No Internet Sales Tax Vote This Year

On Monday a spokesman for House speaker John Boehner said a bill to tax online shopping – which passed in the Senate last year – would not move forward in the final weeks of the current Congress, the lame duck session, reports FT.

A spokesman for Boehner said: “The Speaker has made clear in the past he has significant concerns about the bill and it won’t move forward this year. The [House] judiciary committee continues to examine the measure and the broader issue.”

But don't think this will necessarily kill the idea of a tax on internet sales. Retailers such as Walmart, Target and Best Buy continue to push for such a tax, so that the anchor of a sales tax can dangle from the neck of online retailers as it does now at physical location retailers.

Tom, Dick and Harry and the Progressive Income Tax

All taxes are bad news, including progressive taxes.

The 2014 List of States with the Best (and Worst) BusinessTax Climates

According to the Tax Foundation the 10 best are:

1. Wyoming
2. South Dakota
3. Nevada
4. Alaska
5. Florida
6. Washington
7. Montana
8. New Hampshire
9. Utah
10.Indiana

The 10 worst are:

41. Maryland
42. Connecticut
43. Wisconsin
44. North Carolina
45. Vermont
46. Rhode Island
47. Minnesota
48. California
49. New Jersey
50. New York

Note: The Tax Foundation is about to release it's 2015 list. Return to this post for the update.

BE PREPARED: The Coming Tax-Break Smackdown

It's going to be even more painful than last year , when you file your 2014 tax forms.

First, all taxpayers this year will see a new check box on their 1040 federal tax return, where they'll be required to disclose whether they have had qualified health insurance all year, per the Affordable Care Act mandate.

If you or your dependents did not obtain minimal essential coverage, you will pay a penalty equal to 1 percent of your yearly household income, or a maximum of $95 per person, on your 2014 federal income tax return, due April 2015. That penalty increases to 2 percent of household income, or $325 per person, in 2015; and 2.5 percent of income, or $695 per person, in 2016.

Another new twist for 2014 is the uncertainty surrounding $85 billion worth of temporary tax breaks for individuals and businesses, also called extenders, that expired on Dec. 31, 2013.

In years past, Congress has reinstated those credits retroactively in the final weeks of the year, sometimes even waiting until January of the following year. And, indeed, there is a Senate bill aimed at doing just that.

But that bill is now stalled until after the November congressional elections, leaving millions of taxpayers in limbo.

Among the expired tax breaks are the commuter subsidy for riding mass transit, which fell to $130 from $245.

Gone, too, is the above-the-line deduction—meaning you need not itemize to claim it—for qualified higher-education expenses, often referred to as the tuition and fees deduction. The tax break allowed taxpayers with modified adjusted gross income of $80,000 or less ($160,000 for joint filers) to claim up to $4,000 of their own qualified tuition and related expenses, or the tuition of a spouse or dependent.

One of the most far-reaching extenders to expire, however, is the state and local general sales-tax deduction. Taxpayers who itemize have previously been permitted to subtract either their state income tax or their state sales tax in calculating their federal taxable income, but the sales-tax deduction was never made permanent.

More than 8 million taxpayers claimed the deduction for state and local general sales taxes in 2012.

Retirees should also be warned that one of the most popular ways to donate to charity—donating directly from their individual retirement accounts, thereby reducing their tax burden—will be lost if the extender bill is not approved.

Taxpayers who are 70½ or older will no longer be permitted to exclude up to $100,000 per year from gross income by donating directly from their IRAs, or count that qualified charitable distribution as their required minimum distributions.

Lastly, tax relief for homeowners who are underwater on their loan, meaning their house is worth less than they owe on their mortgage, has also disappeared.

Those still struggling in the wake of the housing crisis will no longer be able to write off up to $2 million of any portion of their mortgage debt that gets forgiven by their bank. That amount will instead be treated as taxable income.

(via CNBC)

The Revolving Door (Dick Berner Edition)

President Obama has nominated Dick Berner to head the Office of Financial Research. Berner is a revolving door insider.

