Tag: taxes

Tax plan just doesn’t seem to be fair

Tax plan just doesn’t seem to be fair

President Barack Hussein Obama has been talking about his new plan to invigorate the economy and move us out of a double-dip or very long recession. I have to admit that I am confused by his logic.

First, a bit about myself. I hate taxes. I know that I need to pay them. I know that I make a good living (not from this blog mind you) and I need to pay into the system more than some others that don’t work as hard as I work. I get all of that.

In general though, I don’t want to pay taxes and I definitely don’t want to pay MORE taxes. I would much prefer that the federal, state, and local governments do a better job of using my money wisely. I would also appreciate that my money is not transferred to someone that won’t work (strong distinction from “can’t work” and “can’t find work”). In fact, if an adult WON’T work then I am perfectly comfortable with that adult starving to death and dying. Probably my only regret in that scenario is that my tax dollars will likely have to go to bury his sorry body. I realize that this isn’t a very Christian attitude but, frankly, God gave that adult man or woman 2 legs, 2 arms and a brain to use to work – not to live off of the generosity of others.

Now, back to the President’s proposals. I just don’t get it. Something doesn’t make sense. According to CBS News:

President Barack Obama will call on Congress to pass new tax breaks that would allow businesses to write off 100 percent of their new capital investments through 2011, the latest in a series of proposals the White House is rolling out in hopes of jump-starting economic growth ahead of the November elections.

An administration official said the tax breaks would save businesses $200 billion over two years, allowing companies to have more cash on hand. The president will outline the proposal during a speech on the economy in Cleveland, Ohio, on Wednesday.

I understand that part on a simplistic level. It makes perfect sense to me that if businesses don’t have to pay taxes on capital investments, they will be able to justify more money (the original money plus the tax money they didn’t have to spend) on capital investments. They might even spend more money on that as the internal return on that investment would be a little bit better without the tax overhead. This would potentially mean more purchases of goods by businesses which, in theory, would spark more jobs to be created.

However, according to the Washinton Post:

Corporate America is hoarding a massive pile of cash. It just doesn’t want to spend it hiring anyone.

Nonfinancial companies are sitting on $1.8 trillion in cash, roughly one-quarter more than at the beginning of the recession. And as several major firms report impressive earnings this week, the money continues to flow into firms’ coffers.

This means that the businesses are doing well, even if people are not doing well. So the President’s message is that we need to give these rich businesses an incentive to have them spend the money and that incentive will be taxes. I guess that makes sense. How about doing the reverse though? Why not tax them on the cash that they leave laying around and don’t invest? That way the US coffers don’t go down but actually might go up if they don’t spend it AND we get the benefit of increasing capital expenditures.  In fact, we might get MORE business spending with my plan. Why not heavily tax any cash that is in excess of last year’s cash reserves for the company.

It gets a bit more confusing. When it comes to people, the President feels the exact opposite as he does on businesses. He is fully okay with taxing a person more if they make more money. He wants to increase taxes on those that make a certain amount ($250K seems to be the magic number right now). This is exactly the opposite of what he is doing for businesses. For people he isn’t incenting them to spend more money to jumpstart the economy, he is simply taxing them for making more money. 

If a person last year made $220K and then had a great year and made $275K, the President wants to sock it to that enterprising citizen. He wants to charge him more for the right to be a US citizen and live in this great land. That 25% increase is going to drive that individual to pay a much higher rate of income tax. But not the company that is in the same city as the individual. That company has increased its cash by 25% (according to the article cited above) and it is receiving a tax break, not a tax bill.

How about a similar offer to people, Mr. President? How about you say that you don’t have to pay taxes on anything that you buy that generates manufacturing jobs in the US.  Buy a car – get a tax write-off for your down payment.  Buy a house – get a tax write-off for your down payment. Replace the windows in your house – no taxes on that money.  Buy a pizza – that isn’t taxable either. Even your latte at Starbuck’s should have no taxes if you treated people like you treat corporations. Buy a TV or computer manufactured in China though and you pay income taxes. Sorry Best Buy and Apple – you get screwed in my plan but not really since it just remains status quo for you. The people that benefit are the people that live within the borders of the land of the free and the brave.

