Monthly Archives: September 2008

Comparing the candidate tax plans.

Today many of us declared out political stand points and i thought it would be interesting to connect that to the upcoming elections and the presidential candidates tax proposals

Here are some things that I found interesting from http://www.urban.org/UploadedPDF/411693_CandidateTaxPlans.pdf

· The two candidates’ plans would have sharply different distributional effects. Senator McCain’s tax cuts would primarily benefit those with very high incomes, almost all of whom would receive large tax cuts that would, on average, raise their after-tax incomes by more than twice the average for all households. Many fewer households at the bottom of the income distribution would get tax cuts and those whose taxes fall would, on average, see their after-tax income rise much less. In marked contrast, Senator Obama offers much larger tax breaks to low- and middle-income taxpayers and would increase taxes on high-income taxpayers. The largest tax cuts, as a share of income, would go to those at the bottom of the income distribution, while taxpayers with the highest income would see their taxes rise.

John McCain

· Extension and indexation of the 2007 AMT patch. Individuals must compute their taxes under both the regular tax and the alternative minimum tax. If the alternative minimum tax exceeds the regular tax, taxpayers must pay the higher amount. The AMT requires taxpayers to add a number of preference items (including personal exemptions and certain deductions) to their taxable income, but they may deduct a special AMT exemption. Since 2001, the AMT exemption has been temporarily increased for a year or two at a time to prevent large numbers of taxpayers from becoming subject to the tax. In 2007, the exemption was $66,250 for joint returns and $44,350 for singles and heads of household. But, in 2008, the AMT exemption is set to return to its 2000 level—$45,000 for couples and $33,750 for singles and heads of household—and the number of taxpayers subject to the AMT is projected to increase from 3.5 million in 2007 to 26.5 million in 2008.

· Dependent exemption increase. Taxpayers may claim exemptions for themselves, their spouses (on joint returns), and each dependent (usually children, but also certain other relatives and household members supported by the taxpayer). The exemption is $3,500 in 2008 and is indexed for inflation going forward. Senator McCain has proposed increasing the dependent exemption—but not the personal exemption for taxpayers themselves—by $500 each year beginning in 2010. Married couples filing a joint return reporting adjusted gross income of $50,000 or less would be eligible for the $7,000 exemption immediately (in 2009

Obama

· Partial extension of the 2001 and 2003 tax cuts. Senator Obama has called for extending the tax cuts affecting the middle class while eliminating those benefitting the wealthiest Americans. According to the campaign, Obama would extend the child credit expansions; the changes to marriage bonuses and penalties; and the 10, 15, 25, and 28 percent income tax rates, as well as the lower tax rates on capital gains and qualified dividends for taxpayers in those four tax brackets. He would restore the 36 and 39.6 percent rates and increase the rate on capital gains and dividends for taxpayers in those brackets. To match the campaign’s stated revenue targets, we assumed a rate of 25 percent for capital gains and qualified dividends. 3 Obama would also restore the phaseouts of personal exemptions and itemized deductions, but set the income threshold at $250,000 for married couples filing jointly. As under current law, the thresholds for the phaseout of personal exemptions would be lower for singles and heads of households, but those for the phaseout of itemized deductions would not vary with filing status. The thresholds would be indexed for inflation as they are under current law. Senator Obama would also extend several smaller expiring tax cuts, including the adoption credit and the simplifications to the earned income tax credit. Certain other provisions would be modified, as described below.

· Exempting seniors earning less than $50,000 from income taxation. Senator Obama would exempt seniors earning less than $50,000 from income taxation. A tax unit would pay no income tax if the primary taxpayer (and the spouse for married couples) is age 65 or older and the tax unit’s adjusted gross income, untaxed Social Security benefits, and tax-exempt interest totals less than $50,000. Tax units entitled to a net refund from the government would remain entitled to that refund. The threshold would be the same for both single and married households and would not be indexed for inflation (so its value would erode over time). The eligibility threshold for seniors is a strict threshold—there is no phaseout.

Theres also this link which I found very intresting.

http://www.taxfoundation.org/candidates08/compare/

I guess I was into reading this because I’m pretty lost about whom I’m going to vote for and was hoping that this would in some way change my mind (it hasn’t, it’s just made me more confused and I’ll probably wind up flipping a coin when I go into vote)

This also kind of plays into our discussion about how everyone votes to cover their own ass, and for a lot of people especially during such shaky economic times, I might take my liberal views out of the equation and care more about my money.

I tried to collect some info on IRS audits…  I couldnt find a published number, but I did my own rough estimate based on IRS numbers, and it looks like an EITC return is about 8-9 times more likely to be audited  – at least in 2002.  (.26% vs 1.86%)  Here is other info

Apparently the audit rate for big companies has gone from 70% down to 26% – read about it here.

This article shows how low the audit rate is, and also mentions the special effort to audit EITC recipients.

