Time for a new frame on Bush tax cuts

For those of you that remember talks about the estate tax, which is called death tax by Republicans (their frame which is very effective), there was an attempt by liberals/progressives to call it the Paris Hilton tax cut.  Sadly that never really took off.

So when we talk about letting the Bush tax cuts expire on income that is higher than $250,000 (those wealthy folks still get the same tax cut as everyone else on the income below $250,000), we need a new frame.  I suggest we go with the Fox News/Republican/Tea Party bogey name to get us there, it is time to call it the George Soros tax cut.  I want to hear John Boehner and Mitch McConnell, not to mention Rush Limbaugh, Bill O’Reilly, Sean Hannity, Glenn Beck, and Sarah Palin to defend the George Soros tax cut.

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Congress gets it right

Since it is tax day, I am going to highlight something that Congress got right.  Apparently a law was passed that if a tax preparer prepared more 10 returns or more, they were required to e-file.  For most this is a good thing, I get my e-filed return much faster, at least for Federal return.

I suspect that MN will push the limit on when they have to pay the refund to me like they did a few years back.  That is what happens when you have a governor (Tim “less than 50 cent” Pawlenty) against tax increases, and instead uses accounting tricks shifts to keep his purity for a national run.

Anyway, back on topic, our greatly diverse America includes those of the Amish faith, and they don’t use electricity which is the “e” in e-file.  So Rep. Peterson worked with other members of Congress, especially those with Amish communities in their districts, to create an exception.  This was a good common sense solution to an unintentional problem and it was a bipartisan solution.

-Josh

Corporate Taxes too high??

The one trick pony that is the Republican Party, whose only solution to anything is tax cuts, have been whining about how our corporate tax rates are too high. Yet there are plenty of loopholes that corporations use to get out of paying their fair share. Al Norman reports on the Huffington Post about one that Wal-Mart was using and has lost in North Carolina.

Two years ago, the Wall Street Journal ran a story revealing that Wal-Mart pays billions of dollars a year in rent for its stores, but in 25 states—most of them east of the Mississippi—it has been paying most of that rent to itself, and deducting that amount from its state taxes. This scheme has allowed Wal-Mart to avoid paying several hundred million dollars in state taxes.

Based on a dodge developed by its accounting firm, Ernst & Young, as a “local tax reduction strategy,” Wal-Mart’s financial self-dealing has allowed it to pay rent to itself through a maze of eight corporate subsidiaries created in 1996, including Real Estate Investment Trusts (REITs).

Under the agreement with itself, Wal-Mart pays 2.5% of gross sales monthly as rent to its own REIT, which then wires the money quarterly to Wal-Mart Property Company in the form of a dividend, which is then paid to Wal-Mart Stores as a tax-exempt “dividends received.” All of these transactions are handled through a “cash management agreement” between all the parties. Neither the REIT nor the Property Company has any employees.

The REITs don’t pay taxes, as long as they pay 90% of their income out in dividends to shareholders. In Wal-Mart’s case, the REITs are owned by Wal-Mart subsidiaries registered in Delaware, a state that has no corporate income tax. Wal-Mart gets the benefit of the rent expense, but also gets the benefit of the non-taxed dividend, on the same monies. The dividends escape taxation, and the original rent that created the dividends is deducted from taxable income in the states where the “expense” is incurred. The rent, in essence, goes from one Wal-Mart pocket, into another.

Now if you were a person against paying your income or payroll taxes, wouldn’t it be sweet to be able to set up an automatic system to shuffle money to reduce your tax liability.  Of course, I think taxes provide useful services, so I wouldn’t do that, but maybe some of you readers would like to do that.

When North Carolina challenged this financial shenanigans, and required Wal-Mart to consolidate its financial earnings, Wal-Mart paid then sued.

