DC Johnston: End insurance co-payments

Here's another one from David Cay Johnston, this time on the outrageous inefficiency of U.S. hospitals:

American hospitals spend a huge and growing share of their revenue on overhead, a study published today in Health Affairs shows. Getting those costs down should be a national priority.

U.S. hospitals on average spend 25.3 cents out of each dollar of revenue on overhead, with for-profit hospitals spending 27 percent and nonprofits a bit below the average.

By contrast, the Netherlands and England, which have the next highest overhead costs, spend 19.8 percent and 15.5 percent, respectively. Both are moving toward market-based financial models, so, as with the U.S., overhead costs are likely to rise.

[...] The new study helps explain why for every $1 the 33 other countries with advanced economies spend per person on universal health care, the United States spends $2.64 — and yet more than one-fifth of Americans have no or poor health insurance.  A significant reason the U.S. health care system is so expensive and inefficient turns out to be those annoying co-pays. 

Here's one suggestion: eliminate co-pays. Here's why:

In economics “rational” is a term of art. It means groups of people consistently making choices that maximize their benefits and minimize their costs. 

By this definition, the promotion of co-pays by employers and insurers fails the rationality test. Why? Because co-pays discourage people, especially those with meager incomes, from seeing doctors and obtaining medications. That reduces immediate spending on doctor visits and drugs but not total costs over the longer term. Instead, when people who are squeezed financially do not pick up their medications, thus avoiding the co-pay, they later will need more intensive and costly care, which drives up total costs for health care as well as increasing human misery and shortening lives.

When co-pays discourage getting drugs and visiting doctors, which results in more costly medical problems later, the system is irrational. When those payments eat up as much as or even more than they bring in, the system is more so.

Here is a suggestion: Get rid of co-pays. Instead let’s just add a prominent line on paycheck stubs that reads, “Your health care is paid separately, and it cost X dollars this pay period.” That would help make the American economy more efficient and more humane.

Time to end co-pays

By David Cay Johnston

September 8, 2014 | Aljazeera

URL: http://america.aljazeera.com/opinions/2014/9/health-care-costscopaysoverhead.html

DC Johnston: How U.S. companies get rich off taxes

My main bearded tax expert David Cay Johnston is back with more perfectly legal scams that big business use to get rich at our expense. Here it is in layman's terms:

Imagine how your bank statement would look if, instead of having taxes taken out of your weekly paycheck, Congress let you keep that dough in return for your promise to pay your taxes years or decades from now—and sometimes, never.

That’s the extraordinary deal Congress gives many big American companies now sitting on hundreds of billions of dollars of what are, essentially, interest-free loans. Apple and GE owe at least $36 billion in taxes on profits being held tax-free offshore, Microsoft nearly $27 billion and Pfizer $24 billion, according to Citizens for Tax Justice, a nonprofit organization respected for the integrity of its numbers even by groups that dislike its progressive perspective.

'Twas not always thus, Johnston reminds us, and as usual, it's Reagan's fault [emphasis mine]:

The use of offshore tax havens to convert profits into expenses stems from a 1986 change to Section 531 of the tax code. Starting in 1909, Congress imposed a 15 percent penalty on corporate cash-hoarding. That was supposed to encourage companies to reinvest and pay salaries and dividends, rather than weaken the economy by stuffing profits into the corporate equivalent of the proverbial mattress.

The 1986 amendment said companies could hold unlimited amounts of cash, provided it was in offshore accounts. Today at least 362 of the Fortune 500 companies have more than 7,800 tax haven subsidiaries, many stuffed with cash, according to a tiny nonprofit research organization, the Institute on Taxation and Economic Policy. 

Johnston also reminds us of the IRS's double standard, one for all of us Joe Schmoes and another for corporations: "For the vast majority of people with regular W-2 jobs, income taxes are taken out before you get your check. Congress does not trust you, so it demands its cut up front and requires your employer, bank and stockbroker to verify what they paid you."

However, [emphasis mine]:

[I]f you are a multinational, the government takes your word on how much you owe, subject only to the increasingly rare audits by the IRS. Top IRS auditors, paid about $150,000, each find on average $19 million of corporate taxes due each year, according to data the IRS discloses to Syracuse University researchers each month. Even though each auditor finds $126 in taxes owed for each dollar he or she earns in pay (a great return on investment), Congress has been steadily shrinking their ranks for more than two decades. It also hobbles auditors by allowing them to look only at issues the companies have been warned about, a practice similar to food, hospital and pet shop inspectors tipping businesses off that they are coming so they can clean up first.

Let me highlight that: the IRS is the only government agency that makes money -- it enhances our government's fiscal position, making our government less likely to go bankrupt -- and yet Republicans in Congress consistently underfund the IRS as it tries to enforce the tax laws already on the books. 

(So next time Republicans say they won't pass immigration reform because President Obama won't enforce existing laws, you'll know they're hypocrites.)

Perhaps the most perverse thing that happens is this:

Many companies, though, take a much simpler and safer approach when investing their untaxed profits. They buy U.S. Treasuries, those bonds the government sells because it spends more than it collects in taxes. In that way, the federal government pays companies to delay paying their taxes.

This is a classic heads-you-win-tails-I-lose economic plan: The government loans money to big companies interest-free, then borrows it back with interest.

Pretty sweet deal, if you can get it!