Like I said above, I don’t like taxes. I know that there has to be some taxes because I want to have those brave soldiers that rescue ships that are attacked by pirates. But how about a little common sense and fair play when it comes to the tax burden.

Banking problem: 5 rules for a possible solution

Banking problem: 5 rules for a possible solution

Even though the economy is slowly starting to recover from the excesses of spending of the George W. Bush administration (and the equally complicitous Congress), we are still far from out of the woods. The economy is in pain, in addition to the overspending, due to poor financial market regulation which destroyed several top-notch financial firms such as Lehman Brothers (who also appeared to break some standard accounting laws and best practices). The government responded to help these big institutions because they were “too big to fail.”

Let’s face it – there should be no such thing as “too big to fail.” Most of us work for companies that are not in that category. If our employers screw up and the company goes down the tubes then we will individually hurt and perhaps the micro-economy around that company will hurt a bit but for the most part the US GDP won’t even see the speed bump. This is the way that it should be – screw up and fail then just pick yourself up and get on with life.

“Too big to fail” simply stinks of a type of monopoly. I know that monopoly prevention is usually about consumer rights and price gouging, but is this that far from where we are now? Isn’t consumer price gouging exactly what we just went through with the TARP program?  I know that my taxes feel like I am getting gouged! This is especially true when I know that I am paying way too much in taxes and that still doesn’t cover what the US government spends! If it is a choice between taxing me more and the US Government (and the state governments) spending more, than I know the choice that I want to make – cut the damn spending!

So what is my suggestion?

The FDIC was nice enough to give us a list of banks here. The first thing that I see is there are some BIG banks! How can these not be monopolistic when they are that much larger than banks that are ranked just 10 places below them.  We need some sanity here.

  1. No bank in the top 100 largest banks can be larger than double the size of the next smallest bank.
  2. No bank in the top 100 largest banks can be more than five times larger than a bank that is ranked 10 spots below it.
  3. No bank in the top 100 largest banks can be more than ten times larger than a bank that is ranked 20 spots below it.
  4. No bank in the top 100 largest banks can be more than twenty times larger than a bank that is ranked 40 spots below it.
  5. The top 100 banks combined size cannot exceed double the combined size of the banks ranked 101-500.
  6. No FDIC insured bank can have more than 10% of its ownership by a non-US entity.

Yes, I know that the title of this article only says 5 rules but the list has 6 rules. The last rule is simply to reduce our banking exposure to undue influence by foreign nationals. We need to realize that our banking and financial systems is just as much of a strategic US asset as our defense contractors. We want the decisions of our strategic institutions to be governed by good business intentions and not the political aspirations of a foreign body.

Because of all of this re-arrangement, we would have to do this with plenty of warning. I would suggest that the law wouldn’t take effect for 5 years after signing to give the banks time to adjust. Also, in the first 5 years after the law is in effect (years 6-10 after signing), the penalty should simply be a 1% fine for the amount of out of compliance the bank was in e.g. if a bank was too large by $1B than the fine would by $10M. After the first decade, a bank would be taken over by a government agency to accelerate their divestitures, existing management and board of directors would be fired (and forbidden to run a bank for 10 years), and then new management would be installed by the shareholders.

There would also need to be a grace period of perhaps 3 years if banks ranked lower than the bank in violation decreased their size by more than 10% in a year and that caused the non-compliance. We cannot punish one institution due to the acts of another. However, we can require them to adapt to the current situation within a reasonable time, I suggest 3 years.

What would this do for the financial institutions?

The first thing that would likely happen is that the banks below 500 would likely start to get bought up pretty rapidly by the banks that are 101-500.Also, the top 100 banks would start to divest portions of their business to other banks (or create new entities) so that they could balance out. It definitely would mean that the top 10 banks would get smaller relative to the next 20 banks. That is the point, they would no longer be too big to fail. While we wouldn’t want them to fail, we also wouldn’t be on the hook as taxpayers to fix their screw-ups.