On December 31, 2007 an Emergency Special Judge in Wade County, North Carolina Superior Court, ruled in favor of the state of North Carolina, and against Wal-Mart’s lawsuit. The Judge ruled that North Carolina had the statutory right to force a corporation to state its “true net income” through a consolidated statement, ” so as to properly reflect the extent of the corporation’s activities in the state.” The judge ruled that Wal-Mart’s treatment of rent had no “real economic substance,” and was only a mechanism for reducing the taxes it pays to the state of North Carolina. “Plaintiffs do not deny the facts demonstrating the circular journey taken by the ‘rents’ paid by these plaintiffs,” the judge wrote, “but contend that on each leg of the journey plaintiffs were only taking advantage of a lawful deduction afforded them by then-existing tax law. Such a piecemeal approach exalts form over substance, however…There is no evidence that the rent transaction, taken as a whole, has any real economic substance apart from its beneficial effect on plaintiffs’ North Carolina tax liability. It is particularly difficult for the court to conclude that rents were actually ‘paid,’ when they are subsequently returned to the payor corporation.”

That really is the sum of it, can you truly get a tax deduction for paying rent, when that money is returned to you, in effect, not paying rent?  Fortunately for North Carolina tax payers, the Wade County judge saw through the bullshit of this tax evader (and Court of Appeals upheld it).

-Josh

Come on Newshour – do the math

Journalism, in the form of newspapers are in state of crisis in the US.  Part of the problem with journalism in general, including at the supposedly liberal hour long Newshour on PBS, is that they aren’t calling people on their lies.

As I pointed out on this post, the Republicans are lying about the increase in the national debt.  Well tonight, I heard the same lies repeated by Rep. John Boehner of Ohio who said this,

And so you’ve got higher spending. You’ve got higher taxes. And then you get to the real whammy, and that’s the national debt.

President Obama’s budget will double the national debt in the next five years. It will triple the national debt in the next 10 years, given their projections.

This is unacceptable. I think it will imprison our kids and grandkids. It will slow our economy. It will slow job growth in America. It’s just not, in my opinion, not the way to proceed.

Remember that the debt is about $11.1 trillion, and if by “their projections” he means the updated CBO projections (pdf) which is $9.3 trillion.

The cumulative deficit from 2010 to 2019 under the President’s proposals would total $9.3 trillion, compared with a cumulative deficit of $4.4 trillion projected under the current-law assumptions embodied in CBO’s baseline.

Well the math again shows, that $11.1 trillion plus $9.3 trillion equals $20.4 trillion.  Dividing $20.4 trillion by $11.1 trillion is 184.5% or an increase of 84.5% not exactly doubling, in fact short of doubling.

So I showed I could do math, it would be nice if these journalist had prepped themselves with the likely talking points, after all Senator Judd Gregg’s radio address was 6 days ago using the same lies.  He should have expected it coming, and he should have called him on it.  But it instead we got this question next,

KWAME HOLMAN: The speaker, Speaker Pelosi, says your budget being offered by the Republicans in the House gives too many tax cuts to the wealthiest Americans and does not do those kinds of investments in renewable energy, in education, in health care.  

REP. JOHN BOEHNER: I think we have a responsible budget. It does curb spending. It does curb taxes to allow more investment in our economy.

We’re in the middle of a serious recession. The best way to help solve that recession is to allow American families and small businesses to keep more of what they earn. And, most importantly, we have much smaller deficits as we go forward.

And so I believe that we have a responsible approach to our budget, far more responsible than the budget plan that they’re bringing up.

The point is, we usually know what these members of Congress are going to say, and often it just isn’t true.  So research what you might hear them say in the interview, you know anticipate because it isn’t hard, and then fact check that, and call them on lies when they lie.

-Josh

Republican Talking Points downloaded

Regarding Tom Daschle owing $120,000 in back taxes, both the new RNC Chair, Michael Steele, and Senator Jim DeMint have said that the reason Democrats don’t mind raising taxes is because they don’t pay them.  You will hear this more and more as the corporate media turns provides the echo chamber for Republican/Conservatives.

-Josh

Understanding the gas tax through math

Here is the first follow up blog on the gas tax increase in Minnesota that recently passed and survived a veto.

Throughout this blog, I am using historical data from the Energy Information Administration which is part of the Department of Energy. Now because I am lazy, I am going with what I found in a quick search. This is weekly averages over the Midwest starting May 11, 1992 through March 10, 2008. This average is over multiple states, who may or may not have a higher state gas tax than Minnesota, so it is far from the perfect data set, but it will still serve to explain the gas tax as part of the cost of gasoline.

