Showing posts with label Taxes. Show all posts
Showing posts with label Taxes. Show all posts

Monday, April 23, 2018

Rethinking Charitable Contributions


If you used to itemize your deductions, last year’s massive tax law changes may affect the optimal way for you to make charitable contributions. Three major modifications in the law are responsible for the changed situation:

(1) The 2018 standard deduction increased substantially. It’s $12,000 single/ $24,000 married, which is significantly higher than in 2017. For those over age 65, the standard deduction increases to $13,600/$26,600 (assuming both members of the couple are over 65).

(2) The deduction for state and local taxes is capped at $10,000, regardless of whether you are single or married (a clear marriage tax penalty in a bill that is otherwise very friendly to families, especially if you have children – go figure).

(3) The provision for Qualified Charitable Distributions (QCDs) was made “permanent” in the new law, meaning taxpayers no longer need to wait until December to find out if Congress will extend the provision.

The combination of (1) and (2) means the standard deduction will now apply to a significant number of individuals who itemized deductions in the past. Charities have their fingers crossed that these people will not reduce their contributions because they have “lost” the deduction for them. It also means that the group of people who benefit from “doubling up” contributions changes.

The “doubling up” strategy involves developing a contribution schedule that crosses two calendar years. If your itemized deductions are less than the new standard deduction but greater than 50% of it, you might benefit by moving all deductions you can from year 1 to year 2 (or vice versa). For example, let’s say you routinely make $10,000 in contributions each year and under the new law that means you will take the standard deduction. Instead, make no contributions in year 1, and on January 1 of year 2, donate the carryover $10,000. Then donate year 2’s $10,000 sometime before the end of the year. If the $20,000 donation is sufficient to allow you to itemize in year 2, then you’ve converted some nondeductible contributions into deductible ones and reduced your overall taxes.

Also effective is delaying optional medical expenses (in standard deduction years) or pushing them forward (in itemizing years). To a lesser extent, timing the payment of real estate taxes or state income taxes might also help.

What’s up with Qualified Charitable Distributions?

Making the QCDs permanent means anyone who must take the Required Minimum Distributions (RMDs) from an IRA and donates to 501(c)(3) organizations might benefit. Once you turn age 70-1/2, current rules on IRAs, 401(k)s and the like require you to take certain minimum annual levels of distributions or pay a huge tax penalty. As with any such distribution, RMDs are taxable to the extent they do not reflect a return of nondeductible contributions.

QCDs apply only to standard IRAs and allow you to DIRECTLY donate up to $100,000 per individual to qualified 501(c)(3) charities and exclude the donation, to the extent it was taxable, from income. What’s the benefit?

(1) If you take the standard deduction, this provision allows you to effectively deduct what would otherwise be nondeductible contributions. A clear win.

(2) Even if you do itemize, making a QCD reduces your adjusted gross income. That reduction may help you avoid the Medicare High-Income Surcharge, possibly reduce the proportion of Social Security benefits that are taxable, and reduce the limit before medical expenses can be deducted.

(3) Because you’ve reached the age requirement for RMDs, you were going to have to take money from your IRA anyway, and this might be the most efficient way to do it.

What are the rules for QCDs?

(1) You must have reached age 70-1/2 before the distribution is made.

(2) It must come from a regular or rollover IRA, not a SEP or Simple IRA in which employer contributions are still being made. They can’t be from a 401(k) or 403(b).

(3) The receiving organization must qualify as a 501(c)(3) organization (not all charitable organizations do, and private foundations and donor-advised funds are not eligible)

(4) The contribution must come directly from the IRA. If you cash out the IRA and make a contribution with those funds, it will not count. Many IRAs offer a check-writing privilege and that technique will work because the check is coming directly from the IRA. Otherwise, you’ll have to donate securities from the IRA.

(5) Had you not used this technique and instead deducted the contribution in the normal manner, it must have been entirely deductible (e.g. you can not receive any benefit from your deduction—so make sure to reject that coffee mug from NPR and turn down those tickets to the charity ball.)

QCD Implications

Since 401(k)s and 403(b)s do not qualify for QCDs, and if you make considerable charitable donations to 501(c)(3) organizations, you can consider rolling over the qualified plan into an IRA to take advantage of the QCDs.

Increasingly, states income taxes use different rules than Federal income tax law. Any analysis of your contribution strategy must include how any change affects your state income tax in addition to the federal effects.

If you are approaching 70-1/2, QCDs are one more thing to think about as you determine whether to take your initial RMD in the year you turn 70-1/2 or wait and take it by April 1 of the following year.

