ATM fixed, PAYGO discarded

Yay, team....

There was broad agreement in Congress that lawmakers should approve a patch to stem the AMT's reach for another year. But agreeing on how to do that put House Democrats and Senate Republicans at loggerheads.

Under their pay-as-you-go philosophy, House Democrats had insisted on raising revenue to offset the $50 billion in tax relief resulting from the one-year fix. Much of the revenue would have come from closing a loophole on offshore tax havens and increasing the tax rate on income earned by hedge fund managers and venture capitalists.

But Senate Republicans blocked the Senate from taking up legislation that included tax increases, and President Bush threatened to veto any bill that raised taxes.

Just put it on the credit card. What a principled stand those Republicans made.

The Dems share blame, too, for misplacing their spine -- and after getting my hopes up, too. Alternatively, they could have sought a compromise that included a mix of spending cuts and tax increases, putting pressure on Bush and the GOP for looking unreasonable by insisting on $50 billion in tax cuts after years of tax cuts and yawning deficits, and in the face of Democratic compromise offers.

Instead, we got the worst of all worlds. Either spending cuts or a tax hike would have been more responsible than the credit-card solution.

Bleh.

AMT, politics, midtopia

Hoyer: AMT might not get fixed this year

Okay, this may just be a trial balloon or an attempt to put pressure on the White House. But if you want to read something that could provoke a mob march on Washington and burn it down, consider the words of House Majority Leader Steny Hoyer:

House Majority Leader Steny Hoyer (D-Md.) hinted Tuesday that Congress may not be able to stop a big tax increase from hitting 23 million Americans.

Hoyer, pressed on whether Congress would resolve disputes over the Alternative Minimum Tax (AMT), said, “Maybe.”

Now the question isn't as simple as it seems. President Bush has demanded that the AMT be fixed -- but has vowed to veto any measure that raises other taxes to make up for the lost revenue. Easy for him to say, because he doesn't have to craft the legislation to deal with the problem.

Democrats don't have the votes to overcome a veto, and apparently don't have the stomach to stand firm on this issue. Thus the current compromise, such as it is, is a Senate plan to simply add the missing millions to the federal deficit. That's what passes for fiscal discipline in Washington, and it ignores Congress's own "pay-as-you-go" rules in the bargain.

Indeed, Minority Leader John Boehner gets today's award for partisan disingenuousness:

Minority Leader John Boehner (R-Ohio) pounced on the news, calling Hoyer’s remarks “another reminder that the Democrat majority’s priorities do not reflect those of the American people.”

“Democrats created the AMT, repeatedly voted against Republican efforts to abolish it entirely, and have failed to stop it’s impending assault on 23 million middle-class American taxpayers,” he said.

Right, because the American people want to keep running up the deficit.... Never mind Boehner ignoring the Republican role in blocking a deficit-neutral fix.

There's plenty of blame to go around here, starting with Bush's Catch-22 and Democratic cowardice. But there are two things that absolutely have to happen for Congress to have any credibility:

1. The AMT must be fixed, at least for this year;

2. PAYGO rules must be followed.

Whether #2 happens with tax increases or spending cuts, I don't much care. But Republicans should be ashamed of their "add it to the credit card" alternative, and Democrats should be ashamed that they don't have the guts to stand up to Republicans on this. Deficit-fighting rules like PAYGO don't have much teeth if they can be tossed overboard on something like this.

Hoyer's comments offer some hope that the House won't take the easy way out, setting up an interesting three-way confrontation between the House, Senate and White House. May the interests of the nation win.

Hoyer, AMT, politics, midtopia

Income gap widened in 2005

In case you wonder why the American public isn't all that excited about their economic outlook despite an economy that's doing well on the macro level, here's the reason.

While total reported income in the United States increased almost 9 percent in 2005, the most recent year for which such data is available, average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent.

So despite what looks like healthy wage gains, very little of it was actually wages. All of the income increase and more went to the top 10 percent. Actually most of it went to the top 1 percent, whose income grew 14 percent.

That explains the following statistics from the article:

1. Both the top 10 percent and top 1 percent have hit income shares not seen since 1928 -- shortly before the 1929 stock market crash and the Great Depression.

2. The top 300,000 Americans -- one tenth of one percent of the population -- earned almost as much as the bottom 50 percent -- 150 million people. On average, each of those 300,000 people earned 440 times as much as one of those 150 million.

And the numbers probably understate the situation:

The Internal Revenue Service estimates that it is able to accurately tax 99 percent of wage income but that it captures only about 70 percent of business and investment income, most of which flows to upper-income individuals, because not everybody accurately reports such figures.

Defenders of the current tax system argue that the problem isn't tax levels -- even though federal income taxes, measured as a share of income, has stayed largely flat for middle-income workers over the past 40 years while dropping by half for the affluent.

They make two main claims:

1. The numbers simply reflect the demands of the global economy, where skilled workers command ever more of a premium and unskilled workers fall behind.

2. The numbers don't count benefits, such as health insurance, that make up a much larger share of total income for poorer Americans than they do for the wealthy.

There is probably some truth to #1, but it's a stretch to argue it accounts for the entire difference. And even if it did, it's not an argument for complacency or acceptance. Extreme income inequality is a hallmark of unstable societies. Too much wealth concentrated in too few hands sparks unrest.