With the built-in delays and grace periods, it would probably take 20 years to get to a better balance. That is okay. In the words of some great philosopher: haste makes waste. It took us several decades to get the current mess that we are in and if we try to adjust too quickly, we will screw it up.

I know that there will be a lot of nay-sayers that think this won’t work or some other way will work better. I am sure there are good ideas out there but any idea that still concentrates wealth in the hands of a dozen corporations is simply not a solution to the core problem. Those suggestions are only to take care of a problem that presented itself already – in other words they are a band-aid to an existing cut. My suggestion is that we know that injuries and mistakes will happen in the future (banks will always fail) but let’s not get in trouble as a nation because of the problem.

Companies say health care costs hard to swallow

Companies say health care costs hard to swallow

I really love this line:

Consumers Energy, a Michigan gas and electric company with 2.9 million customers, said it will not take a big first-quarter charge because, like most utility companies, it can try to recover the added costs from its customers through rate hikes.

I am sure the state with the highest unemployment in the country will LOVE having their energy rates increased to pay for medical costs!

I get it, health costs will go down because it will get subsidized by the taxes on energy! We can just rob Peter to pay Paul because Peter is too stupid to realize he got robbed.

The really good news in all that is we may get some more new jobs – the bill gives the IRS $1B a year to hire new employees to collect all of these new taxes – that is about 12,000 new jobs for the IRS! Obama has finally come up with a solution to unemployment – hire the entire US population so that no one is unemployed!

Wall Street Journal has an opinion on all of these charges. They quote:

Towers Watson estimates that the total hit this year will reach nearly $14 billion

This is after AT&T, Deere, Caterpillar, AK Steel, 3M, and Valero announced a total of about 1.4B in combined charges. Verizon has already said they will need to announce charges just not sure how much.

That is okay though – I am sure that these companies are really rich and they will just absorb the charges and they won’t pass them on to the consumers. In fact, I am sure that these companies will now accelerate their plans to hire more people.

Obviously, a lot of what I said above is sarcasm. Here is what really going to happen. The door is open by a bad bill. Now there will be a lot of little fix bills to cover these problems. These little bills won’t get a lot of media attention in fact many will just be amendments on other bills. It won’t matter who controls the legislative or executive branch, the amendments will happen. These and other taxes are going to get taken out because they are stupid and punitive but the promise of free health care will continue (and probably expand) until 20 years from now it is as bad of a monstrosity as Social Security – under-funded and over-extended.

Speaking of Social Security, did you see that Social Security is now paying out more than it brings in as of this year (NY Times – the bastion of socialistic thoughts). Of course this is 6 years earlier than CBO said it would happen. CBO must have made a mistake. Isn’t that the same CBO that said ObamaCare will slightly help the federal deficit? I sure hope that it wasn’t the same group of counters that analyzed both programs since the Social Security analysis sure wasn’t on target!

There is very little that a government can do better than private enterprise. Now we have just placed 1/8 or more of our economy into the hands of the incompetents that can’t get a job in private companies so they run for political jobs.

What in the world are we doing? Will our children curse this day 40 years from now?

Companies say health care costs hard to swallow
AP Business Writer

The health care overhaul will cost U.S. companies billions and make them more likely to drop prescription drug coverage for retirees because of a change in how the government subsidizes those benefits.

In the first two days after the law was signed, three major companies — Deere & Co., Caterpillar Inc. and Valero Energy — said they expect to take a total hit of $265 million to account for smaller tax deductions in the future.

With more than 3,500 companies now getting the tax break as an incentive to keep providing coverage, others are almost certain to announce similar cost increases in the weeks ahead as they sort out the impact of the change.

Figuring out what it will mean for retirees will take longer, but analysts said as many as 2 million could lose the prescription drug coverage provided by their former employers, leaving them to enroll in Medicare’s program.

White House spokesman Robert Gibbs defended the tax law change Thursday, saying the original provision allowing companies to deduct the federal subsidies from their taxable income was a “loophole” that will be closed by the health care overhaul.