Warning

We’re talking taxes here, and these are my understandings of the rules. I’m not a lawyer or accountant, and I’m not providing any advice. You really must check with your own tax advisor before making any decisions (or make sure to do your homework).

Thursday, December 7, 2017

Why people have such a low opinion of politicians

A recent Gallup poll (Nov. 2-8, 2017) put Congress’s approval rating at 13%, disapproval at 81%, and 6% with no opinion. The short answer why so many disapprove is that we believe the vast majority are unprincipled.

Principled politicians carry the same core beliefs whether they are in power or out of power.

House Republicans yesterday again demonstrated their that belief in state’s rights applies only when they’re not the ones telling the states how to act. If enacted, the law they passed and sent to the Senate would allow anyone with a legal concealed-carry right in their own state to take that right with them when they travel to states with more restrictive policies. For example. Arizonians, who do not need any permit for their concealed-carry, would be able to conceal their guns while traveling in Maryland, which has a very strict concealed-carry policy.

One might cynically think this vote is a payback to the National Rifle Association, which has been pushing this, for their contributions. That may be, but it also shows the Republican Congress believes it knows better than Maryland what their citizens really need. Funny, how when the Federal Government under Democratic control proclaimed transgender people should be able to use the bathroom of their choice—well, that was gross overreach and an issue that should be left to the states.

President Trump’s shrinking of two Utah national monuments illustrates a lack of principles by both parties. Many Republicans have maintained that states should have free rein to manage national lands “because they know best.” One can and should discuss whether lands acquired by treaty belong to the whole nation or should be deeded to the state in which they belong. Regardless of one’s personal position, Trump has consistently said national lands should be run by and for the states. By that measure, his trimming of the monuments is principled.

However, candidate Trump and Republicans in general decried President Obama’s executive orders and proclamations as unlawful, unconstitutional overreaches of presidential power. Yet once he became President Trump, and with Congressional Republicans cheering along, he has used these same strategies to pursue Republican objectives.

Democrats do not show principles, either. Many Democrats are now decrying President Trump’s “overreach.” Such decisions should be left to Congress they now say, ignoring their eight years of approving President Obama’s use of executive power to achieve his agenda.

Elections should, of course, have ramifications. Those who support the policies put in place during the Obama administration will not look favorably on Republican changes. They should have done a better job of electing their candidates. To decry the mechanism of power now that they don’t control the levers is not defensible.

However, Republicans have learned nothing from the mistakes Democrats made in unilaterally passing legislation with sweeping national consequences. Democrats pushed through Obamacare without soliciting expert opinion on all the consequences. The public did not like it then, in large part because Democrats never brought them into the process; Democrats overstated some and never clearly explained other benefits (remember “nobody will lose their insurance”?), and they never admitted to the costs.

The Republican tax bill process has done them one better on all these counts. Only 32% of people approve the plan, while 48% oppose it, and 20% don’t know enough to do either.

Republicans universally decried Democrats for pushing through “Obamacare” without bipartisan input—and have sunk even lower with their tax bill by rushing through a 500-page bill with repercussions that affect every individual in the US.

The process is deeply flawed. It has been said that people would be sickened to see how either sausage or legislation is made. Making last-minute changes and pulling all-nighters didn’t work well when we were in high school and college, so why does Congress think their constituents would applaud this approach to running the country? Politics, as Bismarck said, is the art of the possible and requires compromise.

Last January, Senators Grassley and Lee introduced an amendment to the constitution to require the Federal government to have a balanced budget. Without the new tax legislation, we are running budget deficits of a half-trillion dollars a year. Both senators voted for a tax cut that will increase Federal debt by over a trillion dollars. In the House, multiple balanced budget amendment bills have been introduced and co-sponsored by Republicans who voted for the tax cut.

Kudos to Senator Corker who did take a principled stand against increasing the deficit and voted against the bill.

No principles. No respect. No solving the enormous financial problems facing our country.

To quote Trump: “So sad.”

Monday, December 4, 2017

Republicans Lie to Themselves to Justify Tax Cuts

The only selling point Republicans have left to justify their tax law is their oft-stated belief that it will spur growth and EVERYONE will benefit. Unfortunately, the nonpartisan Congressional Budget Office (CBO) and the overwhelming majority of macro economists do not agree with their hype.

Republicans promised historic tax reform. Actual reform to simplify the tax code and eliminate loopholes would take time and considered compromises. The Republicans decided they didn’t have time and proved they didn’t care about real simplification. With a 500-page tax bill, I’ll bet the Internal Revenue Code and its regulations will be expanding, not contracting.