#2 is mostly bogus. The reason health insurance makes up a larger share of worker income is because health costs have gone up sharply. My employer paying 20 percent more for health insurance doesn't leave me better off if my health costs go up that much; it's a wash as far as disposable income is concerned. Never mind that I'm probably worse off because health-care costs also are eating into my take-home pay, in the form of higher premiums, co-pays, deductibles and all the other ways hard-pressed employers are devising to push more such costs on to workers.

While there can be plenty of principled disagreement about what causes the situation and what should be done about, two things seem obvious:

1. The tax system that conservatives often criticize as "punitive" toward the wealthy or successful has turned out to be nothing of the sort. Despite such "confiscatory" measures, the wealthy have increased their share of income -- to the point of hoovering money out of the pockets of the less affluent.

2. Given #1, as well as the gigantic federal deficit and the consequences of extreme income inequality, it makes zero sense to prolong or enhance tax cuts for the wealthy. The estate tax should be retained, and the AMT fixed instead. The cap on Social Security taxes should be removed, and income caps on benefits should be added. Marginal rates should be re-examined. Tax enforcement should be beefed up to capture more of that non-wage income.

Perhaps you think this is somehow a socialist redistribution of wealth downward, ignoring the fact that the current situation is a socialist redistribution of wealth upward, which simply makes no sense.

Dealing with the national debt will require work on both the spending and revenue side of the federal ledger. But as far as the revenue goes, it is only logical to take the most money from those most able to pay. Everyone's second $100,000 should be taxed more heavily than everyone's first $100,000. Doing so will not only restore our federal finances to health; they will head off a building social convulsion that benefits nobody -- especially the rich.

deficit, AMT, class, income, taxes, politics, midtopia

Gary Miller pleads his innocence

Following up on Rep. Gary Miller's suspicious land deals, he pleaded his case to fellow Republicans this week.

Rep. Gary Miller (R-Calif.) passionately pleaded his innocence before GOP colleagues at a closed-door conference meeting Tuesday, nearly a week after several media outlets reported that the FBI is looking into his land deals.

Miller told colleagues that the press and Democrats had launched a smear campaign against him, singling out The Hill and the Los Angeles Times as perpetrators, as well as a former Democratic mayor of the Southern California city of Monrovia, Lara Larramendi Blakely, who now works for Rep. Hilda Solis (D-Calif.), according to GOP sources.

Ah, yes, the old "media smear job" defense....

So far, so unconvincing. He'll have to rebut the actual claims rather than attacking the messenger -- though to be fair, he might have done so and we just don't know it.

The comments came during an open-mic session at the end of a meeting designed as a discussion on House Republicans’ strategic plans to regain the majority in 2008, which were first laid out during a GOP retreat held the weekend of Jan. 24.

Before Miller spoke, House Minority Leader John Boehner (R-Ohio) noted that defining an ethics strategy is critical to winning back the majority and that members need to hold each other accountable, sources said.

The good news is the GOP knows they need to set some standards. The bad news is that Boehner is thus far letting Miller keep his seat on the Finance Committee's Oversight and Investigations panel, which oversees the IRS among other things. Considering the stories about Miller involve tax evasion, maybe that's not such a good idea.

Here's an additional revelation I didn't know about:

Since March of last year, The Hill has reported on various land deals involving Miller, including one in which he worked with Lewis to insert an earmark in the 2005 federal highway bill that shut down an airport in the Southern California city of Rialto. Even before the airport was shut down through the earmark, Miller’s business partner and top campaign contributor, Lewis Operating Corp., had an exclusive deal with the city to develop the airport land into a planned community consisting of 2,500 homes, parks and 80 acres of retail space.

Yeah, that looks good.

Gary Miller, corruption, politics, midtopia

Bipartisan ethics trouble

Republicans raised red flags when Democrat Allan Mollohan -- whose finances are currently under investigation by the FBI -- was poised to chair the House Commerce, Justice and Science subcommittee, which oversees the FBI's budget. Democrats ignored the protest and Mollohan today chairs the subcommittee -- though he has promised to recuse himself from votes on the Justice Department's budget.

The Republicans were in the right on that one. But it turns out they have their own problem with another subcommittee. The Financial Services Committee's oversights and investigation committee, and the ranking Republican, Gary Miller.

After months of GOP ethics scandals, House Republicans chose Rep. Gary Miller (R-Calif.) as the ranking member of a panel charged with investigating financial institutions — even as the FBI was looking into his land deals.

Representative Spencer Bachus (R-Ala.), ranking member of the Financial Services Committee, named Miller to the top GOP spot on the oversight and investigative subcommittee Jan. 9, according to a committee release. Watchdog groups have been raising red flags on several of Miller’s land deals since The Hill and other media outlets first scrutinized them early last year. Yesterday, a spokesman for the southern California city of Monrovia confirmed that agency officials had contacted the city about Miller’s land deals in the last two months.

The quoted portion is wrong, because Miller's problems involve allegations of tax evasion -- the domain of the IRS, not the FBI. That makes his situation the same as Mollohan's, because his subcommittee oversees the Department of the Treasury, which contains the IRS. He's not the chairman, true; but Miller should not be the ranking member, either. A member, fine; he is innocent until proven guilty. But not in a position of authority.

