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Archive for taxes

Recapping the interesting and significant news of this past week (and a half).

I was so busy last Saturday with the anti-war rally put on by the Austin Alliance for Peace (which one of my students founded) that I had no time to post my weekly news roundup. So today seemed appropriate since all of our offerings to Caesar are due today…

Pastor Jeremy Sarber has an interesting podcast about Biblical politics posted about two weeks ago that he wanted to share with us.

I’m loving the new Laissez Faire Books blog, which my friend Jeff tucker writes for quite frequently. Two articles on the blog have caught my eye recently. Commerce, Our Benefactor is all about the beautiful benefits, complexity, and justice of a the free market. The second more important article is Death by Regulation, which has nearly gone viral. It is a compelling story of how the State completely ruined the life of Andrew  Wordes. You absolutely must read it.

Allan Stevo reminds us that we are only 11 weeks into a 9 month primary cycle. Ron Paul is still a long shot, but we ought to remember that it is less about winning and more about influencing people. There is still a lot more time to use this presidential election season to teach people about liberty.

Now for some taxation news that will really annoy you…

Reason Mag shows us 5 new ways the IRS is screwing America (their words, not mine).

From that same Reason article, I found another link where Bloomberg noted that fatal car crashes tend to increase on Tax Day. Watch out on the road today, people!

Gary North discusses what happens when government safety nets break.

And now for your moment of Zen: the Beatles song “Taxman”:

Have you made it back to LCC lately? Here’s what you missed if you’ve been away:

Have some relevant news and links you want to share? Post in the comments below. I read every comment and respond to almost all of them. Let me know what you’re thinking!

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Yet another federal budget charade is now in progress. This time for fiscal year 2013, which begins on October 1, 2012.

President Obama submitted his bloated budget to Congress in February. House Republicans issued their bloated budget in March. House Democrats then countered with their bloated budget.

Because the Republicans have a majority in the House, it was no surprise that the Republican budget passed by a vote of 228-191 and the Democratic budget failed by a vote of 163-262. It was also no surprise that not a single Democrat voted for the Republican budget and not a single Republican voted for the Democratic budget.

But because it is the Democrats that have a majority in the Senate, the Republican budget passed by the House has virtually no chance of passing in the Senate. Likewise, if the Senate were to pass a budget and send it to the House, it would be just as dead on arrival as the president’s budget was.

The Heritage Foundation, a conservative think tank in Washington D.C. always eager to do the bidding of the Republican Party, has pronounced ("First Reactions to Ryan’s Path to Prosperity Budget") House Budget Committee chairman Paul Ryan’s budget "a serious plan worthy of serious consideration" that "lays out substantive policy choices, cutting spending, reforming entitlements, and avoiding tax hikes." The House Republican budget "represents real progress toward tackling the nation’s fiscal and economic challenges." It not only "cuts spending, in the budget year of 2013 and into the future, from both discretionary accounts and entitlements," but "features strong, substantive, market-based reforms to the health entitlements and a solid, growth-oriented tax plan." Oh, the Ryan budget is not "perfect," but it "substantially advances the serious and necessary conversation about securing America’s future and its great legacy of freedom, opportunity, and self government."

Contrary to the glowing analysis of the Heritage Foundation, the Republican budget of Paul Ryan and the House Committee on the Budget, as I have recently shown, even though it is called "The Path to Prosperity: A Blueprint for American Renewal," is a bloated, unbalanced, fiscally irresponsible, mostly unconstitutional path toward, and blueprint for, the welfare/warfare state.

In their article on the Ryan budget plan, the Heritage coauthors list "six key elements to a successful federal government budget":

1. Does it cut spending sharply and quickly?

2. Does it begin decisive entitlement reform?

3. Does it avoid any tax hikes?

4. Does it ensure a strong national defense?

5. Does it contain pro-growth tax reforms?

6. Does it move swiftly and surely to a balanced budget?

The Republican budget fails miserably when it comes to cutting spending sharply and quickly. It actually proposes to increase spending by a trillion dollars over the next ten years. The Ryan plan also fails miserably when it comes to moving swiftly and surely to a balanced budget. Not only does it not foresee balancing the budget anytime in the next ten years, it plans on adding $4.5 trillion to the national debt during this period of time.