Despite the Republican Party platform calling for a balanced budget amendment, they have given up on trimming the annual budget deficit—unless one believes their assurances that the tax cuts will pay for themselves with increased growth. The CBO estimates the Senate version of the bill will increase the deficit by a trillion dollars over ten years. (That’s $1,000,000,000,000.)

Most economists agree the changes will result in some growth because the increased budget deficit provides a stimulus to our economy (which is already generating record corporate profits and nearly full employment). However, virtually all economists maintain the growth will be insufficient to pay the costs of the tax-cut stimulus. 

Three charts to illustrate why the Republicans are mistaken in believing their myths.

To predict the future, we should examine the past. We have reduced both the maximum individual tax rate and nominal corporate tax rates in the past. Did we experience increased growth in real gross domestic product (an inflation adjusted measure of the economy) after those changes? You be the judge. This is what has happened in my lifetime:


In 1950 the top income tax rate was 90% (gray line). The top corporate rate was 42%, which was increased to 52% by 1952 (orange line). The blue line shows annual changes in real GDP (multiplied by ten to show on the same scale). It varies a lot year by year, but during the 1950s averaged 4.06%.

Corporate rates in the 1960s stayed about the same. The maximum personal income tax rate declined from 91% to 70%. Average real GDP averaged 4.43%. Aha! Maximum income tax rates go down and average real GDP increases.

Except with that 70% rate maximum in place throughout the 1970s and a slight decline in the corporate rate, real GDP annual increase averaged only 3.55% that decade. Hmm.

In 1987, maximum tax rates for both individuals and corporations were significantly reduced. The average annual real GDP increase fell to 3.15% for the 1980s.

In 1993, the corporate tax rate reached its current 35% (a slight increase from 34%) and the individual rate maximum increased from 31% to 39.6%. And the average annual real GDP for the 1990s increased ever so slightly to 3.23%

The maximum individual rate dropped for many years to 35%, but the average annual growth in real GDP during the first decade of the 2000s declined to 1.83%, and for the last six years has only increased to 2.09%. This year real GDP looks to grow something over 3%.

If maximum corporate and personal income tax rates were the only or even main driver of real GDP growth, we should go back to the high tax rates of the 1950s!

They’re not of course, but here’s one major problem with trickle-down economics. Give a billionaire an extra $100 and nothing changes for him. Give someone earning $20,000 a year that same $100 and chances are good they will spend every single one of those greenbacks. That spending is what increases GDP.

Lower tax rates are one of the reasons for the increased portion of wealth owned by the richest among us. (A second reason is the increased percentage of every dollar earned going to those who are already wealthy.)



Consider these two graphs showing the portion of income going to the top 1% and the portion of wealth owned by the top 1%.
  
During the 1950s, 1960s, and 1970s when we had significantly higher corporate and personal income tax rates, and the percentage of before-tax income going to the top 1% declined, real GDP growth averaged 4.01%.






In the 1980s, 1990s, 2000s, and the 2010s, while the income to and wealth accumulated by the top 1% has increased substantially, the average real GDP growth has been only 2.61%.








The Republican tax proposals will increase, not decrease income and wealth disparity. If one’s primary objective were to increase real GDP growth, one would skew the benefits of tax law change away from the top income-earners and toward lower income-earners.

If one’s objective is to benefit high income and wealthy individuals, the Republican plan should work quite well.

Tuesday, April 25, 2017

The Jim Jackson Simplified Income Tax Plan



I posted the first version of my tax-simplification plan in February 2012. Five years later, I made a couple of tweaks, but the essence stays the same. It's clear, simple, and best of all would be completely transparent. I've emphasized that last aspect more in this updated 2017 version.

I challenge President Trump to match me in boldness and effectiveness in generating revenue to run the government and being transparent about how the Federal government spends our money.

Personal Income Taxes:

1. All income, regardless how earned is treated equally under the Jim Jackson plan. A dollar earned by wages, dividend, interest, capital gains or pass-through from some corporate-like entity are all taxed the same. Everyone should feel they have a stake in funding the public services provided through the Federal government.

2. Every person is taxed individually. If a couple owns a joint account, each is taxed on 50% of the income. If one spouse works and the other stays home to take care of the children, pets, sick relatives or lays on the beach, only the income earner is taxed.

3. How you spend your money, if legal, is no matter to Federal government or its income tax structure. There are no deductions for mortgage interest, medical expenses, casualty losses, contributions to charity. Nor are there credits or deductions for the individual or their dependent children or extra deductions for being older than someone else, or blind or anything. Taxable income equals gross income.

