Thread: Going Galt: Tax hikes have consequences

Treasury Department tax cheat Tim Geithner already announced this knee-slapper initiative in March. The White House follows up today with the details of the crackdown on corporate tax cheats: http://money.cnn.com/2009/05/04/news...ion=2009050411

President Obama on Monday spelled out his plans to close corporate tax loopholes on U.S. multinational corporations and crack down on overseas tax havens.

The goal is to help create new jobs in the United States and make the tax code fairer.

But tax policy experts and corporate lobbyists say such measures, unless accompanied by a reduction in the corporate tax rate, will push more companies to move their operations — and jobs - overseas to more tax friendly countries.

The White House and Treasury Department laid out three proposals that they say will eliminate the current tax advantages U.S.-based multinationals get for investing and creating jobs abroad.

***

Obama says he can squeeze $210 billion from multinationals. http://news.yahoo.com/s/ap/20090504/...FtYWFubm91bmM-



Tech firms overwhelmingly supported Obama.
Now, they are reaping what they have sown: http://www.mercurynews.com/business/...ource=yfinance

In the tech industry’s first major disagreement with the Obama administration, Silicon Valley companies are voicing alarm about a proposal that could require corporations to pay billions of dollars in U.S. taxes on foreign earnings.

The administration wants to change a long-standing law that allows American companies to defer paying these taxes as long as the funds are kept overseas. That could have a big impact on a number of U.S. corporations, especially tech giants such as Hewlett-Packard, Cisco Systems and Oracle, which report that overseas markets account for half or more of their sales.

“It’s probably our biggest concern right now. Certainly, it’s the biggest issue where we disagree with the Obama administration,” said Ralph Hellmann, senior vice president of the Information Technology Industry Council, an industry lobbying group.

“On a Richter scale of 1 to 10, this is about a 20,” added Carl Guardino, CEO of the Silicon Valley Leadership Group, who is leading a delegation of valley executives to Washington this week. They plan to discuss the deferral proposal and several other issues with federal officials and congressional leaders.

Currently, many big companies avoid paying U.S. taxes on revenue from foreign subsidiaries by reinvesting the money overseas, either by parking cash in various accounts or by plowing it back into foreign operations.

Without the deferral provision, for example, Google might have been required to pay an additional $1 billion last year on a tax bill that amounted to roughly $1.6 billion, according to a regulatory filing made by the company.

Originally Posted by bahet

the tax cheat is going to write policy to crack down on tax cheats with the help of another tax cheat. We're all doomed.

lol!

Billionaire Tom Golisano, founder of Paychex, is leaving high-taxing, entrepreneur-undermining New York for Florida. He penned a kiss-off in the NYPost today: http://www.nypost.com/seven/05202009...ork_170074.htm

Politicians like to talk about incentives — for businesses to relocate, for example, or to get folks to buy local. After reviewing the new budget, I have identified the most compelling incentive of all: a major tax break immedi ately available to all New Yorkers. To be eligible, you need do only one thing: move out of New York state.

Last week I spent 90 minutes doing a couple of simple things — registering to vote, changing my driver’s license, filling out a domicile certificate and signing a homestead certificate — in Florida. Combined with spending 184 days a year outside New York, these simple procedures will save me over $5 million in New York taxes annually.

By moving to Florida, I can spend that $5 million on worthy causes, like better hospitals, improving education or the Clinton Global Initiative. Or maybe I’ll continue to invest it in fighting the status quo in Albany. One thing’s certain: That money won’t continue to fund Albany’s bloated bureaucracy, corrupt politicians and regular special-interest handouts.

How did the state get to this point? By spending, spending and spending some more.

Going, going, going Galt.

Who’s next?

July 16, 2009 Posted by Scott at 7:30 AM

The New York Post reports that congressional plans to fund a massive health-care overhaul would create a tax rate of nearly 60 percent for New York's top earners. Myron Magnet also focuses on New York in an article on "The obsolete New York model." Magnet notes:

It's worth recalling that when the Founding Fathers led the American colonists in revolt against British oppression, they weren't rebelling against torture on the rack or being chained in galleys or having to let aristocrats deflower their daughters.

They were rebelling against taxes.

To them, having to pay duties they hadn't voted for themselves was a tyrannical taking of property--theft--and, in true Lockean fashion, they concluded that since government exists to protect life, liberty, and property, a regime that does the opposite renders itself illegitimate. What would they make, then, of today's New York City, where 1.2 percent of the taxpayers--40,000 households--pay 50 percent of the income taxes, and half the households pay no income tax at all?

If the tax code ensures that those who pay the bulk of the taxes are always a minority of those who vote for the legislature that imposes the taxes, isn't that taxation without representation? Isn't it also the tyranny of the majority that the Founders tried to prevent?

