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Thu Jan 16, 2014 at 08:35 AM PST

'Christie's bigger sins'

by Gerald Scorse

The best story I've seen on Chris Christie is this one, which I learned about via a tweet by David Cay Johnston. The article itself was written by Craig Gurian at Remapping Debate. Here's the key paragraph from Gurian's piece:

Transportation problems, for example, seem to be a Christie specialty.  As bad as it was to torture Fort Lee with massive traffic congestion for four days, his actions in 2010 to kill the construction of a Hudson River tunnel for the use of New Jersey Transit were far more consequential and have and will hurt the entire region for decades to come.
The article also contains this subhead: Why hasn’t the press paid more attention to these and other substantive failings — before, during, or after this past November’s gubernatorial election?

Why indeed? More important, will it now?

It's a fast read; see for yourself.

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Wall Street has always claimed that income from investments is entitled to lower taxes than other income. As The Street sees it, investments in the market deserve tax breaks because they grow jobs, grow companies, and boost the economy.

A tax system tied to that belief is a major driver of rising income inequality. Congress could bend the curve by restoring Ronald Reagan’s 1986 shock: equal taxes on income from wealth and income from work. The idea is back and thriving. First, let’s take a hard look at the Wall Street claim.

Buying stocks doesn’t grow jobs or grow the economy, it grows portfolios. The money that’s invested doesn’t go to companies, it goes to the prior owners of the stock. In fact, through dividends and stock buybacks, shareholders take money out of companies rather than put it in; they’re a drain on company funds, not a source.

Billions of shares trade hands every business day. Aside from the tiny number that raise money for the issuing companies, it’s all white noise. With few exceptions—easy for lawmakers to specify—there’s no reason for preferential taxes on investment income.

President Reagan tacitly admitted as much with his signature Tax Reform Act of 1986, which levied equal taxes on capital gains, dividends and ordinary income such as wages.  At the signing ceremony, he called the bill “a sweeping victory for fairness” and “the best job-creation program” ever to come out of Congress. Equal taxes soon reverted to unequal, and became more so with the Bush tax cuts of 2001 and 2003 (true, new levies in 2013 did reduce the spread for the most affluent.) Today though, Reagan’s policy is on the rebound.

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When the Republicans took control of the House, they also took control of all the House committees and the websites for those committees. At the Ways and Means website, one of the first things the GOP did was to cut off email contact between ordinary Americans and possibly the most powerful tax-writing committee in the Congress.

Back when the Democrats and chairman Sander Levin ran Ways and Means, the "Contact" dropdown included email contact to the committee. Once Dave Camp and the Republicans took over, they elected to go back to the 20th century: if you want to get in touch with Ways and Means nowadays, you'll just have to use the telephone or snail mail. (Or you could pay to send a fax, as I did today and several times before.)

True, it's not every day that a person has a pressing need to get in touch with Ways and Means. It's even likely that most Americans will never feel any such need.

But for those who do, such as yours truly, it's just one more example of Republican obstructionism. And one more example of how much was lost when the GOP took over the lower chamber.

   

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Tue Dec 17, 2013 at 09:00 AM PST

Our best Christmas ever

by Gerald Scorse

My wife and I love Christmas in New York. She's Jewish and never had  a proper Christmas until gentile me came along. I grew up Catholic and left the church in my early 20s, but the holiday still holds me tight. I cherish the childhood memories: the joy in the air, the trees aglow with lights, midnight Mass, the choir singing "hail to the newborn king," lifting me out of myself and taking me to another place.

So when I say "our best Christmas ever," I'm going deep (especially for me). Come along and see why.

Christmas Day 2012, our older son Jason was in from California. Joining us was our younger son Daniel from Brooklyn and his toddler son Ari, a year and four months, our first grandchild. We live just across the street from Central Park. When the kids suggested we take a stroll in the park, we quickly agreed.

Where we live, you enter the park at Boys' Gate and West 100th Street. There's a sidewalk leading into the park, and the five of us started off. Not far in, if you hang a left, there are three benches. We'd just started walking, so I was surprised when our older son said we should turn left; okay, sure.

And there, on the upper slat of the middle bench, was a mounted silver plaque with black lettering. There were three lines, unpunctuated. This is what they said:

To Gerry and Gloria Scorse
Have a great morning walk
Love Jason and Dan
 
Our sons knew, of course, that we regularly walk in Central Park, five days on and one off. We're among the early birds, emphasis on the plural; you'd be surprised how many people are out by 6 or 6:15, putting in the miles.  

Now, starting out and coming home, we have the extra pleasure of seeing the surprise that gave us our best Christmas ever.

