Senate Democrats Drop Key Estate Tax Proposal

In an attempt to shore up support for President Obama tax plan, Senate Democratic leaders are eliminating a key provision to tax wealthy estates.

Democrats could not reach a consensus in the Senate Democratic Caucus over how much to tax estates transferred after a person’s death, prompting Senate Majority Leader Harry Reid to inform senators Thursday that he’d drop that provision. The bill would now cost $250 billion, down from the $272 billion, one-year cost of the original proposal, aides said.

“The majority leader wanted to focus on the middle-class tax relief,” Sen. Dick Durbin (D-Ill.) told reporters.

While the Obama tax bill has no chance of winning the 60 votes needed for passage, Democrats want to build at least a simple majority so they can point fingers at Republicans for protecting wealthy families at the expense of tax breaks for the middle class. Anything less than 50 votes would reflect poorly on the president.

Obama says he wants to let the Bush tax cuts expire for households with income over $250,000, and extend the rest of the rates for one year. Republicans want to extend all of the tax rates for everyone for one year, warning that any tax increase would have a negative effect on an already anemic economic recovery, a notion the president himself agreed with when extended the Bush tax cuts back in 2010.

A vote is expected next week on the Democratic plan, and Reid is confident Democrats will muster at least 50 votes, especially after dropping the estate tax provision. Sens. Jim Webb (D-Va.) and Joe Lieberman (I-Conn.) both have announced they would oppose the Obama plan.

The original version of the Senate Democrats’ tax legislation would have set the maximum tax rate of an estate valued at more than $3.5 million at 45 percent. Right now, there’s a 35 percent rate for estates worth more than $5.12 million. If Congress doesn’t act, estates worth $1 million will be hit with a 55 percent tax rate next year. Republicans have labelled the estate tax, the “death tax.”

To strengthen their arguments for extending all the current rates, Senate Republicans on Thursday circulated a study by the nonpartisan Joint Committee on Taxation that showed there was a mere $28 billion difference between the GOP proposal and the Democratic plan, which would end the current rates for household income of above $250,000. That difference, Republicans noted, equaled how much the government spends in a mere three days.

“The American people deserve better than to have the president and his allies threaten to melt down our economy for what amounts to less than three days of federal spending,” said Utah Sen. Orrin Hatch, the top Republican on the Finance Committee.

Sen. Chuck Schumer (D-N.Y.) dismissed the report as a “smokescreen” by Republicans.

“The truth is, if we decouple the tax cuts for those earning above $250,000, that means they will be gone for good,” Schumer said in a statement. “Over 10 years, that will reduce the deficit by $800 billion compared to what Republicans want to do.”

 

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Bill Clinton Says Obama Should Temporarily Extend Bush Tax Cuts For All, Exclude Rich Later

During an interview on on CNBC’s “Closing Bell With Maria Bartiromo” former President Bill Clinton said that the Bush tax cuts, set to expire in January, should be temporarily extended, including for the wealthiest Americans, to give lawmakers time to reach a deal on long-term tax plan that would later exclude the rich.

Clinton’s comments are in stark contrast to President Obama, who claims he is opposed to renewing the tax cuts for people earning more than $250,000 a year. Obama already renewed the cuts roughly a year and a half ago as part of a deal with Republicans to preserve federal emergency unemployment benefits but the President and Democrats agreed to a new deal with Republicans this year that slashed the amount of weeks an individual could claim benefits.

Democrats say they want to extend the rates for all but the richest Americans, while Republicans say the wealthy should be included as well.

President Obama Misleading Voters With Buffet Rule Rhetoric

President Obama and Vice President Biden have been misleading voters with their rhetoric about taxing those who earn $1 million or more a year with the so called Buffet Rule.

For one according to the Tax Policy Center more than 99 percent of millionaires will actually pay a higher tax rate than most middle class families in fiscal year 2015, even without the Buffet Rule.