This article gives an overview of different audit rates – apparently income returns over 1million do get a slightly higher rate of audits – though not as high as EITC returns. Some of this gets complicated – because high income returns are not always very clear cut – but the income is often concealed within other taxable ‘entities’ that can be created – and there are different audit rates for each. I know that one ‘entity’ that wealthy people often use is the S-Corp – and you can notice that its audit rate is significantly lower than the rate for individual high income returns.

Now the IRS tells the story slightly differently – they focus on the % increase in total audits for certain categories, as opposed to the changes in the relative % of audits in each category. In their published documents, they don’t talk about the different success rates for audits at different income levels, and they dont mention low income audits at all. They do show however, a huge drop in audit rates between 1999 and 2000…. so between clinton and bush. They show a rise in high income audit rates, and a drop in the audit rates for businesses. including entities like partnerships and s-corps.

If you fish around in some of the data on this page, it shows that people with their own Self employed businesses are twice as likely to be audited if the business reports less than 25k of earnings.

Still not much directly said about EITC audits… but there is a report from the tax policy center that addresses the issues we talked about in class. This is from the report:

IV. The EITC Compliance Program

Amid all this enlightened activity by the IRS, one example stands out as a misallocation of resources and a failure to balance the rights of taxpayers against the need for enforcement—the EITC compliance initiative. EITC noncompliance appears to be a problem. The IRS estimates that somewhere between 27 and 31 percent of earned income tax credits were issued erroneously in 1999, either because of taxpayer confusion or fraud. They estimate the EITC compliance gap at $7.8 billion in 1998 (See Figure 1), about 0.5 percent of revenues and about 2.8 percent of the total tax gap. But EITC enforcement accounts for 3.8 percent of total enforcement budget in 2003. Indeed, the IRS has requested a 68.5 percent increase in its EITC enforcement budget, while increasing other enforcement by only 3.3 percent. In fact, the increase in EITC enforcement would account for 45 percent of all new compliance dollars. (Internal Revenue Service 2003) On its face, this seems like an inefficient way to spend scarce compliance resources.

The apparently high rates of noncompliance are troubling, but it is necessary to put them in context. Indeed, it is likely that much EITC noncompliance reflects compliance problems that are endemic to the entire income tax. If that is true, then targeting compliance activity at EITC participants alone may not be the most effective use of IRS resources.

The IRS’s current compliance initiative, which will for the first time since 1988 collect information about other than low-income taxpayers, may help resolve some of these issues.

# # # # # # #

The report seems to claim that: The IRS is not as well funded as it once was. It is trying to audit many higher income returns and doing some good things with its limited resources. However, it is also devoting excessive resources (relative to its cost benefit analysis) to EITC returns – as part of a ‘special initiative’ to target EITC cheats – when most data shows that this ‘cheating’ is no more, and perhaps even less, than similar ‘cheating’ in other tax brackets.

So anyway – I’m glad we had this discussion – i’m learning a lot about the IRS that i didnt totally know about myself….

I couldn’t find anything really brief on this so I will write it out, hopefully shorter:

Ketchup says, “For one thing, the emergency nature of the crisis, the lack of prior long-term planning, and the early New Deal’s flexibility meant that nothing new was really in place until the late 1930’s.”  Eh, I don’t think so.

Before the New Deal, the federal government was much more limited in scope and did not make any laws it didn’t have to – states were much more independent, and the prevailing philosophy was that the federal government should have very limited powers.

As a result, the Supreme Court repeatedly struck down New Deal laws saying that the federal government was overreaching its authority.  The Social Security Act was in the process of being challenged.  The laws the Supreme Court were striking down were good for people.

The basic idea was that by 1936 people were pissed and re-elected Roosevelt in a landslide, and in February 1937 he proposed the above plan, known as the “Court-Packing Plan”.  He proposed a law whereby he could appoint one additional Supreme Court justice for every Supreme Court Justice sitting on the court that was over the age of 70.  At that point, the average age of a Supreme Court Justice was 71.

This was a good plan because then he could appoint SIX Supreme Court Justices and get them to stop screwing with his New Deal Laws.  People from all walks of political life were up in arms.

This situation was a Constitutional Crisis of enormous proportions.  So they say.

The Supreme Court stopped being such a hardass and stopped rolling over his laws.

However, because he was such a jerk about the whole thing, he is considered to have been less effective because of the enemies he made during that time, and many of his future plans were thwarted by Congress, by both Dems and Reps.

Because of all that craziness, it is widely considered that the New Deal really didn’t do much for the Depression, but that our entering WWII did.  Most of the reason that the New Deal didn’t do much for the Depression was that after 1937 – and many previously enacted laws were struck down – he couldn’t get much done in Congress, and Congress, mostly conservatives, blocked him on loads of stuff.  It seems that he only got re-elected in 1940 because of the war.

And that, my friends, concludes today’s Constitutional Crisis.

For more info:

Social Security Online

Answers.com – not a bad short summary

Wikipedia – read judiciously, pun intended!

