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Tax Roundup, September 18, 2012: 47% frenzy! And New Jersey tries to rival Iowa.

Tuesday, September 18th, 2012 by Joe Kristan

Do 47% of taxpayers really pay no federal taxes? Close enough for government work.

Mitt Romney’s “Secret Tape” has stirred up talk about the “47%.”   Let’s look at a newly-issued table from the center-left Tax Policy Center for 2012 figures:


The lowest 20% would be at zero without counting their share of the corporate tax burden, borne in the form of lost investment income and wages.  The next 20% get to positive territory on the basis of payroll taxes, but I think Robert D. Flach gets this right:

In my opinion, the FICA tax is not a tax.  It is a contribution to a retirement plan (Social Security) and a payment for future health insurance (Medicare). 
Payments of Social Security “tax” allow the individual to collect a pension at retirement, and payments of Medicare “tax” allow the individual to receive extensive health care coverage at a very cheap rate (less than $100 per month) at age 65.

Of course, both Medicare and Social Security are actuarially insolvent, so these taxes don’t even cover their own costs.  The shortfall falls on those who actually pay a positive income tax.  So while this table doesn’t tell us exactly where the cut-off is, 47% can’t be too far off, with the only debate being over counting the payroll taxes that are already inadequate for their purposes.

Focusing only on income taxes also ignores benefits.  When welfare benefits and subsidies are taken into account, the 47% number Mitt Romney used seems low.   2004 figures from The Heritage Foundation showed that the bottom 60% of households receive more in benefis than they pay in taxes.   I will post more current figures if I find them, but I suspect that this “dependency ratio” has only worsened since 2004.

So while Mitt Romney’s “secret tape” statements might be politically awkward, it’s only because they are pretty much true.  The cost of government has shifted more and more to “the rich.”

This can’t continue forever because the math doesn’t work.  The rich guy isn’t buying because he can’t.

Related coverage:

Janet Novack, Memo To Mitt Romney: The 47% Pay Taxes Too

Kay Bell,  47 percent don’t pay federal income taxes, but do hand over payroll, other taxes

Tax Policy Center, Who doesn’t pay federal taxes


Ramesh Ponnuri, Makers and Takers  Will Americans Think They’re Romney’s “47 Percent”? Or One of the “53 Percent”?Romney’s 47 Percent Line Is a Common GOP Trope, and it’s Wrong*Secret Romney Tape Means We Can Finally Stop Talking About Obama’s Failed Foreign & Domestic Policy!Forget Romney: Should We Be Concerned That 49 Percent of Households Get Government Money?

Update: the TaxProf rounds up the frenzy.

CRS: Nothing Affects Economic Growth (William McBride):

A study by the Congressional Research Service (CRS) is getting a lot of attention, because it finds that tax cuts are not associated with economic growth.   Although less reported, the study also finds nothing is associated with economic growth, including all the standard factors such as education, population growth, and government spending. 

So close the schools, stop spending money, and raise taxes to 100%!


He probably wants to get his sentence out of the way so he can get on with his life.  When he’s 109.  Wasendorf kept in jail after court appearance  (Des Moines Register).  The 64 year-old, who has pleaded guilty to looting the Peregrine Financial Group, can expect to serve at least 90 percent of his expected 50-year sentence.


David Brunori,  Cowardly New Jersey Cronyism:

The not so courageous New Jersey’s Economic Development Authority approved a $40 million tax credit for Honeywell International to keep it from moving its headquarters to Pennsylvania.  Then the authority not so courageously approved a $40 million Grow New Jersey tax credit for Dotcom Distribution, an e-commerce warehousing and fulfillment company, so that it can build a facility and not move to Pennsylvania. Then the authority not so courageously approved a $50 million tax credit for developers to build a supermarket in Camden!  Where is the outrage? Where are the political leaders who have the courage to say that this is the worst kind of economic policy?

Not in Iowa, for sure.


TaxProf,  CRS: Corporate Tax Rate Could Drop to 29.4% in Revenue-Neutral Tax Reform.   I think the current  35% rate could go significantly lower than 29.5% if they really tried, without lowering revenues.  Of course, they won’t really try.


Russ Fox,  Is the IRS Time-Barred From Imposing a Penalty on a Frivolous Amended Return?  Short answer: no.

Jack Townsend,  Credit Suisse Continues Ratting on It Own and Expects Deposit Outflow.  Yes, that will do it.

Paul Neiffer,  Mistakes to Avoid in Lifetime Giving – Final

Timing is everything: capital investments for the last quarter of 2012. My new post at, the Des Moines Business Record blog for entrepreneurs.

News you can use:  The Tax Court Doesn’t Believe That You’re Not a Person (Anthony Nitti)





Tax Roundup, August 22, 2012: ID theft; the economist-politician gap; free subtlety and nuance!

Wednesday, August 22nd, 2012 by Joe Kristan

Doug Shulman, showing how much he cares.