4. I propose graduated rates. Having four brackets seems fine to me, but if tax experts prefer three or five, I’m not going to argue. The first bracket should be 5%. To repeat, everyone who earns income should contribute to the Federal government. (And yes, I know some will need more support than their income is taxed. That’s fine; provide them the services they need or make a direct payment to cover the need. Do it directly, don’t try to cram it into an income TAX system.) The top rate should be 45%. I personally think it should be higher, but at 45% the income earner ends up with more than the government. Make the other two rates 15% and 30%.

5. I propose a five-year transition. In the first year, everyone can choose to pay either on the new tax plan or 20% new and 80% old. The next year, the same choice, but with 40% new and 60% old. After five years, we are totally under the new plan. Once a person chooses to pay entirely under the new tax plan, they can’t revert to the transition.

I know that my proposed transition will initially bring in fewer taxes than the plan without transition because everyone will choose the alternative that works best for them. Here's where I'll rely on the experts, since I do not know what income levels each tax should kick in since I don’t have the data, time nor requisite skills to determine the revenues from my proposal. Given the current budget deficits (and my proposal for corporate income taxes), we clearly need more income than we are getting. Here's what I would charge the experts to do: Set the income levels so that if there were no transition, the current level of Federal government expenditures would be fully paid for (after reflecting the minor income the government receives from fees, tariffs, etc.)

This solves the economic catastrophe if we were to immediately eliminate the current budget deficit. The difference between the projected post-transition income and actual income paid will be the budget deficit for the first year. The projected deficit shrinks over the five-year transition to zero.

Another reason for the transition is because a lot of smart people who earn their living off an overly complex tax system will need to retrain for productive work. My proposed transition provides a planned obsolescence of their skills. Just think how the economy can grow if these bright people apply their minds to productive activity.

6. Note that personal income tax rates will need to be higher than they would otherwise be to reflect the elimination of corporate income taxes (see below). I charge my experts when setting the income breakpoints for the brackets to make sure that this primarily effects those well off who receive substantial income from interest, dividends, partnership income, etc. Hence the need for a 45% rate.

Corporate Income Taxes

1. Eliminate all corporate income taxes. End of plan. No transition. No deductions for anything. [I challenge you, President Trump to be so bold and comprehensive!]

2. This plan eliminates all loopholes. That means, if Congress wants to “encourage” some business activity, they must cut checks to provide corporations incentives, not hide the largess within “tax breaks.” This provides clear transparency regarding government spending and will allow better and more effective analysis of the results gained for money spent.

3. Eliminating the corporate income tax means the US should become a tax-haven for corporations, bringing back some jobs from overseas. Let the other governments figure out how they want to respond. [Again, President Trump, will your plan provide as much of an incentive?]

4. It also means corporations will be making more money, which they will eventually have to pass through to shareholders in the way of dividends, which (see above) are fully taxed. It's unclear how much of a lag there will be between the increased cash flow and increased dividends. Much of the billions held overseas to avoid U.S. taxes will be repatriated and paid out to shareholders (or go to increased investment, which would also be a good thing). I do recognize that those who own U.S. equities will disproportionately gain value as stock markets would react positively to the elimination of corporate income taxes. However, individuals will need to use it or lose it (see estate taxes below) and therefore will convert significant portions of those gains from unrealized to realized (taxable) income.

5. Since corporations get no deductions for charitable, political or other contributions, they might wonder why they should make them—or at least shareholders should be asking that question since the money is coming directly from their future dividends.

6. Government lobbying will continue, but taxpayer scrutiny of political votes will be easier when the only way they can give money to corporations is through direct payments, not hidden as deductions and credits deep within the corporate income tax. It should also focus attention in political races to how each side proposed to spend money, which I believe would be healthy.

7. Personal income tax rates will need to be higher to reflect the elimination of corporate income taxes—which is fine in the long run but might cause some larger deficits in the short term. Unlike other budget deficits, this one is self-correcting since it is only a temporary imbalance until the increase in corporate net income is passed through to investors.

Estate Taxes

1. A hereditary oligarchy is an anathema to a broadly representative government. Therefore, if someone didn’t manage to spend or give away their money before death, the government shall help them do it through the estate tax.

2. This item more properly belongs under the income tax section, but it occurs after death and Republicans have labeled the estate tax a death tax anyway, so I’m including it here. What am I including? At death, the difference between market value and book value of all assets is income in the year of death. The individual could have sold the asset, realized the gains and paid taxes. They chose not to make the sale while they were living, but now they are dead and income taxes are owed.