Corporate Deadbeats: How Companies Get Rich Off Of Taxes

By David Cay Johnston

September 4, 2014 | Newsweek

URL: http://www.newsweek.com/corporate-deadbeats-how-companies-get-rich-taxes-268303

Guerilla class warfare: IRS audits fewer rich, more poor people

Channeling the spirit of my man David Cay Johnston, I'm gonna tell you why this mundane story matters.

See, Republicans in Congress cynically under-fund the IRS year in, year out. So an undermanned, undertrained IRS makes do and does what comes easier, relatively -- auditing people with lower incomes. Because higher-income filers have lawyers and complicated returns and it requires more manpower to check them.  

What this works out to, in reality, is a calculated game of probability by rich filers: if you're wealthy, and you're lawyered up, chances are you'll come away unaudited; and even if you are audited, you'll come away unscathed.  

And so wealth inequality is a double-whammy for the poor and working class: earning so much less, they are still more likely to be audited. 

BECAUSE THAT'S THE WAY THE GOP WANTS IT.  Don't be naive and believe otherwise.

Finally, do I really have to explain how this makes no business sense?  As every auditor knows, you focus your attention on the weakest control points with the highest potential for losses. The potential for losses among poor filers is minimal, almost nil.  

All the Tea Partyers who are serious about fiscal health should cheer on  the IRS, because every dollar spent on the IRS  brings in $255 to the U.S. Treasury. Just by enforcing existing tax laws passed by Congress, nothing more. No other government agency can boast of such efficiency!  And so it's time for the TPs to put up or shut up about the IRS, the only government agency that reduces the federal deficit.

U.S. IRS audited fewer wealthy Americans in 2013

By  Patrick Temple-West

March 21, 2014 | Reuters

The U.S. Internal Revenue Service said on Friday that it audited fewer high-income Americans in 2013 than it did in 2012 or 2011, while it conducted more audits of people with no income.

Total audits fell by 5 percent from 2012 to reach the lowest level since 2008 as the IRS said it coped with budget cuts.

For the fiscal year that ended September 30, 2013, the IRS said it audited 24.2 percent of individual tax returns with adjusted gross income of $10 million or more. That was down from 27 percent in 2012 and 30 percent in 2011.

There were also fewer individual tax returns audited in the $5 million to $10 million gross income band, the IRS said.

In total, the IRS audited about 1.4 million individual returns. IRS Commissioner John Koskinen said in a statement that budget cuts at the agency have "presented challenges."

Wealthy Americans historically are the likeliest to be audited. The IRS a few years ago started a "Global High Wealth Industry Group" to audit high-wealth individuals more efficiently.

But Congress in January cut the IRS's fiscal 2014 budget by about 4 percent to $11.3 billion.

The funding cuts have forced the IRS to cut the number of customer service representatives it employs during tax season, Colleen Kelley, president of the National Treasury Employees Union said in a statement. "Both taxpayers and employees are frustrated."

Last year, audits were done on 6 percent of individual tax returns reporting no gross income, up from 2.7 percent in 2012 and 3.4 percent in 2011.

Fund the IRS to reduce the deficit

This story will drive my dear Republican friends crazy because it's true:

The Internal Revenue Service’s limited, focused exams of federal tax filings—known as correspondence exams—can yield a $7 return for every dollar spent, the Government Accountability Office found in a December report. Even more complex face-to-face investigations yielded a return of $1.8 for every dollar spent.

My man David Cay Johnston mentioned similar stats in his well-researched books Perfectly Legal and Free Lunch and in his articles on tax policy. Recently, Johnston cited a report by Citizens for Tax Justice that found that, [emphasis mine]:

Every dollar invested in the IRS’s enforcement, modernization and management system reduces the federal budget deficit by $200. Here’s another metric. Every dollar the IRS “spends for audits, liens and seizing property from tax cheats” garners ten dollars back.

And as WaPo describes, Mississippi, one of our 50 "laboratories of democracy," increased its spending on tax collection at the state level and got an even better return: $23 for every dollar spent on tax collection!

So why isn't the Grand Old Tea Party demanding that the IRS and every state do the same, to shore up our deficits and restore our fiscal health? Could it be they don't really care about budget deficits at all, only lowering taxes for themselves?.... 

How Mississippi turned $3.5 million into $80 million

By Niraj Chokshi

September 5, 2013 | Washington Post

URL: http://wapo.st/1aaf3vu

DC Johnston: Average Americans $59 richer since 1966

Everybody's gotta read this. I'm not even gonna give you snippets, just read the whole thing.

My man David Cay Johnston is back on the case!

Income Inequality: 1 Inch to 5 Miles

By David Cay Johnston

February 25, 2013 | Tax Analysts

URL: http://www.taxanalysts.com/www/features.nsf/Articles/C52956572546624F85257B1D004DE3FC?OpenDocument

DC Johnston: U.S. companies hold $5.1 trillion in cash

My man David Cay Johnston is on the case:

The Fed's latest Flow of Funds report showed that U.S. nonfinancial companies held $1.7 trillion in liquid assets at the end of March. But newly released IRS figures show that in 2009 these companies held $4.8 trillion in liquid assets, which equals $5.1 trillion in today's dollars, triple the Fed figure.

Yeah, it's all because of uncertainty over Obamacare.  Yeah, that's the ticket.  We still need to cut the corporate tax rate!