He is currently Counselor in the Office of Research and Quantitative Studies at the Department of the Treasury. prior to that gig, he served as the Managing Director, Co-Head of Global Economics and Chief U.S. Economist at Morgan Stanley

He was a member of the Economic Advisory Panel of the Federal Reserve Bank of New York and an Executive Vice President and Chief Economist at Mellon Bank, and a member of Mellon's Senior Management Committee.

Berner also served as Economist for the Board of Governors of the Federal Reserve System, where he co-directed the Fed's model-based forecasting efforts.

Berner is big on "tax reform". Translation: He wants to raise taxes.

Henry Blodget's Odd View of How the Economy Works

This is really scary. Henry Blodget publishes one of the most highest trafficked web sites on the internet about business, yet he just doesn't have a clue.

In an attempt to justify higher taxes on the rich, Blodget is out with an opinion piece where he tells us that entrepreneurs don't create jobs. He cites as backup of for this view a confused op-ed by billionaire Nick Hanauer.

Hanauer writes:

I’m a very rich person. As an entrepreneur and venture capitalist, I’ve started or helped get off the ground dozens of companies in industries including manufacturing, retail, medical services, the Internet and software. I founded the Internet media company aQuantive Inc., which was acquired by Microsoft Corp. in 2007 for $6.4 billion. I was also the first non-family investor in Amazon.com Inc.

The Most Endangered Federal Tax Deductions

CNBC has put together a list of tax deductions that may be eliminated as the deficit swells. It's not certain where cuts in deductions will come, but the below list provides a good guide as to deduction eliminations that are being proposed by various individuals. Read it and weep:

1. A higher capital gains tax is a possibility. While current rates expire at the end of 2012, the Obama administration would like to raise capital gains rates.

2. Both the administration and Congress have proposed raising the R&D tax credit as well as the related alternative simplified credit or ASC, a simpler way for businesses to calculate the credit.

3. Congress extended the IRA charitable donation provision through 2011, but it will lapse in 2012 if lawmakers don’t act. Donors older than 70 ½ may contribute up to $100,000 of IRA assets directly to one or more qualified charities. While there’s no deduction, the gift is excluded from income.

4. Under the current tax exemption for employer-sponsored health insurance, your employer’s portion of your health premium is tax exempt. If, however, the subsidy was axed and your employer instead gave you a raise to cover those health costs, you’d have a higher taxable income or higher tax bill.

5.A deduction of up to $4,000 for qualified education expenses expires at the end of 2011.

6. Interest paid on a mortgage is tax deductible if itemized. Roughly a quarter of all tax filers claim the popular tax deduction. There is much talk about eliminating this deduction.

7.The state sales tax deduction is scheduled to expire at the end of 2011.

Occupy the Tax Man?

Adbusters, the organization that launched Occupation Wall Street, is featuring the below video on the frontpage of its website.

An Indian snake charmer named Hakkul released a sack of venomous vipers in his local tax office.

“I had to dump the snakes…” he says.

Richard Epstein on Inequality and High Taxes

Richard Epstein is off a bit when he says the rich don't have extra influence over the political process. They all don't, but the Jamie Dimion's and Warren Buffett's sure do. And, I am not so rah, rah on Epstein's cheering of 1950's government highway infrastructure programs (See Walter Block's Privatization of Roads and Highways) Beside that, Epstein is pretty solid in this clip.

Watch Does U.S. Economic Inequality Have a Good Side? on PBS. See more from PBS NEWSHOUR.

(ViaGregMankiw)

WRSTGD as an Excuse to Raise Taxes

The elite continue to set up the play for higher taxes.

Salon's David Sirota pimps the idea by writing that the Worst Recession Since the Great Depression (WRSTGD) is a perfect time to RAISE taxes:

But as history (and "Freakonomics") teach, such oversimplified memes tend to obscure the counterintuitive notions that often hold the most profound truths. And in the case of the WRSTGD, the most important of these is the idea that we are in economic dire straits because tax rates are too low.

When he isn't relying on the non sequitir method of analysis that Freakonomics brings to the debate, Sirota relies on that other great economist, Hillary Clinton:

...with USA Today reporting that tax rates are at a 60-year nadir, Secretary of State Hillary Clinton told a Brookings Institution audience that "the rich are not paying their fair share in any nation that is facing [major] employment issues ... whether it is individual, corporate, whatever the taxation forms are."