Magnet's important article is consistent with the analysis that John Hinderaker and I brought to related issues in our essay "Broad ownership needs broad taxpaying." I also revisited the issue last fall in the Christian Science Monitor column "Obama, Joe the plumber and the gospel of envy." Key quote (Aristotle's warning): "If the majority distributes among itself the things of a minority, it is evident that it will destroy the city."

http://www.powerlineblog.com/archive.../07/024063.php


Everyone.... sing with me ...

1,2,3,4,1,2

Let me tell you how it will be,
There’s one for you, nineteen for me,
‘Cos I’m the Taxman,
Yeah, I’m the Taxman.

Should five per cent appear too small,
Be thankful I don’t take it all.
‘Cos I’m the Taxman,
Yeah yeah, I’m the Taxman.

(If you drive a car car),
I’ll tax the street,
(If you try to sit sit),
I’ll tax your seat,
(If you get too cold cold),
I’ll tax the heat,
(If you take a walk walk),
I’ll tax your feet.
Taxman.

‘Cos I’m the Taxman,
Yeah, I’m the Taxman.
Don’t ask me what I want it for
(Ah Ah! Mister Wilson!)
If you don’t want to pay some more
(Ah Ah! Mister Heath!),
‘Cos I’m the Taxman,
Yeeeah, I’m the Taxman.

Now my advice for those who die,
(Taxman!)
Declare the pennies on your eyes,
(Taxman!)
‘Cos I’m the Taxman,
Yeah, I’m the Taxman.
And you’re working for no-one but me,
(Taxman).

[b]Small Business Faces Big Bite
House Health Bill Penalizes All but Tiniest Employers for Not Providing Insurance
WASHINGTON -- House Democrats on Tuesday unveiled sweeping health-care legislation that would hit all but the smallest businesses with a penalty equal to 8% of payroll if they fail to provide health insurance to workers.

The House bill, which also would impose new taxes on the wealthy estimated to bring in more than $544 billion over a decade, came as lawmakers in the Senate raced against a self-imposed deadline of this week to introduce a bill in time for action this summer.

Senators face a tougher battle because they are striving for a bipartisan bill. Key senators are weighing a combination of several more-modest fund-raising provisions, including some new fees on health-care industries.

Under the House measure, employers with payrolls exceeding $400,000 a year would have to provide health insurance or pay the 8% penalty. Employers with payrolls between $250,000 and $400,000 a year would pay a smaller penalty, and those less than $250,000 would be exempt. Certain small firms would get tax credits to help buy coverage.

The relatively low thresholds for penalties triggered the sharpest criticism yet from employer groups, who said the burden on small business is too high and doesn't do enough to help them expand insurance coverage.

More
Sen. Grassley Is Key to Health Deal Democrats' Discord Hinders Bill Opinion: The Small-Business Surtax Health Blog: Middle Class Could Feel Pinch Health Blog: CBO: Plan Would Enroll Less Than 5% of Americans "This bill costs too much, it covers too few and it has way too much government involvement," said Michelle Dimarob, a lobbyist with the National Federation of Independent Business, the main trade group for small firms. "Small business doesn't want any of those things."

According to 2006 data from the federation, businesses with between five and nine workers, representing about one million employers, had an average payroll of around $375,000 a year. A report from the Kaiser Family Foundation found that only about half of firms with three to nine workers offered health benefits in 2008.

House Speaker Nancy Pelosi unveiled the measure on Tuesday, praising it as a historic step toward insuring all Americans that has eluded lawmakers for decades. "This bill is a starting point and a path to success to lower costs to consumers and businesses," the California Democrat said.

The Congressional Budget Office on Tuesday calculated the cost of the House's plan to expand insurance coverage at $1.04 trillion over 10 years, and predicted the measure would eventually lead 97% of legal American residents to have insurance. That's in line with President Barack Obama's desired budget for a health overhaul and lawmakers' pledges for expanding coverage.

The estimate doesn't factor in the plan to pay for the bill, including the new tax on wealthy Americans, or certain changes to Medicare and Medicaid, all of which could affect the final price tag.

The House bill would place new taxes on the wealthiest people to help expand insurance coverage to the nation's 46 million uninsured people. The legislation calls for a 5.4% surtax on those with annual gross incomes exceeding $1 million.

Households with annual income between $500,000 a year and $1 million would be hit with a 1.5% surtax, and those earning between $350,000 and $500,000 would face a 1% surtax. Those rates could eventually increase to 3% and 2%, respectively, if the government doesn't achieve certain health-cost savings.

The 1,018-page initiative contains several components pushed by liberal Democrats that were long expected to be part of House legislation, but which face considerable opposition in the Senate. Most notably, the House bill creates a new public health-insurance plan aimed at individuals and small businesses that otherwise can't get affordable coverage.

