Open letter to our federal legislators – please try to balance costs and benefits during this pandemic!

An open letter to our federal representatives  (I emailed this to my three federal representatives:
As you consider how much the federal government should spend in response to the current pandemic, please consider the following:
One trillion dollars equals about $3,000 per person for every man, woman, and child in the U.S., or about $12,000 per family of four!  Please be careful not to spend our tax money on anything that is not needed and not directly caused by the pandemic.  Specifically, there should be no money spent on the following:

  • Seniors and others on Medicare, disability, pensions, and other fixed incomes – they will continue to be paid.
  • People who have had no reported W-2 earnings during the past year – since they have been getting by on unearned income
  • People who have household earnings around or over $75,000 per year – they qualify for unemployment benefits.

Don’t give grants, but make low-interest rate loans available.  We can decide later whether or not to forgive any loans.  Don’t allow unrelated “riders” on any pandemic response bill.  For example, don’t’ forgive student loans, don’t add any permanent employer mandates such as child care, sick pay, paid family leave, etc.  Watch out for and deny other special-interest legislation trying to take advantage of this crisis.

Please try to balance costs versus benefits.  We have lived normally with the flu killing tens of thousands of U.S. citizens every year.  I am a senior – age 66 – and I don’t need any bailout.

Trump’s proposed tax rate for “pass-through” businesses is unfair

President Trump has proposed a maximum 25% tax rate on income that individuals receive from “pass through entities”.  Pass through entities are businesses that don’t pay corporate income taxes, but rather pass their net income each year through to the owners to be taxed as part of the owners’ individual tax return.  These pass through entities include S-Corporations, partnerships, limited liability companies (LLCs), and sole proprietorships.  Currently, income from pass through entities is taxed at the same rate as any other ordinary income – up to a maximum rate of 39.5%.  (President Trump’s proposal for ordinary income for most taxpayers is a maximum tax rate of 35%.)  He justifies the lower tax rate for pass through entities because, he says, these pass through businesses are the job creators.

This begs at least two questions:  Do pass through entities really create more jobs than non-pass through entities?  Even if so, why should the income of an employer be taxed at a lower rate than an employee if they earn the same amount?  Tax fairness would dictate that two people with the same income would pay the same amount of tax, regardless of source.

Regarding job creation, it is important to know that pass through entities are not just manufacturers, wholesalers or retailers, who may or may not be job creators.  They are also professionals such as doctors, lawyers, accountants. Most hedge funds and private equity funds are pass through entities.  About 95% of all businesses are pass through entities.  Of those, about 99% have revenues of less than $10 million.  The 1% of pass through entities with revenues of more than $10 million earn about 83% of all profits!  So, some pass through entities are very large, and many owners of pass through entities have very high incomes.  Is it fair for business owners to pay at a 25% rate while regular workers with the same income pay at a 35% rate?  I don’t think so.

I expect to write several blog posts on President Trump’s tax proposal.  The idea of reducing tax rates is a good one – especially if the total plan is revenue neutral and doesn’t increase our $20 Trillion debt.  This means that tax reform that reduces rates must also reduce special tax breaks for politically favored groups and/or reduce spending.  I hope that Congress, which controls all tax legislation, will not “bet on the come” – that is assume future tax revenue will increase due to future growth in the economy.  Our government uses a 10 year look forward to determine the deficit/surplus effect of any change in taxing or spending.  In recent decades, it seems that all tax and spending changes have significant costs up front with the promise of savings toward the end the the 10 year period.  Let’s not keep doing that.

Source: https://www.brookings.edu/research/9-facts-about-pass-through-businesses/

New YMCA pool should not receive federal or state funding assistance

The new downtown Des Moines YMCA should not receive federal funding for its new Olympic size swimming pool.  The Register reported that the Y did not receive the $6 million in federal tax credits it had requested, but that it had reapplied for funding next year under the same program.  I don’t blame the Y, or any of the thousands of similar organizations across the nation, for applying for available grants.  I blame our federal government and elected representatives for creating such spending programs.  Building swimming pools, and other local community projects, is clearly an improper role for our federal government.  There is no authorization for this kind of spending in the Constitution.  Wanting to fund good causes is not sufficient.  (As a longtime member, financial supporter, and twice past board member, I believe in the good cause of the Y.)   Spending proposals that are not authorized under the Constitution must be opposed for that reason alone – no matter how good the cause.  Let’s see if the newly Republican controlled Congress will honor their oath to uphold the Constitution and work to reign in these Constitutionally abusive spending programs.

