April 15, 2008
Tax Day
Is there anything really to be happy about on tax day? I suppose there is that odd sense of relief that you’ve (hopefully) finally gotten through the muck and the mire of 1040s and 1099s And that even though you filled in line 42, skipped to line 47, filled out the worksheet and went back to line 45 only to find that you don’t qualify for the tax break afterall, you still managed to sign, seal and deliver your return to the IRS.
There is one thing that you can be truly happy about on April 15th 2008. Be glad that it isn’t April 15th 2012. Why? Because come 2011, your taxes are set to increase dramatically and that means that on April 15th 2012, you’ll likely be screaming at your computer, spouse, accountant, child who no longer qualifies for a child tax credit, “How can we possibly owe this much money? We only had you for the tax break!”
Today, the House will vote on the Tax Increase Prevention Act, sponsored by Rep. Walberg. Granted, this is a politically charged vote that will go down along partisan lines. But, it’s a good solid reminder that the FY 2009 Budget Resolution passed by the House of Representatives assumes that all of the tax cuts enacted in 2001 and 2003 will expire in 2011 – resulting in a $638 billion tax increase. Let’s hope that Congress reconsiders their “resolution” and instead resolves to prevent the largest tax increase in history – making April 15th 2012 a day to … well…not dread quite as much.
Posted by Dena Battle at 10:58 AM
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March 13, 2008
Washington Post to Employees: Skew You
Today’s Washington Post editorial page brings up the same old tired arguments against repealing the estate tax. They recycle the one that we always hear about how the tax doesn’t hit very many people – and fixing it would be a “skewed priority.”
It’s true – it’s a tax that you only pay once – when you die – so each year the number of people it hits isn’t very high. But, the way the tax is applied is unfair and unworkable. It forces heirs to sell off businesses to pay the tax – which means factories are shut down and jobs are lost. If even one business is lost to bad policy, than that policy should be changed.
Let the Washington Post go to the workers who are unemployed because of the tax and explain to them that they’re only one business – that helping them really would have been a “skewed priority.”
Posted by Dena Battle at 9:47 AM
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March 6, 2008
Nothing's Certain Except for ....
Don’t like the tax? Just change the name.
The Senate Finance Committee is going to hold a hearing on March 12th on the estate tax, part of a series of hearings that Chairman Baucus promised to schedule last year. Unfortunately, the focus of the hearing will be to replace the estate tax with … an inheritance tax. That’s right. We’ll replace one bad tax with another bad tax.
How is an estate tax different from an inheritance tax? Well, the estate tax is placed on the estate of the person who dies. The inheritance tax is placed on the person who inherits the estate. The reality is, regardless of who specifically is taxed, when a business is passed on to an heir and there isn’t liquid capital to pay the tax – then the business is sold off to pay the tax. You can call it the estate tax or the inheritance tax. We call it the death tax because it kills family businesses. End of story.
Watch for future hearings from the Senate Finance Committee: Replacing the income tax with a wage tax. Replacing the sales tax with a buyers tax. The list goes on.
Posted by Dena Battle at 8:25 AM
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March 5, 2008
Letting Tax Cuts Expire -- What it Actually Means
From today's Washington Post, reporting on the new Senate Democrats' budget proposal: The spending would push the federal deficit to more than $350 billion in fiscal 2009, but Senate Budget Committee Chairman Kent Conrad (D-N.D.) said the blueprint would erase the deficit within four years, producing a $160 billion surplus in 2013.
To get there, however, Democrats assume all of President Bush's first-term tax cuts would expire on schedule in 2010, bringing in billions in revenue. But if the most popular tax measures were extended, as the two Democratic presidential candidates have promised, the surplus would all but evaporate, Conrad said. So, what are those popular tax measures? Here’s a quick list:
The Child Tax Credit will shrink from $1,000 to $500 per child.
The 10 percent bracket will be eliminated, raising the income tax burden of many workers by 5 percentage points.
Income tax rates will increase between 3 and 4.5 percentage points in each bracket for all income earners.
Marriage penalty relief will be eliminated resulting in adverse tax treatment for double income earners.