It does not matter whether we are talking about shares in Apple or the family farm that has increased in value or a small private business. Income has been earned and it shall be taxed. Life insurance agents will be happy that they still have a role in estate planning for small businesses.

3. After paying any income taxes, estates over $1 million dollars (adjusted for inflation from the date the limit was first $1 million) are taxed at a 50% rate. The very rich will still be incredibly rich, but less so than with no estate tax.

4. Estate tax planners still have a modicum of work to do since planned giving/ gift taxes etc. will still exist. However, note that under the proposed plan, the Government gets its 50% off the top before any distributions to heirs, charities or created foundations.

Summary:

I estimate (based on nothing concrete) that the Jim Jackson tax plan eliminates 99+% of the current tax code and regulations. By eliminating all deductions, it allows each individual to decide for themselves without government incentive how to spend their income. It forces government to make explicit expenditures to corporations or individuals rather than hide them in the tax code, which will allow the public to better understand where we are spending our money and whether the government is effectively addressing the needs of the people.

Does the Jim Jackson tax plan need to be fleshed out? Of course, but I suspect I already included more than sufficient detail to attract plenty of attacks from the entrenched corporations and wealthy, not to mention the anti-corporation liberals.

~ Jim

Thursday, January 3, 2013

Republicans Blink


The deal hammered out in the U.S. Senate and reluctantly approved by the House this week was massively flawed; however it did call the Republicans’ bluff on no tax increases. Technically they might be able to hang their hats on the proposition that since they did not vote until January 1, they were actually voting for a decrease in taxes because the so-called Bush tax cuts had expired. The only people who might buy that are the politicians themselves.

Lots of people will focus on the many flaws of this legislation, but let’s look at the real positives.

(1) A bill passed Congress with bipartisan support. Huzzah! Everyone was grumbling (which is often the case with legislation that has bipartisan support) but a supermajority in the Senate and majority in the house voted yes. This proves they can do it!

(2) Republicans and Democrats voted for a tax increase. As I have written before, our annual deficits cannot be solved with spending cuts alone. Although House Republicans voted almost 2-1 against the bill, this vote shows recognition by a majority of legislators that we must also have increased revenue.

(3) Congress made most of the changes permanent. It’s important to recognize that permanent does not mean they may not be changed in the future. It means they stay in place forever until they are changed by law.

This differs from Congress’s typical approach of short-term fixes that they need to address year after year after year. This practice of temporary changes became standard because of the way Congress “scores” the cost of legislation. It minimized the costs and maximized benefits to make legislation look good. This process allowed politicians to make claims supported by incomplete economic analysis and also caused myriad opportunities for junk measures (aka pork) to ride along with a bill that must be passed. Making these changes “permanent” takes away “must pass” bills that are tar babies for pork.

(4) It returns the marginal tax rates on those with $400,000 (single) $450,000 (joint) back to 39.6% and also limits deductions and the personal exemption for those earning over $250,000 (single) $300,000 (joint). Capital gains rates will also be greater for higher income earners. These changes show a recognition that those well off must bear more responsibility for our tax revenues than they did.

(5) The AMT (alternative minimum tax) is finally indexed to inflation so it will apply to targeted groups and not add unintended taxes on middle class taxpayers.

(6) Eliminates the payroll tax holiday. While effective as a stimulus in getting more spending money to those working, it was ineffective in its appreciation by those receiving it. Further, it eroded the security of Social Security, which is particularly important at a time when so-called entitlements are all under attack.

(7) Congress blocked an increase in their pay. They actually thought they deserved one for their performance? I’ve said before Congress should get no pay until they pass a complete budget for the fiscal year.

Of course I wish this legislation had done more, but what it did accomplish was mostly pointed in the right direction. The next battle will be waged by the next Congress as it tackles the artificial debt limits imposed in the same short-sighted manner as the “fiscal cliff” by previous Congresses.

Happy New Year.

~ Jim

Tuesday, December 25, 2012

Of Death and Taxes


As 2012 draws its last breath, my thoughts have been on death and taxes. Those anticipating the world’s end based on misinterpreting the Mayan calendar have gone back into their holes. I’m sure they are busily inventing some other catastrophe to cheer for.

The rest of us watch the slow moving catastrophe we call the United States Congress as it deals, or does not deal, with death and taxes.

Death

With the passing of Daniel Inouye, Congress lost one of its true heroes. If you aren’t familiar with his story, this Wikipedia link can give you the basics. While he certainly looked after Hawaii’s interests and could at times be partisan, he usually had America’s best interests at heart. He worked to get things done. He did not think compromise a dirty word and showed the continued courage to find middle ground. He had friends on both sides of the political aisle—all attributes that these days seems more and more rare.

