Finally Something that Begins to Make Sense: Obama’s Corporate Tax Overhaul

February 23, 2012

In addition how about loosening the noose for those Americans inspired and driven to creat a new generation of wealth!

Obama’s Corporate Tax Plan Could Be Fairer and Simpler: View

Feb. 23 (Bloomberg) — President Barack Obama’s corporate- tax framework, unveiled Wednesday, recognizes that the U.S. tax code desperately needs a spring cleaning. There are too many loopholes, deductions, subsidies, allowances and special rules.

The 35 percent statutory rate is also too high, especially because most companies have figured out how not to pay it, and most countries have dropped their rates below the U.S.’s.

We agree it’s time to lower the marginal rate, conceivably to 25 percent — lower than Obama’s proposed 28 percent — which is about where it stood after the last tax reform 25 years ago. Obama’s proposal goes a long way toward streamlining the code and broadening the base of tax-paying corporations, but it contains some obvious flaws and comes up short in a few areas. Luckily, there’s time to fix it.

It was 1986 when the U.S. tax system got a thorough going- over in President Ronald Reagan’s second term. In the quarter century since, Congress has been unable to resist adding new breaks and loopholes, and then having to raise rates to prevent a hemorrhaging of revenue. As a share of gross domestic product, corporate taxes now make up a mere 1.16 percent, versus more than 4 percent in 1960, according to a study released in November by Citizens for Tax Justice, a small, left-wing think tank.

Reagan created a commission in 1984 to examine the tax code after Citizens for Tax Justice noted then that many large companies were paying little or no taxes. Reagan wanted to get the subject off the table until after that year’s elections, but two years later, tax reform ended up passing.

Same Dynamic

The same dynamic may be happening again. It’s a presidential election year, and Obama’s framework is meant to get the subject off the table until after November. Citizens for Tax Justice has even come out with another report concluding that corporations again are avoiding paying taxes.

The nonprofit group, along with the Institute on Taxation and Economic Policy, looked at 280 of the biggest and most profitable U.S. companies. A quarter of them paid less than 10 percent in taxes over the three years 2008 to 2010. Thirty companies, including such familiar names as Boeing Co., Verizon Communications Inc. and Wells Fargo & Co., paid little or no taxes in at least one of the three years.

Only about a quarter of the companies studied paid close to the official 35 percent rate. The average annual tax rate for all 280 was 18.5 percent over the three years, barely half the official rate, yet they reported almost $1.4 trillion in pretax profits. (The U.S. Treasury estimates the effective U.S. marginal tax rate at 29.2 percent for all corporations.)

To address this, Obama’s blueprint, while light on details, includes several approaches we endorse. It would discourage outsourcing by imposing a minimum tax on overseas profits (sadly, without saying what the minimum would be) and eliminating breaks for moving operations abroad. The current system, in which companies can defer income taxes on foreign profits until they are repatriated, unfairly rewards companies for leaving the U.S. and robs it of revenue.

The president’s plan would also eliminate many unwarranted preferences, such as oil and gas subsidies, breaks for corporate aircraft and accounting gimmicks that allow companies to artificially lower reported earnings. Most important, it does not increase the bloated federal budget deficit.

In many ways, though, the plan is too timid and internally contradictory. It suggests, but doesn’t outright endorse, reducing the deductibility of interest on corporate debt. It’s a smart idea and, as we have said, removes some of the incentive to borrow rather than raise equity capital, and would bring in much-needed tax revenue.

‘Brutal’ Arithmetic

Administration officials said the 28 percent rate was based on “brutal” arithmetic that lowered corporate levies without worsening the deficit. The math is complicated, but boils down to this: The plan would save $250 billion over the next decade by wiping out an abundance of loopholes and special-interest breaks, and would apply those savings to new breaks for manufacturers, research and experimentation, and clean energy. So-called advanced manufacturing, whatever that is, would get even richer tax breaks.