To top things off, he then quotes the Soros' front group, Center for American Progress:

...a Center for American Progress analysis shows that "Greece has consistently spent less" than Europe's other social democracies — most of which have avoided Greece's plight.

"The real problem facing the Greeks is not how to reduce spending but how to increase revenue collections," the report concludes, fingering Greece's comparatively "anemic tax collections" as its economic problem.

Then more from Hillary:

In summing up her remarks, Clinton said that this higher-tax/higher-revenue formula "used to work for us until we abandoned it."

Brace yourself, once mid-terms are over, Obama's next play is major tax increases.

How Kennedy Tax Cuts Changed Pro Boxing

From The Atlantic article "How Taxes Changed Boxing":
 

The 1950s was the era of the 90 percent top marginal tax rate, and by the end of that decade live gate receipts for top championship fights were supplemented by the proceeds from closed circuit telecasts to movie theaters. A second fight in one tax year would yield very little additional income, hardly worth the risk of losing the title. And so, the three fights between Floyd Patterson and Ingemar Johansson stretched over three years (1959-1961); the two between Patterson and Sonny Liston over two years (1962-1963), as was also true for the two bouts between Liston and Cassius Clay (Muhammad Ali) (1964-1965).

(ViaMarkPerry)

The Right Reasons to Support Tax Cuts

There are sound reasons to support tax cuts and unsound reasons. Bob Murphy explains.

Miron: Eliminate the Corporate Income Tax to Stimulate the Econmy

Eliminating the corporate income tax would go a long way to stimulating the economy in a manner that will never happen with the current pork-laden bill before Congress.

Harvard's Jeffrey A. Miron explains the many ways it would help::

[Repeal of the Corporate Income Tax]would spur investment, improve the transparency of corporate accounting, slash compliance costs, and avoid the distortions caused by the special-interest provisions in the tax code. Repeal can work fast, by raising companies' share prices, increasing cash flow, and allowing corporations to lessen their need for bank lending.

Gong Show Time for Timothy Geithner

It's roasting the nominees season.

Timothy Geithner, Barack Obama's nominee to head the Treasury, didn't pay Social Security and Medicare taxes for several years while he worked for the International Monetary Fund.

The IMF and World Bank reimburse employees, including U.S. citizens, for their U.S. income taxes. They don't, however, make contributions toward Social Security and Medicare taxes, which individuals are expected to pay on their own.

In 2006, the IRS conducted a letter audit of Geithner's 2003 and 2004 taxes and concluded he owed taxes and interest totaling $17,230, according to documents released by the Senate Finance Committee. He paid up and the IRS waived the related penalties.

But, according to WSJ:

During the vetting of Mr. Geithner late last year, the Obama transition team discovered the nominee had failed to pay the same taxes for 2001 and 2002. "Upon learning of this error on Nov. 21, 2008, Mr. Geithner immediately submitted payment for tax that would have been due in those years, plus interest," a transition aide said. The sum totaled $25,970.

The Obama team said Mr. Geithner's taxes have been paid in full, and that he didn't intend to avoid payment, but made a mistake common for employees of international institutions. That characterization was contested by Senate Finance Republicans, who produced IMF documents showing that employees are repeatedly told they are responsible for paying their payroll taxes...

Other tax issues also surfaced during the vetting, including the fact Mr. Geithner used his child's time at overnight camps in 2001, 2004 and 2005 to calculate dependent-care tax deductions. Sleepaway camps don't qualify.

Amended tax returns that Mr. Geithner filed recently include $4,334 in additional taxes, and $1,232 in interest for infractions, such as an early-withdrawal penalty from a retirement plan, an improper small-business deduction, a charitable-contribution deduction for ineligible items, and the expensing of utility costs that went for personal use

Geithner prepared his own tax returns in four of the years in question. Economist Magazine tells us he is, "a quick learner: within a year of joining the New York Fed he could debate the intricacies of monetary policy with academic experts." The current revelations suggests he is either not a quick learner, or a tax cheat---or both.

And don't forget, Geithner once said, “Most consequential choices involve shades of gray, and some fog is often useful in getting things done."