Capital gains tax rates will increase to 10 or 20 percent depending on income.
Dividend taxes will double from the current capital gains tax rate to the individual income rate.
The estate tax will go from zero in 2010 to 55 percent in 2011, and the exemption rate will drop to $1 million (which is less than it is today).
That’s a tough list to choose from…
Posted by Dena Battle at 11:30 AM
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February 15, 2008
You Might As Well Double Down
An update on political wagering at Intrade:
Haven’t placed your bets on Intrade yet? Here’s one reason to bet on higher taxes.
Democrat Barack Obama said this week that as president he would spend $210 billion in tax payer dollars to create jobs in construction and environmental industries. “Obama explained that the money for his spending proposals will come from ending the Iraq war, cutting tax breaks for corporations, taxing carbon pollution and raising taxes on high income earners.”
Posted by Dena Battle at 8:57 AM
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February 13, 2008
Betting on higher taxes?
Think your taxes are going to go up? Want to bet on that prediction? Now you can. According to Bloomberg, Intrade has a new market that lets you trade contracts on how much more you think you’re going to be paying in taxes in the near future. The prediction market currently focuses on the top marginal rate – which is 35 percent. Traders can buy shares predicting that the rate will skyrocket to 42 percent in 2009, 2010 or 2011.
Under current law, the Bush tax cuts are set to expire in 2011. If Congress and whoever is President at the time let that happen, the top rate will go back up to 39.6 percent. Both Obama and Clinton have offered up additional tax increases to pay for new programs including universal health care plans and universal pension plans. If either are elected president – 42 percent might be a better bet…
Posted by Dena Battle at 2:00 PM
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January 28, 2008
Carbon Sacrifices? Sign Me Up!
 I have a proposal for the U.S. House of Representatives. Let’s call it the CarbonDenaFund. For the next year, I promise to plant five new trees, carpool with my husband to work everyday, and only buy grapes in season. I’ll also cut back on airline travel, walk instead of taking cabs, and I promise to only buy one pair of shoes per month. I’ll do all of this for the bargain basement price of $89,000. Sound like a scam? Nope – it’s actually a bargain!
Cabon offsets are a method whereby people who feel guilty about driving SUVs pay to invest in environmentally friendly projects to offset their own carbon emissions. It’s how Al Gore was able to jet set all over the world but still maintain that he wasn’t damaging the environment in the process. The process is completely unregulated and there are few ways to determine if the offset credits that you purchase actually go to projects that will reduce carbon emissions.
The Washington Post today reported on page one that the U.S. House of Representatives – or more aptly – the U.S. taxpayer spent $89,000 on carbon offsets last year. But, it turns out that what they really did was give money to the Democratic leaning North Dakota Farmers Union to encourage farmers to use no-till farming – which releases less carbon into the atmosphere. The problem? The farmers were already using no-till farming, so the money didn’t actually reduce any carbon emmissions. Another project? Paying the Nez Perce Indian tribe to plant trees. But according to the tribe, they probably would have planted those trees anyway. So again, no actual reductions.
Unlike the Congress’s previous carbon offsets - CarbonDenaFund is guaranteed carbon reduction. My husband can attest to my shoe buying habits. And, as an added bonus they’ll be stimulating the economy by giving me wads of cash. What a deal.
Posted by Dena Battle at 11:59 AM
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January 7, 2008
Outdone by Bulgaria!
From today’s Wall Street Journal editorial page [subscription required], it appears that the United States is falling further behind on the tax front as more countries cut tax rates. The latest? On January 1, Bulgaria instituted a new flat tax rate of 10 percent. They join Spain, Kuwait, Estonia and Ireland as tax-cutting nations within the last year. The Socialist – that’s right, Socialist – Prime Minister of Spain has pledged to eliminate the nation’s wealth tax – saying it “punishes savings.” Kuwait has slashed their corporate income tax on foreign companies from 55 percent to 15 percent to “encourage foreign investors to enter Kuwait.”
As the Journal says, “It’s getting lonelier all the time at at the top for America, which with a corporate rate of 35 percent is one of the few developed nations left with a rate of more than 30%.”