It’s unrealistic, we know, to expect a pure tax code in which every company pays the same rate. For example, one widely used tax break, the depreciation allowance, may need to be kept, even though it’s confusing and often abused. Companies must have a way to deal with the fact that equipment and buildings wear out and need to be replaced. And some tax breaks, such as those for clean energy and research, are largely justifiable because they benefit the entire country and are vital to the future economy.

Still, the goal should be to do away with as many preferences as possible. The Obama framework does this with one hand, and then undoes it with the other.

The Obama plan also increases the potential for tax code gamesmanship. It says, for example, that the minimum tax on overseas profits shouldn’t penalize businesses engaging in “activities which, by necessity, must occur in a foreign country.” Administration officials have in mind exemptions for things like building and operating hotels abroad, but we spy a loophole that could undermine the provision’s intent.

When all is said and done, some corporations may get a better deal and some may get a worse deal. Making corporate taxes fairer and simpler won’t be easy when reform produces as many losers as winners. But with both parties claiming tax reform as a goal, there’s no excuse not to begin an earnest discussion now.

Read more opinion online from Bloomberg View.

To contact the Bloomberg View editorial board: view .


Seeds of the Fourth Turning are Being Sewn

February 20, 2012 Article: As Greece Awaits Bailout, Southern Europe Seethes

The mood is growing surly in the south of Europe as austerity measures take hold. With unemployment at 20 percent in some countries – and youth unemployment as high as 50 percent – warnings are growing sharper about a troubling rise of populist feeling. The Christian Science Monitor reports.

Full Story:

Food stamp use still rising despite good jobs news

February 19, 2012

This chart shows how food stamp participation has risen with the unemployment rate since 2005. The last peak in food stamp use occurred in the aftermath of Hurricane Katrina at the end of 2005, and the current peak has far surpassed that.



Devil Is ALWAYS in the Details

February 19, 2012

Remember it’s not wether or not your holding Greek debt, it’s wether your counter parties are.

“Details still being worked out”. Devil is ALWAYS in the details.

Euro zone finance ministers look set to approve a bailout package for Greece on Monday although final details are still being worked out, an Austrian minister said.

Full Story:

Drones Set Sights on US Skies

February 18, 2012

Approval of drones for commercial uses without strict regulatory oversight, thoughtful monitoring, and prudent screening will create nightmares for privacy, noise, safety and national security. Among the obvious concerns:

Who is allowed to have one?

Law enforcement seems a reasonable circle. But what if criminals get them? Imagine air support for a bank robbery. What about domestic terrorists? What about assassination threats?

How about mid air collisions? Should they be allowed in school zones? Residential neighborhoods? Would there be size or weight limits for personal use? If one of these things comes down on a baby carriage it will be a nightmare.

What is the fault rate? Do these fail in mid air? Who will be allowed to manufacture them? Do we want to own Chinese made drones? Do we want the Chinese making drones? Do we want the rest of the world to have them?

When these become commercially available in the US a black market will arrive to export them to failed states to be used against the weak and the poor and more than likely on us.

How much modification is required to weaponize a commercial drone? Is this difficult?

The list goes on, but I favor the comment in the last sentence. These things ought only be given to licensed individuals both with proper flight training and background screening. Every drone needs to federally registered as well. Anything less will be putting the American public in danger. Article: Drones Set Sights on US Skies

Unmanned drones are typically associated with war and spying. But a new law will permit the use of drones in the US for everything from selling real estate to dusting crops and monitoring oil spills.

Full Story:

Once Again for New Reasons the Rules Don’t Apply to Goldman

February 14, 2012

I’m sick of Goldman’s incestuous relationship with the Fed and US Government being used to stack the deck in their favor. Why does Goldman get a special meeting to talk up their book with regulators? I imagine that (insert asset manager name here) doesn’t get the same treatment. Why do they continue to believe they are doing Gods work? Last I checked money was the root of all evil and here they are trying to rewrite the rules to make more evil.