Seriously though, we need to close overseas tax loopholes.

Idle corporate cash piles up

By David Cay Johnston

July 16, 2012 | Reuters

URL:  http://blogs.reuters.com/david-cay-johnston/2012/07/16/idle-corporate-cash-piles-up/

DC Johnston: SS is not going broke

Social security is not going broke

By David Cay Johnston 

May 4, 2012 | Reuters

URL:  http://blogs.reuters.com/david-cay-johnston/2012/05/04/social-security-is-not-going-broke/

DC Johnston: Eliminate 100 million tax returns

Finally, something Republicans and Democrats can agree on?

More Than 100 Million Unnecessary Tax Returns Filed Each Year

By David Cay Johnston

April 6, 2012 | Reuters

On March 28, the U.S. Justice Department sought to close a nationwide chain of income tax preparation shops it accuses of fraud. The action underscores the potential for abusive business practices that taxpayers face because Congress has failed to embrace technology that would eliminate most tax returns.

The Justice Department wants a federal judge to shut down Instant Tax Service, whose sole owner is Fesum Ogbazion of Dayton, Ohio, saying he is responsible for "extensive and pervasive tax fraud." It also sued four of his 276 franchisees. The company has not responded to the lawsuit.

Congress could easily eliminate fraud by abusive tax preparers, as is alleged in the Ogbazion case, and save taxpayers billions of dollars annually, by simply ending mandatory filing of tax returns for most taxpayers.

About 100 million taxpayers -- those whose income is entirely from wages and retirement funds, and who do not itemize deductions -- should not have to file returns. The government already has the information it needs to calculate the taxes these people owe, once they supply their marital status and number of dependents. It would not take much to automate their income tax payments, as many other modern countries do.

I put the chances of Congress taking such a sensible course at one in 84,000. That's about the same as the odds of being indicted for a tax crime in 2011, based on an analysis of official data by Syracuse University's Transactional Records Access Clearinghouse.

Congress will not act because individual income tax returns, which for most people are make-work that creates a drag on the economy, provide tidy revenues for Intuit, the maker of TurboTax software, H&R Block and other legitimate corporations that profit from preparing tax returns.  These companies have considerable resources at their disposal to spend on lobbying politicians to keep the tax filing requirement. One sign of their determination: Intuit in 2006 donated $1 million in support of an unsuccessful candidate for California state controller who opposed optional state-prepared returns in California. Intuit has said there are serious problems with the program, which remains in operation, but in my view none of Intuit's criticisms stands up to scrutiny.

A SIMPLER TAX CODE

Intuit, H&R Block and other tax firms say that they help people pay the least tax and avoid costly mistakes. But these concerns would be easily addressed by simplifying the tax code. In my view, any business that depends on government-induced inefficiency should be swept into the dustbin of history.

Another reason reform is unlikely is that politicians have learned from Republican pollster Frank Luntz over the years that riling up voters against the Internal Revenue Service attracts votes and campaign donations.  Actually fixing the problem by ending tax filing for the vast majority would require politicians to come up with other ways to get donors to open their checkbooks. Republican politicians who follow Luntz's advice seem not to realize they are attacking law enforcement, a strategy that would offend many of their donors if applied to the FBI or street cops.

Short of ending tax filing for most Americans, Congress could license tax preparers -- instead of only requiring that they identify themselves with a unique number. We don't trust amateurs to inspect elevators or audit charities, so why do we let just anyone charge for preparing tax returns? This is especially true given that U.S. Taxpayer Advocate Nina E. Olson has thoroughly documented false and fraudulent reporting by tax preparers who are exempt from IRS professional conduct rules because they are not accountants, enrolled agents or lawyers.

The case of Instant Tax Service appears to be particularly egregious. The Justice Department alleges that the company charges its customers, who are mostly poor and unsophisticated, as much as $1,000 for 15 minutes of tax preparation. It "encourages its franchisees to lie to the IRS about anything," the department said in court papers.

The government's complaint quoted Ogbazion, the company's owner, as saying that "every tax return being done is pretty much fraudulent" at a franchise in Los Angeles. Ogbazion did not revoke the franchise, but did sue it for royalties, the department said. According to the Justice Department, Ogbazion said he did not pay attention to customer complaints because, if he did, he "wouldn't be able to sleep at night."

Ogbazion's business and personal phones are disconnected. At the one listed number that was answered a woman said he was no longer reachable there. Ogbazion also did not respond to messages to his work and home email addresses.

100 MILLION UNNECESSARY RETURNS

The Justice Department brings a high-profile tax case pretty much every year as the mid-April tax deadline approaches. But this misses the much bigger picture: More than 100 million unnecessary tax returns are filed each year, costing billions of dollars in software or preparation.

Meanwhile, the way Congress has written tax laws, and the way courts interpret them, makes it hard to pursue tax cheats. The average time for each criminal tax prosecution the Justice Department completed last year was 740 days, more than double the 345 days in 1992.  Last year, the Justice Department completed only 3,656 criminal cases in which tax was the main charge, the analysis by Syracuse University's Transactional Records Access Clearinghouse shows. No wonder the odds of a criminal tax indictment, while still minute, were 75 percent higher two decades ago.

