Tag: taxes
Trump Is His Own Worst Enemy When It Comes To His Taxes

Trump Is His Own Worst Enemy When It Comes To His Taxes

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The New York Times has written an article claiming that Donald Trump paid little or no income tax for many years. Mr. Trump denies paying so little but won’t release his returns. The NY Times will not release its data to protect its source.

Voters can decide whom to believe, but one fact to note is that the story doesn’t assert illegal behavior. The IRS presumably signed off on the Trump returns, except in one case in which it is disputing a $72.9 million deduction claimed by Mr. Trump. This is a fight rich people have with the IRS all the time, often ending in Tax Court.

The report makes much of a deduction Mr. Trump took for business consulting fees that match payments his daughter Ivanka reported in separate filings. There may be legitimate reasons for those fee payments, and Ms. Trump ought to clear the matter up. Paying your adult offspring is not illegal – in fact, it is a good practice. This point should probably be dropped on the social media hate frenzy.

Also, it appears to be a big scandal that Trump paid a hairstylist during his reality TV days. Give me a break. Have you seen this guy’s hair? It would take a wizard to make it look decent. BTW, if you are going to make fun of Trump’s hair, please be honest and make fun of “comb over” Joe Biden also – yes, I am old enough to remember him as being bald.

Is it a scandal if Mr. Trump legally exploited the tax code’s treatment of chronic business losses to pay little tax? Hardly. Mr. Trump admitted this himself in a 2016 debate so there is no news in the NYTimes article – he already told us that he didn’t pay much in personal income taxes. Congress littered the code with loopholes aimed at assisting real-estate businesses, among others. Democrat and Republican elected officials write a tax code to please their corporate donors and then selectively attack CEOs or businesses that use the loopholes.

Here is a hint: if you are a business leader that is going to run for office and challenge the elected elite then you are not allowed to use the tax code to your advantage. But it is okay if you are simply going to take that tax-advantaged and donate to the elected elite. This is especially okay if you are donating to Democrat elected officials.

The story also claims that Mr. Trump’s empire is under financial stress and rising debt. This may be true, but the reporters can’t seem to decide if Mr. Trump is a shark exploiting the White House for personal gain or a sap who is bleeding cash while in office. Brilliant or bumpkin? Make up your mind. Many of Trump’s supporters cite his lack of tax burden as part of the reason they support him saying that he has a brilliant business mind. His enemies would do best to stick to one narrative.

The Times says it will have more such stories in the coming days, and who can doubt it? The press and most of official Washington are all-in to defeat Mr. Trump. I wonder if the FBI is doing a repeat and trying to help the Democrats as well.

Trump has made it easier for his opponents, as he often does. He danced his way through the 2016 campaign with promises to release his returns followed by claims that he couldn’t do so because of an audit. Many of his supporters advised him to do it in the public interest, but there’s no legal obligation for a candidate to release his taxes.

Trump could have controlled the political narrative by releasing his tax returns on his terms and timetable. If he would have done it soon after his election, this story would have died a slow death a long time ago. Now his opponents will do it. As in the past, Trump is his own worst adviser.

Many of the ideas in this story were sourced from this WSJ opinion article.
A tax plan that would promote economic growth

A tax plan that would promote economic growth

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Both halves of Congress are trying to create a more fair tax plan that will promote growth and simplify the code. I am skeptical that anything will get done though as it appears that this Congress is incapable of doing anything significant.

Since Congress will almost certainly fail, I thought I would put my suggestion on the table. As I analyze it, it is probably the most likely plan that I have ever seen to encourage employment growth.

The first step is to not change anything for individuals except to increase the amount of money saved in long-term savings without tax penalty. This should be doubled from its present rate. The government is in the retirement business, and it isn’t doing a sufficient job of managing it. The government needs to get out of the retirement business because the government can rarely do something well. Social Security is a broken plan, and we all know it – we just need to transition out of the retirement business slowly so that we do not screw up the American workers that depend on Social Security.

Currently, the government taxes employees directly via the FICA tax on each dollar earned. The government increases this tax by assessing the employer an equal amount. This direct tax exceeds 15% and is used to fund Social Security. While it is essential to finance Social Security for today’s seniors, we need to get away from this transfer of cash from working Americans to retired Americans. We need to make it financially affordable for working Americans to save for retirement so that they can live off of their own money and not their children’s and grandchildren’s money. The fact that Social Security will be insolvent between 2025 and 2034 (depending on analyst assumptions) points to the fact that the system is systematically flawed. I have ranted on this in the past.