The House measure would bar insurance companies from denying coverage to individuals who are sick, while also requiring most Americans to carry health insurance or pay a penalty equal to about 2.5% of their gross income. It would provide families earning up to $88,000 a year with subsidies to help them buy coverage. And it would expand health-insurance coverage through the Medicaid federal-state insurance program for the poor.

The Senate legislation is also expected to include mandates on insurers to provide coverage and individuals to carry it, although the details may differ. The bigger differences will come on the financing side, where many senators are cautious about introducing major new taxes on the wealthy to pay for health care.

The White House is pushing for action before the August recess in both houses of Congress to give lawmakers time to reconcile their two versions, pass that compromise through the House and the Senate and send Mr. Obama a final bill by autumn. The Senate Health, Education, Labor and Pensions Committee could approve its health overhaul bill as soon as Wednesday.

That will get merged with a bill in the Senate Finance Committee, where lawmakers are trying to craft a bipartisan measure. Chairman Max Baucus on Tuesday was pitching his colleagues on a plan to finance the bill through a combination of more-modest tax increases. He is trying to fill a hole of about $320 billion over 10 years, after Democrats objected to a provision to tax upper-end employee health benefits.

The fresh package included a new fee on pharmaceuticals and other health-care industries, and stiffer corporate-reporting measures aimed at collecting a greater share of corporate taxes owed each year, two Senate aides said.

Under the first proposal, health industries including drug makers and insurers would be charged an assessment, with individual companies' fees based on their market share. It's not clear how large the total assessment would be.

The proposal also seeks to raise $75 billion to $100 billion over 10 years by giving states an incentive to issue bonds that would help offset the expanded federal share of Medicaid.

"The goal here is a bunch of smaller, less controversial items that can add up," one official said.

The package may still include a modified version of the plan to tax high-end employer-provided health insurance, though on a smaller scale, aides said.

Mr. Baucus spent much of the day meeting one-on-one with members of his committee, and he put on an optimistic face. "We're going to pass very significant health reform this year," the Montana Democrat said.

But the pre-recess deadline appeared in danger as Republicans expressed concern that the process is moving too quickly.

Sen. Olympia Snowe, a key Republican whom Mr. Baucus is trying to win over, said Tuesday that the legislation is far too complex to rush and that she saw little chance of moving a bill through the Senate before the August break.

"I frankly couldn't imagine at this point bringing it to the floor and completing our deliberations...before the August recess," the Maine senator said. She said "arbitrary, artificial time frames really are not realistic given the magnitude of the task we are assigned to do."

In addition to health care, the White House also hopes for action on energy and financial-sector regulation, both of which would consume time this fall.

At a White House meeting with top Democratic leaders on Monday, Mr. Obama pushed Mr. Baucus to produce legislation by Thursday.

Senators are now talking openly of keeping the chamber in session an extra week, though some say that is simply a tactic to discourage delay by senators who have plans for vacations, congressional trips and hometown activities.

A further complication is that if it looks as if the Senate can't or won't act this summer, many House Democrats are likely to hesitate about voting on a contentious issue -- including raising taxes -- for something that might never become law.

http://online.wsj.com/article/SB124759535535340189.html

Is there anything that “the wealthy” won’t be paying for? I wonder what the Dems will do when spending from “the rich” goes down, and they start moving more of their money offshore?

And at least half of the so-called 45 million uninsured Americans chose to not purchase. But, don’t worry, government will force them to be covered. All to fix, well, something

Thursday, September 24, 2009
Maybe This Is Why Obama Wants Paterson Gone

The efforts by Barack Obama to force NY Gov. David Paterson not to run for election in 2010 have roiled NY politics, and baffled many who wonder why a President felt the need to get involved in state politics.

The crushing NY State budget gap has forced Paterson to speak some harsh truths, which may not be to the Obama administration's liking. One of those truths is that taxing the rich is not the answer to economic problems. The same "tax the rich" policies which were the bedrock underneath Obama's campaign, and are at the heart of Democratic efforts to pay for health care restructuring.

In a recent speech, Paterson noted that a "tax the rich" strategy produced negative results for NY State:

Now, early revenue figures suggest that taxing the wealthy more under this year's state budget may have driven away richer New Yorkers. That could make the economic comeback for the state even harder.

"You heard the mantra, 'Tax the rich, tax the rich,"' Paterson said Wednesday at a gathering of newspaper editors at an Associated Press event in Syracuse. "We've done that. We've probably lost jobs and driven people out of the state."

This sort of talk will get you fired from the Democratic team of Obama sycophants. As Paterson now is finding out. "Tax the rich" doesn't work, and David Paterson is one of the few Democrats with the guts to say so.