Details of Miller's transactions can be found here and here. Among them: trying to get a federal position for a city councilman who was about to vote on a land deal that would net Miller $10 million, using his staff for personal errands, and using his office to try to get Rolling Stones concert tickets.

Further, he avoided paying taxes on the $10 million by claiming the property was taken through eminent domain -- even though Miller had been lobbying the city to buy the parcel, and the program the city was using to buy the land specifically prohibited eminent domain takings. He then repeated the tactic twice more with the proceeds.

Like William Jefferson's frozen, foil-wrapped $90,000, the evidence against Miller is too strong to give him the benefit of the doubt when it comes to important positions.

politics, midtopia

As expected, House votes to slash estate tax

The vote was 269-156.

Now it goes to the Senate, where the vote is expected to be much closer.

Republicans trot out the same discredited rhetoric:

"I've never thought that every trip to the undertaker should be a accompanied by a trip by the I.R.S. to your family," said Representative Roy Blunt of Missouri, the Republican whip. "Do I have to sell the corner grocery store or the service station, just to pay the inheritance tax?"

Of course, Republicans have been unable to show examples of that actually happening. I'm blown away by Blunt's ability to repeat a talking point with a straight face, even after it's been debunked.

The Democrats have it right on this one:

Democrats, with equal vehemence, countered that fewer than 1 percent of estates are subject to any tax and that a further rollback would benefit only the very richest families while widening the federal deficit.

"This is the Paris Hilton tax relief act — not Conrad Hilton, Paris Hilton," said Representative Stephen Neal, Democrat of Massachusetts. "This Congress has bent over backward to take care of the wealthy, the strong. Who do we neglect? The people who do the menial work."

It's all about priorities. And it makes no sense for this to be a top priority. Fix other things first.

Bleh. Let's hope the Senate is made of sterner stuff.

taxes, estate tax, politics, midtopia

Government on the cheap

First, Gov. Tim Pawlenty wanted contractors to front their own money in order to get contracts to work on the Crosstown Commons project. The result? Nobody submitted a bid, and the project is now delayed for at least a couple of months.

Now Pawlenty wants private businesses to lend the state their top IT experts for a year -- for free.

The state is asking high-tech firms and large corporations to lend their computer experts for as long as a year to the Office of Enterprise Technology. The private companies would continue to pay their employees' salaries and benefits.

The computer experts would be put to work on an ambitious project to reinvent the government's computer network. The proposal lists 14 categories of work, ranging from cyber security to systems development to government Web site design.

The first question that jumps to mind is, "why would the private sector agree to this?" The answer to that, the state hopes, is civic-mindedness and the chance to guide the direction of state government.

That's a beautiful thought. And if it works without murky quid pro quos, great; I'll admit I was wrong.

But consider these other thoughts:

1. Why would a party that routinely demonizes government as "the problem" suddenly expect companies to respect government enough to donate their top people?

2. There is no free lunch. Why is it better to effectively tax a few individual companies in order to fill a statewide need, rather than spreading the pain around by simply hiring the necessary experts with taxpayer money?

3. What kind of example do we set when our government keeps trying to find ways to not pay for what it wants?

The article calls this a "grand experiment." But it doesn't strike me as grand so much as chintzy, an attempt to chisel the private sector for something that should simply be paid for like any other government obligation. This isn't the Peace Corps; this isn't an attempt to change the world. It's computer infrastructure. We would not expect Dell to give the state free PCs, nor would we expect AT&T to provide free high-speed data links. So why should we expect free IT design services?

A "grand experiment" would be a project designed to help citizens directly, like a statewide WiFi network or an education initiative or something like that. Modernizing the government's computer network just doesn't fit the bill. It's small-bore thinking wrapped up in gaudy language.

Drive to Excellence, Pawlenty, Minnesota, politics, midtopia

Estate tax vote looming

The estate tax will go up for a vote in the House this week, but full repeal isn't on the table.

Here's the compromise:

Estates worth as much as $5 million -- $10 million for couples -- would be exempt from taxation indefinitely.

The tax rate on estates worth more than the exemption level up to $25 million would be set at the same tax rates that apply to capital gains -- now 15 percent but scheduled to rise to 20 percent in 2011. The rate for estates worth more than $25 million would be twice the capital gains rate.

Here's what I don't like about the bill:

The bipartisan Joint Committee on Taxation estimated the estate tax cut would cost the government $279 billion over 10 years.

And with no "pay as you go" provision, guess where that money will come from? If you answered "piled on top of the already big deficit", you'd be right. It's better than the $1 trillion cost of a full repeal, but it's still too much money.

As I've written before, "fixing" the estate tax just makes it that much harder to address more-pressing concerns, like the Alternative Minimum Tax or, say, reducing the deficit.

There's also this lovely piece of bribery:

To lure Democratic senators from Washington state and Arkansas, Thomas included a lucrative tax break for the timber industry, pushing the total cost of the bill to nearly $280 billion.

You gotta love it when both sides sell out their principles for a buck.

The good news: Passage isn't certain, and is even less likely in the Senate, which rejected an estate-tax appeal earlier this year.

alternative minimum tax, AMT, taxes, estate tax, politics, midtopia

John Gunyou for governor!