The Justice Department relies on a law enforcement theory known as general deterrence. The strategy is to bring widely publicized cases to keep people in line. But the IRS criminal division website lists just 79 criminal cases in 2011. Figuring the others requires perusing 90 websites run by local U.S. Attorneys. Many convictions get little or no news coverage, which means zero general deterrence.

Canada, with a ninth of the U.S. population, listed all 204 tax convictions last year at the Canada Revenue Agency's website.  Claude St-Pierre, Canada's director general for tax enforcement and disclosures, told me that posting all convictions is both a deterrence strategy and an effort to educate Canadians so they do not get lured into tax scams.

Congress should fund more prosecutions, many more, so the Justice Department does not have to reject 40 to 50 percent of criminal referrals by the IRS.  Following Ottawa's lead, the IRS should prominently post every criminal conviction and every request for a civil injunction (a much less expensive law enforcement strategy than prosecution) at its website.

The real solution, though, is to get rid of the archaic, frustrating make-work for 100 million taxpayers whose only benefit is profits for tax preparation firms.

DC Johnston: Gov't policy helps the rich get richer

The richest get richer

By David Cay Johnston

March 15, 2012 | Reuters

The aftermaths of the Great Recession and the Great Depression produced sharply different changes in U.S. incomes that tell us a lot about tax and economic policy.

The 1934 economic rebound was widely shared, with strong income gains for the vast majority, the bottom 90 percent.

In 2010, we saw the opposite as the vast majority lost ground.

National income gained overall in 2010, but all of the gains were among the top 10 percent. Even within those 15.6 million households, the gains were extraordinarily concentrated among the super-rich, the top one percent of the top one percent.

Just 15,600 super-rich households pocketed an astonishing 37 percent of the entire national gain.

The different results in 1934 and 2010 show how a major shift in federal policy hurts the vast majority and benefits the super-rich.

NEW POLICY BOOSTS THE RICH

Starting in 1933, government policy aimed to improve the lot of the vast majority through such policies as massive government-financed jobs and construction programs. But since 1980 policy has focused on helping the already rich get richer still with such policies as lower taxes and fewer audits.

The updated figures illustrating income changes, all in 2010 dollars, come from analysis of the latest IRS data by economists Emmanuel Saez and Thomas Piketty.

Saez received the 2009 John Bates Clark Medal, awarded to the economist under 40 who has made the greatest contribution to that field, and a 2010 MacArthur genius grant.

Their data expands on what I reported first last fall - median pay fell in 2010 to its lowest level since 1999.

Saez and Piketty show that the vast majority's average adjusted gross income, of which wages are just a part, was $29,840 in 2010. That was down $127 from 2009 and down $4,842 from 2000.

Most shocking?  The average income of the vast majority of taxpayers in 2010 was just a smidgen more than the $29,448 average way back in 1966.

At the top, the super-rich saw their 2010 average income grow by $4.2 million over 2009 to $23.8 million. Compared to 1966 their income was up on average by $18.7 million per taxpayer.

We should expect this pattern of concentrated gains weighted toward the very top to continue unless we change our policies.

Saez shows that the top one percent's share of real income growth is increasing with each economic expansion and it matters not whether the president is a Democrat or Republican.  The top one percent enjoyed 45 percent of Clinton-era income growth, 65 percent of Bush-era growth and 93 percent of Obama-era growth, though that is only through 2010.

While markets are a factor, I think the evidence makes clear that government policy is at the core of the differing fortunes of the vast majority and the super-rich.

Inaugural addresses of Franklin Roosevelt and Barack Obama bring this into sharp focus. Both spoke of the need for restoring confidence, while denouncing greed and irresponsible conduct. Roosevelt in 1933 specified "callous and selfish wrongdoing" by bankers abusing a "sacred trust." Obama vaguely referred to the "consequence of greed and irresponsibility on the part of some."

Roosevelt said that "our greatest primary task is to put people to work" Obama, again less specific, spoke of government that "helps families find jobs at a decent wage".

Roosevelt brought in trustbusters, reformers and even an expert at Wall Street manipulations to implement policies benefiting the vast majority.

FINANCIAL INSIDERS

By contrast, while Obama called Wall Street executives "fat cats," he surrounded himself with financial insiders with the exception of Elizabeth Warren, the Harvard bankruptcy expert now seeking election to the U.S. Senate. His administration has failed to prosecute the central figures in the frauds that created our economic distress.

Government policy can change again and for the better. We can create a growing economy with widely shared prosperity.

We need to increase spending on education and research to maximize returns from human capital. We need to create jobs rebuilding our decaying infrastructure so people and goods move efficiently. We need to honor markets, letting mismanaged banks and insurers receive their just desserts in U.S. Bankruptcy Court.

We need to adjust our focus away from financial sector profits to people. We need to reform taxes to discourage capital withdrawals and offshoring and, instead, encourage reinvestment of profits at home.

If we don't, the vast majority will see their incomes go on eroding slowly while those at the top enjoy an ever-larger share of national income and wealth. The inevitable result will be economic, political and social instability - not a pretty picture for anyone.

DC Johnston: Shrink the IRS, grow the deficit

Kind of reminds me of Republicans' stance on illegal immigration: Let's enforce the laws currently on the books, eh?

Every hour spent enforcing our tax laws produces almost $10,000 in lawful, legally-owed revenues which go to shore up our deficit hole. Now that's real bang for our taxpayer buck.