First we shall look at the state gas tax as a percent of the total cost of a gallon of gas. You may have recalled in a previous post I had quoted a letter by Al Sands,

Why are gas taxes pegged at cents per gallon, instead of a percentage of the retail price of a gallon? Most taxes are based on dollars: the sales tax, the income tax, the property tax. Pegging the gas tax on gallons dooms it to constant underfunding. Maintenance costs go up every year.

The point Sands is making, is that the state gets the same amount of money per gallon of gas, regardless of the increase in costs.

So looking at the data between May 11, 1992 and December 27, 1999 the range of the gas prices was from $0.853 and $1.266, I know it makes me cry to see how long these prices were relatively stable and lower. So looking at the maximum and minimum, a 20 cent gas tax would take between 23.4% or 15.8% of the price of gas during this time period.

Today, with the gas price at $3.187 the gas tax at 20 cents per gallon is only 6.3% of the price of gas. Going back to Sands question, if we had maintained the gas tax at a percent of the price of gas, like the sales tax, then the gas tax at 15.8% would capture 50.4 cents per gallon when gas costs $3.187, far less than the 28.5 cents it will be at after the phased in increases.

The next way to see how 20 years of a stable gas tax, not tied to inflation, but volume, has lessened its purchasing power is to look at inflation. Using the calculator on Federal Reserve Bank of Minneapolis web site we find this,

  • $.20 in 1988 adjusted for inflation equals $.36 in 2008, or

Once again, the gas tax increase we are talking about, will still be less in inflation adjusted dollars than the amount in 1988.

Now you may have remembered this part of the letters I quoted, this one from Richard Meixner,

The price of gasoline isn’t high enough already, so our legislators are going to make it even more expensive.

So for our history lesson.

  • On May 18, 2005 the Senate passed a bill that would raise the gas tax by 10 cents per gallon.  Governor Pawlenty vetoed either that day, or the following day, May 19, 2005.  The price of a gallon of gas on May 16, 2005 was $2.06.
  • On May 15, 2007, Governor Pawlenty signed a veto of the transportation bill that would have raised the gas tax by 7.5 cents per gallon.  The price of a gallon of gas was at historic highs on May 14, 2007 at $3.158.
  • On February 22, 2008, Governor Pawlenty vetoed the transportation bill that would have raised the gas tax by 8.5 cents per gallon.  The price of a gallon of gas on February 18, 2008 was $3.041.  Of note, the price of a gas of gasoline went up by 10.1 cents per gallon from a week earlier.

When does Meixner expect the gas tax to go back down?  Why isn’t he mad that the increase didn’t come when the gas was closer to $2 a gallon?
At this point your eyes may be glazing over at all these numbers and what they mean to car owners and Minnesota residents, so I will summarize some things for you.

Unless you are looking at absolute dollars, the actual dollars captured in revenue, which have increased (more people, more driving, less efficient vehicles), we are getting less bang for the buck.  The percentage of the price of a gallon of gas that is paid to state taxes has gone down.  Also the value of the gas tax at 20 cents per gallon has diminished due to inflation, to keep up with inflation, the 20 cents in 1988 would now be 36 cents in 2008.

Governor Pawlenty has his opportunity to raise the tax in 2005 when the cost was close to $2 per gallon, instead he vetoed, then he used the much higher prices as the reason against raising it in 2007 and 2008.

At what point in time does  he think the price of gas will go down significantly?  At what point will he think that funding is inadequate enough to warrant an increase?  Does he really think that Wimpy’s pay you Tuesday for a hamburger today is the proper way to fund large scale transportation projects, which had no takers.

With the MN Department of Transportation building falling down, with I-35W bridge having collapsed.  With potholes on highways and city streets leading us down the road to challenge Manitoba for the label Land of 100,000 Lakes.  The state legislature, including the crucial six House Republicans voted to override Governor Pawlenty’s veto, which Minnesotans, and especially the suspension and wheel alignment in our cars, will benefit from it.

-Josh

Transportaton funding in Minnesota

If you are in Minnesota, these two past weeks have been all about transportation. We had a report from the state auditor, we had a comprehensive bill passed by the state legislator, followed by a veto from Governor Pawlenty, followed by the legislator overriding the veto, and finally an ouster of Lt. Governor Molnau from her position as Commissioner of Transportation.

I am going to look at all of these issues in a number of future blogs, but in this first blog I am going to focus on what we the people are saying in letters to the editor in the Strib and Pioneer Press.