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Tue Dec 10, 2013 at 09:30 AM PST

My Charmed Life in the Tax Wars

by Gerald Scorse

Twists and turns, despair and elation, a shock to remember

Early in March 2001, newly retired and feisty, I wrote to my Congressman from Manhattan. I still have his answer. “Dear Mr. Scorse: Thank you for your letter on the calculation of capital gains. You raise a very interesting point. I have not heard much about whether the failure to require reporting of basis prices for securities has resulted in any significant tax evasion….I will inquire of Internal Revenue Service if there is a problem and ask if they have any recommendations on necessary action. Sincerely, Charles B. Rangel, Member of Congress.”

I was off and running (okay, walking) on my personal Mission: Impossible. I had no tax expertise, had never worked in a related field, but I was after a change in the federal Tax Code. My letter to Rangel told why. Wages were reported to the Internal Revenue Service, but not capital gains. That wasn’t fair, and it was fiscally foolish as well. I never imagined a fraction of what happened.

I learned, for example, that anybody with a cause can testify at a Congressional hearing; it’s all online, simple as can be. Just go to the website of the relevant committee, watch for announcements of hearings, follow the rules for submitting comments, and say your piece. In due time, your testimony will appear in the written record. It’s only words at this point, but it gets your position out there. As the ads say for the New York Lottery, “Hey, you never know.”

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I just published a diary advocating for equal taxes on capital gains and ordinary income, e.g., wages. Today comes a James Stewart column in The New York Times with the most hopeful news along those lines that I've seen in a long time. It included this excerpt:

"The view that it’s fundamentally unfair to tax capital gains and other unearned income at preferential rates has been gaining traction, even among the superrich. This week, Pimco’s co-founder, Bill Gross, wrote in his November investment outlook, 'The era of taxing ‘capital’ at lower rates than ‘labor’ should now end.'

"Mr. Gross, whose net worth is estimated at over $2 billion, wrote, 'A fair economic system should always allow for an opportunity to succeed,' but pointed out that many of the superrich were fortunate to benefit from buoyant financial markets, low interest rates and a credit boom.

'You did not create that wave,' he said. 'You rode it. And now it’s time to kick out and share some of your good fortune by paying higher taxes or reforming them to favor economic growth and labor, as opposed to corporate profits and individual gazillions.'

"He noted that two fellow billionaires, Warren Buffett and the hedge fund manager Stanley Druckenmiller, recently advocated a similar approach." (Those were the exact same examples that I used in my earlier diary.)  

Will it finally happen? Stay tuned.

Discuss

Tue Oct 22, 2013 at 08:06 AM PDT

Equal Taxes on Capital Gains

by Gerald Scorse

Add Stan Druckenmiller, "the legendary investor who made a fortune predicting the subprime bust," to those who believe there's no reason to tax capital gains at a lower rate than wages--and powerful reason to tax them equally.

Druckenmiller's recommendation came about half-way through a recent Tom Friedman column in The New York Times, "Sorry, Kids. We Ate It All," and it wasn't Friedman's main point. As the headline indicates, he was really taking aim at the boomer-generation tilt of our current tax laws and entitlement programs.  

But to me the most eye-catching lines in the piece were these:

"Druckenmiller urges young people to design their own solutions, but, when asked, he recommends: raising taxes on capital gains, dividends and carried interest — now hugely weighted to the wealthy and elderly — to make them equal to earned income taxes..."

With that thought, Druckenmiller adds his powerful voice to others who have taken the same position. Who might those others be? Well, let's see. There's President Obama's deficit commission, Simpson-Bowles; and there's the report filed on the heels of Simpson-Bowles by the Bipartisan Policy Center. Both were blue-ribbon groups, and both concluded that capital gains should be taxed at the same rates as wages. (Full disclosure: both Simpson-Bowles and the Bipartisan Policy Center also recommended lower marginal rates.)

And there's another famous investor who's also come down on the side of equal taxes: the sage of Omaha, Warren Buffett.  

Discuss

It isn't as if the roots of America's over-the-top inequality are any mystery, or what it would take to start moving in the opposite direction. In an article at truth-out.org, Salvatore Babones examines the possible link between economic growth and inequality--and concludes that it really doesn't matter:

No one really knows how to promote economic growth. Everyone has their pet ideas — including me. But if we knew how to promote growth, we would be doing it already. Everyone likes growth.

On the other hand, we know exactly how to reduce inequality. We can raise the minimum wage, increase taxes on investment income, expand public education, and make it easier for workers to join unions. Most of all, we can tax the rich at a higher rate and use the income generated to invest in making life better for everyone.

The inequality and growth debate is a red herring. It just doesn’t matter. The problem is inequality, and its solution is simple. It may not be easy to get rich people to give up some of their enormous gains of the last forty years, but it’s straightforward. Tax them. And use the proceeds to make our country — and our world — a better place for all.

As Babones put it earlier in the piece, "If something is bad for 80% or 90% of the population, does it really matter whether or not it is also bad for growth? Isn’t it bad enough that it is bad for 80% or 90% of the population?"

Simple enough, no? If only we had the political will to act.