Will someone please stop this insanity? No GS should not be above the law. Lest we forget the bank holding company charter you are now hiding behind was granted to you by Goldman alumni to keep you from blowing up in 2008.

Holy moly this stinks more than a dirty diaper.

Goldman Sachs Seeks Exemption for Bank Stakes in ‘Credit Funds’

Feb. 14 (Bloomberg) — Goldman Sachs Group Inc., which says it owns the world’s largest family of so-called mezzanine loan funds, is asking regulators to loosen proposed limits on bank investments in such pools.

Four Goldman Sachs employees and three lawyers from Sullivan & Cromwell LLP met on Feb. 2 with Federal Reserve Board staff to discuss Volcker rule limits on banks’ fund investments, according to a summary published yesterday by the central bank. The Volcker rule limits depository institutions from supplying more than 3 percent of the capital in a hedge fund, private- equity fund or other “covered fund.”

Goldman Sachs “expressed their view that the proposed rule does not permit a banking entity to acquire over 3 percent of the ownership interests in a ‘credit fund’ that is principally engaged in making or acquiring extensions of credit,” according to the Fed summary. “GS explained that investors in credit funds require at least 5 percent ‘skin in the game’ from sponsors.”

Goldman Sachs, which was the most profitable securities firm in Wall Street history before converting to a bank in 2008, typically has supplied about 30 percent of the money to the hedge funds, private-equity funds and credit funds the firm manages for clients. Andrea Raphael, a spokeswoman for New York- based Goldman Sachs, declined to comment.

GS Mezzanine Partners, which raised $13 billion for its fifth fund in 2007, has been extending mezzanine credit to buyout firms and corporations since 1996, according to Goldman Sachs’s website. Mezzanine debt, often used in leveraged buyouts, typically us repaid after bank loans in a bankruptcy and has higher yields than broadly marketed public bonds.

‘Leveraged Capital’

“This is the largest mezzanine fund family in the world, with more than $28 billion of leveraged capital raised since 1996,” the company says on the website.

In 2008, Goldman Sachs said it raised $10.5 billion in equity and leverage commitments for its first GS Loan Partners fund, including more than $1 billion from the firm and Goldman Sachs employees. The company also makes and buys loans through Goldman Sachs Credit Partners LP.

The line between hedge funds and credit funds isn’t always clear as some hedge funds make and buy loans as part of a credit strategy. Lloyd C. Blankfein, 57, Goldman Sachs’s chairman and chief executive officer, told investors at a November 2007 conference that the firm recently had raised “Liberty Harbor, a $2.7 billion credit hedge fund, and GS Liquidity Partners, a $1.8 billion fund raised to take advantage of distress opportunities in the credit markets.”

Extending Credit

Ben Adler, Eric Edwards, Michael Koester and David Thomas – – Goldman Sachs representatives at the meeting with Fed staff — recommended that the Volcker rule should allow banks to own more than 3 percent of a credit fund as long as the fund is “predominantly engaged” in extending credit, originating or acquiring loans and doesn’t employ “excess” leverage, according to the meeting summary.

The exception also should require that the funds’ strategy is to hold loans for at least three years, that they only use derivatives to hedge interest rate and currency risk, and that the funds’ obligations aren’t guaranteed or supported by the sponsoring banking entity, according to the summary.

Whitney Chaterjee, Rodgin Cohen and Michael Wiseman attended the Feb. 2 meeting from Sullivan & Cromwell, according to the Fed summary. The central bank representatives at the meeting were Sean Campbell, Anna Harrington and Christopher Paridon, according to the summary.

To contact the reporter on this story: Christine Harper in New York at charper

To contact the editor responsible for this story: David Scheer at dscheer .

Obama Destined to Widen the Wealth Gap

February 14, 2012

Proposed with absolute confidence. We will see how far it gets through the media, on both sides.