The Republican "Path to Prosperity" does include some entitlement reforms. I will let conservatives battle it out over whether they are decisive enough (they aren’t). There are two problems with these entitlement reforms. First, the Republicans propose to spend $517.1 billion on welfare (TANF, refundable EIC, SSI, unemployment, food stamps, housing and energy assistance, school lunch subsidies, etc.) in fiscal year 2013 (not including Social Security, Medicare, Medicaid, SCHIP), "only" $450 billion in fiscal year 2017, and then $511 billion in fiscal year 2022. A few billion less in proposed spending is hardly a decisive entitlement reform. And second, every president and every Congress talks about reforming entitlements and tinkers with them in their budgets. Didn’t Clinton the Democrats "end welfare as we know it"?

The Republican budget does avoid tax hikes, although not completely since it recommends clearing out the burdensome tangle of loopholes and broadening the tax base. And yes, there are some pro-growth tax reforms in the Ryan plan. Thank God the Republicans only want to take 25 percent of the income of successful Americans and American businesses instead of a higher percentage.

Ensuring a strong national defense is about the only thing that the House Republican budget plan does well – if all you look at is the level of defense spending. But is this a good thing? The United States spends about as much on defense as the rest of the world combined. This is because most U.S. defense spending is spent on offense not defense. It is spent on empire, imperialism, occupations, senseless foreign wars, and interventions in other countries. When the Heritage Foundation talks about a budget ensuring a strong national defense, it refers to the defense budget being a gravy train for defense contractors.

But not only is the Republican budget a failure, the Heritage Foundation’s budget elements are faulty as well. From a libertarian, constitutional, limited government perspective, here are six key elements to a successful federal budget:

1. Does it propose only spending authorized by the Constitution?

2. Does it begin to permanently end entitlements instead of just reforming them?

3. Does it cut taxes instead of just avoiding tax hikes?

4. Does it provide millions for defense but not one cent for empire?

5. Does it eliminate taxes instead of just instituting tax reform?

6. Does it balance the budget now, not in five or ten years?

Republican presidential candidate Ron Paul’s plan to cut the budget by a trillion dollars the first year and balance it in the second is the only thing that comes close to being a successful federal budget. All the Republican talk about cutting the budget is, as usual, just a bunch of hot air.

Originally published on LewRockwell.com on April 12, 2012.

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Apr
12

Budgeting Leviathan

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The U.S. government is the largest and most powerful government in the history of the world. But that stature comes with a price. Not only has the American government confiscated untold trillions of dollars in wealth from its citizens; it has borrowed trillions more and accumulated the greatest mountain of debt in human history. The federal leviathan has an insatiable desire for money to fund its vast income-transfer, wealth-redistribution, social-engineering, and crony-capitalistic schemes.

To plan for these vast expenditures, the president proposes a budget. Then the respective budget committees of the House and Senate propose their own budgets by means of concurrent resolutions that allocate spending among categories known as budget functions. Congress then passes appropriation bills based on and constrained by the discretionary spending allocations in the budget resolutions.

Barack Obama submitted his proposed fiscal year 2013 budget to Congress at the end of February. With its tax increases and built-in trillion-dollar deficit, it was dead on arrival.

At the end of March, the Republican-controlled House Committee on the Budget submitted its own budget plan. Then the Democratic minority on the House Committee on the Budget introduced their own budget plan in the form of an amendment to the Republican plan, H. CON. RES. 112.

Because of the Republican majority in the House, it is no surprise that, on party-line votes, the Democratic plan was rejected and the Republican plan passed. However, 10 House Republicans bucked the House leadership and voted against the Republican budget.

Two concurrent resolutions on the budget have been introduced by Republicans in the Senate, but they have no chance of passing in the Democrat-controlled Senate. Senate Democrats filed a “deeming resolution” establishing the Senate’s discretionary spending limits according to the levels enacted in the Budget Control Act of 2011.

A brief look at the respective budgets proposed by the Democrats and Republicans in the House shows that all of the Democrats and the overwhelming majority of the Republicans are firmly committed to budgeting leviathan.