Don’t demonize Walgreens.

Don’t demonize Walgreens for taking action to legally lower its U.S. federal income taxes.  The Des Moines Register and President Obama are wrong when they say that taking advantage of this legal tax break is unpatriotic.  As the Register reported, Walgreens can save $4 billion in federal taxes over the next 5 years by changing its corporate headquarters to Switzerland.  (See Register article: “Walgreens turns back on taxpayers” 8/3/2014)

The Register asked: “How much profit does a company need?”  “How much is enough?”  They went on to list all of the benefits that Walgreens receives by operating in the U.S. They tried to shame Walgreens for their proposed action, and effectively called for a boycott of Walgreens in protest.

The Register gave lip service to the fact that the U.S. has very high corporate tax rates compared to most other modern countries, and that tax reform is needed to close loopholes and bring down rates.  That should have been the primary message of the editorial, that we need to close loopholes and lower rates, not that Walgreens might take advantage of one.

Many companies and other taxpayers pay substantially lower their taxes by taking advantage of loopholes:  Oil and other natural resource extraction industries have their depletion allowance; hedge fund managers have their “carried interest” bonuses payments.  There are many many types of tax credits and deductions that benefit only politically favored businesses.  Many unfair loopholes go to very wealthy and profitable companies and individuals.  How does Warren Buffet pay less than 20% in federal income taxes?  Loopholes.  Why do some of the largest, wealthiest, most profitable research based companies in Iowa pay no income tax?  Loopholes.  Are all of these people and companies unpatriotic because they don’t pay more taxes than required by law?

In this case, the problem is not Walgreens or the specific loophole.  It is the high corporate income tax rates in the U.S.  The U.S. needs to significantly lower its corporate income tax rates.  Otherwise, over time, companies will actually move their headquarters to lower tax countries.  Given the inherent unfairness of special interest loopholes, and given the unconscionably high U.S. federal debt, it seems obvious that we should close as many of these loopholes as possible, and lower tax rates at the same time in a revenue neutral way.

Full disclosure:  I am a Walgreens stockholder.

Link to Register editorial:  http://www.desmoinesregister.com/story/opinion/editorials/2014/08/03/editorial-walgreens-turns-back-taxpayers/13531911/

5 more years of farm welfare?

It appears that those in charge of reconciling the differences between the House and Senate versions of the Farm Bill will not be doing anything to reduce the obscene amount of welfare going to farmers.  Money “saved” by eliminating direct payments is being shifted towards more subsidies for crop insurance.  Senator Grassley’s effort to place a cap on the total welfare payments received by any one farmer appears to have been watered down at best.  Farmers have higher incomes and greater wealth than most citizens. They should pay the full cost of their crop insurance.  Now, lets hope that either the full House or Senate will vote this bill down.  We don’t need five more years of welfare for rich farmers.

Stop crop insurance subsidy!

Taxpayers subsidize about  60% of the premiums that farmers pay for crop insurance – regardless of how wealthy the farmer is, regardless of the income of the farmer, and regardless of whether or not the owner actually even works on a farm.  Crop insurance covers not only losses due to disasters, but it also covers losses due to low prices.  There is no ethical, moral, or food security reason why wealthy farm owners should be receiving any subsidy.  Most farms, like most other businesses, need disaster insurance.  But, there is no good reason why taxpayers should subsidize the premiums.  Farmers say they need a 5-year farm bill so that they can properly plan.  That is understandable.  Let’s let them plan on not receiving any subsidy on their crop insurance.

Debt ceiling compromise.

Republicans are right to not increase the debt ceiling without some action to reduce our Country’s spending deficit.  They are not right to pick out Obamacare as the only possible target.  President Obama and the Democrats are wrong to insist that the Republican in the House of Representatives pass a “clean” debt limit expansion bill.  The compromise should be to agree on spending cuts that are not specifically related to Obamacare.  The four big drivers of the Federal budget deficit are Medicare, Medicaid, Social Security and Military spending.  Any other spending cuts, although helpful, do not really solve our long-term problem.  Republicans should propose some type of binding agreement on entitlement and military spending cuts in return for passing a debt increase bill.  The real problem to be solved is that we must stop spending beyond our means.