The latest mass killings, this time of twenty children and six adults in Newtown, Connecticut, is unlikely to make much of a change in our attitude toward guns in this country. Those afraid they will no longer have the opportunity to purchase weapons and ammunition clips, whose sole justification is that they can fire massive numbers of rounds in a very short period of time, will make more purchases now. The false statisticians (those who claim to prove causality by use of statistics) will be talking heads on a fawning media for a few weeks, neither side providing much value to resolving the real issue.

The second amendment of the US constitution is short, and reads, “A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”

At the time the constitution was drawn, most of the army was composed of militias paid by the various states. Part of the grand bargain that got us “These United States” rather than “these collective states” was the Federal government accepting responsibility for the individual state’s debts from the Revolutionary War. Having seen England try to impose its will by eliminating the right of citizens to bear arms (and therefore protect themselves against the state) our founders wanted to make sure to inhibit the national government they were forming from taking a similar tack.

The NRA claims this sentence means each of us has a right to carry whatever weapons we choose wherever and whenever we want. I suppose that’s a bit too strong. They would probably agree that tactical nuclear weapons should be limited to our national armed forces. They might agree that those with certain criminal records should not have the right to weapons. But they can’t actually say those things directly, because once they concede that not all arms should be available to all individuals, they have agreed that the discussion is not one of absolute, but of where we draw the line.

And they do not want the public to understand the real issue is where to draw the line. To again distract the public and lawmakers from this real question they presented a straw man: suggesting that by making schools no gun zones it puts a target on our kids’ backs because gunman will be drawn to schools where there is no one to shoot back. Their solution is to make schools armed compounds in order to protect our children.

Many of our schools already have armed guards—not primarily to protect children from outside gunmen, but to protect children and teachers from other students who would carry concealed weapons. This, the NRA conveniently forgets. They also neglect to mention that if schools did become armed compounds, those bent on a mass killing of our children would turn their attention elsewhere—say to ambushing a school bus. There the kids are already confined to an aluminum can with limited exits, a place where a semi-automatic military-style weapon could quickly riddle the entire bus, changing clips before the children (or an armed guard on the bus, since that would be the NRA’s next logical step) could react.

These latest deaths won’t change anything, because they are a blip in the total. Every year we lose about 11,000 Americans to bullets. If there were no guns, there would be no deaths by guns. However, as with automobiles (we lose 36,000 Americans a year to vehicle accidents), guns are a part of American society. We are inured to all these deaths because our individual risk of such a death is low.
To minimize the risk of automobile deaths, we require people to use seatbelts; we require cars to have certain safety mechanism. We test drivers (at least once) to make sure they can drive safely. We should apply all these same considerations to people who own guns.

I am not against guns. I have lots of friends who hunt; I even let them hunt on my property. When hunting, they fire their shotguns and rifles one shot at a time, and that is where we should start. Every rifle and shotgun should be single shot, not even three-round bursts should be allowed. Multiple shot bursts and semi-automatic fire are designed to kill people, not deer.

We already ban certain types of bullets because their only purpose is to kill people. Why shouldn’t we ban magazines designed to kill people? Hunters do not need ten or twenty or larger magazines to hunt. A half-dozen shells before the weapon needs to be reloaded provides more firepower than most hunters need in a whole day of hunting. Larger magazines are designed for killing people, not deer.

Revolvers (a dying breed) are single shot and usually carry between four and ten rounds. We could limit them to six in the future. Pistol clips can similarly be limited to a small number of rounds. Revolvers and pistols are not nearly as accurate as rifles, and as distance increases they become increasingly less accurate.

As with automobiles, all firearms should be registered, their serial numbers recorded and the owner required to acknowledge that they will be charged with a criminal act if they do not safeguard their guns. We require individuals to have licenses and carry insurance to drive a car. We should require all gun owners to pass a safety course in order to be licensed to carry a gun. (The NRA has safety courses, and my recollection is that they are very good. I passed one in junior high school before I was allowed to target shoot at my grandparents’ farm.)

All gun transactions should be conditional on the buyer passing a background check, which also requires them to be licensed. Private transactions must not be exempted. It matters not whether the seller is a licensed gun dealer, a trade show operator or me selling a gun to Josephine Blow. In all cases Josephine must pass the same background check and wait the required number of days before taking possession. The costs for maintaining the database of guns and background checks should be paid by the gun purchaser. If, as the NRA claims, the process is inefficient, charge more to pay for an efficient system. Those who want to own cars and be licensed to drive them pay the costs of the system; so should gun owners.