Paterson understands the emptiness of promises to solve budget problems by targeting the rich. Too bad Obama doesn't understand, and wants to fire the messenger, rather than listen to the message.

http://legalinsurrection.blogspot.co...-paterson.html

The timing of his visit could make it seem like he objected to Patterson's decision to defund ACORN contracts with NY....

See also http://www.bigbigforums.com/news-inf...ise-taxes.html

Obama's Assault on the Poor
December 1, 2009

During the 2008 presidential campaign, we heard now-President Obama declare that he would cut taxes for 95% of Americans. Consequently, a number of analyses were performed on his proposals, some supporting his 95% claim and others debunking it. As in most election campaigns, analyses tend to be skewed toward their sponsors' way of thinking.

Fast forward to 2009, and we see that President Obama has championed legislation that reduced taxes for most working individuals. As imperfect as The American Recovery and Reinvestment Act of 2009 (the "Stimulus Bill") was, it did contain a certain amount of tax relief through a reduction in payroll taxes and adjustments to certain tax credits.

That's the good news. The bad news is that these same working Americans may also be subjected to legislation and other initiatives that can more than offset any tinkering around the margins Obama has done to produce tax cuts. In fact, some of these current and proposed laws would hit the poorest Americans much harder than any other demographic group.

This week, I'm going to chronicle some of the changes that President Obama has supported and their effect on those least able to pay the tab. Some of these policies and programs have been enacted and others are just proposed, but either way they show that the Obama administration is no friend of the average working American, and especially not the poor.

Promises Kept – A Mildly Stimulating Tax Reduction

Any discussion about the effects of President Obama's current and proposed tax initiatives would be unfair if it did not include the fact that tax reductions of a sort have taken place, and have affected most working individuals. The Stimulus Bill ushered in tax cuts in the form of the "Making Work Pay Tax Credit."

These tax credits are available in 2009 and 2010 in the amounts of $400 per single taxpayer and $800 for joint filers. To stay true to the 95% promise, the tax cuts are completely phased out for individuals earning over $100,000 per year and couples earning over $200,000. The tax credit is refundable, so even those who owe no income tax can receive a benefit. Social Security recipients and other retirees received a one-time payment of $250.

Because tax credits typically only become available after filing a tax return, the Stimulus Bill provided that these credits were to be paid out through a reduction in payroll taxes during the year. The thought process, no doubt, was that a little extra in the paycheck would result in higher spending and, as a result, an economic recovery.

The Making Work Pay Tax Credit wasn't the only provision of the Stimulus Bill to affect American taxpayers. It also provided for limited expansion of the "Earned Income Tax Credit" and increased the eligibility for the "Additional Child Tax Credit." It also enhanced the "Health Coverage Tax Credit," provided for a first-time homebuyer tax credit and allowed for the first $2,400 of unemployment benefits to be tax-free.

So, how's the tax credit working out for you? If you're like many working Americans, it's been pretty much a non-event. Yes, it provides a little more money in the paycheck each month, but I suspect that the relatively small amount and temporary nature of the tax credit limit its effectiveness.

At this point, it's hard to tell whether or not these tax benefits were successful in kick-starting the economy. While we've had a modest economic recovery since the Stimulus Bill was enacted, many analysts attribute this more to the "Cash for Clunkers" and first-time homebuyers programs, among others. Some also note that these tax credits were mostly saved rather than used to increase consumption. Even so, the president gets a check mark for fulfilling the "95%" campaign promise.

Of course, most of the provisions discussed above are temporary and apply for only one or two years, making these tax cuts a mixed blessing. They may help out in the short-term, but provide no lasting tax relief, even for lower-income Americans.

Other Policies Hurt the Poor

Also in the spirit of fairness, I think it's important to bring to light a number of lesser-known policies supported by the Obama administration that are having or could have a negative effect on the poor. Depending upon the habits and situation of many lower-income Americans, these policies may more than offset the benefits gained from the Stimulus Bill.

In addition, unlike most of the Stimulus Bill allowances, the policies that hurt the poor are intended to be more permanent fixtures in the tax code. Thus, while the tax relief is generally temporary, tax increases usually last forever.

Below, I have listed a variety of new and proposed policies supported by the Obama administration that have either a direct or indirect negative effect on lower-income Americans. While some of these are likely the result of unintended consequences, others have already been criticized for being regressive and yet the administration continues to move forward.