The biggest change in the tax plan is to change the way we tax our employers. Not just big companies but every employer – be they big or small. We need to reward companies for investing in their business and investing in their employees.

Currently, the corporate tax rate is around 35%. This tax burden is massive. Unfortunately, it is unevenly allocated and most directly hurts companies based in the US, primarily employs US workers, and principally sells to US customers. This is preposterous! Why is the federal government trying to hurt the best companies, but reward those companies that have substantial foreign investments?

My suggestion is to eliminate all tax loopholes in the corporate plan except for the ones that I itemize here. Yes, that means that Congress will never go along with me since every special interest lobbyist will argue and bribe vehemently to fight my simple and easy ideas. Here are the highlights of the plan:

  • Corporate income tax is 35% for all income.
  • Income taxed in a foreign country returned to the US corporate parent is the difference between the original tax paid and 35%. This balance of tax is still available for the following discounts (as well as all US based income).
  • For every dollar that is paid to train employees plus one additional dollar, there is no US corporate tax. Corporations should be encouraged to train their employees so that money shouldn’t be taxed and additionally they should be rewarded by claiming 200% of that investment up to 35% of corporate income. This reduction in taxes is good for the company, great for the employees, and magnificent for the US economy. In the 21st century, only smart workers are valuable, and we need to increase that pool of people.
  • Today, wages and benefits to employees are already written off and not counted toward income. This expense will remain the same (as with all business expenses) however if the employer hires more workers in the US and its territories from the previous year then the company should be rewarded. The company will be able to write off that new employee’s wages plus an additional 300% up to 35% of corporate income. Please note that this is ONLY for the growth of full-time employees from the previous year to the current year. The employer doesn’t get to deduct this cost for perpetuity but only for the first year. Also, note that this doesn’t allow the employer to increase foreign-based workers, the workers have to be reporting to work in the US and its territories.
  • Any improvements in facilities are already written off, and that will continue. However, this will be accelerated in my plan as the company can write off 200% of all INCREASES in facilities, marketing costs, sales costs, etc. as long as they are spent in the US and up to the 35% cap that already exists. They will be able to write this off in the year that the expense occurs. Note that this is only for increases in those costs over the previous year. If the company doesn’t grow those costs, then it is simply held at the standard 35% deduction, but if the company increases those investments in US-based assets, then the company can accelerate those year-over-year savings.

So how is this good for the US economy and the US worker? Simple, it is all about the economic growth, the growth of employment, and improving the lives of US workers. Companies that are unable to grow their business will not get this benefit, but companies that can employ more US-based people, create more US assets, and improve their ability to market to US-based customers will thrive. It puts America first in our corporate tax policy. It rewards companies that invest in America and it doesn’t help any company that chooses to invest internationally at the expense of America.

This plan will accelerate the return of money from foreign lands back to the US. This plan will encourage companies to hire more US-based workers and will significantly increase the quality of life of Americans.

This isn’t a giveaway to the corporations or a supply-side “hope for the trickle-down plan.” It only rewards companies that truly make the trickle-down (in the form of a gusher rather than a trickle) happen. No company will be able to take advantage of this plan unless they truly change that “trickle” to a firehose of economic prosperity.

This plan will never pass. Too many lobbyists will be hurt. Too many special interest groups will not have their interest served. However, this is one plan that would almost guarantee massive prosperity for the American middle class and therefore massively increased tax revenue for the Federal government.

It just makes sense which is why it will never be adopted by Congress. Simple things that make sense never seem to get done by Washington DC.

Photo by 401(K) 2013

Democrats want lower corporate taxes just not under Trump

Democrats want lower corporate taxes just not under Trump

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Don’t let the current partisan bickering on corporate taxes make it seem like both sides of the aisle don’t want this. It is good for America and everyone that understands economics understands this. The issue is that when the Democrats held power, they couldn’t effectively do this because their liberal wing (i.e. the people that do not understand economics) would crucify them in the election booth.

Suddenly, an idea that has been accepted by economists and by policymakers on both sides of the political aisle—that high taxes on business hurt investment, workers, and the economy—is considered “absurd.”

In 2012, President Obama and his advisers proposed lowering the corporate tax rate because it “creates good jobs with good wages for the middle-class folks who work at those businesses.” In 2013, Lawrence Summers, President Clinton’s Treasury secretary and chairman of Mr. Obama’s Economic Council, argued that the tax on corporate profits creates a burden without commensurate revenues for the government and that changing it “is as close to a free lunch as tax reformers will ever get.”

