“Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person: this no body has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property.” — John Locke, Second Treatise of Government (1690)
What is “spending through the tax code?” This is an important question in light of the Obama FY 2014 budget proposal finally unveiled last week. We already know it raises taxes by more than $1 trillion. Much of this is done by eliminating so-called “tax expenditures.”
Here is how the Joint Committee on Taxation defines a tax expenditure:
Tax expenditures are defined under the Congressional Budget and Impoundment Control Act of 1974 (the “Budget Act”) as “revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.”
Among the many tax “loopholes” on the chopping block in the fiscal cliff negotiations are the 401(k) contribution limits. Liberals like to refer to tax deductions, deferrals, and exemptions as “spending through the tax code,” or “tax expenditures.” Of course, there are certain tax subsidies and credits that might best be described as spending (e.g., subsidized coverage on the Obamacare exchanges).
But conservatives and libertarians recognize that private property rights are at the foundation of individual liberty, and that any just government must be dedicated to protecting the individual’s right to the fruits of his labor. Treating a legitimate tax deduction as government spending presumes that the government has a right to those fruits by default - that we are privileged to retain any such fruits, and the government spends its funds in permitting it. This confiscatory mindset is foreign to our founding and inconsistent with our nature.
The proposed changes to 401(k) contribution limits are a good example of the threats to economic liberty we face as the revenue hawks continue to scour the tax code for backhanded tax increases.
What is a 401(k) Plan?
The traditional 401(k) plan is a method of tax deferral. You contribute with pre-tax dollars, the account grows tax-free, and you pay ordinary income tax on the distributions when you retire. If your employer offers a Roth option, you can contribute with after-tax dollars, and both the gains and distributions will be tax-free. In 2012, employees can elect to contribute up to $17,000, and the total employer/employee combined contribution limit is $50,000.
What’s Being Proposed?
Is the Oracle of Omaha a hypocrite? He is, according to the New York Post. For those with faulty memories or who simply weren’t paying attention, Warren Buffett wrote an op-ed claiming that he and his fellow “mega-rich” weren’t really paying enough in taxes. Obviously, this tore through the internet with both sides battling over Buffett’s arguments. However, the Post claims that despite Buffett’s claims that he’s not taxed enough, his own company hasn’t even paid what it owes.
This one’s truly, uh … rich: Billionaire Warren Buffett says folks like him should have to pay more taxes — but it turns out his firm, Berkshire Hathaway, hasn’t paid what it’s already owed for years.
That’s right: As Americans for Limited Government President Bill Wilson notes, the company openly admits that it owes back taxes since as long ago as 2002.
“We anticipate that we will resolve all adjustments proposed by the US Internal Revenue Service (“IRS”) for the 2002 through 2004 tax years … within the next 12 months,” the firm’s annual report says.
It also cites outstanding tax issues for 2005 through 2009.
Buffett is free to argue any position he wishes. However, if he truly feels that he isn’t taxed enough, then why hasn’t Berkshire Hathaway, that he is chairman and CEO of, paid their taxes? Or maybe it’s as the Post suggests, that he only wants to shill for President Obama.
In the wake of a very serious scandal that involved his agency singling out Tea Party groups, Treasury Secretary Jack Lew asked for and received the resignation of acting IRS Commissioner Steven Miller.
President Barack Obama announced this development during a short statement to this press this afternoon. He took no questions, but added that the recommendations made by the Treasury Department’s Inspector General will be implemented.
Quoting a congressional source earlier today, CNN noted that two Cincinnati-based staffers were largely responsible for the discrimination toward Tea Party groups. They have, according to the story, “already been disciplined,” though specifics weren’t provided.
While it’s good that there has been some accountability, much more needs to be done to prevent this from ever happening again. Moreover, President Obama’s response, to this point, had been woefully inadequate. Just Tuesday, the White House still didn’t want to own up that a mistake had been made, despite an admission and apology from the IRS.
The IRS is the problem. It’s very nature is to harass Americans into complying with the United States’ completely incoherent tax code. Couple that with the intimidating nature of this White House, and it’s a recipe for what happened to these Tea Party groups.
Written by Daniel Ikenson, director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute. Posted with permission from Cato @ Liberty.
Like too many other long-reigning fixtures on Capitol Hill, Senator Carl Levin (D-MI) doesn’t appreciate the magnitude of the challenge to the authority he presumes to hold over America’s job and wealth creators. Or maybe he does, and frustration over that fact explains why he besmirches companies like Apple, Google, Microsoft, and Hewlett-Packard.