With worrying economic numbers and talk of a recession, the administration is proposing a stimulus plan that could involve tax cuts. Let’s hope the President and Congress take a cue from Bulgaria.
Posted by Dena Battle at 3:13 PM
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December 14, 2007
WaPo's Pearlstein Salutes NAM Effectiveness
Here's what business columnist Steven Pearlstein had to say about the National Association of Manufacturers in today's Washington Post: Their relentless crusade against taxes and regulation has damaged financial markets, weakened the economy, poisoned the political atmosphere and eliminated any possibility of effectively representing their members' interest with a Democratic Congress or White House. A relentless crusade against taxes and regulation? We couldn't have said it better ourselves. Unlike Pearlstein we believe that those two things will damage financial markets, weaken the economy and hurt employers and employees alike. And you can expect the NAM to continue that crusade -- regardless of who controls the Congress or the White House. Why? Because that is exactly how we effectively represent our members' interest.
Posted by Dena Battle at 8:30 AM
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December 12, 2007
Selling Your Property Because of the Death Tax
Responding to a reader's comment below ...
Oh, I love a good challenge! But, frankly I wish that I couldn’t document businesses, farmers and ranchers who have had to sell off to pay the tax. Unfortunately, I can. So,here goes:
Pete Bonds, rancher in Fort Worth Texas. Bond’s father was forced to sell part of the ranch to pay taxes to pass on the ranch to his children. He wants to maintain at least 1,000 acres but currently pays $48,000 annually for a life insurance policy. A fourth of his total gross incomes goes to pay insurance. He wants to keep the ranch in the family, but doubts they will survive.
Lewis Card Jr. of Hixon, TN started Card-Monroe Corporation runs Card-Monroe Corporation. But, his father started a carpet tufting business in 1930 – but sold the business in 1960 to prepare for the death tax. Shortly after, his dad and uncle started a new company called Tuftco Corporation. They sold that company in 1977 to pay estate taxes. Today, Lewis doubts that his company will survive to the next generation because of the same reason.
Sam and Ann Payne of Calhoun, GA have paid the estate tax twice on their ranch. They’ve sold land to local developers to pay taxes in the past, but they don’t think they’ll have enough land to continue operating into a third generation.
These three come from a National Association of Manufacturers document, "Death Tax Chronicle."
The challenge was to document one case of someone selling a truck or machinery -- broadly defined, property -- because of the death tax. Just for good measure here’s a list of other family-owned businesses, farmers and ranchers who have either sold off to pay the tax or are in jeopardy of losing their business: Richard and Lisa Hefner, owners and operators of Canadian Valley Ranch in Oklahoma; Mellano & Company in San Diego, CA; Janet Green, owner of Greens Printers, Inc., in Long Beach, CA; the Rhea family Cattle Company in Arlington, NE; Keystone Wood Specialties in Lancaster, PA; Mt. Pulaski Products, Inc. in Mt. Pulaski, IL; Electric Equipment and Engineering Co, in Denver, CO; Bear Valley Ranch in Parkfield, CA, Jerith Manufacturing Co., Inc, Philadelphia, PA; Hamilton Caster and Manufacturing Co., Hamilton, OH.
Want more? I’ve got more. But I think you get the idea.
Posted by Dena Battle at 3:33 PM
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December 11, 2007
Whoopi, Oprah -- Death Tax Does Not Become Them
Whoopi Goldberg isn’t the first celebrity talk show host to speak out against the death tax. Oprah Winfrey once told an interviewer: "I think it's so irritating that once I die, 55 percent of my money goes to the United States government…You know why it's so irritating? Because you already paid nearly 50 percent when the money was earned.”
What Warren Buffett and Bill Gates don’t get that Whoopi Goldberg and Oprah Winfrey do is that the battle over the estate tax isn’t about rich people paying more in taxes. The problem with the estate tax is that it’s a flawed tax – it’s unfair. As Oprah and Whoopi point out, they’ve already paid taxes on their income, so why do they have to pay a second tax (at a much higher rate) when they die?