When they said that Roosevelt established the NRA, I was like WT_?  Here’s the word:

The other part of the National Industrial Recovery Act (NIRA) was the National Recovery Administration (NRA), whose task was to establish and administer industrywide codes that prohibited unfair trade practices, set minimum wages and maximum hours, guaranteed workers the right to bargain collectively, and imposed controls on prices and production.

i was taking the A train how from work today and when i was changing a song on my ipod i overheard something that reminded me of this class. there was three women and the train and they were talking and i heard one say to the other that “I’m on foodstamps.”  they were talking about “public assistance” at least that is the words they used.  i couldn’t get the whole conversation even though im sure it was an interesting one because i didn’t want to seem like a crazy person listening in to their conversation so i only heard a small part.  but the thing i did notice is that the one lady had two children, they were calling her mommy that is how i know they were her kids.  these kids were young probably 7 and 3 but they both were wearing nikes and the mother had a cell phone.  these things are things i consider luxury goods but these people are on foodstamps.  Is there anything wrong with this, what do you guys think? i dont know anything about these people and im not trying to judge them but i was just making observations.

To get a idea of the life of poor people in India..Watch this video..

[youtube]http://www.youtube.com/watch?v=KXP2sM7cFac&feature=related[/youtube]

(one thing about the video is that i dont understand why the people have to be converted..)

Man Holding Burberry Umbrella

Woman Holding $10,000 Hermes Bag

Women wearing designers shoes valued above $1,000 each

Baby wearing $100 Fendi Bib

Hey guys, this is my first attempt at posting =]

So bascailly Vogue India is causing alot of tongues to be wagged…in their August issue there is a spread which depicts people from rural areas wearing high end luxury goods..

These are the poorest of the poor (465 million people) who live on $1.25 a day. In a country where there are farmers committing suicides because of shortage of food…where families are forced to sell daughter because their dowry cannot be afforded (talking about the rural population here.. not the big city dwellers who are the new middle class)

How do you guys feel?…Is this just fashion to you or do you find it offensive that the poor are being just “paraded around” ?  

Do you think this a genius editorial ( my mom thought so ) which has a bit of humor and some light charm? Are we laughing at poverty if we find these pictures a work of art?

-Pictures from Highheelconfidential.com

http://www.nytimes.com/2008/09/01/business/worldbusiness/01vogue.html?_r=1&oref=slogin

This editorial is being called “an example of vulgarity”

According to vogue India’s editor, “fashion is no longer a rich man’s privilege. Anyone can carry it off and make it look beautiful.”

You can play around on the Census website for current data on poverty in the US…

See Snapshots archive.

Snapshot for January 31, 2007.

Minimum wage increasingly lags poverty line

by Liana Fox

The recently released 2007 federal poverty guideline highlights the severe and growing inadequacy of the minimum wage. Currently, a full-time minimum wage worker (40 hours/week, 52 weeks/year) would earn $10,712 a year, falling nearly 40% below the $17,170 poverty level for a family of three. Even after factoring in the earned income tax credit, which was designed to bring low-wage workers up to the poverty line, this worker would still fall short of the poverty line.¹

The minimum wage is at its lowest real value in over 50 years and has not been raised since 1997. This is the longest stretch of federal inaction since the minimum wage was first instated in 1938. As the basic income required to support a family has grown with inflation,² the minimum wage has not kept pace with the rising costs of goods. As a result, federal inaction leaves minimum wage workers in an increasingly dire situation.

So this is the 2007 poverty line. What do you think about it? Is it realistic? How much lower or higher would it have to be to actually delineate who is or is not poor? Or is that even possible with one set of numbers?

I saw this article on cnn.com and thought the chart was particularly helpful.  Disclosure: I do not know if people generally consider cnn.com or The Tax Policy Center are especially aligned with certain parties or ideologies.  Also, this article is from June 11, 2008, so there might have been revisions.  But I thought it would be helpful. – Rob  I have only copied the beginning of the article, the full article is here.

from CNNMoney.com article (click to enlarge)

By Jeanne Sahadi, CNNMoney.com Senior Writer, June 11, 2008:

NEW YORK (CNNMoney.com) — John McCain and Barack Obama have starkly different philosophies about tax policy – how to raise the revenue needed to support government programs, spur growth and ensure economic fairness.

But voters really want to know one thing: How would the presidential candidates’ views trickle down to their tax bills? A report released Wednesday by a nonpartisan policy group in Washington, D.C., takes a big first step toward answering that question.

According to the Tax Policy Center’s findings, the common assumptions most people make about the plans of McCain, the presumptive Republican nominee, and Obama, the Democrats’ pick, are not wildly off-base.

McCain: The average taxpayer in every income group would see a lower tax bill, but high-income taxpayers would benefit more than everyone else.

Obama: High-income taxpayers would pay more in taxes, while everyone else’s tax bill would be reduced. Those who benefit the most – in terms of reducing their taxes as a percentage of after-tax income – are in the lowest income groups.

Under both plans, all American taxpayers could pay a price for their tax cuts: a bigger deficit. The Tax Policy Center estimates that over 10 years, McCain’s tax proposals could increase the national debt by as much as $4.5 trillion with interest, while Obama’s could add as much as $3.3 trillion.