House Republican Leader Says He Would Consider Ending Tax Cuts For Wealthy

Economist Mark Thoma suspects House Republican leader John A. Boehner wouldn't really vote for ending the Bush tax cuts for individuals making over $250,000 despite saying he would. Thoma recommends temporarily shifting the tax cuts to the lower income groups who are more likely to spend the money soon. See the following post from Economist's View.

Is Boehner backing off his position that the tax cuts for the wealthy must be extended?:

House G.O.P. Leader Signals He’s Open to Obama Tax Cut, by David Herszenhorn, NY Times: The House Republican leader, Representative John A. Boehner of Ohio, said on Sunday that he was prepared to vote in favor of legislation that would let the Bush-era tax cuts expire for the wealthiest Americans if Democrats insisted on continuing the lower rates only for families earning less than $250,000 a year.

Speaking on “Face the Nation” on CBS, Mr. Boehner made clear that he supports continuing the lower tax rates at all income levels and that he believes the Democrats would be making a mistake by increasing taxes on anyone, given the weak economy.

Mr. Boehner ... said... “I think raising taxes in a very weak economy is a really, really bad idea,” ...

That's very Keynesian of him to have the concern that "raising taxes in a very weak economy is a really, really bad idea," and there's an easy response for Democrats, one I discuss here. The Democrats say okay, if that's your concern, why not transfer the tax cuts, temporarily, to lower income groups who are much more likely to spend the money, or use it to backfill state and local budgets to stop further job losses? There are all sorts of ways to use the money that would be more stimulative than continuing the tax cuts for the wealthy, so if your objection is that raising taxes in a recession is "a really, really bad idea," then transfer the tax cuts where they will do the most good.

One more note. I am not expecting that Boehner will support the bill when it comes time to actually cast a vote. This is political posturing that is probably based upon polling data showing that most people do not support his original position. If and when it comes time to cast his vote, he will likely find some other provision in the bill, or some consideration he will claim was not present when he made this statement, to rationalize a no vote.

This post has been republished from Mark Thoma's blog, Economist's View.

Will Business Owners Hold Back On Hiring If The Bush Tax Cuts End?

Matthew Buckley, writing in The Street, argues that ending the Bush Tax Cuts will hurt employment as small business owners may compensate for paying higher individual taxes by not hiring additional help. The small increase in private sector hiring was unable to keep up with job losses and unemployment increased to 9.6%. See the following post from The Street for more on this.

Thank God, the "summer of recovery" is over.

Now it's time for the "fall of despondence."

The markets rallied this morning on a jobs report in which the private sector added enough jobs to be found in my couch and the unemployment number moved higher to 9.6%. Good thing we rammed that stimulus package through or unemployment would've risen over 8.5%.

Speaking of unemployment, one more person is either going to stay on the government dole or remain unemployed and this depends upon what the administration does with the Bush tax cuts.

I'm amazed that the main stream media has labeled the former president's economic stimulus plan as the Bush tax cuts. I'm looking forward to the fair, balanced coverage of this president's plan when they begin calling his plan the Obama tax increases.

As a small business owner I planned to hire an executive assistant and recently posted an ad looking for potential candidates. I was overwhelmed by the response and shocked at the quality of people applying: college graduates, professionals willing to work for a fraction of what they normally would, etc. This was a sobering experience as to the true state of the economy. .

I planned on moving forward and hiring someone for this position but I received some disturbing news from my account this week. If the Bush tax cuts expire at the end of the year, I will personally take a hit for $18,000.

There goes a job.

I will not hire someone if my wallet will get lighter by what I was planning to pay someone. Make sense Mr. President? I'll make do with what I've been doing. Yes it isn't the highest and best use of my time, but $18,000 is $18,000.

If the goal is to keep people out of work and dependent on the government for assistance, the president should keep doing what he's doing. Politicians occasionally wake up when their jobs are at risk; so hopefully they will begin to recognize that they're using the wrong fuel for the current system.

Small business is the engine that will pull us out of this mess and unless the Obama administration recognizes this fact, we are destined to wallow in our current economic woes.

Firing line: I wonder what better use the government can find for this $18,000 than me. I know: They can use it to fund the prosecution of Arizona for enforcing laws that the federal government is failing to enforce. How's that? Time for my morning Motrin.

This post by Matthew Buckley has been republished from The Street.

Bush Tax Cuts Extention On The Table

Eric Rosenbaum from The Street discusses the possibility of congress extending the Bush tax cuts for the wealthy, with Democrats compromising in order to pass a jobless benefit extension. Republicans are arguing that any tax increase could harm a shaky economy. See the following post from The Street.

The political battle for the hearts and minds of Main Street reached new levels in Washington D.C. this week. The Senate voted on Tuesday to extend unemployment benefits for millions of out-of-work Americans after a contentious battle in which Republicans refused to sign on for the extension without cutting fat from federal spending to keep the deficit from growing larger.

While seemingly contradictory on the surface, the battle over unemployment benefits for struggling Americans has been linked to the battle over extending the Bush tax cuts that benefit upper income tax brackets, commonly referred to as Bush tax cuts for the wealthy, which are set to expire at the end of 2010. How can politics over giving minimal support to the jobless be tied up with making the rich richer? It's not just politics, but economics also, and it actually makes perfect sense, and it's all come to a head in Washington.

The battle over the jobless benefits extension was waged over concerns about levels of federal spending and the ballooning deficit. It might just be election year rhetoric, and Republicans said it wasn't about unemployment support, but how it was funded.