As I’ve noted before it looks like Obama is destined to build a moat around the affluent-well-educated.

Setting up a new progressive tax system for $1mm earners only protects wealth created by former under-taxed $1mm earners. This will help seal the fate of a two cast system where those who created wealth prior to a new tax regime will find that new applicants to their country clubs fewer and further between.

Obama Sends $3.8 Trillion Election-Year Budget to Congress

Feb. 13 (Bloomberg) — President Barack Obama sent Congress a $3.8 trillion budget plan today with stimulus spending and tax increases for the wealthiest Americans, spelling out election- year priorities that drew immediate Republican opposition.

Obama is proposing more money for jobs, highways and bridges, schools, student aid and manufacturing research as well as higher taxes for corporations, banks and oil, natural gas and coal companies, even as the nation’s debt grows faster than the administration predicted in September.

The spending measures will ensure the recovery is sustained and the tax increase will help draw down the deficit, Obama said today at Northern Virginia Community College in suburban Washington.

“We can cut back on the things that we don’t need, but we also have to make sure that everyone is paying their fair share for the things that we do need,” Obama said.

Obama’s fourth budget includes measures that are similar to his September jobs and deficit-reduction proposal that Republicans in Congress largely blocked or rejected as unworkable or unnecessary. The budget lays out Obama’s priorities for the economy as Republicans campaigning for president question the direction of the federal government.

$1.33 Trillion Deficit

The budget shows Obama will fail to keep his 2009 pledge of cutting the deficit in half by the end of his first term. The forecast shows a fiscal 2012 deficit of $1.33 trillion, or 8.5 percent of the economy, marking the fourth straight year the shortfall will exceed the trillion-dollar mark. That’s up from the administration’s estimate in September of $956 billion.

Next year, the deficit is projected at $901 billion, or 5.5 percent of the economy, and up from the $648 billion that Obama’s economists predicted five months ago. The administration’s forecasts for 2014-2021 are all higher than the outlook issued five months ago.

Public debt is taking a bigger bite out of the economy, rising to $18.7 trillion by 2021, or almost 77 percent of the economy, compared with $17.1 trillion, or 70 percent of the economy expected in September.

The deficit forecasts may have little validity beyond this year, partly because they assume enactment of Obama’s tax increase proposals in the face of opposition from Republicans, who control the House and have enough votes in the Senate to block legislation.

House Speaker John Boehner, an Ohio Republican, called Obama’s budget plan “a gloomy reflection of his failed policies” that is “a collection of rehashes, gimmicks, and tax increases that will make our economy worse.”

‘Decline of America’

Paul Ryan, a Wisconsin Republican and chairman of the House Budget Committee, said the president’s budget was “irresponsible” and a “recipe for a debt crisis and the decline of America.”

“His refusal to honestly confront our nation’s most pressing challenges does real harm to the economic security of millions of American families,” Ryan, who is working on a Republican alternative, said.

Obama’s deficit projections depend on allowing expiration of Bush-era tax cuts for couples earning $250,000 or more a year, limiting the value of itemized deductions to 28 percent for those families, and imposing a minimum tax for individuals with annual incomes of at least $1 million. It would also raise taxes on dividends received by the wealthy to 39.6 percent from the current 15 percent.

Delayed Decisions

Those proposals, along with an across-the-board $1.2 trillion cut in spending and possible debt-ceiling increase, probably won’t be acted on before the Nov. 6 elections, and decisions either way may affect the deficit by hundreds of billions of dollars.

The minimum tax on $1 million-earners, named for billionaire investor Warren Buffett, who originated the idea last year, would replace the Alternative Minimum Tax, “which now burdens middle-class Americans rather than stopping the richest Americans from paying too little as was originally intended,” according to the budget document. The plan doesn’t give a detailed proposal for the tax beyond setting a 30 percent threshold for the minimum rate.