The IRS does a bang-up job shoveling our cash to identity thieves,   as we have mentioned.  Too bad they don’t do as well helping out the theft victims.  Jason Dinesen tells what he has learned helping a widow deal with the theft of her husband’s identity:

  • The IRS is woefully under-equipped to deal with identity theft on tax returns.
  • The departments of the IRS don’t communicate with each other — or with themselves. Things I told the practitioner hotline were lost to the wind, as my conversations with them were not available to the collections department. And even within the collections department, it takes them 9+ weeks to open the mail, and not every call gets logged.
  • I really wish the IRS would tell you whose desk a tax return is sitting on. This is true even in cases not involving identity theft. It’s almost impossible to get answers when you call the IRS, because you — and the IRS rep you talk to when you call — don’t know which IRS employee is actually looking at the return.
  • Congress needs to do something to fix the problem with the Death Master File. It’s ridiculous that the government publishes something that is such a goldmine for identity theft.

Apparently IRS Commissioner Shulman has other priorities.

Related:  Missouri Tax GuyAvoid Identity Theft


TaxProf, Six Policies Economists Love (And Politicians Hate):

NPR, Six Policies Economists Love (And Politicians Hate): 

  1. Eliminate the mortgage tax deduction. …
  2. End the tax deduction companies get for providing health-care to employees. …
  3. Eliminate the corporate income tax. …
  4. Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you’re taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households.
  5. Tax carbon emissions. …
  6. Legalize marijuana. …


Stephen Moore,  The U.S. Tax System: Who Really Pays?:

The Tax Policy Center, which is run by the Urban Institute and the Brookings Institution, recently studied payroll and income taxes paid by every income group. It found that the highest-income 1 percent of Americans still pay a combined (income plus payroll) average rate of 26.[1] percent, while the poorest fifth of Americans receive a refund of 0.9 percent, largely through the Earned Income Tax Credit. As Figure 3 illustrates, even when the regressive effects of the payroll tax are counted, the rich contribute a greater fraction of their income, and make a greater contribution to federal tax revenues, than other income groups.

It’s a powerful antidote to arguments that we just need to beat up on the rich some more.  The rich guy isn’t buying this round.


William Perez,  IRS Offers Tips for Correcting Tax Returns.  Paul Ryan knows how that works.

Jim Maule, How Not to Claim a Casualty Loss Deduction

Kay Bell, Bush tax cuts: slur, boast or both?

Janet Novack, Pssst! Florida! Obama And Ryan Both Want Seniors To Pay More For Medicare

Peter Reilly, Real Reason Romney Returns Not Being Released ?

Robert D. Flach has a new Wednesday Buzz.

Maybe that Swiss bank account wasn’t such a hot idea.  Credit Suisse / Wegelin Client Pleads Guilty to FBAR Violation in SDNY (Jack Townsend)

Dear Readers: Is my opinion of Commissioner Shulman too nuanced and subtle?

Fair Tax Gives Gary Johnson Some Hiccups On The Trail (Garrett Quinn,

When Libertarian presidential nominee Gary Johnson brought up the Fair Tax at his party’s nominating convention in Las Vegas, he was occasionally booed and even heckled by some of the delegates in the hall. It was the only thing his chief rival for the nomination, Lee Wrights, could really attack him on from a policy standpoint.

While I’m not holding my breath for a Gary Johnson presidency (alas), I remain puzzled by the continued embrace of the “Fair Tax” by otherwise-sensible politicians.   A 30% national sales tax (and that’s the rate, even though the 23% claimed by advocates is bad enough) on a narrow consumption base would never work.  And based on this story, it isn’t even very popular among audiences with selective tastes.


What happens when politicians ‘invest’ your money in your competitors

Wednesday, January 18th, 2012 by Joe Kristan “Surprise: ‘Tax Breaks for Jobs: Half fall Short'”
From the story:

The South has long led the country in public incentives dished out for corporate relocations. Yet far from increasing jobs and economic growth, such effects have the opposite outcome. They suck money out of the economy and screw over other businesses and taxpayers (who have to pick up the tab).

Tax credits and special breaks always end up favoring those with friends in high places, at the expense of the rest of us.


Vacation reading

Monday, July 25th, 2011 by Joe Kristan

While I kept my finger off the blogging trigger on vacation, I did do a little recreational Internet beach reading, including this from

Pulitzer-winning tax journalist David Cay Johnston has been forced to withdraw his first column for Reuters. Aptly named commenter OFF TOPIC notes in another thread that Johnston, whose unreliability and bullying style have put him in bad odor in various forums (including this one), has issued a rambling, self-dramatizing series of explanations for why he falsely claimed Rupert Murdoch


Wesley Snipes will get to finish his sentence

Tuesday, June 7th, 2011 by Joe Kristan

20101209-1.jpgActor Wesley Snipes was unable to play a victim well enough to get the U.S. Supreme Court to hear an appeal of his tax crime conviction. That means Mr. Snipes will complete his 3-year sentence on or about July 19, 2013. He has the consolation of knowing that after he is free, his former advisor Eddie Kahn will be securely held in the arms of the Bureau of Prisons until sometime in 2026.
The Tax Prof blog has a roundup. Additional blog coverage from TaxGrrrl , Russ Fox, Smartmoney Tax Blog, and Hit and Run.
Related: Wesley Snipes: victim of the system?