From the Strib on Feb 25, written before override vote, (this is the only letter that is not in its in entirety, the rest are),

This transportation funding bill is a compromise and reflects the legislative process at its best. This compromise has the support of not only the Itasca Project and its 45 CEOs of the state’s largest companies, but it has the support of virtually all of the state’s major business and trade organizations.

We understand and respect Gov. Tim Pawlenty’s philosophical views and his opposition to any tax increases. However, the Itasca Project participants and the Minnesota business community leaders recognize the need to invest in and maintain our state’s vital transportation infrastructure. We see daily how growing congestion makes it increasingly difficult to move products in our state’s economy.

JIM CAMPBELL, MINNEAPOLIS, COCHAIR OF THE ITASCA PROJECT AND THE RETIRED CEO OF WELLS FARGO BANK, MINNESOTA REGION; AND Mary Brainerd, Minneapolis, cochair of the Itasca Project and CEO of HealthPartners

So Minnesota business leaders are saying that Pawlenty is against any tax increases, and they are calling this increased taxation an investment.

Next in the Strib on Feb 26, we have this letter,

Pay as you go?
The Legislature and the governor agreed that our transportation system needs fixing. The only question was how to pay for it — raise the necessary funds through taxes, or borrow money and go into debt, adding interest to the cost, and postponing payment into the future?

Gee, our children only have the egregious national debt, a troubled Social Security system, health care for an aging population and global warming to worry about. Why not saddle them with roads, too?

LISA WERSAL, VADNAIS HEIGHTS

This letter is getting to the heart of the funding process. Do we want to pay for the needs as we go, or do we want to borrow? I suspect that continued borrowing will hamper our ability to deal with our roads and we will discuss this further issue in further detail in later blogs.

Next we have this one in the Strib from Feb 27,

VETO OVERRIDE
Odd timing

How grimly ironic! The federal government is sending out tax rebates to stimulate the economy and ease the recession, but before the checks are even in the mail, our local government has decided to steal our rebates by raising our taxes with the help of a few Republican turncoats.

The price of gasoline isn’t high enough already, so our legislators are going to make it even more expensive. This nation is facing the worst recession in decades. The cost of food and energy is skyrocketing, and people are losing jobs and their homes in record numbers. Bankruptcies are setting records, people can’t afford health care or medication, and lawmakers raise our taxes to build a ballpark for a private enterprise and fix a few bridges.

Simple economics dictate that when finances are maxed out or stressed, one should cut back on spending. Not so with our local legislators — they do just the opposite and spend more of our money.

RICHARD MEIXNER, CHANHASSEN

Ah, the standard Republican frame of taxation as theft. On the issue of timing, apparently Mr. Meixner has a very short memory. This legislature tried to raise the taxes in 2007 and in 2005, in 2005 the price of gas was around $2.00. In another blog, I will discuss the issue of the amount of taxes in terms of inflation adjusted dollars, and as a percentage of the price of a dollar of gasoline.

In the Strib on Feb 29, there were two posts. The first questions our education system, the second is a very valid point.

Repeat of 1776?
Once again, there was a tax levied without a referendum. The 0.025-cent increase in the metro-area sales tax is reminiscent of the tax increase that was levied on Hennepin County for the new Twins ballpark.

There was a time in our country’s history when colonists went to war with Great Britain over taxation without representation.

JON MCCOLLUM, PLYMOUTH

Maybe Mr. McCollum has been watching the View too much, or maybe Whoopi Goldberg has a book on Civics that should be burned, but he has been represented. The legislator has two bodies, one is the House of Representatives (hmmm, that seems ironic) and the Senate, both are representative forms of democracy. Now I will cut him a little slack because there are provisions for direct democracy, in the form of the referendum, for stadium funding. I would have liked to have the chance to vote on the Twins stadium funding, but the representative body, the legislator has the ability to override that.

The second letter that day,

The hidden cost
To all those who think the gas tax will cost us no more than $4 a week, please consider how most products travel — by road. This tax will trickle down into most products and services. Suppliers now have an opportunity to raise their current delivery charge because of the tax. Don’t fool yourselves, it will cost you more for the few it will benefit.