Those who want to de-fund the IRS are simply anti-tax zealots who don't believe in the rule of law or fiscal responsibility.

Honey, they shrunk the IRS

By David Cay Johnston

January 17, 2012 | Reuters

Congress will spend a trillion dollars more than it levies this year, so how do Washington's politicians respond to the 11th consecutive year of federal budgets in red ink? They plan to shrink the IRS.

Go figure. Cutting the IRS budget by more than 5 percent in real terms makes as much sense as a hospital firing surgeons or a car dealer laying off salespeople when customers fill the showroom.

Shrinking the IRS makes sense if you believe government is too big and that cutting everywhere is the best way to shrink government. But this is the staff that generates revenue, and there is easy money to be made.

Congress should listen to the national taxpayer advocate, a position it created to make sure taxpayers had a voice in how the IRS operates. In her annual report, released last week, advocate Nina Olson said Congress needed to "ensure that the IRS continues to be effective, either by reducing the IRS' workload or by providing adequate funding to enable it to accomplish its assigned mission."

Instead of cutting, we should be expanding the revenue-generating staff because there is plenty of tax money to be had, even in this awful economy.

IRS data show that auditors assigned to the 14,000 or so largest corporations found $9,354 of additional tax owed for every hour spent testing tax returns in the 2009 fiscal year. The highest-paid IRS auditors make $71 an hour. Based on a 2,080-hour work year, that works out to around $19 million of lost revenue annually for every senior corporate auditor position cut from the payroll.

WHY CUT?

It makes no economic sense to trim the ranks of auditors who generate more than a hundred times their annual salaries. Run a business that way and you go broke.

So why would President Barack Obama and Congress cut the IRS budget? Their actions illuminate the rise of corporate power and values, and the diminishing voice of Joe Sixpack, thanks partly to how we finance election campaigns. Then there is the growing army of corporate lobbyists and the Supreme Court's decision in Citizens United, which allows corporations (and unions) to spend all they can afford on influencing elections.

Keep in mind the IRS costs just a half penny for each dollar of tax collected. Its proposed $11.8 billion budget would be less than the Agriculture Department spends each month.

If the IRS budget is cut, the losers will be workers and ordinary investors, who will find it harder to get their questions answered and their problems resolved by the agency. On the whole, these people do not cheat on their taxes because their incomes are easily checked — through reports by employers, mortgage banks and others. Under a law taking effect in stages between last year and next, brokerages must report the cost basis of securities. This change will reduce capital gains cheating.

TAX CHEATS

The winners will be tax cheats among sole proprietors and other business owners, who are subject to less verification. The latest IRS tax gap report, issued Jan. 6, estimates that just one percent of wages escapes tax, while 56 percent of "amounts subject to little or no" verification do so.

America's biggest corporations, those with more than $250 million in assets, also may escape some tax if the IRS budget is cut. These nearly 14,000 companies pay about 86 percent of corporate income taxes.

Audits of these big firms were down even without a budget cut. And audits have become far more complicated, partly because Congress changed the tax code more than once a day on average from 2001 through 2010, Olson reported.

From 2005 to 2009, hours spent auditing the biggest corporations declined by 33 percent, according to IRS records analyzed by the Transactional Records Access Clearinghouse at Syracuse University in New York.

Two decades ago, when the economy was a third smaller, the IRS staff numbered about 118,000. Now it numbers 95,000 and is on the way to about 90,000. The likelihood of a big company being audited has plummeted 50 percentage points from 72 percent in 1990 to 22 percent in 2010.

Big company audits are now limited to specific issues known to the companies in advance, not unlike when cops tip off owners of favored gambling dens before a raid. Each audit also begins with an "estimated time to completion." Working auditors tell me this is really a hard deadline that allows companies to run out the clock with delays in producing documents.

Some IRS tax detectives privately ridicule this system, calling it "audit lite."

Whether you like the corporate income tax or think it is an abomination, failing to enforce it with the same rigor as taxes on wage earners and most investors is indefensible on economic, budget deficit and moral grounds.

IRS budget cuts worsen budget deficits and send a corrosive signal that only chumps file honest tax returns. So you have a choice. Do nothing and suffer the consequences or call your congressman, senators and the White House — today — and then vote in politicians who support, rather than undermine, tax law enforcement.

DC Johnston: Orwellian tax talk

Reading this just makes me angry and sad, because as Johnston points out, the Stupid and the Avaricious usually win. Stupid people want to believe, and avaricious people want to convince them, that we can cut everybody's taxes and create more revenue and thousands of jobs, just like children want to believe in Santa Claus and the Tooth Fairy.

Get this through your heads, folks: Tax collections are down 31.5 percent compared to 2001, after adjusting for inflation. That's your budget deficit.

We, our children and grandchildren are victims of Republicans' fetish for cutting taxes at all costs.

To restore fiscal sanity, federal taxes on the rich -- especially the top 1 percent -- have to go up, and it's not a matter of class warfare, or even fairness at this point -- it's simple math. Nobody else has any money. Raising taxes on the 47 percent who, after credits and deductions, pays no federal income tax would significantly increase the nation's misery but not its tax collections.

Orwellian tax talk

By David Cay Johnston

October 11, 2011 | Reuters

Political tax talk is becoming Orwellian: Secrecy is Democracy. Auditors Reduce Collections. Tax Cheats Will Be Caught With Fewer Auditors.