Increased Tobacco Tax

One of the first actions President Obama took after taking office was to increase the tax on tobacco products. And this was no small increase. Taxes on cigarettes, cigars, chewing tobacco and other products were raised anywhere from 158% to 2,653%. Yes, you read it right – one tobacco product had a tax increase of over 2,600%. Below are the details of the various tax increases by each type of tobacco product:

Tobacco Product - Previous Tax - New Tax - % Increase

Cigarettes - $0.39/pack - $1.01/pack - 158%

Pipe Tobacco - $1.10/lb - $24.78/lb - 2,159%

Large Cigars - $0.05 each - $0.40 each - 722%

Small Cigars - $0.04/pack - $1.01/pack - 2,653%

Chewing Tobacco - $0.20/lb - $0.50/lb - 158%

Snuff - $0.59/lb - $1.51/lb - 158%

The purpose of this huge tax increase was to fund the State Children's Health Insurance Program (S-CHIP), a program that helps lower-income families obtain health insurance for dependent children. However, some of the proponents of this legislation noted that their primary reason for supporting this bill was to make tobacco products so expensive that users would opt to quit rather than paying exorbitant prices for tobacco products. A March 29 Fox News article noted:

"Medical groups see a tax increase right in the middle of a recession as a great incentive to help persuade smokers to quit."

That brings up an interesting question – what happens to S-CHIP if everyone decides to give up tobacco products? It seems odd to fund an ongoing health care initiative for uninsured children with a tax designed to help decrease demand for the products upon which it is levied. Since the S-CHIP program is designed to aid lower-income families, if the anti-tobacco lobby gets its wish, the availability of S-CHIP might become unavailable to those who need it.

However, even the most ardent anti-smoking activists know that everyone will not stop using tobacco products just because of a price increase. Sure, the higher prices will drive some people to quit, but overall demand probably won't be affected all that much. This brings us to another issue that directly affects lower-income individuals: a Gallup Poll taken in the spring of this year indicated that there is an inverse relationship between household income and the likelihood of smoking.

In other words, as a general rule, more lower-income individuals smoke than those in higher income brackets. The Gallup Poll found that 53% of smokers come from households with less than $36,000 annual income while only 12% of smokers come from households with incomes of $90,000 or more. Thus, increased tobacco taxes have a disproportionate effect on the poor.

Of course, with smokers being such an unpopular minority (only an estimated 21% of Americans are smokers), tobacco users seem to be fair game for both state and federal tax legislation. Even so, for someone with a two-pack-per-day habit, the new federal 62-cents-per-pack cigarette tax increase will cost them about $38 more per month, which pretty much negates any benefit from the Making Work Pay Tax Credit for a single taxpayer. And unlike the temporary tax credit, the tobacco tax increase will continue long after the stimulus payments are forgotten.

Cash for Clunkers

The mainstream press has heralded the "Cash for Clunkers" program a huge success. According to government figures, close to 700,000 vehicles were traded in for new, more fuel efficient transportation. Other sources, however, have painted a much different picture, but I'm not going to get into that discussion today. (I did, however, include an interesting Special Article at the end of this E-Letter that disputes the "official" government report of Cash for Clunkers results.)

Today's focus is to highlight Obama administration policies that have a negative effect on the poor. In the Cash for Clunkers program, the first thing you notice is that this benefit was not available to most poor and low-income Americans. After all, the program provided a trade-in credit of up to $4,500, but the remainder of the new vehicle had to be financed or paid for in cash. Lower-income households have a hard time doing either one.

However, not being able to participate in the Cash for Clunkers program doesn't necessarily put low-income individuals at a disadvantage, but another consequence of this ill-fated program does. By taking almost 700,000 older model cars off of the road, the program helped to raise the cost of vehicles for those who consider "clunkers" to be a primary source of affordable transportation.

Granted, some scoff at the idea that taking a mere 700,000 vehicles off the road had an effect on used car prices, since it's a mere drop in the bucket compared to the estimated average of 40 million used car sales per year, as reported by the Bureau of Transportation Statistics. Supporters also point to increasing used car prices even before the Cash for Clunkers program came about, generally due to demand from car dealers whose new car sales had gone flat.

However, it is important to remember that the "clunkers" targeted by the federal rebate program were generally older, lower gas mileage models that don't make it onto the lots of glitzy high-end dealerships. Instead, these cars are purchased as affordable transportation by lower-income households. Thus, taking almost 700,000 cars out of the low-end used car market did have the disproportionate effect described by many critics of the Cash for Clunkers program.

And evidence for this is more than anecdotal. One of my staff members has a relative in the car business here in Austin, and he has told us that the Cash for Clunkers program definitely had a direct effect on his business. For example, he says the average price for the older model used cars he buys at auction are 20% to 30% higher now than they were before the Cash for Clunkers program snapped up so many automobiles. Since these price increases are passed along to consumers, low-income car buyers have essentially been hit with a major price increase for basic transportation.

Even worse, the resulting price increases for affordable transportation now require an increased down payment, which is hard to come by for someone whose work hours may have just been cut due to the poor economy. Plus, a higher amount has to be financed, which is no easy task in this era of tight credit, especially for subprime borrowers. The bottom line is that the Cash for Clunkers program has priced many low-income individuals out of the used car market.