In 2015, Democrat Chuck Schumer and Republican Rob Portman co-sponsored a Senate bill to reduce the top corporate tax rate, which is the highest of any of the 35 countries in the Organization for Economic Cooperation and Development. “Our international tax system,” Mr. Schumer argued back then, “creates incentives to send jobs and stash profits overseas, rather than creating jobs and economic growth here in the United States.” Bill Clinton in 2016 said he regretted raising the corporate rate to its current level.

Yet President Trump’s Council of Economic Advisers is now being accused of partisanship and unscientific analysis.

This is politics for the sake of politics. Not for making America stronger or helping our citizens.

Source: A Turnabout on Corporate Taxes

Capital gains should be counted as wages–to a point

Capital gains should be counted as wages–to a point

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warren.buffet.secretary.caption_picIf you pay attention to the news, you have heard Warren Buffet claim that he pays a lower tax rate than his secretary. This pronouncement has prompted President Barack Hussein Obama to propose new taxes, affectionately nicknamed “Buffet taxes” or the “Buffet Rule.”

The “Buffet Rule” is going to get a lot of press attention in the coming weeks and it will get more attention if Mitt Romney successfully wins the nomination of the Republican Party.

MittRomneyProfilePicAt this writing, Mitt Romney is running for the Republican nomination and at some time he is probably going to have to divulge his finances more fully than he has already. Mr. Romney doesn’t appear to have a wage-earning job, therefore, his daily spending on clothes, food, mortgage, and hair-styling products comes from interest, capital gains, or dividend income from his earned fortune. It appears that Mr. Romney paid less than 15% on his income where a wage earner would pay a much higher rate.

A lot of people say that the tax code is broken and I agree. Some propose a flat tax rate for all income, but that is probably a political hot potato. A flat-tax is also a little repressive as low wage earners probably shouldn’t have the same tax rate as the more affluent.

In America, everyone can have an opinion. So here is my suggestion:

  • All Americans should pay a minimum of 1% of their income in Federal taxes.  The approximately 46% of Americans who pay no taxes needs to stop. If everyone pays at least a little bit, then they all are part of the general sharing of the load. Everyone will be a bit more invested in making sure that the spending is appropriate.
  • All income, regardless of source, needs to be considered wage income for the first $500,000. The top line of your income for federal taxes needs to include all wages that come from your W2 or 1099. If that number is less than $500K, then include dividend and capital gains income up to $500K.  Why did I choose $500K? It seems like a fair number. I could make an argument that it should be up to $1M, but I cannot make a logical argument that it is less than $300K. Here is my logic:
    • Everyone has daily expenses that need to be paid. For most Americans, these expenses are covered with our income from our job. The expenses are things such as food, clothes, house and car payments, cable TV, the occasional movie and dinner out, and (since Mitt’s expenses in this area are likely quite high) hair care products.
    • Money that covers these regular expenses comes from wages for all but the most affluent Americans.
    • It is not appropriate that those that are very wealthy and do not make a wage should have the source of funds for expenses categorized as anything but wages. Even if they don’t make a wage and received the money from dividends or interest, a portion of that income is used for exactly the same thing as the minimum wage earner. Therefore, we need to classify it as a wage since that is what it is replacing.
  • FICA is currently capped at first $110,100 of income. This needs to change.  The upper cap needs to be on all wages as I have described in the previous bullet. This is fair, as well. All wages should be subjected to FICA tax. This would likely fix the problem of Social Security being underfunded for quite some time. Yes, I think that Social Security should be eliminated, but that isn’t going to happen either.

The great thing about a blog is that I can rant. There is little chance that any of the above will ever be enacted. It was fun to argue the point though and I hope that it was fun for you to read.

The images in this post are assumed to be in the public domain. I have linked to the sites where I found them. I do not own the copyright for these images.

Time to talk about flat rate taxing

Time to talk about flat rate taxing

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Now that it appears that the Democrats and Republicans agree on how to increase our US deficit by $500B-$1T, it is time to talk about throwing out the old tax code. With the passing of the unemployment extension, the Bush tax cuts and other deficit growing measures, we have succeeded in making our tax code even more unwieldy and unfair.

Eliminate the loopholes and eliminate the tiered system. Make it fair and make it easy.  Here is a great video explaining one way that this might be possible.

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