The president and vice president have given several speeches to gather public support for the Buffett Rule, named after billionaire investor Warren Buffett, who famously wrote that many of his office staff pay a higher tax rate than he does. It would impose an effective tax rate of 30 percent on the adjusted gross income of those making over a million dollars a year. The effective tax rate includes the employee share of payroll taxes and other federal taxes.

But Obama and Biden have distorted the facts when explaining the proposal and its impact. The president says of the Buffett Rule:

“What the rule says is you should pay the same percentage of your income in taxes as middle-class families do.”

But most millionaires already pay a similar rate as middle class families.

Vice president Biden declared that like Buffett there are “tens of thousands and several millions of people who are in that same situation.” An over exaggeration at best.

The non-partisan Tax Policy Center did an analysis of the Paying a Fair Share Act of 2012. Roberton Williams, a senior fellow at the center who spent 22 years at the Congressional Budget Office, wrote:

“The Buffett rule sounds good in principle. High-income taxpayers should pay at least as large a share of their income in taxes as the rest of us. But most already do. On average, middle-income households will pay 2015 taxes totaling about 15 percent of their income (using the legislation’s definition). Without the Buffett rule, more than 99 percent of millionaires will pay more than that and only about 4,000 will pay less.”

Not even close to several millions as the vice president claims.

Under current law, if the Bush tax cuts expire by year’s end, the Tax Policy Center estimates the Buffett Rule would raise taxes for 116,000 households. Just a quarter of the 438,000 households with adjusted gross income of $1 million, not including charitable deductions.

Furthermore, the Buffett Rule would barely make a dent in the deficit. It would generate about $20 billion a year in additional tax revenue, which is around 1.5 percent of last year’s $1.3 trillion deficit and only 3 percent of the $609 billion deficit the White House projects for fiscal year 2015.

Another issue the rule does not address is how the wealthy, like Buffett, actually accumulate their wealth. It is not through income but through investment profits, dividends and interest, which are taxed at the current capital gains tax rate of 15 percent, instead of the current top income tax rate of 35 percent. Capital gains would return to 20 percent and the top income rate to 39.6 percent, if the Bush tax cuts are not extended, President Obama elected to extend them two years ago .

The Obama campaign has a “Pass the Buffett Rule” calculator on its website that allows visitors to compare their tax rates with republican Presidential candidate Mitt Romney’s, but that is also misleading.

Romney reported earning $21.7 million in 2010, mostly in dividends and investment income. His 13.9 percent tax rate was far lower than the 24.1 percent average for those earning more than $1 million.

But visitors to the campaign site wouldn’t know that, and the president and vice president rather play politics than have a fully informed electorate.

Obama’s Economic Recovery for the 1%

The economy has supposedly been in recovery for two years now and President Obama never misses an opportunity to talk up that recovery but as it turns out the wealthy are the ones doing all the recovering.

In 2010, the first full year since the end of the Great Recession, the top 1 percent of Americans took in 93 percent of all the income gains that year, leaving the other 7 percent of gains to trickle down to the other 99% of U.S. workers.

Emmanuel Saez, a Berkeley economist, co-created a resource called the World Top Incomes Database. Saez and his colleagues crunched the data on income growth from 2010, the most recent year available, and found that it was incredibly, and unfortunately predictably, one sided.

While much of the country is struggling to maintain, with a growing number of people on the verge of poverty or already there, the rich continue to get richer.

Income for most workers has barely risen in 3 decades, while the top 1 percent’s income has almost triple. Economists and other experts say that could be the result of any number of factors, including the decline of labor unions and tax policies such as the Bush tax cuts, which were extended by Obama, that favor the wealthy.

A 2011 study states that income inequality is a major barrier to economic growth.

 

Obama Budget Racks Up $1 trillion More in Debt Over a Decade Than Projected

In his final budget request before November’s presidential election, President Obama called for $350 billion in new stimulus to keep payroll taxes low, bolster domestic manufacturing, bring jobs back from overseas, hire teachers, retrain workers and fix the nation’s crumbling infrastructure.

