Don’t extend school infrastructure for 21 years – to 2050!

The Iowa House of Representatives should definitely not pass HF 230 – to extend the school infrastructure sales tax for another 21 years – to 2050!

In 1998, we were told that the 1% local option tax for school infrastructure would be temporary – for 10 years.  In 2008 the temporary tax was changed from a local option to a state-wide sales tax, and was extended for another 22 years – to expire in 2029.  Even though we still have 12 years left of the tax, school districts are pressuring the legislature to extend the tax for an additional 21 years!

Why would they want to do this?  Because years ago, they borrowed against the future taxes and have already spent the taxes that will be collected during the remaining 12 years.  If the tax is extended again, you can bet that some school districts will again quickly borrow against the future taxes and spend the money decades before the taxes are collected.

Do we really need this much money for school infrastructure.  Some school districts might need the money, but it appears that many school districts are flush with money and already have excellent facilities.  We really should wait until 2029, then allow local school districts have their own local option tax if the local taxpayers believe there is still a need.

Corporate tax inversion is not cheating

The Register, today 11/27/2015, called corporations “tax cheats” when they try to avoid taxes by changing their “tax home” to a different country with lower rates.
These companies are not cheating. They are playing by the rules. This is what happens when the U.S. has the highest corporate tax rates in the world. We (the U.S.) don’t only tax U.S. based corporations on income earned in the U.S., we also tax them on income earned outside the U.S. – minus a credit for foreign taxes paid.  (That way, we make sure they pay the full U.S. rate on all income.)
This competition among countries to keep corporate income tax rates low is very much like competition among states to keep individual income taxes low. How many Iowans, who earned their wealth while living in Iowa, now live more than half of the year in Florida, South Dakota, or Texas, etc., because those states have no individual income tax? These people are not cheaters. They are following the laws. Tax competition among both states and countries is a good thing – it helps keep a check against ever increasing taxes and spending by governments.

 

Link to Register article:

http://www.desmoinesregister.com/story/opinion/editorials/2015/11/26/editorial-stop-rewarding-tax-cheats-taxpayer-funded-services/76341606/

Not all tax exempt organizations are the same.

The Register still has it wrong. (“Churches cross line with political endorsements”, 4/9/2015 – see link below.)  Churches with ministers who advocate for specific candidates should be allowed to be tax exempt.  But donors who contribute to them should not get a charitable tax deduction.

There are two types of tax-exempt organizations. First, there are the Charitable, Religious and Educational organizations, (tax code 501c3 organizations), that pay no income taxes, (and often don’t pay other taxes), plus donors get a charitable tax deduction on their income taxes for the amount of their contribution.  Second, there are all other tax-exempt organizations that pay no income taxes, (and often don’t pay other taxes), but donors do NOT get a charitable deduction. They are properly classified as tax exempt, since they are organized to not make any kind of profit, but their activities are not charitable, so no charitable tax deduction is given.

There are many tax exempt organizations that do not make any profit, but that are not charitable and whose donors don’t get a tax deduction.  They include Rotary clubs, political parties, country clubs, political issue organizations, chambers of commerce, special interest clubs, etc.  None of them try to make any profit, but they are not charitable.

To the extent that any not-for-profit organization advocates for or against specific candidates, that organization is not doing charitable work. It is doing political work. Under the principle of equal treatment under the law, donors to churches that advocate for specific candidates should not get a charitable tax deduction.  If a church wants its donors to receive a charitable tax deduction for contributions made, then the minister should not advocate for candidates from the pulpit, or through any other communication from the church.

Link to Register editorial: http://www.desmoinesregister.com/story/opinion/editorials/caucus/2015/04/08/rgisters-editorial-churches-cross-line-political-endorsements/25500433/

 

Social Security – don’t end the cap on taxable wages.

Recently, more people have called for an end to the cap on wages that are subject to the social security tax.  (For 2015, only the first $118,500 of wages are taxable, no social security tax is paid on wages above that amount.)  I think that would be the wrong way to go.  Social Security was sold to the public as a retirement plan where the amount of benefit received had some relationship to the amount paid in. It was not sold as a welfare program where the rich subsidize the poor. The benefits paid under Social Security are limited.  That is why taxable wages are limited.  Social Security is was intended to cover only a portion of a person’s needs during later years.  People should expect to continue to work throughout their lifetimes unless they save enough for their own retirement.  Unless, of course, we want to change over to a welfare system, where benefits are determined by politics rather than the amount you pay in.

Social Security funding solutions

If we do nothing to fix our Social Security scheme, our trust fund will be depleted by 2033, and then benefits will be required to be reduced by 23%!  There are only two ways to fix this problem: raise taxes or reduce benefits.  Taxes can be raised on all workers, on only certain workers, or on non-workers.  Benefits can be reduced by lowering monthly payment amounts or by raising the retirement age.  Of course, any combination of the above is possible.

Recently, more and more people have been calling for the elimination of the cap on Social Security taxable earnings.  (For 2014, earnings over $117,000 are not taxed for Social Security.  The cap is increased every year.)  The original idea for the cap was that Social Security is an insurance-type plan and taxes paid in should bear some relationship to benefits paid out.  The tax is limited because the benefits are limited.  Social Security was never intended to be, or sold to the public as, a welfare plan.  (We have a broad welfare safety net for those who are poor.)

Like so many government programs, Social Security provided benefits greater than the amount of tax collected.  Current and past retirees got their benefits and shifted much of the cost to future generations.  This needs to stop.  Wherever possible, those who receive benefits should pay the cost.  It would be morally wrong to place extra taxes on high earners just because we can.  That would be an example of tyranny by the majority.

To the extent that we do not want to reduce benefits, it seems most fair to raise taxes on all earners.  But maybe the best solution would be to continue to raise the normal retirement age.  Today we live much longer and healthier lives than when Social Security was created.  Should a required government retirement insurance plan be designed to pay for 20 or 30 or more years of retirement?  For those unable to work, we do have Social Security Disability benefits.  For those who are healthy, it seems better to delay retirement and not reduce the benefit amount.

Disclosure:  I am currently semi-retired and my earnings are below the cap.  So, increasing or eliminating the cap would not increase my SS taxes.  An overall increase in the SS tax rate would increase my SS taxes.  Most proposals to increase the normal retirement age would not affect me since I am 61 years old.

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/

Vote YES on $81 million Courthouse bond referendum November 5th.

One of the few proper roles of our government is to operate a civil and criminal justice system.  In a civil society, crimes must be adjudicated impartially and disputes must be resolved peacefully.  In Polk County, over the past decades,  we have cobbled together the building space used to support our court system.  The current space is crowded, unsafe, and inefficient.  Detainees, judges, jurors, and the public cannot be properly segregated to ensure proper safety for all.

Five years ago, Polk County voters rejected as too expensive the then proposed $127 million bond referendum that included the construction of a new court building.  Now, the County and other interested parties have brought forth a significantly less expensive proposal that achieves the same goals.

On November 5th, Polk County voters are being asked to approve an $81 million bond issue that, if approved, will add $12 – $13 per year to the property tax on a $100,000 house.  The money will be used to renovate our existing historical Courthouse, convert the JC Penny/Wellmark building immediately North of the Courthouse into a “Justice Center Annex”, and convert the Old Main Jail immediately East of the Courthouse into a “Criminal Court Annex.”  These changes will provide for a much safer and more efficient court system.

Those promoting this project have have responded thoughtfully to the objections made by voters five years ago, and have made sensible changes to reduce costs while achieving important goals.  Polk County voters should vote YES on this “Public Measure A” on November 5th.

See the following link for more information: http://www.safepolk.com/