Forget The Rich: Tax The Poor And Middle Class
Nothing is certain but death and taxes, it used to be said, but in the madcap times we live in, even they’re up for grabs.
No matter what proof the White House provides that Osama bin Laden indeed has had his bucket kicked — and at this point even al Qaeda admits he’s dead — there still will be uncertainty. Whether they ever release those damned photos or not, a lunatic few will continue to insist that Osama’s alive and well and running a Papa John’s Pizza in Marrakesh.
As for taxes, having to pay them is no longer a sure thing either, especially if you’re a corporate giant like General Electric, with a thousand employees in its tax department, skilled in creative accounting. You’ll recall recent reports that although GE made profits last year of $5.1 billion in the United States and $14.2 billion worldwide they would pay not a penny of federal income tax. Chalk it up to billions of dollars of losses at GE Capital during the financial meltdown and a government tax break that allows companies to avoid paying US taxes on profits made overseas while “actively financing” different kinds of deals.
It gets worse. In 2009, Exxon-Mobil didn’t pay any taxes either, and last year, they had worldwide profits of $30.46 billion. Neither did Bank of America or Chevron or Boeing. According to a report last week from the office of the New York City Public Advocate, in 2009, the five companies, including GE, received a total of $3.7 billion in federal tax benefits.
As The New York Times‘ David Kocieniewski reported in March, “Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less… Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.”
What’s greasing the wheels for these advantages is, hold on to your hats, cash. Over the last decade, according to the NYC public advocate’s report, those same five companies — GE, Exxon-Mobil, Bank of America, Chevron and Boeing — gave more than $43.1 million to political campaigns. During the 2009-2010 election cycle, the five spent a combined $7.86 million in campaign contributions, a 7 percent jump over their 2007-2008 political spending.
“These tax breaks were put in place to promote growth and create jobs, not bankroll the political causes of corporate executives,” Public Advocate Bill de Blasio said. “… No company that can afford to spend millions of dollars to influence our elections should be pleading poverty come tax time.”
And by the way, those campaign cash figures don’t even include all the money those companies funneled into the 2010 campaigns via trade associations and tax-exempt non-profits. Thanks to the Supreme Court Citizens United decision, we don’t know the numbers because, as per the court, the corporate biggies don’t have to tell us. Imagine them sticking out their tongues and wiggling their fingers in their ears and you have a pretty good idea of their official position on this.
Meanwhile, last week Republicans like Utah’s Orrin Hatch, ranking member of the US Senate Finance Committee, grabbed hold of an analysis by Congress’ nonpartisan Joint Committee on Taxation and wrestled it to the ground. The brief memorandum reported that in the 2009 tax year 51 percent of all American taxpayers had zero tax liability or received a refund. So why, the Republicans asked, are Democrats and others so mean, asking corporations and the rich to pay higher taxes when lots of other people — especially the poor and middle class — don’t pay taxes either?
Hatch told MSNBC, “Bastiat, the great economist of the past, said the place where you’ve got to get revenues has to come from the middle class. That’s the huge number of people that are there. So the system does need to be revamped… We have an unbalanced tax code that we’ve got to change.”
All of which flies in the face of reality. As Travis Waldron of the progressive ThinkProgress website explained, “The majority of Americans who do not pay federal income taxes don’t make enough money to qualify for even the lowest tax bracket, a problem made worse by the economic recession. That includes retired Americans, who don’t pay income taxes because they earn very little income, if they earn any at all.
“And while many low-income Americans don’t pay income taxes, they do pay taxes. Because of payroll and sales taxes — a large proportion of which are paid by low- and middle-income Americans — less than a quarter of the nation’s households don’t contribute to federal tax receipts — and the majority of the non-contributors are students, the elderly, or the unemployed.”
What’s more, ThinkProgress notes, “The top 400 taxpayers — who have more wealth than half of all Americans combined — are paying lower taxes than they have in a generation, as their tax responsibilities have slowly collapsed since the New Deal era.” In the meantime, “working families have been asked to pay more and more.”
So maybe death and taxes are no longer certain, but one thing remains as immutable as the hills. In the words of another golden oldie, there’s nothing surer — the rich get rich and the poor get poorer.
By: Michael Winship, CommonDreams.org, May 10, 2011
Is Grover Norquist’s “Sharia Tax Law” Causing The GOP To Rethink It’s “Pledge”?