The more pressing problem for manufacturers is that the value of the estate is based on assets – like businesses, trucks and machinery. Of course the tax must be made in cash – so people often have to sell things like businesses, trucks and machinery to pay the tax. That’s not good for the economy. And, it’s unfortunately very inconvenient for families who have other things on their minds…like the death of a loved one.
(From Carter Wood): Useful readers' comments to an earlier post on the subject here.
UPDATE (CW - 8 p.m.): Here's a challenge from a commenter: "I don't think you can document a single case of someone having to sell a truck or a piece of machinery to pay the estate tax. Not one."
Posted by Dena Battle at 4:18 PM
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December 6, 2007
On Taxes: Oh No, Don’t Let the Rain Fall Down
My husband and I are buying a new house. During the inspection, it was noted that there had been a leak in the shower. The inspector said that sometime down the road, we’d probably need a more permanent fix to the leak. We decided if we’re going to replace the shower, we might as well redo the whole bathroom, which led us to start talking about fancy tile, heated floors and steam showers. What does this have to do with tax policy?
Lisa Lerer has a story in Politico asking if 2007 is another 1986. No, it’s not, but 2009 will be. Lerer points to Ways and Means Chairman Charlie Rangel as the driver of tax reform. But, in reality, it’s being driven by a couple of slow leaks. The first leak is the estate tax. It’s repealed in 2010 but comes back at 55 percent in 2011. Congress can’t let that happen. The second leak is the Alternative Minimum Tax (AMT) It could hit 23 million tax payers this year without a patch. That number just keeps increasing each year Congress delays a permanent fix. The third leak is the expiration of the Bush tax cuts. In 2011, every taxpayer will face a huge tax increase. And more significantly, capital gains rates will jump and dividend rates will more than double – can you say market crash?
Three big leaks equals a new tax code. As we get closer to the must pass year of 2009, the debates going to get louder. But, let’s face it, Rangel’s plan isn’t a spearhead for reform, it’s just an early wish list of pedestal sinks and heated towel racks.
Posted by Dena Battle at 9:24 AM
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November 26, 2007
Defining Wealth
Joel Achenbach has an interesting piece in the Washington Post today about who's rich and who's not rich.
As presidential candidates Clinton, Obama and Edwards spar over who to tax more, Achenbach gives some insight into the different issues that determine wealth -- specifically geography and higher costs of living in big cities. The oft cited example is the firefighter in New York City.
One thing we wish he'd mentioned is that it's not just geography that can impact degrees of wealth. Small and medium sized manufacturers often file as S-corporations -- meaning their business income and expenses are filed as part of their individual return. This can kick entrepreneurs into the "rich" category when in fact most of their income is invested back into the business -- adding jobs, purchasing new equipment, and other things that grow and feed the economy.
Throwing small business owners into the top tax bracket makes no more sense than putting the New York firefighter in the top bracket.
More on this at http://blog.washingtonpost.com/achenblog/
Posted by Dena Battle at 11:58 AM
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November 13, 2007
The First Time as Tragedy, the Second as ...
“I'd view it as a tragedy if someone whose achievement was issuing the most junk bonds or having the silliest stock price took over the company and all that we've built evaporated."
Those are the words of wisdom from a great businessman, Warren Buffett (quoted in BusinessWeek, July 5, 1999), speaking as to why he made decisions to keep Berkshire-Hathaway in his family's control.
But, how times have changed. Tomorrow Mr. Buffett will testify before the Senate Finance Committee on why we should keep the estate tax. A tax that forces many families to sell off their businesses at time of death.
I view that as a tragedy.
Posted by Dena Battle at 3:47 PM
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November 8, 2007
An AMT Primer: Congress Passes Another Flat Tire
As Congress gears up to wrap up its legislative session, there’s a lot of talk about repealing or patching the Alternative Minimum Tax (AMT). It’s one of the biggest battles going on in Congress – but most Americans don’t know what the AMT is. Here’s a quick and dirty rundown on the tax:
In 1969, the Treasury Department revealed that more than 150 individual taxpayers with incomes above $200,000 did not pay any income tax. So, an outraged Congress did exactly what we would expect them to do. They created a parallel tax system. You know, it’s kind of like a parallel universe, except more expensive. The idea was that rich people shouldn’t be able to use so many deductions and exemptions that they would avoid paying taxes. So, in the new parallel universe, rich people would figure their taxes once – then if they weren’t paying enough tax – they would have to figure them a second time – using a whole new system. If under the new system, they owed more – then they would pay the difference between the two.