However, it doesn't end there. For those who forego buying another car and try to make do with the old one, prices for parts are also on the increase thanks, in part, to the Cash for Clunkers program. The demand that clunkers be rendered inoperable has removed a ready supply of used car parts. Yet again, those who can afford new cars win, those who can't lose.

And on a related note, the Cato Institute predicts that President Obama's September decision to impose a 35% tariff on tires imported from China could raise the prices of low-end tires by 20% to 30%. While the tariff applies to all tires, low-priced tires are expected to be the hardest hit. Since these "entry-level" tires are usually purchased by those with limited incomes, this tariff is another Obama policy likely to have a disproportionate effect on the poor.

Back to the Cash for Clunkers program, some have said that the spike in used car prices is temporary and will be worked off as new car sales produce a renewed supply of trade-ins. However, our Austin car dealer doesn't think that's going to happen anytime soon. New car sales have softened considerably after the Cash for Clunkers program, which means that there are fewer trade-ins for the used car market.

Our dealer friend says that used car auctions that used to run 3,500 cars per week are now down to just over 2,000 cars. Thus, it's going to take quite a while to rebuild used car inventories and bring prices back down. Unfortunately, having the price of affordable transportation increase while the economy is in the dumpster is just an extra jolt to the finances of those who can least afford higher out-of-pocket expenditures.

[b]Cap-and-Trade Legislation

While the push for cap-and-trade legislation has not yet been made into law, it has already been described by no less than Warren Buffett as being a "regressive" form of taxation that will have a much greater negative effect on those in lower income brackets. You may recall that Mr. Buffett is an Obama supporter, so this is one of those rare occasions where the economic realities are at odds with politics as usual.

By way of background, I wrote about cap-and-trade legislation in my July 14, 2009 E-Letter. In a nutshell, a cap-and-trade system limits the amount of greenhouse gasses industry is permitted to release into the environment. To exceed this limit, a business would have to purchase (or trade) allowances from other businesses who produce less than their permitted cap.

The end result is that industries that burn fossil fuels and produce the most greenhouse gasses will have increased costs of production due to the requirement to purchase the right to exceed their emissions allowance. It's not likely that much, if any, of this increased cost will be absorbed by the business, so consumers will likely end up footing the bill.

Of course, this entire system is predicated upon the idea that global warming/climate change is caused by human activity, predominantly "dirty" industries such as steel production, coal-powered electric generation plants, gasoline refineries, etc., etc. Again, the theme of this article does not allow space for a discussion of the merits (or lack thereof) of the arguments for and against man-made global warming. Instead, we want to see how implementation of cap-and-trade legislation may affect the pocketbooks of low-income Americans.

The Energy Information Administration estimates that the burning of fossil fuels supplies about 70% of the electricity generated in the US. The most common fossil fuels are gas, petroleum and coal, with coal alone accounting for approximately 50% of the power generated in the country. If 70% of the electric generating plants have to pay higher taxes, you know who will end up footing the bill.

Of course, politicians like to claim that they are not taxing the public, but rather taxing polluters. I guess only a politician can't understand the obvious fact that any such taxes will be passed on to consumers. Thus, if cap-and-trade legislation increases the costs of 70% of the electricity used in the US, then it's a pretty good bet that your electric bill will be increasing – and that's just one of the goods and services that will be affected.

When you then consider that lower-income families spend a greater percentage of their income for basic goods and utilities, it doesn't take a rocket scientist to figure out that this demographic group will be hit much harder than any other. A March 2009 Wall Street Journal article noted the following regarding Obama's cap-and-trade proposal:

"Hit hardest would be the ‘95% of working families' Mr. Obama keeps mentioning…Putting a price on carbon is regressive by definition because poor and middle-income households spend more of their paychecks on things like gas to drive to work, groceries or home heating."

Opponents of cap-and-trade legislation also claim that it will also result in higher unemployment, but the Obama administration claims just the opposite. So who's right? The website FactCheck.org researched claims by the Obama administration that 1.7 million "green" jobs would be created by a cap-and-trade system and compared it to opposing claims that up to 2.4 million jobs might be lost. Here's what they found:

"It's true that limiting carbon emissions would create some jobs – building wind turbines or insulating homes and businesses, for example. But it's equally true that raising the cost of burning coal and oil would act as a drag on the entire economy, slowing down job creation in other industries.

According to projections by the Energy Information Administration and the nonpartisan Congressional Budget Office, the net effect of the House cap-and-trade bill will likely be to slow future job growth. Using 11 different possible future scenarios, EIA projects that future job growth might be constrained by something between 388,000 (under the most optimistic assumptions) and 2.3 million (assuming everything goes badly) 20 years from now. CBO also says employment would likely be lower than it would without the legislation – but only ‘a little.'