I don’t have a spending problem, I just don’t have enough credit cards.

Friday, March 4th, 2011 by Joe Kristan

Pulitzer Prize-winning tax beat reporter David Cay Johnston thinks that those who think that the government is spending too much have it wrong. The problem is that we aren’t paying enough taxes:

There is a simple, factual way to describe what is happening to our government: We have a revenue problem.

Maybe not. Yes, revenues have plunged in the recession — as you would expect from a system where taxes are collected overwhelmingly from corporations and a narrow base of high-income individuals — the ones with the most volatile taxable incomes. But this chart (charts courtesy shows that a revenue drop has been, oddly, accompanied by a spending binge:
It’s as if, when one member of a two-earner couple loses a job, the couple responds by taking a cruise.
The idea that the federal budget would be fine if we would just do a better job of collecting taxes looks even worse if you look ahead a few years:
The projected spending on medicare and social security will swamp any attempt to solve the problems by tax increases alone. But Mr. Johnston seems to think we have no choice:

Mitchell’s tax ideas are great if you want a government with no money to track al-Qaida’s money or under which our food-borne illness rate (now 21 times that of France) would make death by salmonella rank with cancer and heart disease in the mortality statistics. In Mitchell’s ideal America, we would not have a cent for scientific research, a foundation of wealth creation in the future, as the governments of China, India, Korea, and most of the rest of the civilized world understand.

Actually, around 60 percent of federal spending consists of payments to individuals — taxing some of us to write checks to everyone else. That doesn’t kill many salmonella bugs. Even if you think federal efforts are all that keeps food companies from killing all of their customers, there’s a lot of room to cut spending before you fire the food inspectors. Ethanol subsidies and farm payments alone amount to $20 – $40 billion in annual transfers to mostly-prosperous folks.
When a couple comes in for credit counseling, of course they need to think of ways to raise new revenue — but they’re doomed if they don’t control their spending. The government is no different.
UPDATE, 6/26/2011: Links to Junior Deputy Accountant’s posts mentioned in the comments:
Part 1
Part 2


Film Credits: the Waterworld of tax policy?

Thursday, February 24th, 2011 by Joe Kristan says “Ishtar” is more like it.


Wesley Snipes: victim of the system?

Thursday, December 9th, 2010 by Joe Kristan

20101209-1.jpgWesley Snipes is set to report to federal prison today to start his three-year sentence on tax charges.
It’s sad when somebody goes to jail. Even where a sentence is warranted, it’s a waste of potential. Yes, prison sentences keep bad guys off the street and encourage the rest of us to not follow bad examples, but even where imprisonment is necessary and deserved, it’s not a happy thing.
It’s sadder still if the sentence is unjust. Aside from Mr. Snipes himself, there are folks who think he’s getting a very raw deal. For example, Tim Cavenaugh at

More specifically, he shouldn


State-funded Cannibalism

Wednesday, June 16th, 2010 by Joe Kristan

Our brave filmmakers want the states to give them our money. Now they’re shocked, shocked that politicians get upset when state money is used to — well, let Kay Bell explain what’s happening in Michigan:

Michigan has decided not to provide tax money for the horror film The Woman, a sequel to the icky Offspring.
According to the New York Times, the state’s film commissioner,Janet Lockwood, sent the director a note informing him that the film’s extreme depictions of “realistic cannibalism; the gruesome and graphically violent depictions described in the screenplay; and the explicit nature of the script” were the main reasons for not providing it tax breaks.
And, oh yes, “”This film is unlikely to promote tourism in Michigan or to present or reflect Michigan in a positive light.”

Philistines. Michigan probably wouldn’t have funded Soylent Green either.

Apparently it’s not just the states. New Zealand has been throwing money at Hollywood, too. Unlike Michigan, New Zealand is starting to figure out that they are wasting their money:
A Cabinet paper prepared by Treasury in February and released to the Herald on Sunday under the Official Information Act, said subsidies for films such as Avatar and King Kong could not be economically justified.
They had likely caused a net economic loss of $36 million.

In other words, notes, the subsidies amount to “stealing from the poor and giving to the rich.” But hey, the film crews buy T-shirts!
Update: More from the Tax Policy Blog.
Related: Let them eat canapes.
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I’ll bet the May house sale market will look like this too

Wednesday, June 2nd, 2010 by Joe Kristan

A picture (by Coyote Blog, via Hit and Run) of the effect of Cash for Clunkers:
A temporary surge, followed by a fall-off, and then a reversion to trend (as indicated by the dotted line). It’s obvious that Cash for Clunkers clunked, merely borrowing sales from the period following the program.
Expect the same pattern for houses in May now that the First-time homebuyer credit is over.