Obama also calls for revamping the tax code to “cut and simplify tax breaks that are now inefficient, unfair, or both,” also without a specific proposal for how the new tax would be structured. The changes should cut the deficit by $1.5 trillion over the next decade, according to the budget plan.

Corporate Taxes

The administration proposes an overhaul of the corporate tax system that would eliminate tax benefits to lower the rate from the current maximum of 35 percent. The budget didn’t give specifics. The administration will provide “more detail” by the end of the month, Gene Sperling, the head of Obama’s National Economic Council, said at a briefing today.

The budget reiterates Obama’s proposal to tax so-called carried-interest income earned by hedge fund managers and private equity partners at ordinary income rates, rather than at the 15 percent capital gains rate, raising $13 billion over a decade.

Obama’s plan would impose $156 billion in new or expanded government fees including higher Medicare premiums for wealthier beneficiaries beginning in 2017. It would also increase the terrorism-security fee charged to airline passengers as well as the premiums paid by companies for federal pension insurance, among other changes.

Big financial institutions would face $61 billion over 10 years in a “Financial Crisis Responsibility Fee” to help pay for the bank bailout program and a home-mortgage refinance initiative.

Credits and Subsidies

Obama would end credits and deductions that help subsidize the oil and natural gas industries, for a savings of $41 billion over a decade. Depreciation rules on corporate purchases of aircraft would be abolished, for a savings of $2 billion over 10 years.

Spending cuts over a decade include $278 billion in farm subsidies, federal workers’ retirement plans and the Pension Benefit Guarantee Corp., which insures company pensions.

The budget proposes to cut payments to Medicare providers by $268 billion over 10 years. It would require pharmaceutical companies to provide bigger rebates on drugs sold through Medicare, reduce federal reimbursements for patients’ bad debts and cut payments to teaching hospitals, among other changes.

It would also cut over the same period $51 billion out of Medicaid, the joint federal-state health care program for the poor, in part by shifting more of the program’s costs to the states.

The budget anticipates war costs will fall next year by about one-quarter to $97 billion. It would be the first time since 2004 that annual costs have dipped below $100 billion.

Agency Cuts

Most federal agencies would see their budgets cut or essentially frozen. The Pentagon would receive $525 billion, about $5 billion less than last year. Funding for the F-35 Joint Strike Fighter, the military’s costliest weapons program, would fall by $1.6 billion.

The Environment Protection Agency would shrink by 2 percent to $8.3 billion. The Department of Housing and Urban Development would fall by 7.5 percent. Agriculture would take a 3 percent cut.

One of the biggest winners would be the Department of Education, which would see a 3.5 percent increase to $69.8 billion. The administration’s “Race to the Top” program, which awards competitive grants to states, would receive a 55 percent increase. Funding for college work-study programs would increase by 15 percent.

The Department of Veterans Affairs would see a 4 percent increase, to $61 billion, in part because of growing medical- care costs.

Jobs Measures

Obama is seeking $350 billion in short-term jobs measures, including additional infrastructure spending, extending unemployment benefits and increasing aid to cash-strapped state governments. He would also extend an expiring payroll tax break for the rest of this year.

In other areas to boost the economy, the budget sets aside almost $121 billion over a decade for expanding U.S. manufacturing, including tax credits for clean-energy vehicles, tax breaks for bringing jobs back from overseas and credits for companies locating in hard-hit communities.

Small businesses would be in line for $25 billion in various tax cuts, including ending capital gains taxes on small business stockpiles. Expensing provisions scheduled to expire Dec. 31 would be extended through calendar 2013, for a value of $26 billion.

The White House said it’s supporting a six-year, $476 billion renewal of a highway bill that would add thousands of construction jobs.

To contact the reporters on this story: Roger Runningen in Washington at rrunningen Brian Faler in Washington at bfaler

To contact the editor responsible for this story: Steven Komarow at skomarow1

Find out more about Bloomberg for iPhone: