REALITY CHECK: Simplifying the Budget Impasse

The debate over whether raising taxes or cutting spending is the way to avoid default has moved into high gear as the President issued a "Grand Compromise" to the Republican Congress that includes significant tax increases, as well as long-term spending cuts. So far, the GOP is having none of it. But I think we can simply the political calculation going on in the halls of Washington:

• IF the US Government goes into default, we will vote everyone out.
• IF the only spending cuts are to take place 2, 3, or 4 years out, we will vote out every Republican
• IF there are tax increases, we will grumble but live with it. Your job is probably safe.
• IF there are ONLY tax increases and no substantive spending cuts, we will vote out every Republican.
• IF Medicare, Social Security, and Military Spending remains off the table, nothing will be resolved and we will vote everyone out.

Hopefully, the President and Congress are keeping these important realities in mind as they play hardball in their negotiations.

SOB! Today *IS* Tax Day

Well, we all got a reprieve, but today is Tax Day. Tax forms must be eFiled or mailed today in order to avoid penalties (or you must apply for an automatic extension). But the good news is plenty of experts have tips to help you get the most back from the tax man. And even if you are filing last-minute, there are always online options to avoid the lines at the post office.

Dee Leicht E.A. preparer at H & R Block at 4530 Lemay Ferry Road suggests:

- If you are preparing your own taxes, make sure that you file Schedule M, Making Work Pay, to receive up to a $400 credit.
- Check your deductions for education. They are very good this year and include books and supplies.
- Make sure you take exemptions for any persons (earning less than $3600) that you supported in 2010.

And remember, even if you do file for the automatic extension, you still have to pay what you EXPECT to owe to avoid paying interest and penalties.

When will we get serious?

All too timely with this story in the news. Cartoon from here.

Are extreme tax hikes during a recovery brave or foolish?

CT Governor Dannel Malloy has released his budget and it is a doozy. In an attempt to close the budget gap, he is proposing huge tax increases on nearly everyone and everything.

In one of the largest and most wide-ranging tax increases in Connecticut history, taxes on income, cigarettes, alcohol, gasoline, and estates would all increase under Gov. Dannel P. Malloy's budget proposal to be unveiled Wednesday.

The current 6 percent sales tax would also rise for the first time since the state income tax was created in 1991 - to 6.25 percent...Malloy is also seeking to eliminate the sales-tax free week, which is popular among families as it is held in August for back-to-school shopping. Overall, Malloy is proposing more than 50 different tax changes in a package that would increase taxes by $1.5 billion in the first year and $1.34 billion in the second year.

The taxes are so wide-ranging that they would touch anyone who earns a salary, drives a car, gets a haircut, buys clothing, sleeps in a hotel, takes yoga lessons, pays for a manicure, smokes cigarettes, drinks alcohol or takes a poodle to get a haircut.

I am not sure what to think of the governor at this point. On the one hand, this is a courageous move in the era of the Tea Party. While CT is about as blue as they come, there are plenty of anti-tax protesters ready to come out in force. On the other hand, this seems sure to stifle any nascent economic recovery in the cradle and drive businesses out of the state altogether.

Then again, "brave" and "foolhardy" are not always mutually-exclusive terms. Here's hoping the CT Congress can moderate these terms into something the state can live with. Otherwise, it may be time to think about checking out job opportunities elsewhere.

States try to tax the Internet, the Internet leaves

It is no secret that State tax collectors hate the internet. For years, they have been furious that they have been denied the sales taxes for internet sales that they collect from brick-and-mortar stores. And the Supreme Court has ruled that states can only tax internet businesses that had a "physical presence" in the state wishing to tax them.

But the States are not giving up, and now Illinois is ready to pass a law to tax Amazon.com and other companies that do business in the state. The only problem? Companies are ready to abandon Illinois entirely rather than pay taxes there!

After the Illinois law was passed yesterday, Amazon immediately fired off an e-mail to Illinois members of it “associates program” threatening to boot them from the program, which pays them marketing and referral fees on sales, should Quinn sign the bill.

Meanwhile, Scott Kluth, Founder and President of Chicago-based CouponCabin.com, told Forbes today that he would move his seven-year-old business and his 48 employees across state lines if Quinn signs the bill.

It should be noted that this would not only take sales from affiliates, but it would also take jobs out of Illinois. Not the best way to serve the people of your state in the middle of a Recession.

Your blog may cost you real money

Mod-Blog has resisted the rush to Google Ads that many blogs have followed for one simple reason - we view this site as a hobby, not a business, and don't want to subject our readers to intrusive advertising. It turns out that may have been a better idea than we even though, as now some cities are charging bloggers for business licenses, even if they only make a few dollars per year! One blogger, who had made $11 in 5 years, is now being ordered to pay a $300 "business privilege tax" by the city of Philadelphia.

The city disagrees. Even though small-time bloggers aren't exactly raking in the dough, the city requires privilege licenses for any business engaged in any "activity for profit," says tax attorney Michael Mandale of Center City law firm Mandale Kaufmann. This applies "whether or not they earned a profit during the preceding year," he adds.