For the government, the tax changes are expected to raise roughly $4.5 billion over the next decade to help pay for the health overhaul. Some of the savings would be negated by retirees enrolling in the Medicare plans.

“You’re increasing the incentive for companies to say ‘We don’t want to be in the health care business any more,'” said James Gelfand, senior manager of health policy for the U.S. Chamber of Commerce, which fought the overhaul.

American industrial companies that are struggling to compete globally against companies with much lower labor costs are particularly likely to eventually drop retiree coverage, said Gene Imhoff, an accounting professor at the University of Michigan.

“Anything that they can use to justify pushing something away from the employees, pushing it back on the employees or the government, they’re going to do it,” Imhoff said. “I’m not sure you can really blame them for trying to do this.”

Caterpillar spokesman Jim Dugan said the company is still studying the health care law and doesn’t yet know what the full impact will be. But he acknowledged that benefit changes are possible.

“Obviously, there’s greater cost pressures on us that could drive changes to plans, but we haven’t made any decisions on that,” Dugan said.

Spokesmen for Deere and Valero said it was to soon to say how the change would affect the benefits they offer retirees.

When Congress approved the Medicare prescription drug program in 2003, it included government incentives for employers to provide drug benefits to retirees so the public system wouldn’t be overwhelmed. Employers that provide prescription drug benefits for retirees can receive subsidies covering 28 percent of eligible costs; those subsidies totaled $3.7 billion in 2008.

Under the 2003 law, companies could deduct the entire amount they spent on the drug benefits from their taxable income — including the government subsidy, an average of $665 per retiree.

The health care law signed by President Barack Obama on Tuesday prohibits companies from writing off the subsidies starting in 2011, meaning they will no longer be able to deduct them from their taxable income.

For example, if a company spent $100 on benefits, including a $28 government subsidy, it could write off the full $100 on its taxes under the old rules. The new rules would allow the same company to write off only $72.

The follow-up health care bill to reshape parts of the overhaul would delay the changes until 2013.

As many as 1.5 million to 2 million retirees could lose the drug benefits provided by their former employer because of the tax changes, according to a study by the Moran Company, a health care consulting firm.

James Klein, president of the American Benefits Council, said between 6 million and 7 million retirees currently get the benefits. But the number of companies offering them has been dwindling for years.

Generally, retirees would prefer to stay with prescription drug coverage provided by their companies as opposed to enrolling in a Medicare Part D plan, said Marilyn Moon, a health care economist with the nonpartisan American Institutes for Research.

She said most of the company-sponsored plans are more generous and almost none have the coverage gap that comes with Part D plans.

“That’s particularly painful and problematic for people who have substantial expenses at any one point in time,” she said.

Industry groups say they lobbied hard against the change in the tax rules before it was added to the health care law over the winter.

“It was in all of our letters and communications that went up to the Hill, and the companies were heavily involved in that,” said Dena Battle, a tax specialist with the National Association of Manufacturers.

Nationwide, companies would take a $14 billion hit on their financial statements if all of the roughly 3,500 companies receiving the subsidies continued to do so, according to a study by Towers Watson, a human resources consulting firm.

That financial hit will be a one-time cost as companies report a new cost estimate for the benefits over the life spans of all retirees.

Deere and Caterpillar were among a group of 10 companies that sent a letter to congressional leaders in December warning of the cost increases. The others were Boeing Co., Con-Way Inc., Exelon Corp., Navistar Inc., Verizon, Xerox Corp., Public Service Enterprise Group Inc. and MetLife Inc.

Most of the other companies that signed the letter said Thursday that it was too soon to estimate their costs. A number of other major U.S. companies also said they did not know how much the tax change would cost them. Some companies might wait until they release their earnings reports next quarter to address the costs so they have time to review the entire law.

The companies that signed the December letter warned that changing the way retiree drug benefits are subsidized would have a broad impact on the economy, and there are already indications that the effects will trickle down to individuals.

Consumers Energy, a Michigan gas and electric company with 2.9 million customers, said it will not take a big first-quarter charge because, like most utility companies, it can try to recover the added costs from its customers through rate hikes.