John Gunyou is, IMO, a Minnesota treasure. His talent for deflating demagogues with actual facts -- drawing on his 30 years of experience in running city governments -- brings a sober moderation to some potentially inflammatory debates.

I've written before about the Taxpayers League and the low-tax religion. In a column in today's Star Tribune, Gunyou tackles the two at once.

We've been thinking that we need to invest even more resources in road maintenance and traffic control. Silly us. We should be tackling those problems like the Taxpayers League would.

So here's what I came up with: inverted speed bumps. Rather than patch potholes, we should embrace them as traffic control devices. That way, we could forgo the expense of road repair AND cut funding for public safety. And the true genius is, we'll save more and more money every year as our roads continue to deteriorate and motorists are forced to drive even slower!

Why, there's no limit to this kind of creative thinking. Here's another one: perpetual student teachers. Indentured servitude was good enough for our founding fathers, so why not use it from preschool through grad school?...

Or how about random drug dispensing? If we mixed in cheap placebos with the real pills, prescription drugs would be far more affordable, pharmacists wouldn't have to decide who they want to serve, and we'd cull the herd of costly sickos. OK, this one needs a little more work, but you get the concept.

With a little creative thought and courageous political leadership, it really is possible to get something for nothing. The Taxpayers League was right all along.

Gunyou for governor!!

taxes, Minnesota, Taxpayers League, gunyou, politics, midtopia

Estate tax stays unrepealed

The fight's far from over, but for now the Republicans are unable to permanently kill the estate tax.

Voting 57 to 41, with only a few lawmakers crossing party lines, the Senate was three votes short of the number needed to end debate on the bill, dooming it on procedural grounds. The vote all but killed hopes at the White House and among Republicans on Capitol Hill of eliminating the tax on large estates, which under current law would be phased out by 2010 but would return in 2011.

Republicans are now debating whether to give up on their goal and attack Democrats in the coming midterm elections as obstructionists on a measure that they say has considerable support, or settle for a bipartisan measure that would stop short of eliminating the tax entirely.

I strongly encourage the Republicans to try the former route. That way they can make political hay out of it and see how far they get. More importantly, it would eliminate any chance that the repeal passes this year.

Let me repeat my main point regarding the tax: If you're going to eliminate $100 billion a year in tax revenue, there are all sorts of better things to spend that money on -- fixing the Alternative Minimum Tax, for example. Better yet, keep the tax and pay down the deficit.

Tangentially, Bill Frist is now for 0-for-2 an the wedge issue votes -- estate tax, gay marriage -- that were supposed to grease the skids of his presidential campaign. Maybe he'll realize that voters are far more concerned about real issues -- as nicely spelled out by Molly Ivins.

estate tax, Frist, Ivins, politics, midtopia

Estate tax still on the table

Seanate majority leader Bill Frist, his presidential aspirations in tatters and aflame, has been trying to resurrect his hopes by addressing such pressing issues as gay marriage and the estate tax.

The former is doomed to defeat, as even supporters acknowledge, which exposes the "red meat for the base" motivation behind bringing it to the floor for a vote. But the latter is still alive.

GOP leaders on Tuesday put abolition of the federal estate tax on the Senate's election-year agenda as other senators weighed ideas to shrink, but not erase, the tax.

President Bush's tax cuts eliminated the estate tax in 2010, but that temporary law expires, and the tax comes back to life, one year later.

I always admired this cute provision, designed to mask the budget implications of repealing the estate tax while increasing the political pain of letting it be restored. It has done one thing, though: it's forcing Congress to find a more palatable permanent fix.

At least the discussion is moving away from outright repeal and toward some sort of compromise:

Kyl told other GOP senators Tuesday that common ground might be found by increasing the size of an estate exempt from taxation to $5 million per person or $10 million per couple, according to GOP aides familiar with the proposal speaking on condition of anonymity while negotiations continued.

His idea would tax estates between $5 million and $30 million equal to the top tax rate for most capital gains. The remainder of the largest estates would be taxed at 30 percent, those aides said.

That's better than an outright appeal, but I still have two reservations. One, how much will this reduce tax collections? And two, my main philosophical objection remains. Why this tax cut, and why now? There are at least two budget problems more pressing than the estate tax: the Alternative Minimum Tax, and the yawning budget deficits. The estate tax cut will make solving the other two even more difficult, and that just reveals majorly screwed up priorities. However unfair you think the estate tax is, the AMT is even more unfair. And on a purely practical level, the AMT increasingly affects people who need the money, unlike the estate tax. And the deficit is a bouquet of dead roses that we're passing on to our children, regardless of their ability to pay.

Congress needs to prioritize, and shelve the estate tax until they address more pressing concerns.

Update: As expected, the Senate has rejected the gay-marriage ban.

gay marriage, estate tax, Frist, politics, midtopia

The low-tax religion

Gov. Tim Pawlenty got enthusiastic support from Minnesota Republicans in his bid for a second term, easily snagging the party's nomination.