So even if your blog collects a handful of hits a day, as long as there's the potential for it to be lucrative — and, as Mandale points out, most hosting sites set aside space for bloggers to sell advertising — the city thinks you should cut it a check. According to Andrea Mannino of the Philadelphia Department of Revenue, in fact, simply choosing the option to make money from ads — regardless of how much or little money is actually generated — qualifies a blog as a business. The same rules apply to freelance writers. As former City Paper news editor Doron Taussig once lamented [Slant, "Taxed Out," April 28, 2005], the city considers freelancers — which both Bess and Barry are, in addition to their blog work — "businesses," and requires them to pay for a license and pay taxes on their profits, on top of their state and federal taxes.

This is what happens when the blanket moratorium on internet taxation is allowed to expire. Expect more shenanigans like this as cash-strapped municipalities look for any way to squeeze cash from its citizens.

Senate explores taxes, taxes, and more taxes to pay for Health Care Reform

The Obama administration keeps pledging that Health Care Reform will wind up saving Americans money. But every time we hear back from Congress, the tax bill for it keeps going up. Now, the Senate is exploring new and interesting ways to tax hiring in the middle of the Great Recession.

The versions leaked so far would add as much as 0.5% on workers who earn more than $200,000. If assessed on both the worker and employer, this would increase the Medicare tax rate to 3.9% from 2.9% today. It would also create the first progressive payroll tax in American history, with wealthier workers paying a higher Medicare payroll tax rate than lower income workers...

In another trial balloon, Mr. Reid would impose the payroll tax on all income, not just wages and salaries. This means applying the tax to capital gains, dividends and other investment income. This would convert the Medicare levy into a de facto version of the income tax.

For those keeping score at home, that includes both taxes that punish investing (which creates jobs) and hiring (which gets people into jobs). Anyone out there think that will have a positive effect on Unemployment?

I am still amazed that the Democrats seem to think Unemployment is unimportant compared to all of their other priorities.

So True it Hurts

From Speed Bump

Treat Fatty Foods like Tobacco?

Hat tip to Mod-blog reader Nick for this one.

Regular readers know that I have been fighting my own "battle of the bulge" for a over a year now, and have lost 75 lbs through a combination of diet changes (portion control, no sugar, few carbs) and focused exercise (bicycling). It was hard work, and I am not sure if I would have had time or the extra energy/money to pursue all of this if I had been married or had children. (Although, hopefully now that the habits are established, it won't be a problem to take into a marriage, if I should be so fortunate.)

But policy-makers right now don't see obesity as a personal challenge for individuals. They see it as a monetary black hole sucking up health care dollars, just as the President is trying to pass health care reform. "Obesity-related diseases" (mostly heart disease and diabetes) are on the rise, and lawmakers are looking for any way to cut cost and raise money to pay for their proposed health care plans. Now, they are turning to the model of the wars on tobacco, and are considering taxing fatty or sugar-laden foods in order to pay for universal health care. The idea is if you make it expensive to buy sugar, either people will stop eating it or they will be paying for their own health care thru taxation.

It is an interesting idea, but we also need to look at the other lessons from the tobacco wars. To this day, the government both taxes tobacco products AND subsidizes the growth of tobacco in America. Government is fundamentally two-faced, and we need to be ready to face this fact as we look to increase health.

Cheap Shot, But Still Funny

From here. Especially appropriate as TERMINATOR SALVATION comes out tomorrow with a "digital Ahnuld".

Green Law pays Paper companies to increase use of fossil fuels

Thomas Paine once said, "That government is best which governs least." This saying is widely quoted among the Conservative community to justify smaller government. But Conservatives have not done a great job in the last decade to really illustrate why Big Government is a bad idea.

Enter the paper industry and George W Bush. During his administration, a law was passed giving tax credits to companies who made use of alternative energies in place of fossil fuels, or to companies who combined an alternative fuel with a taxable fuel. The paper industry - depressed by the current economy and the use of paper amidst eBooks, internet advertising, and the fall of newspapers - has begun adding diesel fuel to a fossil-fuel-free process in order to claim a tax credit.

Despite the obvious contrivance of the procedure, Wrobleski is unapologetic: "The credit is supposed to encourage the use of green fuel." Sure, I said, but isn't it a bit weird you're now adding diesel fuel to the process in order to take advantage of it? "It is what it is," she said.
Others are less charitable. "You use the toilet every day," said one hedge fund analyst who's been closely following the issue. "Imagine if you could start pouring a little gasoline into the bowl and get fifty cents a gallon every time you flushed."
No one in Congress seems to have anticipated this creative maneuver. This past fall the Joint Committee on Taxation computed the cost of extending the tax credit for three months and projected it would cost a manageable $61 million. It now appears that the extension (which was passed as part of the TARP) could cost as much as $2 billion before the credits expire at the end of this calendar year.

This needs to be reported in every major paper in American. It hardly makes me hopeful that President Obama's complex stimulus plan will accomplish the aims it was designed for. More likely, it will be misused by a number of companies to accomplish their own means at the expense of the tax-payer.

NY Introduces "iPod Tax"

Proving yet again the problems with trusting un-elected officials in office, NY Governor David Patterson has introduced a huge set of new taxes in his 2009 budget, including a so-called iPod tax.

Trying to close a $15.4 billion budget gap, Paterson called for 88 new fees and a host of other taxes, including an "iPod tax" that taxes the sale of downloaded music and other "digitally delivered entertainment services."

One can only assume the Governor has not been paying attention to Apple's stance on such taxation in the past. If the governor expects Apple to collect this tax, he may be surprised and simply see Apple stop doing business with all IP addresses in the State. We'll see if New Yorkers stand for this first-of-its-kind special tax on their music.