JOE KOHAUT, BURNSVILLE

I think the overall concept is very dead on. Increases to energy costs will be passed on to consumers. There are two issues I have with the letter, it isn’t $4 per week, it is $4 per month. On the issue of suppliers now have the opportunity to raise the costs, apparently Mr. Kohaut has his head in the sand. Costs have been going up already, the rise in the cost of gasoline, independent of any increases in gas taxes, over the past decade, has driven this, they have not been waiting for this tax increase to justify it.

Over in the Pioneer Press we have these letters.

Note: since they don’t list the date in the paper on the web page, I am going by the last time updated on the web page

On Feb 20 we have this one,

Unsafe investments
During the past two years, my wife and I invested more than $50,000 into our East Side home. This included energy-saving systems for heating, cooling, water and new windows. We calculated hundreds of dollars a month in savings. That allowed us to finance it all.

In other words, we made a huge investment in our future and in the city of St. Paul. Now, politicians want to steal it away, saying we are also responsible to make a huge investment in everything they dream up.

Our property taxes are going up by double digits. The DFL plans a 38 percent increase in the gas tax, a 13 percent increase in sales taxes and a drastic, expensive overhaul of health care. St. Paul schools, with enrollment falling by 1,000, want more money, instead of making necessary cuts.

Truly, 2008 is the year of political insanity. Politicians have shown there is no reason to invest in the future, because they plan to steal from it as soon as it arrives.

DAVE RACER

St. Paul

First, we get the taxation as theft again. Second, we use accurate, but extremely misleading numbers by using percent increases, it makes it seem much bigger than it is. Third, apparently investing is okay, but only on a personal level, not on a societal level. Unless they go out and fund an off ramp that benefits them and others, I just can’t get this selfish hypocrisy.

On Feb 25 we have this one,

Don’t raise tab fees
Regarding the Minnesota transportation funding law, I have noted numerous comments about the proposed increases in gasoline and sales taxes, but little about possible effects of the increase in license tab fees. We need to raise more tax dollars for transportation purposes, but I feel strongly that license fees on new motor vehicles should not be increased.

The increase will discourage me and probably many other potential buyers from buying a new car anytime soon. It had this effect the last time the license tab fees were outrageously high, and it will again.

The economy appears to be in a pre-recessionary state. The U.S. government is planning to send “rebates” to encourage spending, thereby stimulating the economy. The Minnesota law may have the opposite effect, adding to the problems of an already-struggling automotive industry.

Richard Fayling, White Bear Lake

When Jesse Ventura reduced the license tab fees I thought it was a huge mistake. As my friend Rick would say, “no one put off buying a car because the tab fees were too high.” Now apparently he was wrong if Mr. Fayling is being truthful. My best guess though is that Mr. Fayling took advantage of reduce tab fees post Governor Ventura’s action, and may be looking at getting new car in the next few years. If the tab fees go up, and don’t change in the future, it will just be a part reluctant part of his calculation. The automotive industry is hurt by more things then a gas tax increase or license tab fee increases.

On Feb 27, we have this letter,

Unpleasant but necessary
Been to the dentist lately? Like it? They sit you down, make your head numb, and drill your teeth. Unpleasant but necessary. If we don’t go, our teeth rot. I knew a man who never saw a dentist. He died from an infection caused by tooth decay. Unpleasant.

Nobody likes taxes, either. Unpleasant but necessary. We need what they pay for.

The irony surrounding the gas-tax increase is striking. We bellyache about our roadway infrastructure, yet scream when people we elect say it’ll cost 8.5 cents a gallon in tax to fix. This while we meekly drive our SUVs to gas stations and pay price gouges of 25 cents a gallon whenever some oil potentate has flatulence.

Oil executives go from wealth to obscene wealth while our bridges and highways crumble.

Gov. Tim Pawlenty says borrow the money. Let the grandkids pay for it. Brilliant, Tim.

Maybe an adjustable-rate loan?

C’mon, get real!

A.T. Chapman, Cottage Grove

This letter writer makes a good point about increases in gas prices in comparison to the permanent increase in gas tax that our government will capture (not steal) to invest in our transportation system.

This following letter is the far and away my favorite one from the past week. I think the writer hits a huge and important issue, how we calculate the tax. This from Feb 27 in its entirety,

Revising gas-tax collection

Why are gas taxes pegged at cents per gallon, instead of a percentage of the retail price of a gallon? Most taxes are based on dollars: the sales tax, the income tax, the property tax. Pegging the gas tax on gallons dooms it to constant underfunding. Maintenance costs go up every year.