So claims that the bill would create hundreds of thousands of ‘green jobs' are misleading, at best. The government's own official economic projections indicate more jobs will be lost than created."

So, not only will cap-and-trade increase costs of goods and services, it's also likely to cost jobs in the economy – a double whammy for low-income families.

Soaking the Rich

I'm sure you will recall that President Obama was elected, in part, based on his pledge to not only cut taxes for 95% of working Americans, but also to raise taxes on all the "rich" who had benefited from tax cuts during the Bush administration. I have already detailed above how that same 95% of Americans will likely forfeit any benefit of Obama's earlier tax cuts, but it's also important to discuss how "soaking the rich" could also negatively affect the poor.

Back in February of this year, Obama's 2010 budget proposal included, among other things, raising the top marginal tax bracket to 39.6% and reducing the tax deduction for charitable contributions for persons making over $250,000 per year.

Normally, if someone gives money to a qualified charity, they get a tax deduction applicable to whatever marginal tax bracket they are in. Thus, if Obama increases the top tax bracket to 39.6%, a $10,000 contribution would actually "cost" only $6,040 since the contributor would get a $3,960 write-off. Under Obama's proposal, the tax savings would be limited to the 28% tax bracket, resulting in $1,160 less tax savings ($3,960 - $2,800 = $1,160).

So, how does this affect the poor? As we saw in the ill-fated "luxury tax" under President George "Read My Lips" H. W. Bush, penalizing certain activities usually reserved for the "rich" can result in unexpected behavior. In the case of the luxury tax, wealthy individuals simply stopped buying cars, boats, airplanes and other luxury items subject to the tax, resulting in many of those employed at high-end goods manufacturers losing their jobs. This was yet another case study on the law of unintended consequences.

Now fast forward to the Obama charitable contribution proposal. The income tax deduction for charitable contributions sometimes makes it possible for higher-income households to actually give more to charities than they might absent a tax benefit. Thus, charities fear that reducing the tax benefit of charitable contributions will have a negative effect on contributions and, in turn, services they can provide.

And if charitable contributions decrease, guess who's going to be affected the most. That's right, the poor are the primary beneficiaries of many charitable organizations. Thus, it just makes sense that if charitable contributions drop, so will services to this demographic group. Charities are having a hard enough time getting by in light of the current economic situation, and they certainly don't need an additional headwind in the form of changes to the tax law.

Fortunately, the charitable contribution limitation was not part of the final budget bill, but it has resurfaced in discussions on how to fund health care. I suspect that we have not yet seen the last of this proposal, misguided as it may be.

Credit Card "Reform"

Congress' idea of reform appears to be passing laws containing tough provisions but then giving the targets of these laws ample time to negate the effect. That's exactly what happened in regard to the Credit CARD Act of 2009. Passed into law in May of 2009, the provisions do not take effect until February of 2010, giving credit card companies plenty of time to circumvent many of the key provisions of this new law.

For example, one of the key provisions of the law limits credit card issuers from unfairly raising interest rates. However, this rule doesn't apply until February of next year so in the meantime, credit card companies are busily raising rates. According to the Federal Reserve's quarterly survey of senior loan officers, 54% of banks have already or will soon increase credit card interest rates on their customers with good credit.

For those with subprime credit, which includes many low-income families, the news is even worse. The Fed survey found that 74% of banks have already or will increase interest rates on subprime customers. Add to this the fact that just over half of banks either have cut or will cut the credit limits of their customers, and you get a major reduction of credit for lower-income households.

For customers seeking new cards, 47% of the senior loan officers indicated that they will increase credit score requirements for prime customers, but this jumps to 53% when considering subprime candidates. Plus, almost 40% of banks have increased or will increase annual fees on credit cards.

If you have a credit card, this is probably not news to you. You have probably already received notices from your issuing companies about increased interest rates, decreased credit limits or both. Many customers are using savings to pay off their balances to escape these ever-increasing interest rates and fees. However, this option is usually not available to lower-income card holders, since they have limited or no savings, so they have to just grin and bear it.

And just in case you thought that this new law would have a positive influence on credit card companies before it goes into effect, it has not. A recent study released by the Pew Charitable Trust indicated that its survey of 400 credit card issuers found that 100% continue practices that will be outlawed by the CARD Act in February of 2010. In effect, credit card companies have been given a window of opportunity to raise interest rates so high before the law goes into effect that there will be little need to do so afterward.

An even more disturbing possibility relating primarily to lower-income and subprime borrowers is that, as credit through traditional avenues becomes harder to get, these consumers may seek out other, less favorable sources of credit. Some fear that low-income consumers unable to get credit cards will seek out payday lending, auto title loans and pawn shops, which are far more expensive ways to borrow money.