I don't mind Pawlenty running again. He's been a modestly competent governor, and his refusal to renew his "no new taxes" pledge shows he's capable of learning. Although the opening of his speech gives me pause for its raw partisanship:

"I can tell you what your worst nightmare is," he told the 1,072 delegates. "It's one of the big-spendin', tax-raisin', abortion-promotin', gay marriage-embracin', more welfare without accountability-lovin', school reform-resistin', illegal immigration-supportin' DFL candidates for governor who thinks Hillary Clinton should be president."

Retch.

That aside, what bothers me is all the self-congratulation over lowering Minnesota's tax burden.

The delegates jumped to their feet and cheered again when he cited a report that showed Minnesota's tax ranking has fallen to 16th-highest in the nation, the lowest in 50 years.

What they're referring to is this report, issued last week.

I don't like paying more taxes than necessary. But I'm really getting irritated with the belief among some conservatives that low taxes are some sort of absolute good in and of themselves. They're not. Taxes serve a purpose, providing important societal services that for one reason or other don't lend themselves to privatization. Low taxes are great if it means we're providing those services efficiently; low taxes are a problem if it means we're providing those services shoddily or not at all.

To see what that means, just look at what the lowest-tax states in the union are: In order, they are Alabama, Mississippi and Arkansas. Those states, not coincidentally, also have some of the worst public-school systems, fewest services, and the most social problems.

Do we really want to turn Minnesota into a northern version of Mississippi, simply so we can "enjoy" low taxes? I sure don't.

In the late 1990s, my wife and I lived in Florida. Florida brags about not having an income tax, but the state doesn't run for free: the trade off is that just about every government service comes with a fee or is funded out of property taxes -- one of the most regressive taxes available. That combined with a large retiree population means education spending, for example, doesn't really come close to matching needs. The result is overcrowded and underfunded schools. My wife and I looked around, and vowed not to have children as long as we lived in Florida. And we didn't.

High taxes are not an absolute good; they can be wasteful and, when they get too high, become a drag on the economy. But low taxes aren't an absolute good, either: they can exacerbate social disparities, increase crime and shortchange entire generations of citizens.

I've lived all over the country, and found that I prefer high-tax, high-service states: they're simply better places to live and raise families thanks to the investments they make in their citizenry. And I encounter far less of the "I've got mine" attitude that can be prevalent in low-tax states, especially retiree havens like Florida.

Thus the real question is not "how high are my taxes?" It's "what are we getting for the taxes we pay?" Taxes are too high if we're not getting enough bang for our buck, or we're paying for things that we as a society don't want; taxes are too low if we're not getting the services and social investment that we want.

So let's have a discussion about what we're willing to pay for and what we're not. But please, let's get away from the "low taxes are always good" religion. They're not, and phrasing the argument so simplistically can do real damage to the long-term quality of life here in Minnesota.

Pawlenty, tax burden, taxes, Minnesota, politics, midtopia

Estate tax lunacy

That's what Harold Meyerson calls it. And he's right.

If enacted, Kyl's bill would plunge the government another trillion dollars into the red during the first decade (2011-2021) that it would be in [/quote]effect....

A decades-long campaign by right-wing activists (brilliantly documented by Yale professors Michael Graetz and Ian Shapiro in their book "Death by a Thousand Cuts") has convinced many Americans that the estate tax poses a threat to countless hardworking families. That was always nonsense, and under the estate tax revisions that almost all Democrats support -- raising the threshold for eligibility to $3.5 million for an individual and $7 million for a couple -- it becomes more nonsensical still. Under the $3.5 million exemption, the number of family-owned small businesses required to pay any taxes in the year 2000 would have been just 94, according to a study by the Congressional Budget Office. The number of family farms that would have had to sell any assets to pay that tax would have been 13.

On the other hand, an estate tax repeal would save the estate of Vice President Cheney between $13 million and $61 million, according to the publicly available data on his net worth. It would save the estate of Defense Secretary Donald Rumsfeld between $32 million and $101 million. The estate of retired Exxon Mobil chairman Lee Raymond would pocket a cozy $164 million. As for the late Sam Walton's kids, whose company already makes taxpayers foot the bill for the medical expenses of thousands of its employees, the cost to the government for not taxing their estates would run into the multiple billions.

Is now really the time to blow another $1 trillion hole in the budget? If we decide the answer is "yes", is this the cause we should blow it on? I don't think so.

"Republicans" and "fiscally responsible" don't belong in the same sentence any more. And Democrat Max Baucus should be ashamed of himself:

Behind the scenes, the action has been on the Democratic side in the Senate, as the party's leadership has sought to dissuade Montana's Max Baucus, ranking Democrat on the Finance Committee, from forging a halfway-house compromise with Kyl that would deplete revenue by only $500 billion to $600 billion during that decade.

"Only" $500 billion? Boy, what a relief.

Before we repeal the estate tax, how about fixing AMT and eliminating the budget deficit? Just for starters, I mean. The list of things that should be ahead of "repeal estate tax" on the priority list is a long one.

budget, estate tax, politics, midtopia

Republicans fashion tax-cut extension

The finishing touches appear to have been put on a $70 billion tax-cut package, which includes extending the tax break on dividend income and temporarily shielding some middle-income taxpayers from the Alternative Minimum Tax.

While I don't have a problem with the dividend break and I've long suggested that the AMT needs fixing, this bill is troublesome on several fronts. CNNMoney has a nice analysis of the provisions, which I will refer to as I go.