Geithner's biggest problem: The IRS is a division of The Treasury. The folks back home aren't going to be happy with a tax cheat running the Treasury. The blogs are blowing up on this one.

A tentatively scheduled confirmation hearing Tuesday for Geithner was canceled.

But grab a cold one, popcorn and get comfortable in your easy chair. These roastings are about the only time you get your moneys worth from government. It won't matter policy wise whether Geithner is shot in public or given the medal of honor, he is just a tool in the machine. If the heat gets too intense, and he bails, or is forced to bail, the Council on Foreign Relations and the Group of Thirty (Geithner is a member of both) have plenty of other soldier recruits waiting in line. For the powers that be, this is what California's Jerry Brown once called the presidential nomination process, "a Gong Show for the rich".

A new confirmaton hearing is now scheduled for Friday.

No Captial Gains Taxes for Private Equity in Japan?

Is Carlyle Group about to make a big footprint in Japan?

Japan may eliminate a 40 percent capital gains tax for most foreign investors, a move the government expects could spur Middle Eastern sovereign funds and private equity firms such as Carlyle Group to pump 10 trillion yen ($110 billion) into its sagging markets, Bloomberg reports.

The trade ministry plans talks over the coming months with buyout firms and state funds from Saudi Arabia, the United Arab Emirates, Qatar and Kuwait to outline proposed changes to its tax regime, said a senior ministry official working on the matter, who declined to be named because details haven’t been finalized, said Bloomberg.

This should be expanded to more than private equity insiders, but competitive tax cuts would be fun.

The Coming Farting Cows Tax versus a Tax Credit for Dead Cockroaches

Many years ago a scientist (I had my suspicions he might have been a mad scientist), who has since passed away, hired me to help him identify stocks that would decline in price in the event of a global cooling. I have forgotten a lot of the details of why he expected a global cooling instead of a warming, but I do remember him telling me that cows and cockroaches emitted significant quantities of greenhouse gas emissions through, well, farting.

This all comes to mind because Drudge is linking to a story about the EPA considering a tax on the owners of farting cows (and they all fart):

In a release last month, the New York Farm Bureau worked out the price tag to farmers of the farting cows tax, based on news put out on the proposed greenhouse gas tax of cattle by the EPA

“The tax for dairy cows could be $175 per cow, and $87.50 per head of beef cattle. The tax on hogs would upwards of $20 per hog,” the release said. “Any operation with more than 25 dairy cows, 50 beef cattle or 200 hogs would have to obtain permits.”

Since I am more of a tax cut guy, than an advocate of increasing government revenues, I say ditch the tax on farting cows and replace it with a tax credit for mailing in dead cockroaches to the IRS. You know, a per dead cockroach tax credit. Hey, we have to fight GGE.

Tax Cut Obama

President-elect Barack Obama has come through with his first positive surprise.

Approximately 40% of the "stimulus" package will come in the form of tax cuts. Tax cuts are always a good thing. Here's WSJ reporting the news:

President-elect Barack Obama and congressional Democrats are crafting a plan to offer about $300 billion of tax cuts to individuals and businesses, a move aimed at attracting Republican support for an economic-stimulus package and prodding companies to create jobs.

The size of the proposed tax cuts -- which would account for about 40% of a stimulus package that could reach $775 billion over two years -- is greater than many on both sides of the aisle in Congress had anticipated...

The Obama tax-cut proposals, if enacted, could pack more punch in two years than either of President George W. Bush's tax cuts did in their first two years. Mr. Bush's 10-year, $1.35 trillion tax cut of 2001, considered the largest in history, contained $174 billion of cuts during its first two full years, according to Congress's Joint Committee on Taxation. The second-largest tax cut -- the 10-year, $350 billion package engineered by Mr. Bush in 2003 -- contained $231 billion in 2004 and 2005.

This is Obama, of course, so there is a bit of a redistributionist element to the tax cut. WSJ again:

The largest piece of tax relief in the new plan would involve cuts for people who pay income taxes or who claim the earned-income credit, a refund designed to lessen the impact of payroll taxes on low- and moderate-income workers. This component would serve as a down payment on the "Making Work Pay" proposal Mr. Obama outlined during his election campaign, giving a credit of $500 per individual or $1,000 per family.