In a perfect world, we would all live within our means and not have to access credit for emergency expenses and sometimes even consumer staples. However, the poor in our society do not always have the ability to do so. Thus, credit card "reform" has only served to enrich banks at the expense of consumers who are left with few other options. Yet again, a governmental "fix" results in a disadvantage to the poor.

Obama's right: The wealthy don’t need a huge tax break to support charity
By Daniel Grant
Fri Jan 8, 8:46 am ET

Amherst, MA – What motivates people to donate to charities? The charitable deduction was first enacted into the federal tax code in 1917 as a way to possibly incentivize charity. Yet here we are in 2010, still arguing about whether reducing that incentive for the very wealthy will result in any drop-off in giving. Shouldn’t we know by now? In 2009, President Obama proposed lowering the tax break given to the wealthy who donate from 35 percent to 28 percent in his federal budget for 2010. The idea was that additional revenue to the federal government – up to $318 billion over a 10-year period – could be used to help the economy. Echoing a view Republicans have long held, the president indicated he didn’t believe tax codes were the impetus for charitable giving. He also indicated that institutions and nonprofits are better served by a prospering economy rather than by tax breaks. He’s right. His plan has drawn a range of responses. An article of faith among liberals is that the higher the marginal tax rate, the greater the incentive to make donations, while conservatives traditionally oppose higher taxes and claim that people make charitable gifts because of a desire to help some cause in which they believe. But if you sift through the countless discussions, essays, and data collected over the past 93 years, there is no strong evidence to believe the tax code might have any appreciable effect on the willingness of people to make donations to charitable organizations. Unfortunately that hasn’t stopped nonprofit observers from hitting the panic button. The Center on Budget and Policy Priorities expressed worry that charitable gifts might decline by 1.3 percent. And the Center on Philanthropy at Indiana University apparently ignored its own 2006 groundbreaking study: It estimated that overall giving would decrease 2.1 percent, and that donations by the highest-income households would drop even more, to 4.8 percent, resulting in a loss of $3.87 billion to charities. Some went so far as to call the proposal “a stake in the heart.” But these numbers and this worry are based in fear and clouded by politics. The most comprehensive survey to date of the philanthropic behavior of wealthy Americans, the 2006 study by the Center on Philanthropy at Indiana University, found that wealthy donors were reporting that even major tax policy changes would actually not affect their giving. The principal author of the study, Patrick Rooney, conceded that certainly “[p]eople respond to incentives, and when you take away from donors the appreciating value of property they would donate, they may look to alternatives, such as selling.” But it’s important to note that when you sell something, it means that the taxpayer has to pay a capital gains tax, which in turn generates revenues that can fund social services, benefiting all of us. We’ve been here before. The 1986 Tax Reform Act was also heralded as a catastrophe for charities: The Independent Sector, a coalition of nonprofit foundations and charities, led the charge against the legislation, predicting an $11 billion reduction in donations due to lowering the top marginal tax rate from 50 percent to 38 percent – reducing the value of a donation by 24 percent – and the elimination of the nonitemizer deduction for charitable contributions. The catastrophe didn’t happen. In fact, a year after the law’s enactment, according to Independent Sector, nonprofit groups recorded a cumulative 10 percent increase over the year before, maintaining the same ratio that held steady throughout much of the 1980s. Similarly, consider the recent gradual elimination of the estate tax. The amount exempted increased from $675,000 in 2001 to $3.5 million in 2009 but has not diminished the willingness of wealthy collectors or their heirs from donating property to charitable nonprofit institutions. Museums continue to report substantial bequests and gifts from heirs.

“Certainly,” as Andrew Finch, senior director of government affairs for the nonprofit advocacy group Americans for the Arts put it, “people give because they want to give.... Altruism exists.” Nonprofits should take heart. Economists of all stripes agree that the tax code determines not if people make donations but how and when, and serves to organize the process of charitable giving rather than determine whether or not it takes place. Currently, Mr. Obama’s proposal, an idea presented as a way of paying for expansion of the healthcare initiative, is just one of many sitting to the side while the wars in Afghanistan and Iraq take center stage. But as Washington considers the 2011 federal budget and faces the reality of another year in our current economic situation, tax increases will be considered once again. Obama shouldn’t be distracted by the predictions based purely on fear and by those running the numbers based on economic models. Rather, he should press on with his idea of lowering the tax deduction for the wealthy as it’s based on how individuals actually behave. In Europe and Canada, taxes are higher, but there are far more government-run social services and, compared with the United States, quite minimal individual giving. Americans don’t need a government subsidy to be kind to fellow citizens. Daniel Grant is the author of “The Business of Being an Artist.”

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