President Obama had made a campaign pledge of allowing the Bush tax cuts to expire. During a Monday morning Rose Garden speech, President Obama again chided Republicans for blocking efforts to pass an extension of jobless benefits while working overtime to extend tax cuts for the rich. Democrats more broadly have tried to make the Republicans look bad by juxtaposing their refusal to extend jobless benefits with their full-throated support for continued upper class tax relief.

Democrats are already expected to see through the extension of middle class tax cuts, which will be a welcome extension of tax relief on Main Street, alongside any extension of jobless benefits. Yet there are rumblings in Washington D.C. that the moves on the political chessboard could, in fact, be leading up to a political compromise allowing the Bush tax cuts to be extended, something that would be a contradiction of the President's campaign promise and may not be received too well on Main Street.

Republicans have said they may use Congressional tactics to "hold the middle class tax cuts hostage" until they get their way on the Bush tax cuts for the richest Americans. Republicans are making the argument that with the economy as shaky as it is, any tax increases are a bad thing.

President Obama spoke harshly on Monday morning, accusing Senate Republicans of a "lack of faith in the American people" for repeatedly blocking passage of the jobless benefits extension bill.

President Obama specifically noted that "after years of championing policies that turned a record surplus into a massive deficit, [Republicans] who didn't have any problems spending hundreds of billions of dollars on tax breaks for the wealthiest Americans are now saying we shouldn't offer relief to middle-class Americans like Jim or Leslie or Denise who really need help." Jim, Leslie and Denise were actual out-of-work Main Street Americans appearing alongside Obama at this Rose Garden speech.

Jim, Leslie and Denise are not among those who will jump for joy alongside their tax advisors if Republicans get their way on a Bush tax cut extension, but might the Bush tax cuts be needed for jobs to "trickle down" to the unemployed? Will you be among those breathing a sigh of tax relief if the Bush tax cuts are extended?

This article by Eric Rosenbaum has been republished from The Street, an investment news and analysis site.

Could The Bush Tax Cuts Be Ended Early?

Yes, the government can pass tax increases that are retroactive, as demonstrated by the Omnibus Budget Reconciliation Act of 1993, signed into law by Bill Clinton. David Galland from Casey Research thinks it could happen again as the democratic majority is in desperate need of raising revenue without expending political capital. See the following post from Daily Wealth.

The administration knows its massive deficits will be poison come the November 2010 midterm elections. At the same time, it also knows if it cuts stimulus spending, it risks kicking the props out from under the recovery just ahead of those same elections.

There's only one way out. That's to boost revenues... and soon. It would be political suicide for Obama to break his pledge not to raise taxes on the middle class. So all that's left is to mug the "wealthy."

It's already a given that taxes are going up for higher income earners and investors. Most importantly, the administration and its Congressional allies have announced they'll allow the Bush tax cuts to expire in 2011. Those cuts, passed in 2001 and 2003, reduced personal income taxes and capital gains taxes, as well as eliminated the estate tax.

Once the Bush tax cuts expire, high earners will see their personal income taxes rise from 35% to 39.6%. (And probably go up from there. The House health care bill includes an additional 5.4% surtax on gross income for high-income individuals.) In addition, the estate tax will return.

And long-term capital gains tax rates, now at 15%, will be boosted to as much as 28%.

But here's the rub: Ahead of the 2011 tax changes, investors will begin dumping appreciated stocks in order to lock in capital gains and avoid paying the additional taxes. That will create an unwelcome stock market selloff ahead of the November 2010 elections.

The Democrats knows this, which is why – behind the scenes – they are now setting a bulletproof tax trap to spring soon after the New Year begins. The trap is simplicity itself: a repeal of the Bush tax cuts in 2010, a year ahead of schedule.

Further, when passed, the legislation will be retroactive to January 1, 2010.

It's the perfect trap, because once the higher taxes are in place, there will be no tax incentive for anyone to divest their shares. In fact, many people will decide to hang on to their stocks until a more investor-friendly regime returns to power.

By increasing taxes across the board on the wealthy a year ahead of schedule, the government gets a big lift in revenue. Simultaneously, it avoids a rush for the exits that would otherwise occur ahead of the capital gains tax increases. For the government, it's a win-win. Very much not the case for investors.

Could the government really pull this off – implementing a retroactive tax increase?

In a word, yes. Back in August 1993, President Clinton passed the largest tax increase in history – the Omnibus Budget Reconciliation Act of 1993 (OBRA) – and made it retroactive to January of that year.

It was challenged in court, and the court held that retroactive tax increases were legal. This was not the first time this sort of chicanery had been pulled. (You can read more on the topic of retroactive taxes by clicking here.)

Why am I so confident this trap is being set? Nancy Pelosi herself tipped her hand on the retroactive tax plan when she said last January she wanted Congress to repeal Bush's tax cuts well before their scheduled expiration date. An early repeal of the Bush tax cuts was also one of President Obama's campaign promises.

The administration and its allies have since gone quiet on its intentions. But that's only because they want to avoid triggering a stock selloff before the end of 2009. That all changes once the ball drops in Times Square this coming New Year's Eve. At that point, it will be too late to escape.

The good news is that avoiding this trap is as easy as selling your most profitable stock positions on or before December 31, 2009. This way, you'll only pay 15% on your long-term capital gains... instead of the 28% the government is planning to sting you with once its tax trap is sprung in 2010.

You've been warned.

This post has been republished from Daily Wealth, a contrarian investment site.