Let's start in Kansas, where the Lawrence Journal-World broke the news on Sunday that economist Arthur Laffer, father of curve-on-a-napkin tax policy, is advising the state on a new tax structure. The news is not so much that Laffer is getting $75,000 of taxpayer money, but that Governor Samuel Brownback wants advice only from business leaders; no wage earners allowed behind these officially closed doors.

In Albany, state tax authorities issued a statement asserting they already were pursuing the real estate tax cheats I wrote about last week. Never mind the statistics and lack of public enforcement actions. Maintaining this facade will be more difficult going forward as 300 newly pink-slipped auditors turn a drip of leaks into a stream.

Will Governor Andrew Cuomo, who wants to be president and has declared his eternal allegiance to lowering taxes on the richest New Yorkers, keep looking the other way? Will Lieutenant Governor Bob Duffy, who wants to be governor, mimic the boss? How long will only the little people of New York feel the full force of tax law enforcement under these two Democrats?

That question is a bit more pointed for Eric Schneiderman, the New York attorney general.

Assemblyman William Colton, an eight termer from Brooklyn, sent fellow Democrat Schneiderman a letter, and a copy of my column, asking for action. Will Schneiderman insist he can only act with Cuomo's cooperation, as his office hinted last week? Or will Schneiderman add a sharp edge to his carefully polished image as a tough law enforcer?

In Washington the mantra that spending, not revenue, is the problem was repeated endlessly last week. The idea that cutting tax rates, especially at the top, will pave a path to renewed prosperity is promoted by just about everyone in national politics except President Barack Obama and the few Capitol Hill Democrats who do not fear liberal as a political epithet.

Fact is, falling revenue is a problem. In fiscal 2011, which ended on Sept. 30, federal income tax revenues were smaller than in 2001, a recession year when the George W. Bush tax cuts began.

In fiscal 2001 the individual income tax brought in $994.3 billion and in just-ended fiscal 2011 it brought in an estimated $956 billion. That's 4 percent less money before taking into account 10 years of inflation.

Per capita the federal income tax brought in 31.5 percent less in real terms in 2011 than in 2001.

LESS IS MORE

The dominant political response to the fall in tax revenues? More tax cuts.

Bipartisan support is building for reducing corporate tax rates by at least 10 percentage points, from 35 percent to 25 percent or less. So is support for allowing repatriation of profits for companies that shifted them overseas to reduce taxes. The last time Congress did that, in 2004, it was sold with a promise it would create 660,000 jobs. Instead the benefiting companies fired more than 100,000 workers, several studies have shown.

There is also a bipartisan plan to further reduce already enfeebled tax law enforcement. The Senate plans to cut the IRS budget by $450 million, the House of Representatives by $600 million, meaning firing thousands of auditors.

Fewer auditors will not benefit the vast majority, whose taxes are taken out of their paychecks before they get their money. But it will give aid and comfort to high-end tax cheats, who rely on complexity, secret offshore accounts and lack of political will to chase them.

If cutting the government revenue department makes sense, then why not go whole hog and get rid of the IRS? That is what Herman Cain, a top rival for the Republican nomination, promises if voters send him to the Oval Office.

Cain's 9-9-9 tax plan would scrap the current tax code and replace it with 9 percent levies on corporate profits, on income and on spending. The already rich would only be taxed on their spending since capital income would be tax-free, part of the little known flat tax premise that labor should be taxed, but taxing returns to capital discourages saving.

Under Cain's plan, employers could not deduct the cost of wages paid to workers, not exactly a job creation scheme. Edward Kleinbard, the former chief of the Congressional Joint Committee on Taxation, said the Cain plan is effectively a 27 percent payroll tax.

Cain's plan also imposes a one-time 9 percent tax on existing wealth, which may surprise his wealthy friends. He also would double-tax interest income, though, as Kleinbard noted, that must be a mistake.

Under Cain's plan workers would have far less to spend after taxes. Cain insists that critics don't understand. But as the chart illustrates, rich investors would pay less, helping their wealth snowball. The Cain campaign did not return calls seeking more information.

Give Cain credit though. Unlike Governor Brownback he is operating in the open. Unlike Cuomo, Duffy and Schneiderman, he is out front.

Unlike Orwell's Winston Smith, no one from the Ministry of Love will turn you in for beatings until you accept that 2+2=5. The oligarchs and their elected enablers are just trying to convince you that tax deals made in secret are democratic, lower tax rates mean more tax revenue and that the ministries of tax are doing all they can to find the cheats.

Johnston: Deliberate destruction of the middle class

One of my favorite financial journalists, David Cay Johnston, in this short interview describes how in the U.S. local tax breaks and subsidies are net "wealth destroyers" which do not abide by the rules of capitalism, i.e. raising funds on the capital markets, taking risks, and reaping rewards. Rather, these are special breaks given to politically connected companies and individuals at our expense.

All you fiscal conservatives and Tea Partiers, listen up! This is the real system of corporatism you should be fighting against, not "welfare" for erstwhile working people rocked by the Great Recession. He estimates that states spend $70 billion a year in subsidies, and the federal government spends about $1 trillion a year in subsidies to corporations and wealthy individuals with billion-dollar incomes.

Johnston asks simply, "Is that capitalism?"

Watch the interview!