One, it doesn't fix the AMT; it's a temporary stopgap. And it only shields households earning $62,550 or less ($42,500 for single filers). Households earning more than that could still find themselves unjustly affected by AMT.

Two, the economy is chugging along okay, so the "stimulus" logic behind extending the dividend break is murky, especially in a time of hefty deficits.

Three, the lawmakers essentially ignore how to pay for these cuts. Or they use smoke and mirrors, such as a provision allowing wealthy taxpayers to convert traditional IRAs to Roth IRAs. Such a move takes money that would have been taxed years from now and taxes it today, robbing future governments of substantial revenue in order to support the current unsupportable levels of spending.

Fix AMT because it's broken. But pay for it. And with other tax breaks, the presumption should be against them. Adults pay their bills rather than run up debt; before embarking on new spending and tax cuts, let's pay the bills we've already rung up.

AMT, taxes, budget, deficit, politics, midtopia

New taxes dead, pander still on life support

Senate Republicans can act quickly when necessary -- such as when their business allies object to proposed new taxes.

Senate Republicans on Monday hurriedly abandoned a broad tax proposal opposed by the oil industry and business leaders, another sign of their struggle to come up with an acceptable political and legislative answer to high gasoline prices.

Senator Bill Frist of Tennessee, the majority leader, said he had decided to jettison the provision, which would have generated billions of dollars by changing the way businesses treat inventories for tax purposes. Instead, he said the Senate Finance Committee would hold hearings on the plan "later this year, so the pluses and minuses of the provision can become well known."

I actually think the proposal should never have been made in the first place: oil company profits are the least of my worries. But it shows once again how clueless Frist is.

Meanwhile, the $100 rebate plan has not yet had its plug pulled. But sweet merciful death can't be far away, especially because income from the tax provision is supposed to pay for the rebate.

The centerpiece of the leadership proposal, a $100 rebate check to compensate taxpayers for higher gasoline prices, continued to receive a rough reception. Members of the public have telephoned and written to ridicule the idea, and even Republican lawmakers are finding fault.

"Political anxiety in an election year is to blame for a lot of the bad bills Congress passes," said Representative Jeff Flake, Republican of Arizona, who on Monday called the rebate a "knee-jerk populist idea" that voters would see through.

The rest of the bill has some other elements:

The measure includes new protections against price gouging, incentives to expand domestic oil refinery capacity, support for new energy initiatives and tax incentives for buying hybrid vehicles.

Ditch the price-gouging protections, because I have yet to see evidence of it being a widespread problem and anyway I want gas to be more expensive. Expanding refining capacity is fine, because refining is the main bottleneck in our energy supply line. But tax incentives are less important than overcoming political and environmental opposition to their construction.

Support for new energy initiatives is fine as long as it's different sources of energy, not just drilling in ANWR and other such measures that will have no short-term effect and in the long-term will just provide an excuse to continue our oil dependence -- all while incurring lasting environmental damage.

Tax incentives for hybrids is nice, but misses the point. Target the tax incentive at fuel efficiency, not one particular type of motor. I don't care if the car is a hybrid design or not; all I care about is that it gets 50 miles to the gallon.

I'll also note, yet again, that all of these tax incentives and funding options and so on and so forth would be totally unnecessary if we do one thing: keep the price of gas high. Do that, and people will pursue the other options on their own, out of naked self-interest.

oil, Frist, energy, gas prices, politics, midtopia

Senate Republicans get an earful

Some days I'm quite hopeful that the American people are paying attention.

The Senate Republican plan to mail $100 checks to voters to ease the burden of high gasoline prices is eliciting more scorn than gratitude from the very people it was intended to help.

Aides for several Republican senators reported a surge of calls and e-mail messages from constituents ridiculing the rebate as a paltry and transparent effort to pander to voters before the midterm elections in November.

"The conservatives think it is socialist bunk, and the liberals think it is conservative trickery," said Don Stewart, a spokesman for Senator John Cornyn, Republican of Texas, pointing out that the criticism was coming from across the ideological spectrum.

Angry constituents have asked, "Do you think we are prostitutes? Do you think you can buy us?" said another Republican senator's aide, who was granted anonymity to openly discuss the feedback because the senator had supported the plan.

Beautiful.

And guess which senator has the tinniest ear? Hint: he'd like to run for president in 2008.

Eric Ueland, chief of staff to Senator Bill Frist of Tennessee, the Republican leader, whose office played a main role in pulling the proposal together, said the rebate was an important short-term step in a broader array of measures that began with last year's energy bill. Constituents "believe government ought to step up to the plate rather than loll around in the dugout," Mr. Ueland wrote in an e-mail message on Sunday.

Uh, no. Congress should do things that actually address the long-term problem of oil dependency, not continue that dependency with election-year bribes. "Lolling around in the dugout" precisely describes the rebate plan, as well as the Democratic proposal to suspend the gas tax.

I'm glad that a lot of Americans appear to realize that. Frist is once again demonstrating why he will not be president in 2009.

gas tax, gasoline, energy, oil, politics, midtopia

Let the panderfest begin

Republicans and Democrats are vying to see who can come up with the stupidest pander to motorists -- all part of a short-sighted election-year reaction to $3-a-gallon gas.