Obviously these policies cannot be implemented without a transition period; however, a transition period should not be an impediment to implementing strict gun ownership requirements. Nor, turning my attention from death to taxes, should a transition period be an impediment to fixing our budget crisis.

Taxes

I admit that until I wrote this piece, I had not read the Grover Norquist “Taxpayer Protection Pledge.” It reads:
I, _____, pledge to the taxpayers of the (____ district of the) state of ______ and to the American people that I will: ONE, oppose any and all efforts to increase the marginal income tax rate for individuals and business; and TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.

In the 2011-2012 Congress, 236 Representatives (all but six Republican House members, and including only two Democratic House members) and forty-one Senators (one Democrat and forty Republicans) signed this atrocity. Since a majority of the House is 218, this means (unless people break their pledge) no bill can pass to raise income taxes (expect perhaps through subterfuge). Further, since it takes sixty votes in the Senate to vote cloture and break a filibuster (at least in theory; these days it seems any one Senator can put a permanent hold on any nomination without the necessity of formally going through a filibuster, but that’s a different illness of the Senate), Republicans could prevent any increase in taxes in that body as well.

The deficit for FYE 2012 is about $1.1 trillion. Expenses were something on the order of $3.6 trillion. To balance the budget without increasing revenues would require across-the-board cuts of over 30%. Take your own situation and envision cutting 30% from your housing expense, from your food expense, from your clothing expense, from transportation, from entertainment, from supporting your children or parents, from absolutely everything. That’s how far off we as a nation are from a balanced budget.

If you were faced with this scenario, you would probably borrow your credit cards to the hilt rather than cut all the way back on spending. That’s what Congress has done. We took on two wars, Afghanistan and Iraq and charged it all. Republicans wouldn’t raise taxes because of their pledge and for the first two years of Obama’s presidency when Democrats controlled the House, Senate and White House, the country was in a severe financial recession and raising taxes made little sense.

As someone who thinks the Keynesian idea that when we have a struggling economy we should run some deficits and when we have a robust economy we should run surpluses, I’d suggest that we should currently be running something of a deficit because we have additional expenses caused by the past recession (extra unemployment benefits, food stamps, training costs, etc.) However, those extra costs caused by a lousy economy add up to a few hundred billion at most; nothing close to $1.1 trillion. The difference is our structural budget problem and will not be solved by a robust economy.

Every individual prefers to pay less for government. That is not the same thing as preferring less government. The Republicans (with the complicity of Democrats) have focused their tax efforts for the last two decades on pandering to our preference to pay less for government. The Bush tax cuts decreased annual Federal Government Revenues around $350-400 billion. Had we not enacted them we would have about $4 trillion less in accumulated deficits than we do. Had Bush and the Republicans raised taxes temporarily to pay for the Iraq and Afghanistan wars, we could lop off another trillion or two.

This disparity is not about the rich versus the middle class. Almost all of us need to pay higher taxes to afford the government we want. Most of us also need to collect less from the government than we desire. On the spending side, we have long-term structural problems with Social Security, Medicare, Medicaid and the Defense Department. Republicans are correct that we must look at these areas (well, actually they only want to look at the first three; I added the Defense Department because it is equally broken.)

President Obama is correct that either marginal tax rates must rise or net deductions decrease. He is myopic considering the problem is addressed by focusing on those earning $250,000 or more (or his latest weasel to only increase taxes for those earning $400,000 or more). However, I suppose we have to start somewhere and that’s with the wealthy. Either Republicans must renounce their puerile Norquist pledge or be responsible for a failed government. The president must not give in on this because once there is agreement that changes can be made we can start to have real conversation about the right level of government and how to structure taxation to support it. That’s when middle American has to suck it up and pay more taxes or suck it up and stop asking the Federal government to solve every problem that inconveniences them.

So there we have it. I have run out of patience with Republicans, Democrats, the President, the House, the Senate and the American people when it comes to taxes and spending. With only a few notable individual exceptions not one of them is actually facing reality.

Every empire I am aware of failed in part because they debased their currency attempting to protect their empire while bribing the masses with public goods. I hope we can learn this lesson from history, rather than following those earlier empires’ paths. Nothing this past month has given me a glimmer of hope.

It’s the time of year we celebrate miracles and the beginning of more light in our twenty-four hour days. So despite my best rational judgment, I’ll keep hoping for heroic leaders who will lead us to a better, sustaining future.