The Rich Get Richer and They Have You to Thank, Says David Cay Johnston

By Peter Gorenstein

November 19, 2010 | Tech Ticker, Yahoo! Finance

IRS: Richest 400 Americans pay 17% income tax

Gee, big surprise that Dubya would have hidden this annual IRS report from the public for the past 8 years. Good for Obama for publishing it once again.

You GOP/teabagger types accuse me of class envy or class warfare, but the numbers speak for themselves: our tax system has been distorted to favor the super rich. The top 400 richest Americans pay a lower effective tax rate than those making low 6 figures. How on God's green Earth is that equitable, fair, or rational? Especially since, with America's Third-World income distribution curve, the super rich are the only ones with any income (2007 average: $345 million)! The top 400 earn 1.59 cents of every dollar of U.S. income.

Those tax reforms that you brainwashed marks call "soaking the rich" would simply rationalize our tax system and return it to its progressive, post-WWII roots: you earn more, you pay more, both absolutely and relatively.

The top 400: Income way up and taxes way, way down
A new IRS report on the richest 400 taxpayers shows their income rose an average of $81 million -- in a single year

By Joe Conason
February 17, 2010 | Salon.com

Before angry voters restore Republicans to power -- in the name of "tea party populism" -- perhaps they should consider just how well right-wing rule worked out for them during the past decade. Last fall a Census Bureau study found that real median household income had declined from $52,500 in 2000, the last year that Bill Clinton was president, to $50,303 in 2008, George W. Bush's final year -- a period during which Republicans dominated Congress as well. Millions of those median households lost their health insurance (and, since the onset of the Great Recession, many of those same families have lost jobs as well).

So most of those middle-class Americans who flock to the tea party demonstrations were big losers during the Bush era. So who were the winners? According to David Cay Johnston, America's premier tax journalist, newly released IRS data shows that the country's very wealthiest citizens -- the top 400 -- marked enormous income gains while paying less and less in taxes. For purposes of comparison, Johnston notes that the bottom 90 percent of Americans saw their incomes rise by only 13 percent in 2009 dollars, compared with a 399 percent increase for the top 400.

In a single year, between 2006 and 2007, the income of those top 400 taxpayers rose by 31 percent -- from an average of $263.3 million to an average of $344.8 million per year. Meanwhile, Johnston writes, "Their effective income tax rate fell to 16.62 percent, down more than half a percentage point from 17.17 percent in 2006, the new data show. That rate is lower than the typical effective income tax rate paid by Americans with incomes in the low six figures, which is what each taxpayer in the top group earned in the first three hours of 2007." He also notes that the IRS data probably understates the income of the top 400, because of deferral rules enjoyed by hedge fund managers (at least three of whom earned $3 billion or more in 2007).

Johnston's data comes from the latest edition of an annual IRS study of the top 400 taxpayers, which was first made public during the Clinton presidency. When Bush became president, unsurprisingly, he curtailed public access to the top 400 report for eight years. The Obama administration has made the report available this year, but such embarrassing statistics will no doubt be buried again as soon as the Republicans return to power.

Obama to close overseas tax loopholes

I bet Obama's use of the phrase "perfectly legal" was no accident.  He's been reading my man David Cay Johnston!

Yesss, this is why we elected him!

Obama to raise $190 billion by denying tax havens
By Ryan J. Donmoyer
May 4, 2009  |  Bloomberg.com

The proposal, combined with a $60.1 billion plan to limit many expense deductions for American companies that take advantage of laws allowing them to defer tax on foreign profits and a $43 billion crackdown on abusive foreign tax credits, would be the biggest tax increase on U.S. corporations since 1986. Obama also would shift the burden of proof to individuals when the IRS alleges assets are being hidden in certain offshore bank accounts, the White House said in a statement.

"I want to see our companies remain the most competitive in the world," Obama said. "But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens."

In 2004, U.S.-based multinational corporations paid about $16 billion in U.S. taxes while earning about $700 billion offshore, an effective tax rate of about 2.3 percent, according to the administration statement. The top marginal tax rate for U.S. companies is 35 percent; drug companies such as Amgen Inc. and technology companies such as Microsoft are among companies that make the biggest use of tax-deferral benefits.

The rules were originally designed to reduce paperwork for companies and the IRS by allowing companies to classify entities within their corporate structure in the most tax-efficient manner without inviting a tax challenge.

Unintended Consequence

Clinton administration officials realized they also had made it easy for multinationals to create entities whose only purpose was to shift profits into low-tax countries and out of reach of the tax authorities, according to a January Government Accountability Office report that found 83 of the 100 biggest companies had subsidiaries in tax havens.

Once the assets were in the haven, the U.S. parent company borrowed from the subsidiary. The interest payments were deductible in the U.S. and tax-free in the haven, the GAO said. The nonpartisan congressional Joint Committee on Taxation recommended in 2005 that the rules be repealed.

DC Johnston on REAL tax reform

Pulitzer-prize winning journalist and author, David Cay Johnston, is the foremost expert (outside of those who sell tax shelters) on America's crooked tax system, which favors the wealthy and corporations. 

For example, did you know that today more than 25 percent of corporate profits go through the Cayman Islands?  Did you know that the four major U.S. sports leagues receive more in taxpayer subsidies than they do in profit?  Did you know that security alarms cost about $1.8 billion per year, every time the police have to go investigate an alarm, when over 90 percent of calls are for false alarms? 