President Bush eases environmental standards for refineries, trading long-term environmental damage for short-term price relief. Republicans say "drill in ANWR!" and suggest sending every taxpayer a $100 rebate, which at least gets points for honesty as a direct money-for-votes proposal. Democrats talk of temporarily suspending the federal gasoline tax.

Then there's the ever-popular "let's investigate the oil companies for price gouging", along with the related "let's make the oil companies pay higher/lower taxes."

None of these "solutions" are more than drops in the bucket, and the oil companies aren't the problem: the problem is ever-rising demand for oil, nervousness in the futures markets and refining bottlenecks.

Frankly, the only rational move thus far was made by Bush, who decided to stop putting oil into the Strategic Petroleum Reserve. But he did it for the wrong reason: to try to lower prices at the pump. The real reason to stop putting oil into the reserve is that it's needlessly expensive to buy and store oil you don't need at peak price. Let it drop a bit before resuming purchases.

Here's an idea, guys: stop messing with a good thing. Get up there and lead, and have the courage to explain the real problem with $3 gasoline: it's not expensive enough.

Current "high" gas prices have already had all sorts of salutory effects: renewed interest and investment in alternative fuels, energy-efficient transportation and mass transit. People are carpooling or biking or walking. They're trading in gas guzzlers for Priuses. And there's growing acknowledgement that our oil addiction is a Really Bad Thing, both economically and politically. Imagine how much those effects would intensify if gas got even more expensive.

What we actually need is a hefty increase in the gas tax to drive home the real problem: an economy built on artificially cheap imported oil. Until the pump price of gasoline starts to accurately reflect the true cost of an oil-dependent culture, people will continue to make irrational decisions about energy use. And we will continue to be beholden to despotic oil-rich dictators whose people blame us for their woes.

What is the true cost of a gallon of gasoline? It can be hard to calculate. But for starters we can throw in the $400 billion we've spent in Iraq, and arguably the $1 trillion or so we'll eventually spend in the overall fight against terror. I'm not saying we invaded Iraq for the oil. But we wouldn't give a rat's ass about the Mideast -- or have spent so much time and money backing regional dictators whose oppression and economic mismanagement is part of the longstanding root of the problem -- if it weren't for oil and our desire to maintain a steady and cheap supply of it.

This 1998 study predates Iraq. But it puts the externalized cost of gas at between $4.60 and $14.14 per gallon. If they're right, we should be paying at least $7.60 a gallon for gas. I don't vouch for the validity of all the factors they use, but I think the general point -- that what we pay at the pump reflects only part of the true cost of gasoline -- is valid.

Why are there so many hidden costs? Because assumptions about energy availability and price underly everything we do. As individuals it affects where we live, how we work, the size and construction of our houses, the price and quality of everything we buy. As companies it affects where we locate, what we produce and how we produce it. As a nation it affects who we trade with and what our diplomatic and military priorities are. Change those assumptions, and you change the fabric of the country.

So I don't see a hefty gas tax as social engineering or punitive or anything like that. I see it as true-cost pricing, allowing us to finally start making smart decisions about energy use and start down the road to true energy independence. EThe extra revenue could be used to defray the cost of the Iraq war. Or support the development of alternative energy. Or build giant space billboards that say "Screw you, Iran!" in letters readable from the ground.

A 2002 study by the Congressional Budget Office examined three ways to reduce gasoline consumption: increased fuel economy mandates, gas taxes, and "cap-and-trade" schemes. It concludes that raising the fuel tax is the most cost-effective way to reduce gas use, as well as having positive effects elsewhere. They didn't contemplate a tax anywhere near as large as what I'm suggesting, but it still demonstrates the validity of the idea.

Like any addiction, kicking our cheap oil habit will take time. We'd have to phase in the tax so as to avoid serious economic dislocation, and we might want to provide exemptions or discounts to efficient users. But the sooner we start, the sooner we can tell the oil despots to perform anatomically impossible feats.


gas tax, gasoline, energy, oil, politics, midtopia

Help the rich, hurt the middle class

While Republicans push to permanently bury the estate (er, "death" ) tax, they appear willing to sock it to the middle class.

Unless Congress takes action, one in four families with children — up from one in 22 last year — will owe up to $3,640 in additional federal income tax come next April.

Few of them realize that their taxes have increased, because Congress has not voted to raise taxes. Instead, Congress let a tax break expire. That break limited the alternative minimum tax, which takes back part of the tax cuts sponsored by President Bush.

That's right. While we argue about a tax that only affects the top 1% of estates, we ignore a tax that everyone agrees is broken and affects far more people.

This makes sense why?

I've argued before that the estate tax makes sense -- or at least, repealing it now doesn't make sense. It's a matter of priorities.

In addition, if AMT doesn't get fixed, it'll be because Congress decided to protect a tax break for dividends instead. The difference:

The A.M.T. will cost Americans who earn $50,000 to $200,000 nearly $13 billion more next April. That is about how much people who earn more than $1 million will save because of the break on investment income like dividends and capital gains.

The next time someone starts talking about why we need to eliminate the estate tax or reduce taxes on investment income or fix anything else in the tax code, tell them "Fix the AMT first; then we'll talk."

taxes, alternative minimum tax, estate tax, AMT, politics, midtopia

GOP looks to buy votes

Minnesota Republicans -- if they win the unnecessary legal dispute they created by calling the tobacco tax a fee -- want to use some of the revenue to provide a one-time payment to homeowners billed as "property-tax relief."