But, Congress made two huge errors. One was thinking that this was a good idea in the first place. The second was not indexing the AMT rates to inflation. Over time, salaries increased and what seemed "rich" in 1969 was no longer "rich" in 1993. But, that didn’t stop Congress or President Clinton from raising the AMT rates again – causing the tax to dip further into middle class taxpayers.
There was a confluence of events that brought us to our present-day disaster...
Continue reading "An AMT Primer: Congress Passes Another Flat Tire"
Posted by Dena Battle at 11:55 AM
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October 24, 2007
A $400,000 Tax Bill for $5,000 in Income
Sound like a horrible error? Nope, just the IRS enforcing the law the way it’s written. Have a problem with that? Take it up with Congress. So, that’s exactly what the Coalition for Tax Fairness is doing, petitioning the government to correct badly written law that has hit some people with intolerable, inequitable tax bills.
The flawed law is the Alternative Minimum Tax and the way Incentive Stock Options (ISOs) are treated. Sounds like something that only happens to rich people? Nope. One victim was an office manager. Another was a curriculum developer with a software company.
Many of these folks were working for high tech companies in the 1990s. In lieu of cash compensation, they were given ISO’s. It’s a benefit often used by start-up companies who don’t have a lot of cash on hand, but want to give workers a reason to stick it out through the early years.
Normally, when an employee “exercises” their stock options, they don’t pay tax until they sell the stock and actually realize a gain. But, under the alternative minimum tax, the stock options become taxable the minute they are exercised – instead of when they are sold.
The problem is that in some cases, employees exercised their options only to watch the stock tank – leaving them with worthless shares. But the tax owed was based on the exercised price – not the realized gain.
The stories are heartbreaking. Facing tax bills that amounted to 400 percent of their salary, people sold their homes, liquidated college education funds and retirement plans. Facing penalties and interest on a tax she can never pay one woman related that she’ll be giving the IRS half of her salary every year - until she’s 65 years old – for a tax on income she never received. Ron Speltz, an Iowan who is in D.C. this week to tell his story to Congress, got a $252,893 tax bill for stock options worth $2,000. His tax bill was more than three times his annual salary.
Congressman Chris Van Hollen (D-MD) and Congressman Sam Johnson (R-TX) have introduced legislation, the AMT Credit Fairness and Relief Act – which will, at least, correct the law and provide relief to taxpayers who are still struggling to pay ISO-AMT liabilities. Let’s hope Congress fixes this flawed law sooner rather than later.
Posted by Dena Battle at 5:01 PM
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October 19, 2007
Private Sector Strives for Family-Work Balance
In her bid for the White House, Senator Hillary Clinton has come up with a government “fix” to fix the unfixable problem of trying to balance, well...life. According to Senator Clinton, a 2002 study found that 45 percent of employees say that work and family responsibilities interfere with one another. (What’s shocking is that the number is so low).
Senator Clinton has a plan to “partner” with the business community to give parents more time with their children. By “partner” she means “regulate.” The Senator's plan calls for passing new laws requiring paid time off for medical emergencies and maternity leave. She’ll also extend those regulations to the smallest businesses who were previously exempt.
What’s often forgotten in these type of debates is that the private sector is leaps and bounds ahead of anything that the government could ever do for working families.
For example, PricewaterhouseCoopers has started the Full Circle program, allowing parents to take up to five years off with their children. While on leave, the company pays for training and certifications, invites them to company events and gives them a mentor who will keep them in the loop at the accounting firm.
More and more businesses are starting these type of programs – and not because the government mandated it but because they need and want to retain their employees.
On the other hand, Senator Clinton is correct on one thing: Regulating businesses to the point that they go out of business will result in a lot more family time for employees…
Posted by Dena Battle at 3:09 PM
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