So, here's a DCJ two-fer for you:

http://www.motherjones.com/politics/2009/01/fiscal-therapy

http://www.democracynow.org/2009/2/2/david_cay_johnston_more_corporate_tax

Reply to Uncle T: Taxes under Obama

Uncle T,
Boo-hoo! This article was written for the same rich people sobbing in this article. And for the record, it says nothing about Obama's proposed spending. And don't forget savings of $100 billion (or more) a year after we pull out of Iraq!

Take that New York media executive they quoted who has made over $300 K a year for more than 10 years -- that's over $3 million -- and with only 1 child! Yet he's crying about the cost of living: "We're just dog paddling now." That guy should be smacked upside the head with a bag of quarters! I'd switch places with him in a second. Gimme a break!

Obama's advisor was exactly right: "Income growth in that group has been extremely rapid, while it's been stagnant for everyone else," says Goolsbee. "It's hard to argue they face the same struggle to get by."

I do have some sympathy for higher-income earners making less than, say, $300 K living with children in expensive areas of the country, like New York, Boston, and S. California. (Hmmm... and those happen to be liberal Democrat bastions... Go figure!....) But I have no sypmathy for the top 1 percent. You obviously don't understand the elite group you're talking about. They have plenty of money to fund any shortfalls in the federal budget. Since you won't read Free Lunch or Perfectly Legal by David Cay Johnston, let me break it down for you...

How does the national income pie divide up, then & now? The top 10 percent earned 34.6 percent of U.S. income in 1980, and 48.5 percent in 2005. The top 1 percent of income earners saw their share of all income rise from 10 percent in 1980 to 21.8 percent in 2005. To parse that top percent further: the top 1/10th of 1 percent, or 300,000 Americans, earned 3.4 percent of all income in 1980, but a whopping 10.9 percent in 2005. That's almost as much income as the bottom 150 million Americans.

Let's parse even further: the very wealthiest 30,000 Americans (the top 1/100th of 1 percent) made 1.3 percent of all income in 1980, but just over 5 percent in 2005. They had an average income of $5.2 million in 1980, which rose to $25.7 million in 2005, after adjusting for inflation. To parse even further: in 2000, the top 400 very-highest-income taxpayers, with an average income of $174 million, reported more than 1 percent of all national income. Imagine that!

(And for the record, during Clinton's two terms, the effective income tax rate of these top 400 taxpayers fell from about 30 percent to 22.2 percent. And during an economic boom! Shame on him!)

Those were huge gains even compared to the rich in the 95th to 99th percentiles of income earners, who saw their share of national income grow from 13.2 percent in 1980 to "only" 15.3 percent in 2005. The share of national income of the 90th to 95th percentiles remained almost unchanged: 11.5 percent in 1980 vs. 11.4 percent in 2005.

By contrast, the bottom 50 percent of income earners made $15,464 in 1980; but only $14,149 in 2004, after adjusting for inflation. And the vast majority, the bottom 90 percent of income earners saw their average income peak in 1973 at $33,001; but in 2005 the bottom 90 percent's average income was only $29,000. The bottom 90 percent made 65.3 percent of all U.S. income in 1980, but only 51.7 percent in 2005. That's the lowest it's been since 1928, right before the Depression.

So, what should we do? Obama is right: let's increase taxes on those who have benefitted mightily over the past 30 years from our economy, and lower taxes, while other Americans have not. Let's increase taxes on the 3 million or so rich people who made an average of $359 K in 1975, but who now make an average of $1.11 million, after adjusting for inflation. Let's increase taxes on the top 95% of income earners, and really increase taxes on the top 1%, who have benefitted most of all. Will it bother your conscience or your economic principles to do that? Because it won't bother mine. Not one bit. Just the opposite.

When Reagan took office, the top tax bracket was 70 percent. Now it's 35 percent. Moreover, because of the Bush tax cuts, those earning more than $10 million a year pay a smaller share of their money in income SS, and Medicare taxes than those making between $100 - $200 K. Do you think maybe -- just maybe -- our tax & spending policies have had something to do with rising income inequality and stagnant incomes for the vast majority of Americans (90 percent)? Do you think our tax & spending policies just might possibly have something to do with the fact that 12.3 million U.S. children lived in poverty in 2005, according to the U.S. Census, and the fact the USA ranked 20th (below Portugal) in terms of children's material well being, according to the UN?

Think about it!

On Thu, Jun 12, 2008 at 9:19 AM, <Uncle T> wrote:

This article again brings up the point that "the rich" is always the other guy. I personally make so much less money than the people in the article that I can never be considered "rich" in income. However my house is probably twice as big and the amenities twice as nice as thiers. So who is "rich."

The article also points out that Obama's proposed programs can not be paid for with just increased taxes on "the rich" who only make up 1% to 3% of the population

"Yet limiting tax hikes to the $250,000-and-up set probably won't pump enough money into the U.S. Treasury to pay for new spending programs and deal with the ballooning deficit, even when combined with proposed corporate tax increases."

So now will you be forwarding articles about how Obama is lying, deceiving and misleading the general public about paying for his new programs that won't cost 97% of the general public a dime.

http://biz.yahoo.com/bizwk/080606/0824b4088081624555.html?.v=1&.pf=taxes