Taxes and Iraq

Recommendations were published yesterday by a presidential commission to "simplify" the federal income tax system. The process, from recommendation to approval to implementation, would normally take quite some time, usually several months to years, to finalize. Although, my instincts tell me the changes are not so much about simplicity or fairness, they are more about funding for the continued presence in the Middle East and other future preemptive military actions, therefore, we will likely see this move along on the fast-track.

There are two proposals: a simplified version of the existing income tax and the beginnings of a consumption-based system. Read the following Business Week article, "The Nuts and Bolts of Tax Reform", for more detail.

In either case, the result will likely be higher taxes for the average Joe, bigger breaks for those with bucks. The New York Times reports in the article "Higher Tax Rates for Most, Breaks for Some":

The biggest new tax breaks in the main proposal would go to stock market investors. They would collect most dividends free of tax, as opposed to the 15 percent tax rate that now applies to most dividends.

In addition, 75 percent of profits from the sale of stocks held for more than a year would be tax-free. The effect would be to nearly halve the rate for the highest-income taxpayers, to 8.25 percent from 15 percent.

The commission emphasized that its rationale for such changes was to get Americans to save more and borrow less. Such policies could prompt a one-time rise in share prices to adjust for the tax benefits.

So, companies get a boost from new investors. Monies which should be going into savings are being used to raise the stock price of companies whose major shareholders will then make profits, while the average Joe bets on the future of his "savings" (now in the stock market) assuming all the risk.

Investors who put their money into assets other than stocks would not fare so well. Gains from the sale of all other assets, including businesses, farmland and paintings, would be taxed at the same rate as wages.

Thus, a taxpayer in the top bracket who sold stocks for a $1 million profit would pay no more than $82,500 in taxes, while someone who made the same profit from selling a business, a farm or a Monet would pay four times as much. Under current law, most investors would pay $150,000.

Scott A. Hodge, president of the Tax Foundation, a nonprofit group that seeks lower taxes, called the proposal "an incentive to buy stocks and a disincentive to be an entrepreneur."

And, what about the tax rate implications for Average Joe?

The panel would also raise to 15 percent from 10 percent the tax rate on the first $7,300 of taxable income this year for individuals and $14,600 for married couples. Taxpayers with incomes higher than this would also be affected by this higher rate.

The panel would also raise to 30 percent, from 28 percent, the rate that this year applies to individuals making as little as $70,000 and couples making as much as $178,000.

The 35 percent tax rate, which applies only to the top 1 percent of taxpayers (incomes above $326,450 now), would be cut to 33 percent.

However, for individuals, the 33 percent rate would begin at a much lower level of income, $100,001 instead of $150,150. Therefore, people in this income range would be paying a higher rate on their last dollars of income. In short, there would be higher marginal rates for most people making less than $326,450.

I guess the alternative to raising taxes, which is cutting spending, is not an option.

Today's Washington Post article, "Commission Recommends Overhaul of Federal Income Tax", warns of the impact to the housing market:

Still, the National Association of Realtors said "the value of the nation's residential property could decline 15 percent or more" if the panel's mortgage proposals become law. Gerald M. Howard, chief executive of the National Association of Home Builders, criticized the measures as "the biggest tax hike for homeowners ever considered."

Also, a warning of the impact to retirement and pension plans:

Life insurance companies and agents were also upset, fearing that the savings proposals could supplant or compete with their products. A coalition of life insurance associations called the plans "a retreat from America's historic commitment to helping Americans achieve financial and retirement security." The American Society of Pension Professionals & Actuaries said the plans would be "devastating to the retirement security of millions of American workers."

And, just to entice companies to expand their revenues outside the domestic US:

Both plans would assess companies only on their domestic profits, ending the United States' long-held policy of taxing income wherever it originates.

Onto Iraq...

The Senate went into a closed-door session yesterday as the Democrats pressed the Republican majority for an investigation into the intelligence the White House used to justify going to war with Iraq.

From a CNN report:

Democrats demanded that Intelligence Committee Chairman Pat Roberts move forward on a promised investigation into how Bush administration officials handled prewar intelligence about Iraq's suspected weapons programs.

The Democrats appear to be taking advantage of the series of events which have destabilized the White House. Will anything come of it?

Here are some comments from Republican Senator Bill Frist who, along with a whole lot of other politicians, should be nominated for an acting award:

Frist said Democrats had "hijacked" the Senate...

"This is an affront to me personally," said Frist, a Tennessee Republican. "This is an affront to our leadership. It is an affront to the United States of America, and it is wrong."

Let me correct Senator Frist, if I may. Being led into war with Iraq by an administration who knowingly lied to the American people and the world is an affront to the United States of America. What you are doing, Mr Frist, is an affront to the people of the United States and all the things for which the United States of America stand for.

Get out of the way, Mr Frist and fellow deceivers ...

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