Senator Tom Coburn, a conservative Republican from Oklahoma, has had the good sense to demand an end to the $5 billion annual tax credit to makers of corn ethanol, a wasteful subsidy to farm states that is also dubious environmental policy. For his outspokenness, Senator Coburn was pilloried by anti-government activists of his own party who cannot stand the idea of more revenues flowing into the federal Treasury. But he and a few others in the Senate are holding fast, suggesting that at least some Republicans are willing to break with party orthodoxy to reduce the long-term budget deficit.
The loudest criticism came from Grover Norquist, whose group, Americans for Tax Reform, is the author of the Taxpayer Protection Pledge that has become a sacred covenant for virtually anyone wishing to run as a Republican. More than 95 percent of the Republicans in Congress have signed it (including Senator Coburn), as have many Republican governors and state lawmakers.
The pledge is often thought of as an agreement never to vote for raising taxes for any reason, but it goes even further than that. Those who sign it also vow never to eliminate any tax deductions or credits (like the handout to ethanol makers), unless the resulting increase in revenues is offset, dollar for dollar, by further tax cuts.
The pledge is really less about keeping taxes low than it is about holding down government revenues, which prevent the growth of government services. Mr. Norquist has famously said his goal is to shrink government “down to the size where we can drown it in the bathtub.”
Mr. Norquist can afford to be candid about his fierce aversion to government services, since he does not have to run for office with the votes of people who like those services. The Republican lawmakers who have joined his congregation, however, are less forthright about the effect of their policies. They go around lulling constituents with phony mantras like “Washington doesn’t have a revenue problem; it has a spending problem,” as if cutting spending is the only conceivable solution to lowering the deficit.
This purity finally ran into a tough-minded pragmatist in Senator Coburn. Though his zeal to eliminate many worthy government programs is still excessive, he is right to see the wastefulness in the ethanol giveaway — and the extremism of Mr. Norquist’s position. Senator Coburn’s spokesman has even described Mr. Norquist as “the chief cleric of Sharia tax law.”
Senator Coburn is also a member of the “gang of six” senators that has been trying to find a bipartisan way to reduce the nation’s debt. He and the two other Republicans in the group, Saxby Chambliss of Georgia and Michael Crapo of Idaho, say they are opposed to raising tax rates but hope to rewrite the tax code in a way that brings in more revenue by eliminating many unnecessary tax breaks and broadening the tax base.
That, at least, represents the beginning of a useful conversation. It could very well mean that the rich would pay more in taxes. Which is why Mr. Norquist, in full grand-inquisitor style, has demanded that Senator Coburn drop out of the gang.
His influence, happily, seems to be on the wane. The three senators have reminded Mr. Norquist that their highest oath is not to him or some abstract pledge, but to support and defend the Constitution of the United States.
By: The New York Times, Editorial, April 21, 2011
Don’t Try This At Home But, How You Can Pull A General Electric On Taxes
There’s been a firestorm this week over the news that General Electric will pay no tax—at least, no federal corporate income tax—on last year’s profits.
But if you’re like a lot of people, your first reaction was probably: “Hmmm. How can I get that kind of deal?”
If General Electric pays close to zero in Federal Income taxes, can you? Brett Arends tells Kelsey Hubbard how even a “regular Joe” can lower their tax bill, especially if they are self-employed.
You’d be surprised. You might. And without being either a pauper or a major corporation.
I spoke to Gil Charney, principal tax researcher at H&R Block‘s Tax Institute, to see how a regular Joe could pull a GE. The verdict: It’s more feasible than you think—especially if you’re self-employed.
Let’s say you set up business as a consultant or a contractor, something a lot of people have been doing these days. And, to make this a challenge on the tax front, let’s say you do well and take in about $150,000 in your first year.
First off, says Mr. Charney, for 2010 you can write off up to $10,000 in start-up expenses. (In subsequent years it’s only $5,000.)
Okay, let’s say you claim $7,000. That takes your income down to $143,000.
You can also write off all legitimate business expenses. Mr. Charney emphasizes that this only applies to legitimate expenses.
He didn’t say, but everyone seems to understand, that this can be quite a flexible term. Even if you buy a computer, a cellphone and a car primarily for business use, you can use them for personal purposes as well. If you happen to take a business trip to Florida in, say, January, no one is going to stop you from enjoying the sunshine or taking a dip in the pool.