For fiscal year 2013, House Democrats propose to spend $3.704 trillion (and run a deficit of $964 billion). House Republicans propose to spend $3.53 trillion (and run a deficit of $796 billion). That is a difference in spending outlays of only 4.81 percent.

That couldn’t possibly be true, I thought. Didn’t Sen. Jim DeMint just say in his book Now or Never: Saving America from Economic Collapse that there are “irreconcilable differences” between Democrats and Republicans and that Democrats “always expand government and spending”? Didn’t the Texas governor and former Republican presidential candidate Rick Perry also say in his book Fed Up! Our Fight to Save America from Washington that, in general, Republicans believe in “low taxes,” “low regulation,” and “less spending,” while Democrats believe in “higher taxes,” “more regulations,” and “more spending”?

To give the Republicans the benefit of the doubt, I tried looking at the figures in other ways, but the results were not much different. We could say that Democrats want to spend 4.92 percent more than Republicans. Or we could say that Republicans want to spend 4.69 percent less than Democrats. But it is apparent that no matter how you look at it, Democrats and Republicans are within 5 percent of each other. It looks like George Wallace was right when he quipped that there wasn’t a dime’s worth of difference between the Republicans and Democrats.

One way to decisively determine whether there is any difference between Republicans and Democrats is to look at the spending they each propose on certain specific budget functions.

On budget function 050, National Defense, Republicans want new budget authority of $562.2 billion, while Democrats want $553.9 billion. That is a difference of 1.48 percent.

On budget function 350, Agriculture, Republicans want new budget authority of $21.7 billion, while Democrats want $21.8 billion. That is a difference of .46 percent.

On budget function 500, Education, Republicans want new budget authority of $57.6 billion, while Democrats want $85 billion. That is a difference of 38.42 percent.

On budget function 550, Health, Republicans want new budget authority of $363.6 billion, while Democrats want $370.7 billion. That is a difference of 1.93 percent.

On budget function 570, Medicare, Republicans want new budget authority of $510.1 billion, while Democrats want $515.1 billion. That is a difference of .97 percent.

On budget function 600, Income Security, Republicans want new budget authority of $517 billion, while Democrats want $538 billion. That is a difference of 3.96 percent.

On budget function 650, Social Security, both Republicans and Democrats want new budget authority of $822.2 billion.

On budget function 970, Global War on Terror (Republicans) or Overseas Contingency Operations (Democrats), both Republicans and Democrats want new budget authority of $96.7 billion.

Because the majority of U.S. military spending goes to maintaining an empire and intervening in other countries, both the first and last categories relate to the warfare state. The difference in spending proposed by Republicans and Democrats is negligible. It is a myth that Democrats want to “slash military spending,” “leave the country defenseless,” “turn their back on the troops,” and other nonsense spewed by Republican warmongers. Both parties are firmly committed to maintaining the warfare state.

The other budget functions relate to the welfare state.

Spending on agriculture includes funds for direct assistance, export assistance, loans to food and fiber producers, agricultural research, commodity programs, crop insurance, and disaster assistance.

Spending on education includes not only the expenditures of the Department of Education, but also training, employment, and social services of the departments of Labor and of Health and Human Services.

Spending on health includes mainly funding for Medicaid (70 percent), but also the State Children’s Health Insurance Program (SCHIP), health research and training, and substance-abuse programs.

Spending on Medicare — national health care for older Americans — includes the Part A Hospital Insurance Program, Part B Supplementary Medical Insurance Program, Part C Medicare Advantage Program, and Part D Prescription Drug Benefit.

Spending on income security includes what is traditionally classified as entitlement or welfare: unemployment compensation, housing assistance, energy assistance, food stamps, school-lunch subsidies, Temporary Assistance to Needy Families (TANF), Supplemental Security Income (SSI), and the refundable portion of the Earned Income Credit (EIC).

Spending on Social Security — the crown jewel of the welfare state — includes benefits for retirement, disability, survivorship, and death to about 55 million Americans.