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Tax expert David Cay Johnston is following a story that nobody else seems to care about: "Last week, we pointed to a piece of news that we have yet to read or hear from most major news organizations: The federal budget deficit is going to take a hit, because Congress included the government’s fundraising arm, the Internal Revenue Service, in the sequester."

Johnston's latest piece, "Honey, I shrank the IRS," appears in the Columbia Journalism Review. For me, it brought up once again the real divide in American incomes: income that's reported by employers to the IRS, and income that's self-reported. Here's the key paragraph:

The 151 million Americans who have paycheck jobs see their federal income and payroll taxes deducted before they are paid, in a largely automated system that verifies what individuals report on their tax returns with data from employers. Meanwhile, business owners, freelancers, landlords, and some investors all self-report—with little to no verification of income.
What happens when there's "little or no verification of income" should come as no surprise: unreported income is far and away the leading cause of the so-called "tax gap," the roughly $400 billion-a-year difference between taxes that should be paid and what's actually paid.

The solution, of course, is stunningly obvious. Income that's currently self-reported should, by stages, be reported to the IRS and become just as verifiable as wages.  
 

Discuss

Tue Apr 30, 2013 at 07:47 AM PDT

Ingersoll and the happiness creed

by Gerald Scorse

"While I am opposed to all orthodox creeds, I have a creed myself; and my creed is this. Happiness is the only good. The time to be happy is now. The place to be happy is here. The way to be happy is to make others so. The creed is somewhat short, but it is long enough for this life, strong enough for this world. If there is another world, when we get there we can make another creed."

Those words, which came to be known as "the happiness creed," were recorded in 1894 in Thomas Edison's original laboratory in New Jersey. They came from Robert Ingersoll, the subject of the Susan Jacoby biography The Great Agnostic: Robert Ingersoll and American Freethought. Ingersoll was the Richard Dawkins (or Sam Harris) of his day, an avowed atheist, a relentless foe of "all orthodox creeds."

Ingersoll's lack of faith, Jacoby suggests, is a big reason for his lack of fame. (Did you ever hear of him before? I hadn't, until reading a review of Jacoby's book.)

In the late 19th century, Ingersoll was far ahead of his time on singular issues that divide us to this day. He lectured across the country in favor of women's rights, including reproductive rights, career choices and pay. He believed in full civil rights for blacks and all other minorities. He was a champion of immigrants. He opposed capital punishment.

Ingersoll was also a gifted, plain-speaking orator, filling lecture halls across America, drawing applause even from those who opposed his positions.

"The time to be happy is now. The place to be happy is here. The way to be happy is to make others so." Who can oppose that position?

At the Ingersoll Birthplace-Museum in Dresden, New York, you can hear Ingersoll himself say those words, on the recording made by his friend Thomas Edison.  

 

Discuss

Tue Apr 16, 2013 at 07:13 AM PDT

New Healthcare Taxes: a Poor Rx

by Gerald Scorse

An aging population and the Medicare safety net make healthcare costs the biggest single threat to America’s fiscal future. To help pay the bill, the Obama Administration is leaning on the rich: two new Medicare taxes, both targeting the well-off, take effect in 2013. Progressives who favor the levies might want to think again. Neither is a great idea, and one of them complicates a reform with far greater potential.  Let’s look at the new taxes, and see why the negatives could outweigh the revenue they generate.

The first is an extra Medicare payroll tax of 0.9%, on top of the standard 1.45%, on earned income above $200,000 for single filers or $250,000 for joint filers. The second is a Medicare surcharge of 3.8% on the net investment income of persons above the $200,000 and $250,000 thresholds.  (Investment income here includes not only capital gains, dividends and interest, it also includes rental income and income from passive investments, i.e., enterprises in which persons invest but play no active role.)

Tapping the wealthy with these two taxes is fine with the economist Paul Krugman: “I’m not a fan of the Tax Foundation’s work,” Krugman blogged, “but their analysis of the distributional effects of Obamacare looks about right: significant benefits to the bottom half of the income distribution, paid for largely by taxes on the top few percent (the Medicare surcharge and the extra tax on investment income).” These laudable results, however, hold no answer to a larger tax policy question: since when did healthcare costs become the special responsibility of the rich? If the costs are a shared national responsibility, what’s up with dedicated healthcare taxes on the affluent?

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Saving for retirement is good for individuals and good for the country—but Roth individual retirement accounts (IRAs) are costing America dearly. They’ll add to the deficit far into the future, and the amount they add is set to explode. Let’s discover why, and look at some ways to hold down the damage.

In contrast to other retirement accounts, contributions to Roth IRAs have already been taxed. That’s it for the Treasury from Roths. Instead of an upfront tax break, they get a permanent tax break: no more taxes, ever.  The tradeoff effectively guarantees untold billions in downstream losses.

The losses are unlimited. They occur because the untaxed capital gains in Roth accounts can easily reach several multiples, even double-digit multiples, of taxed Roth contributions. All other accounts ultimately pay taxes on both contributions and gains; Roths pay only on the usually far smaller contributions amount.

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