Great Plains View has a succinct opinion on the matter.

Me, I have a handful of thoughts:

1. A one-time payment is not "relief"; it's a bribe. Restoring cuts in state aid to cities is "relief."

2. Scheduling the payments to arrive three weeks before the general election is not coincidence. Nor should anyone be surprised that if the GOP doesn't win their unnecessary lawsuit, they can still claim that they "tried" to provide tax relief -- but those activist judges on the Supreme Court thwarted them.

3. Relief might not be necessary if the GOP-led state government hadn't decided to balance its budget by pushing costs down to counties and cities, forcing them to raise property taxes -- which, by the way, is one of the more regressive forms of taxation.

4. We've been down this road before, with Jesse Ventura. He rebated the state's rainy-day fund to taxpayers -- just before the economy turned south. When that rainy day came, we had no fund to help cushion the impact.

Prudent financial management says you put some money away in good times in order to help you get through the bad times without huge increases in taxes. Prudent financial management also says that if property taxes are a problem, you address the problem on an ongoing basis, not with a one-year stunt.

If the GOP is so concerned about my property tax bill, they can address their own starring role in its growth.

property taxes, tax relief, Minnesota, politics, midtopia

The wealth gap and the estate tax

From the New York Times comes yet more evidence of the growing concentration of wealth in America, this time from an analysis of inheritances.

In 2004 median inheritances — half were bigger and half were smaller — amounted to about $29,000 in today's money, according to a Federal Reserve analysis of the Survey of Consumer Finances. That is enough for the heirs to buy a new Pontiac Coupe. But for almost all, it is hardly life-changing money.

Nor are inheritances likely to increase. According to the analysis of the Fed data by Mark Zandi of Moody's Economy.com, 30 years ago the median inheritance was about $10,000 more, adjusted for inflation.

Yes, big money is being passed down. According to the Fed data, the overall pie of inheritances has grown to nearly $200 billion annually — more than three times the amount that was passed down in the mid-1970's, after accounting for inflation. ... But the typical American is seeing little of this wealth. Mr. Schervish and Mr. Havens found that most money would go to a few lucky heirs: 7 percent of the estates would account for half the aggregate bequests.

There are several reasons for shrinking inheritances, starting with basic demographic changes: parents are living longer and spending more of their money themselves, and most people do a lousy job of saving for retirement at a time when fewer and fewer people can rely on pensions and other traditional sources of retirement income. So what money they do save gets spent.

But simple demographics cannot explain the increasing concentration of wealth reflected in the statistic that 7 percent of estates account for half of the money being passed down.

The story notes that wealthy heirs are seeing more and more money:

"We are seeing bigger-sized estates," said Myra Salzer, president of the Wealth Conservancy in Boulder, Colo., which helps heirs manage their inherited wealth.

"Wealth is just exploding," said Daniel FitzPatrick, chief executive of Citigroup Trust, whose clients typically have hundreds of millions of dollars.

Add this to all the other evidence of wealth concentration in America, and other measures of disparity such as CEO pay, which now averages 500 times the wages of average workers. 15 years ago the ratio was 140 to 1; 40 years ago it was 40 to 1.

I don't believe in "punishing the rich" simply for being rich; I'd like to be rich someday, after all. But I do think that it's fair to tax someone's second $300,000 at a higher rate than everyone's first $300,000. And I think we all have an interest in the ill effects of excessive wealth concentration.

Tie up too much wealth in the hands of the few and you damage the economy, limiting opportunity and driving social unrest. For extreme examples look at France during the runup to the French Revolution, or Victorian and Edwardian England, or parts of South America today, where the wealthy live in fortresses, drive armored cars and employ bodyguards while the poor scavenge for food in city dumps. This is how revolutions are born.

Which brings us to the estate tax -- or, as Republicans like to spin it, the "death tax." Along with the Bush tax cuts that provided disproportionate relief to the wealthy, the gradual repeal of the estate tax plays a large part in increasing the concentration of wealth.

Republicans cast it as simple fairness: why should someone's money be taxed twice? It's a fair argument, but it ignores several things:

1. A lot of money is taxed twice, through sales taxes, for example. Or consider the gift tax. Give someone more than $10,000 a year and it's subject to tax. Why, then, does it make sense to exempt a gift from taxation simply because the giver has died?

2. The estate tax brings in about $70 billion a year. In a time of war and budget deficits, is it really good policy to blow another gigantic hole in the budget for a law that only benefits the very very rich?

3. What is the social benefit of allowing heirs to receive millions of unearned dollars tax-free?

4. The government taxes nearly every transfer of money. What is the rationale for refusing to tax this transfer of money? What separates it from all the other transfers of money that we do tax?

It makes no sense to worsen our budget situation in order to provide a tax benefit to the least needy -- especially when doing so actively harms society and the economy. I'll give Bush the benefit of the doubt and call it a case of following a principle out the window instead of simply pandering to wealthy supporters. But it's a move we simply cannot afford -- in any sense of the word.

economy, estate tax, taxes, politics, midtopia