increase in Medicare premiums and the elimination altogether of the Department of Housing and Urban Development, as well as the privatization of Amtrak and air traffic control.

Cutting popular programs and emasculating departments that provide a vehicle for federal aid may be anathema to political instincts, but Edwards argued the overall goal needs to be getting the federal government out of areas that state and local governments can handle more effectively. He argued that housing subsidies can distort the market; ditto for farm aid. Edwards cited the case of New Zealand, where the government eliminated farm subsidies in the mid-'80s, but the industry thrived anyway. And despite the apparent staleness of the pitch to shut down the Education Department, critics frequently point to the fact that test scores have not risen significantly in spite of all that federal aid -- a point hammered in the recent documentary, "Waiting for Superman."

"We're not going to be able to deal with our deficit just by eliminating foreign aid," Obama said. "That only accounts for 1 percent of our budget. ... We've got to look at a whole range of things" including entitlements, defense spending and discretionary spending. "

But lawmakers are trying to start somewhere, even if it's small potatoes. House Republican Leader John Boehner, who has called for a return to fiscal 2008 levels for non-security discretionary spending, said in an interview with CBS' "60 Minutes" that one of the first votes he would call for as speaker would be to cut pay in Congress. Boehner said that would include a 5 percent cut for leadership budgets including his, a 5 percent cut for committee budgets and a 5 percent cut for members' allowances. He estimated it could save $25-30 million.

[SubGod22]

Tax Cuts Package Poised to Pass in Senate

House Democratic leaders want to bring back the 2009 estate tax levels. That year, individuals could pass $3.5 million to their heirs, tax-free. Couples could pass $7 million, with a little tax planning, and the balance was taxed at a top rate of 45 percent.

Senate Republicans, however, warned that any changes to the estate tax provisions could unravel the deal.

"If the House Democratic leadership decides to make partisan changes, they will ensure that every American taxpayer will see a job-killing tax hike on January 1," said Senate Republican Leader Mitch McConnell of Kentucky.