Levin presided over a Senate hearing last week devoted to examining the “loopholes and gimmicks” used by these multinational companies to avoid paying taxes – and to branding them dirty tax scofflaws. Well here’s a news flash for the senator: incentives matter.
The byzantine U.S. tax code, which Senator Levin – over his 33-year tenure in the U.S. Senate (one-third of a century!) – no doubt had a hand or two in shaping, includes the highest corporate income tax rate among all of the world’s industrialized countries and the unusual requirement that profits earned abroad by U.S. multinationals are subject to U.S. taxation upon repatriation. No other major economy does that. Who in their right minds would not expect those incentives to encourage moving production off shore and keeping profits there?
Desparate to get his campaign back on track — especially in the face of an alleged affair, Herman Cain unveiled a new video, dubbed 9-9-9: The Movie, that criticizes the current federal tax code and stresses the need for simplification:
The video notes that it would do away with the 35% income tax while also pointing out that the 9-9-9 plan eliminates a host of other taxes, including the payroll tax. Yes, it lowers the rate, but it doesn’t get rid of the tax itself. They don’t outright say it, but that the way that is presented could lead the average voters to believe his plan does something it simply doesn’t do.
They also note the hidden taxes that are embedded into the cost of goods and services, but Cain’s campaign fails to explain how the 9% sales tax isn’t a value added tax (VAT), which has been a frequent criticism of the plan.
Anyone who follows baseball to some extent probably knows that Derek Jeter just got his 3,000th career hit. That’s a milestone for any major league baseball player. Fan Christian Lopez got his hands on the ball, a memento worthy of the Hall of Fame. He gave it back to Jeter. The Yankees, apparently in appreciation for his returning the ball to the man Lopez referred to as an “icon”, gave him prizes like luxury box seats for the rest of the season and signed memorabilia, among other thing. Now, Uncle Sam wants a piece.
You see, these are categorized as “prizes” and are subject to taxes. Lopez may well be on the hook for thousands of dollars. Estimates seem to range from $5,000 to $13,000.
Lopez seems to not be bothered by the whole thing.
If it comes down to that, Lopez says he’ll pay the tax man because he’s not about to relinquish his seats. The young government major says his family and friends will help him out.
“The IRS has a job to do, so I’m not going to hold it against them, but it would be cool if they helped me out a little on this,” Lopez told the News.
You know what would be really cool? If our tax code took a few things into account, like prizes and/or gifts. You have a 23 year old kid who does something incredibly cool (the ball could have sold at auction for at least a quarter of a million dollars), and now he’s going to get shafted by the whole ordeal.
Of course, why should I expect sanity from government? You’d think I’d be past that by now.
It’s easy to pick on the rich. There really aren’t that many of them for one thing, and since they’re not considered a minority they aren’t granted the protected status that decency gives to other minority groups. They’re still fair game, and it seems like a lot of people are taking advantage of that fact. Now, a vote in the Senate designed to put Republicans in a corner is being a bit misrepresented by the pundits.
For example, from the Washington Post’s Greg Sargent:
So it’s come to this. Republican opposition to any kind of revenue increase as part of the deficit deal has grown so implacable that Dems will now hold a Senate vote tomorrow on the basic idea that millionaires and billionaires should help contribute to fixing our deficit.
It’s not a vote on any specific proposal to hike taxes or end tax breaks. Rather, it’s a vote that puts each Senator on record on the general question of whether the rich should sacrifice in sevice of deficit reduction.
[Bold emphasis is mine]
What’s the problem with this one? Simple…the rich already “sacrifice in service of debt reduction”. They pay taxes. In fact, they pay a significant percentage of the taxes paid by Americans. They sacrifice already, but you wouldn’t get that with comments like that, would you?
The truth is, Sargent should know better. Later on in the same piece:
After President Barack Obama’s class warfare rant last week, Sen. Marco Rubio (R-FL) took to the lectern in the Senate and denounced the divisive rhetoric used and explained the opportunity before members of Congress should be used to reform the tax code to make America more prosperous; not punish people for success:
H/T: Dan Mitchell
In the President’s address with regard to deficit reduction earlier this week, he mentioned maintaining and increasing “investment” in certain programs, as well as “asking” our biggest income earners to “pay a little more.”
With that in mind, this video from Learn Liberty, shows that tax revenues remain a fairly constant percentage of Gross Domestic Product, regardless of rate.
To see the chart in the video up close, click here.