Changing to a dollar base might not be enough. When I buy a hybrid that uses half the amount of gas, your funds will decrease. And when I buy a “plug-in” that goes on electricity, what then?

We need better solutions. Perhaps a quarterly or annual mileage report, with a tax based on mileage pegged to the current price of gas, might help. We also have the technical ability to assess road-use taxes based on cameras mounted in the metro area. What else?

Elwyn H. (Al) Sands, Roseville

Mr. Sands asked a question that no one else I have read this past week has, why is the tax a fixed amount per gallon, as opposed to a percentage of dollar cost for the fill up.  If it has been structured this way, the amount collected would have tripled in the past decade as the price of gas has tripled.  Both methods of calculating will have the same issue with increased fuel mileage standards leading to reduce gas consumption, and the corresponding reduction in tax collection.  However, he does offer a solution, in terms of taxation tied to miles driven.  Any program like that should have credits or breaks for rural drivers as they have less control over the their driving options than those of us in large urban areas.

This Feb 28 letter has a good point,

The Easy Way Out
Since the collapse of the I-35W bridge, I’ve read article after article on how MnDOT is mismanaged, lacks controls and doesn’t know how to prioritize projects, so the logical answer from our politicians is to throw more money at them. If that wasn’t bad enough, there are a number of residents who think that by overriding the governor’s veto the Legislature showed democratic leadership in doing the right thing. How is throwing more money at a mismanaged department showing leadership?

If I had to define democratic leadership, I would say it’s having the courage to face a department like MnDOT and its associated unions and tell them that before approaching the taxpayers for more money, they must become better managed, develop effective internal controls and learn the art of prioritizing.

Our politicians took the easy way out. I hope that there are enough voters like me who will show them how easy it is to show them the way out.

Terry L. Roepke, St. Paul

Do we want money to go to a broken department?  No, but there was an attempt to hold this department accountable, and that was through giving Molnau the boot from the top spot.  The acting and new Commissioner, whoever that might be, will need to be held to a higher standard.  Regardless, the money is needed.

As I said at the beginning, I will be posting more blogs on issues related to all of this in the coming week.

-Josh

Fixing the Devil’s Triangle

There was front page article in the Strib on the traffic congestion at the Devil’s Triangle.

In society, a common label for Democrats who wish to invest in society is tax and spend liberal.  Sometimes you can see the spittle coming out right wing pundits as they say it.

But if we take framing lessons, framing meaning how to present an idea in a positive light, then I think a better explanation of this position is tax and invest.  Supporting people at the low end of the income scale is an investment, building infrastructure is an investment, and funding public education is an investment.

A frame that we don’t hear is spend and borrow conservatives.  While it is harder to label state level politicians with this, after all most states have balanced budget requirements, so they can’t run up deficits like Republican presidents.

But Governor Pawlenty decide to come up with a unique plan to fund the Crosstown project, what I like to call the Wimpy funding scheme.  Did you ever watch the cartoon Popeye?  Remember the large figure Wimpy, who was always proposing that he will “pay you Tuesday for a hamburger today.”  Well Pawlenty had a novel idea, lets ask the construction companies to build it and we will pay you later for it.  As MPR reported,

When MnDOT said a few months ago it didn’t have enough money to pay for the project, it asked contractors bidding on the $250 million rebuild to loan the state the funds. The contractors rejected the idea and warned at the time they’d refuse to submit bids. That’s exactly what happened.

Unfortunately, this funding plan, which found no takers, has caused ripple effects that impact other construction projects including the Devil’s Triangle as the original article states,

Work that would lift Hwy. 169 above two county roads was supposed to begin last year, but the money got switched to pay for the Crosstown project.

The Legislature and governor didn’t come up with replacement funds for the 169 project during the 2007 session. Now the work is set to start in the second half of 2009, with completion late in 2011.

So the poor drivers that travel through the Devil’s Triangle are stuck in congestion for years on end because Pawlenty vetoed, not once, but twice a gas tax increase.  Oh, and those replacement funds, the Legislature passed a gas tax increase in 2007, that was Pawlenty’s second veto (first in 2005), so the Governor blocked the Legislature.

-Josh