Both parties are firmly committed to maintaining every aspect of the welfare state. Only when it comes to spending on education do Republicans want to spend significantly less than Democrats — this year. It was just a few short years ago under a Republican president, a Republican House, and a Republican Senate that Republicans ballooned the education budget up to $100 billion. But regardless of how much less than the Democrats the Republicans want the federal government to spend on education, since the Constitution authorizes absolutely nothing to be spent on education, $57.6 billion is $57.6 billion too much.

When it comes to the welfare state, Republicans talk a lot about reforms, block grants, and cutting waste, fraud, and abuse. They chatter endlessly about streamlining agencies, consolidating departments, and making government programs more efficient. They wax eloquent about strengthening particular programs, making them sustainable, protecting them, and saving them. But they talk very little about eliminating, repealing, or abolishing anything. And, of course, their performance is even worse than their promises. Republicans have fully accepted the New Deal and the Great Society.

In spite of all their rhetoric about limited government and fiscal responsibility; in spite of their all their contracts, pledges, paths, and blueprints; in spite of all their talk about the Constitution; in spite of all their attacks on the evil Democrats; in spite of all their warnings about the dangers of socialism and collectivism; and in spite of all their endless and empty promises, the only government the Republicans want to limit is a government controlled by Democrats.

The budget numbers can’t be explained away. Both parties are firmly committed to the warfare/welfare state.

George Wallace may have been wrong about some things or many things, but he certainly got one thing right: There is not a dime’s worth of difference between the Republicans and Democrats. America is a sinking ship. The only thing the Republicans and Democrats in Congress are determining is whether the ship lists to the right or left as it goes down.

Originally published on The Future of Freedom Foundation on April 10, 2012.

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Originally published at The New American on April 10, 2012.

imageTax season is winding down once again, but the progressivity of the tax code is still with us. Most Americans who had more taxes withheld from their paychecks than they owe in taxes have already filed for their refunds. But not only did many Americans have no tax liability, some of them who didn’t owe any taxes to begin with still received a refund, all thanks to our Marxist tax code.

At the end of section two of Marx’s Communist Manifesto, in addition to calling for the abolition of private property and the centralization of the means of production in the hands of the state, he petitioned for “a heavy progressive or graduated income tax.”

This is based on the Marxist dictum (that many Americans think appears in the Constitution): “From each according to his ability, to each according to his needs,” and on Marx’s mistaken notion of the result of the inequality of wealth, as we see in his Das Kapital: “In proportion as capital accumulates, the lot of the labourer, be his payment high or low, must grow worse…. Accumulation of wealth at one pole is at the same time accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation at the opposite pole.”

Yet, from its very beginning, the U.S. tax code has sought to soak “the rich” with “a heavy progressive or graduated income tax.”

The income tax began with a 1 percent tax on taxable income above $3,000 followed by a series of surcharges of up to 6 percent applied to higher incomes. The maximum rate of 7 percent was applied to taxable income over $500,000. In addition, there was an exemption of $3,000 for a single person and $4,000 for a married couple.

The tax rate in the highest tax bracket rapidly increased, up to 67 percent in 1917 and 77 percent in 1918, and then rose to 81 percent in 1940, 88 percent in 1942, and a whopping 94 percent in 1944. In 1942, the top rate began applying to all incomes over $200,000 instead of $5 million as it had previously. After dropping briefly, the top rate stayed near or above 90 percent between 1950 and 1963.

Under President Reagan, the top marginal tax rate fell from 70 down to 50 percent, and then down to 38.5 before stopping at 28 percent. The tax brackets were also eventually reduced to just two. This doesn’t mean that the government cut spending and balanced its budgets during the 1980s like it should have, or that it didn’t raise other taxes like it shouldn’t have, but the fact remains that the highest tax bracket fell to under 30 percent for the first time since 1931.

After both rates and brackets increased during the Bush Sr. and Clinton years, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) gave us our current system of six brackets of 10, 15, 25, 28, 33, and 35 percent. The lowest bracket was scheduled to be eliminated, and four of the other rates were scheduled to rise, giving us five brackets of 15, 28, 31, 26, and 39.6 percent, were it not for the two-year extension of the Bush tax cuts enacted at the end of 2010.

But although the tax brackets have fallen in number and amount since their height in the 1960s, this does not mean that “the rich” have stopped paying their “fair share.”