~ Jim

Tuesday, November 13, 2012

Fixing the Fiscal Cliff


Unfortunately the moniker “Fiscal Cliff” itself projects visions of the U.S. as Wile E. Coyote discovering on January 1, 2013 that the ground is no longer beneath his fast-spinning feet. Cut the camera shot to his crumpled mess lying on a much lower level than where he started.

Not solving the economic mess encompassed by the fiscal cliff (automatic tax hikes and across-the-board cuts) won’t be that quick, and it won’t be that disastrous. But it won’t be good. Unlike Wile E. who is A-OK after the commercial break, the US economy will not recover for a long time if all those tax policies and spending cuts stay in place for any length of time.

Other commentators have suggested a middle ground between Obama’s higher taxes on the rich and Boehner’s no increase in tax rates. I’ll leave it to them to figure out the how; I am going to postulate a world in which we avoid the insanity of the current stalemate. Then what?

My suggestion focusses on avoiding the next fiscal debacle brought to us by the children we elect to run the country. When I was young and had an allowance, I had to earn it. I had certain chores, and if I didn’t complete them I didn’t get my allowance.

The U.S. Federal fiscal year begins on October 1. If we do not have an agreed budget in place before that date, Congress has not done its job. If they have not done their job, they should not be paid. Congress has not approved a budget for this fiscal year, 10/1/2012 – 9/30/2013; that’s why we have the fiscal cliff problem. The first thing the lame duck Congress should do is pass what I am calling “The Pay for Performance Act of 2012.” Then they should pass a budget, because until they do, they will not be paid.

To be clear, by “budget” I do not mean a budget resolution. I do mean passing all of the appropriation bills required to implement the budget resolution. It’s the deed that counts, not the name.

If the budget calls for a deficit, then the debt limit must be raised. It is lunacy to agree on a budget but vote against increasing the debt ceiling to implement that budget. However, I have no confidence that the boys and girls of Congress will get their act together simply because they aren’t being paid, so when they do finally pass a budget that calls for a deficit, the debt ceiling should automatically be raised to also cover an equal amount for the next year. That will avoid the artificial constraint of facing another debt ceiling crisis should they not agree on a budget by October 1.

There are many other things I would like to fix with how Congress does business, but if they give me this one, I promise not to make other demands for one election cycle. If they don’t… well, that’s what future blogs are for.

~ Jim

Friday, August 10, 2012

Romney Scandal on Personal Taxes


I have no idea whether Harry Reid’s “source” is correct that Mitt Romney avoided paying any income taxes for ten years. Furthermore, that fact is not per se important. Judge Learned Hand’s opinion in Gregory v. Helvering states in part:

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

The scandal of Romney’s position to only release the last two years of his personal income taxes is not the possibility that he paid no taxes for a decade. If Romney and his tax accountants and lawyers figured out how to legally use the tax code to avoid or defer paying income taxes, more power to them and more reason to eliminate all the deductions under the tax code. (See the Jim JacksonSimplified Tax Plan.)

The scandal is that Romney asks voters to trust him to be president, but he does not trust voters enough to provide them information they need to make an informed decision. When his father ran for president, the senior Romney released twelve years of tax returns.

The son is hiding his past and he is a very smart man; there must be a reason.

The reason can’t be that voters will be distressed about how much money he made. We already know he made a ton, and most people do not begrudge him for it. Americans like success stories. Romney is running for president in large part based on his demonstrated abilities to run large, complex organizations (Bain Capital and the Salt Lake City Olympics).

The reason must be how he arranged his finances relative to US tax laws. As Judge Hand said over seventy-five years ago, there is no sin in paying the minimum taxes required by law. However, if Romney used discredited tax shelters or off-shore tax shelters that he underreported and later took advantage of tax amnesty programs, voters should be so informed.

How did Romney build his IRA to over $100 million? If he presciently purchased stocks that increased over 100-fold in a few short years, he should be trumpeting his financial acumen. If, as some have suggested, he made IRA contributions of purposefully undervalued stock to circumvent the annual deduction limits, voters should know. Again, I have no clue how he grew such an outsized IRA, but I do believe voters have a right to understand the mechanics of this amazing financial result.

When a company decides to put itself on the block it dresses its financial statements in as attractive clothing as it can muster. Analysts know to look past the stated numbers and carefully read the footnotes to understand how the financial statements were prepared. They also know it’s necessary to analyze previous years’ financials to fully understand the current statements.

Romney has noted that he isn’t a business, but to understand his full character, voters deserve full disclosure of prior tax returns. The last two years of taxes are window dressing. To get a true sense of the man’s financial values, we need to know how Romney operated before he knew everyone would be looking over his shoulder.

~ Jim