I have to think Obama's, pro-tax cut, choice to head the CEA, Chrstina Roemer, had significant influence in Obama going in this direction.

I should note, spending cuts should accompany the tax cuts to keep the plan from becoming inflationary, however, I see no chance of that occurring at this time. So we really have only one-half of a decent equation based on this news, but a tax cut is much, much better than this "stimulus" ending up as government spending.

Yen Reaches 13-Year High Against the Dollar

The massive short yen/long dollar carry trade is beginning to unwind in earnest. The dollar is a dead duck. Inflation is straight ahead. This is not the time to be long T-bills or T-bonds.

The yen is up 25% against the dollar this year, so far.

And here's a bit of sanity in a world of micro manipulating governmemt financial offiicials. Shoichi Nakagawa, Japanese finance minister, said he is not considering intervention in currency markets for now, the Nikkei newspaper reported on its website. Nakagawa also said the latest moves in currencies were not too sharp and that the yen’s recent gains were not bad.

Obama Ditches Oil Company Tax

President-elect Barack Obama is not planning to implement a windfall profit tax on oil companies because prices have dropped below $80 a barrel.

"President-elect Obama announced the policy during the campaign because oil prices were above $80 per barrel," an aide on Obama's transition team said according to Reuters. "They are currently below that now and expected to stay below that."

The big question now is what other taxes will Obama raise to replace the revenue not generated from the windfall tax? Don't think for a minute this is an overall tax cut.

The Coming Great Liquidation and The Opportunity

At WSJ, Andy Kessler makes a number of important points with regard to the market between now and the end of the year.

First, we are likely to see huge tax selling. Stocks that are down will see even more downward pressure between now and the end of the year, as investors sell stocks that are down to lock n tax losses.

And this goes for mutual funds as well. Kessler writes:

Mutual funds are also dumped for tax losses. When the stock market is down in the morning, it's usually because of mutual-fund redemptions.

Fidelity's giant Magellan fund, down 56%, is one of many in the $6 trillion stock-fund business having an awful year. As investors call or click to get out of these funds, Fidelity and the others have to unload shares the next morning to raise cash. This forced-selling overwhelms the system. New York Stock Exchange specialists, who are supposed to maintain an orderly market, stop buying and back away. You get huge drops, which can unnerve even more investors and cause them to redeem.

The redemptions could also cause huge legacy capital gains for some mutual fund investors. Kessler explains:

To make matters worse, in December mutual funds do capital-gains distributions. In a down year like 2008, you would think there are no taxes to pay. Think again. Legg Mason's Value Trust, run by Bill Miller, outperformed the market for 15 years by buying many "unvalue" names like Amazon. As investors redeem, he is forced to sell many of these stocks originally purchased at very low prices, triggering huge capital gains in a year his fund is down 62%. You can almost guarantee investors also will sell more of these funds to pay their unexpected tax bill.

Here's something the lame duck Congress should do immediately, temporarily lift the tax on capital gains distributions made by mutual funds to provide relief from these legacy capital gains.

And then, of course, there will be hedge fund liquidations because of the advisor fee structures at the funds. Kessler again:

...when hedge funds are down for the year, they work practically for free until they make up the loss. We'll see hedge funds close and stocks liquidated as -- no surprise -- hedge-fund managers like to get paid.

Bottom line, there is going to be huge technical downward pressure on some stocks between now and the end of the year.

Given that the Fed appears to be expanding money supply again, this should mean a huge "January effect" for January 2009. In a normal year, the January effect occurs as the technical selling pressure from the end of the year stops, often within a matter of days some stocks that faced huge selling pressure jump by 25% or more after the first of the year (Sometimes the climb starts the last few days of the old year).

With all the technical liquidations going on this year, watch the new low list carefully. Look for stocks of companies that are backed by solid operations and a solid balance sheet. If they appear to be going down for no reason day after day, it could very well be technical end of year selling pressure. Some of,these stocks will have huge rebounds, maybe 50% or more, within the first few days of January 2009. It will be a great opportunity, make your entire trading profits before February 1 and take the rest of the year off. It's going to happen for some.