According to the most recently released IRS data, in tax year 2009, the top 1 percent of taxpayers (in terms of adjusted gross income) paid 36.73 percent of all federal income taxes. The top 5 percent of taxpayers paid 58.66 percent. The top 10 percent of taxpayers paid 70.47. The top 25 percent of taxpayers paid 87.3 percent of the taxes, and the top 50 percent paid a whopping 97.75 percent.

There are a number of ways in which the tax code is designed to punish “the rich”; that is, punish success and reward those who do nothing but have children.

Consider the example of a typical American family with two children. Because of the progressive nature of the tax code, for tax year 2011, this family could make $45,399 and still pay nothing in federal income taxes. This is because the $11,600 standard deduction and $14,800 deduction for personal exemptions reduces this family’s taxable income to $18,999. This leaves a tax liability of $1,996, which is reduced to zero thanks to a $1,000 per child tax credit.

But it’s not just the progressive tax brackets that punish “the rich” and favor “the poor.” A tax credit is a dollar-for-dollar reduction of the amount of income tax owed. It may reduce the tax owed to zero, but if there is no taxable income to begin with, then no credit can be taken.

However, some tax credits are refundable; that is, you still get the credit even if you don’t have any tax liability. These refundable credits include the adoption credit (up to $13,360 per child), the first-time homebuyer credit (up to $4,000 or $8,000 if married filing jointly), the additional child tax credit (up to $1,000 per child), the American Opportunity credit (up to $1,000 per student, with 40 percent of the credit being refundable), and the earned income credit (up to $5,751 for three children).

Refundable tax credits can amount to a significant part of a family’s income. Consider once again a typical American family with two children. For tax year 2011, they can make up to $16,699 and not only owe nothing in taxes, but get a $5,112 earned income credit plus a $1,000 per child additional tax credit refunded to them. This effectively gives them an income of $24,111.

This artificial income of $24,111 is much better than a real income of $24,111, and for three reasons. First, the family’s income is still $16,699 when qualifying for public assistance. Second, no income tax is due on income from refundable tax credits. And three, the taxable wages for Social Security and Medicare are only $16,699.

Another way “the rich” are targeted is through the phase-out of tax deductions and credits. This means that the value of the credit is reduced as income rises. And in some cases, the credit is disallowed altogether.

The $1,000 child tax credit is reduced by 5 percent for each $1,000, or part of that amount, above the phase-out amount of $75,000 ($110,000 if married filing jointly).

The child and dependent care credit is 35 percent of expenses up to a maximum credit amount of $3,000 for one child and $6,000 for two or more children. But this is only if you make up to $15,000. The percentage is reduced by 1 percent (down to a minimum of 20 percent) for each $2,000, or part of that amount, of income above $15,000.

The retirement savings contributions credit (up to $1,000 or $2,000 if married filing jointly) cannot be claimed once adjusted gross income exceeds $28,250 ($56,500 if married filing jointly).

If you itemize deductions and your adjusted gross income is more than $109,000, you cannot deduct your mortgage insurance premiums.

IRA contributions for those covered by a retirement plan are reduced when modified adjusted gross income goes over $56,000 ($66,000 for married filing jointly) and not deductible at all once their modified adjusted gross income reaches $66,000 ($110,000 if married filing jointly).

Education credits and deductions take a hit as well.

Up to $2,500 of student loan interest is tax deductible. However, this deduction begins to be phased out once your modified adjusted gross income reaches $60,000 ($120,000 if married filing jointly) and is not allowed once your income reaches $75,000 ($150,000 if married filing jointly).

No American opportunity credit (maximum of $2,500 for each student) for qualified educational expenses can be claimed if your modified adjusted gross income reaches $90,000 ($180,000 if married filing jointly). And a phase-out of the credit begins at $80,000 ($160,000 if married filing jointly).

No lifetime learning credit (maximum of $2,000) for qualified educational expenses can be claimed if your modified adjusted gross income reaches $61,000 ($122,000 if married filing jointly). And a phase-out of the credit begins at $51,000 ($102,000 if married filing jointly).