Obama wants to reduce deficits by raising taxes by nearly $2 trillion over the next decade on corporations and the wealthy and by letting the Bush tax cuts expire on households making over $250,000 a year. The president is also encouraging congress to eliminate the alternative minimum tax, which hits many middle-class families, while requiring millionaires to pay at least 30 percent of their annual income to the Internal Revenue Service. To deal with healthcare entitlements the president wants to cut spending on federal health-care programs by about $360 billion over the next decade, primarily by reducing payments to drug companies and other providers. Starting in 2017, Obama also proposes to raise Medicare premiums for new retirees and seniors with higher incomes, start charging co-payments for home health-care services, and penalize patients who buy Medigap policies to take care of Medicare co-payments and deductibles.

The president says his proposal would save at least $4 trillion over the next 10 years and stabilize government borrowing, but  budget deficits would stay well above $600 billion a year for most of the next decade. The portion of the debt held by outside investors would climb to $18.7 trillion by 2021, or 76.5 percent of the overall economy, twice the size of the debt before the recession hit in 2007 and $1 trillion higher than the president’s September forecast.

The Administration blamed that increase on more dire economic projections which tend to depress tax collections, increase government spending and drive up deficits. Since the budget was prepared though, job growth has proved stronger than expected, officials said, adding that the picture would look brighter today, but White House economic adviser Gene Sperling said the administration added “our aspirations” to the $3.8 trillion request.

New initiatives would increase 10-year deficit projections by about $350 billion. They include an extra $125 billion for road and rail projects, as well as permanently extending tax breaks that provide families up to $10,000 for college tuition and reward businesses for doing research in the United States.

Republicans say that Obama was able to meet his debt-reduction goals with tax increases and accounting gimmicks while ignoring the massive cost increases that are looming as the nation’s population ages.

“Instead of an America built to last, this is a plan for an America drowning in debt,” House Budget Committee Chairman Paul Ryan (Wis.) said. “All we’re getting is more spending, more borrowing.”

Last year, the president declined to endorse the recommendations of a bipartisan fiscal commission he appointed to develop a debt-reduction strategy.

The ever shrinking middle class…

Middle class incomes have been stagnant for at least a generation, while the wealthiest Americans have seen their income surge ahead at warp speed.

In 1988, the income of an average American taxpayer was $33,400, adjusted for inflation. 20 years later not much had changed, the average income was still just $33,000 in 2008, according to IRS data. During that same time the richest 1%, those making $380,000 or more,  of the country have seen their incomes grow 33%.

One of the causes for wage stagnation that experts point to is the decline of unions and other labor protections, said Bill Rodgers, a former chief economist for the Labor Department, now a professor at Rutgers University. Through deals struck by way of collective bargaining, union workers have traditionally earned 15% to 20% more than their non-union counterparts, Rodgers said.

But union membership has declined rapidly over the past 30 years. In 1983, union workers made up about 20% of the workforce. In 2010, they represented less than 12%.

“The erosion of collective bargaining is a key factor to explain why low-wage workers and middle income workers have seen their wages not stay up with inflation,” Rodgers said.

Without collective bargaining pushing up wages, especially for blue-collar workers, average incomes have remained flat.

International competition is another factor. While globalization has lifted millions out of poverty in developing nations, it has had a negative affect on middle class workers in the U.S.

Factory workers have seen many of their jobs shipped to other countries where labor is cheaper, putting more downward pressure on American wages.

“As we became more connected to China, that poses the question of whether our wages are being set in Beijing,” Rodgers said.

Finding it harder to compete with cheaper manufacturing costs abroad, the U.S. has emerged as primarily a services-producing economy. That trend has created a cultural shift in the job skills American employers are looking for. 50 years ago, there were plenty of blue collar opportunities for workers who had only high school diploma, now employers seek “soft skills” that are typically honed in college, Rodgers said.

While the average American was losing ground in the economy, the wealthiest were capitalizing on these issues.