So let’s say you manage to write off another $10,000 a year in business expenses.
That brings your income, for tax purposes, down to $133,000.
You’ll have to pay Medicare and Social Security taxes (just like GE). Because you’re self-employed, you have to pay both sides: the employee and the employer. That will come to about $19,000.
However, you can deduct half of that, or $9,500, from your taxable income. So that brings your total down to $123,500 so far.
Now comes the creative bit. The self-employed have access to terrific tax breaks on their investment and retirement accounts. The best deal for many is going to be a self-employed 401(k), sometimes known as a Solo 401(k).
This will let you save $43,100 and write it off against your taxes. That money goes straight into a sheltered investment account, as with a regular 401(k).
Why $43,100? That’s because with a Solo 401(k), you’re both the employer and the employee. As the employee you get to contribute a maximum of $16,500, as with any regular 401(k). But as the employer you also get to lavish yourself with an incredibly generous company match of up to 20% of net income.
Yes, being the boss has its privileges. (And if you’re 50 or over, your limit as an employee is raised from $16,500 each to $22,000.)
You can save another $10,000 by also contributing to individual retirement accounts—$5,000 for you, $5,000 for your spouse. If you use a traditional IRA, rather than a Roth, that reduces your taxable income as well. If you’re 50 or over, the limit rises to $6,000 apiece.
If you contribute $43,100 to your Solo 401(k), and $10,000 to two IRAs, that brings your income for tax purposes down to just over $70,000.
We haven’t stopped there either, says Mr. Charney.
Now come the usual itemized deductions. You can write off your state and local taxes. Let’s say these come to $10,000.
You can write off interest on your mortgage. Call that another $10,000. That’s enough to pay 5% interest on a $200,000 home loan.
That gets us down to about $50,000 And we’re not done.
If you’re self-employed, health insurance is probably a big headache. But the news isn’t all bad. You can write off the premiums for yourself, your spouse, and your kids.
And if you use a qualifying high-deductible health insurance plan—there are a variety of rules to make sure a plan qualifies—you get another break. You can contribute $3,050 a year into a tax-sheltered Health Savings Account, or $6,150 for a family. You can write those contributions off against your taxable income. The investments grow sheltered from tax. And if you spend the money on qualifying health costs, the withdrawals are tax-free as well.
So call this $10,000 for the premiums and $6,150 for the HSA contributions. That gets your income, for tax purposes, all the way down to about $34,000.
If you have outstanding student loans, you can write off $2,500 in interest. And you can write off $4,000 of your kid’s college tuition and fees.
Then there’s a personal exemption: $3,650 per person. If you’re married with one child, that’s $10,950.
Taxable income: just under $17,000. That’s on a gross take of $150,000. You’d owe less than $1,700 in federal income tax.
And it doesn’t stop there. Because now you can bring in some of the tax credits. Unlike deductions, these come off your tax liability, dollar for dollar.
GE got big write-offs related to green energy. There are some for you too, although on a small scale. You can claim credits for things like installing solar panels, heat pumps or energy-efficient windows or boilers in your home. Let’s say you use a home equity loan to pay for the improvements and take the maximum $1,500 write-off.
That gets your tax liability down to $200.
Can we get rid of that? Sure, says Mr. Charney.
If your spouse spends, say, $1,000 on qualifying adult-education courses or training programs, you can claim $200, or 20% of the cost, in Lifetime Learning Credits. (The maximum is $2,000.)
That wipes out the remaining liability.
Congratulations. You’ve pulled a GE. You owe no federal income taxes at all.
OK, it’s just an illustration. Few will be quite so fortunate. On the other hand, it’s not comprehensive either. There are plenty of other deductions and credits we didn’t mention. You could have written off up to $3,000 by selling loss-making investments. Your spouse may be able to use a 401(k) deduction as well. There are lots of ways to tweak the numbers.
In this case, you’ve paid no federal income tax, and meanwhile you’ve saved $19,000 toward your retirement through Social Security and Medicare, and $53,000 through your 401(k) and IRAs. You’ve paid most of your accommodation costs (that is, the interest and property taxes on your home), covered your health-care costs and quite a lot of personal expenses through your business account, paid $4,000 toward your child’s college costs and had about $2,000 a month left over for cash costs.
Who says GE has all the fun?
By: Brett Arends, The Wall Street Journal, April 1, 2011
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