The tuition and fees deduction of up to $4,000 per tax return for qualified educational expenses is lowered to a maximum of $2,000 once your modified adjusted gross income exceeds $65,000 ($130,000 if married filing jointly) and eliminated if your income exceeds $80,000 ($160,000 if married filing jointly).

The phase-outs also apply to the strictly refundable tax credits.

If you have three or more children and make over $43,997 ($49,077 if married filing jointly), two children and make over $40,963 ($46,043 if married filing jointly), or one child and make over $36,051 ($41,131 if married filing jointly), you are not eligible to claim the earned income credit. And the maximum amount of the credit drops steadily once your income exceeds $21,800.

To take the adoption credit, your modified adjusted gross income cannot exceed $225,210. And the amount of your credit is reduced once your income reaches $185,210.

To take the first-time homebuyer credit, your modified adjusted gross income cannot equal $145,000 or more ($245,000 if married filing jointly).

The income phase-out for the additional child tax credit begins, like the child tax credit, at $75,000 ($110,000 if married filing jointly).

No wonder the top 10 percent of income earners in America pay over 70 percent of the taxes! The brackets punish them, the phase-outs penalize them, and the refundable tax credits add insult to the injury of “a heavy progressive or graduated income tax.” There is nothing American about the U.S. tax code. It is straight out of the Communist Manifesto.

According to a recent report by the Heritage Foundation: “The percentage of people who do not pay federal income taxes, and who are not claimed as dependents by someone who does pay them, jumped from 14.8 percent in 1984 to 49.5 percent in 2009.” This means that about half of all Americans don’t pay any income taxes.

But the emphasis placed by some conservatives on the lack of taxes paid by some Americans is getting the whole issue backward. The solution is not a national sales tax or flat tax that forces all Americans to pay some arbitrary “fair share” and actually perpetuates the progressivity of the tax code. And neither is it to eliminate all the deductions and credits in order to punish those with low incomes by increasing their taxes.

The solution is to decrease the tax burden of those who are paying the taxes now by eliminating the income tax altogether. This is the Ron Paul approach. In a recent NPR interview, congressman and Republican presidential candidate Paul put the emphasis where it belongs — keeping as much tax revenue out of the hands of the federal government as possible. In reply to the question, “Do you believe that income derived from dividends interest or capital gains should be taxed at a lower rate than income earned from a salary or commissions?,” Dr. Paul said:

Well, I’d like to have everybody taxed at the same rate, and of course, my goal is to get as close to zero as possible, because there was a time in our history when we didn’t have income taxes. But when government takes it upon themselves to do so much, you have to have a tax code. But if you’re going to be the policemen of the world and run all these wars, you have to have a tax code. But as far as what the rates should be, I think it should be as low as possible for — for everybody.

The only reason it appears that we can’t do without an income tax is that Congress has an insatiable desire to spend money. But if the functions of the federal government were strictly limited to only those authorized by the Constitution, the government could be funded by user fees, land sales, excise taxes, and revenue tariffs (like it was from 1789 to 1913), or these things in combination with a lottery or donations. Don’t laugh, in fiscal year 2011, $3,277,369.23 was given by Americans to the federal government for the purpose of debt reduction. A small amount, yes, but only alongside the gargantuan trillion-dollar budgets of the last twenty years.

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This entry is part 41 of 41 in the series Christian Theology of Public Policy Course

This essay continues the Christian Theology and Public Policy Course by John Cobin, author of the books Bible and Government and Christian Theology of Public Policy.

“Don’t smoke, chew, or run with girls that do” is a popular adage in some Christian circles today. Christians are concerned about what God thinks about their behavior. They are also concerned about what men think. Of course, any true Christian who struggles with pornography will not herald his addiction, but in many places Christians will seek to cover up arguably less egregious activities like drinking alcohol, smoking cigars, or even gambling now and then. These practices are often viewed as taboo— even when used in moderation. Paradoxically, Christians are able to openly indulge in overeating or overspending on cars, clothing, and entertainment devices without chagrin. Gluttony and profligate spending seem to be more acceptable sins among believers than other excesses, creating a (widespread) inconsistency of thought about what is appropriate Christian behavior.

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