Globalization has been a major issue for the countries labor force, but it’s also been a major win for corporations who’ve used new global channels to reduce costs and increase profits. New markets around the world have also created greater demand for their products.

“With a global economy, people who have extraordinary skills… whether they be in financial services, technology, entertainment or media, have a bigger place to play and be rewarded from,” said Alan Johnson, a Wall Street compensation consultant.

As a result, the disparity between the wages for college educated workers versus high school grads has widened significantly since the 1980s. In 1980, workers with a high school diploma earned about 71% of what college-educated workers made. In 2010, it was 55%.

Another driver of the rich has been the stock market. The S&P 500 has gained more than 1,300% since 1970, which has helped the American economy grow but the benefits have been disproportionately reaped by the wealthy.

Over the last 30 years regulation of the financial industry has been on the decline. President Regean was very much anti-regulation, but it was during the Clinton years in which barriers between commercial and investment banks, enacted during the post-Depression era, were removed. In 2000 the Commodity Futures Modernization Act also weakened the government’s oversight of complex securities, allowing financial innovations to take off, creating unprecedented amounts of wealth both for the overall economy, and for those directly involved in the financial sector. Tax cuts enacted by the Bush administration and extended by President Obama have also been a major windfall for the wealthy. Former Federal Reserve chairman Alan Greenspan brought interest rates down to new lows during the last decade and the housing market experienced explosive growth.

“We were all drinking the Kool-aid, Greenspan was tending bar, Bernanke and the academic establishment were supplying the liquor,” Deutsche Bank managing director Ajay Kapur wrote in a research report in 2009.

We all know what was the end result of these economic policies. The worst economic crash since the great depression.

The unemployment rate is still higher than 9% and the real estate market is showing few signs of rebounding, meanwhile corporate profits are at historic levels and the stock market continues to charge ahead. The wealthiest people continue to eclipse their middle-class counterparts.

“I think it’s a terrible dilemma, because what we’re obviously heading toward is some kind of class warfare,” Johnson said.

Anyone still having a hard time figuring out what Occupy Wall st. is all about?

Paul Ryan, Herman Cain want tax increases for middle class but not millionaires…

According to Rep. Paul Ryan (R-Wis.), House Republicans will oppose Obama’s payroll tax cuts for both employers and employees, saying that the policy had already failed to boost the economy. “It hasn’t worked,” Ryan said, saying the current temporary tax cut should be allowed to expire. When it does expire the temporary tax cut will amount to a 50 percent hike on workers making less than $106,000 per year.

He also said he opposes the president’s proposal to require millionaires to pay the same tax rate as the middle class, known as the Buffett plan. “Class warfare might make for good politics, but it makes for rotten economics,” Ryan said.

Oh the irony.

As chairman of the House Budget Committee, Ryan authored a long-term plan that would radically alter Medicare and slash tax rates for the wealthy while cutting social spending for the middle class and poor.

GOP presidential candidate Herman Cain also let his opposition to the tax on millionaires be known. He is also against the payroll tax cut extensions.

“It’s too little, too late,” said Cain.

Ryan, while backing a payroll tax hike, nevertheless said that tax hikes cannot be part of the deficit-cutting proposal that the super committee comes up with.

As part of his explanation, Ryan made it clear that he sees no difference between raising taxes proactively and allowing tax breaks to expire. “You already have a $1.5 trillion tax increase coming in 2013,” he said, referring to the expiration of the Bush tax cuts that were extended by President Obama for two years. Ryan’s reference to the expiration as an “increase” shows his willingness to let tax cuts for the middle class expire.

Because of the looming Bush tax cut expiration, said Ryan, the super committee should avoid tax hikes. “Why on earth would we go with that, especially when the problem is spending?” he said.

“Clearly, Democrats could work with us” and get $1.5 trillion in spending cuts with no additional revenue, Ryan said. “That shouldn’t be that tough.”

As for the budgetary woes outside Washington, Ryan said, “We just don’t think we should be bailing out state governments.” He added, “That’s the constitutional responsibility of state governments, not federal governments.”