econscius

Posts Tagged ‘Herman Cain’

Yes, There Are Lots of Tax Loopholes!

In Income Tax Rates, Oil, President Obama, Tax Breaks on October 18, 2011 at 1:11 am

Yes, there are lots of tax loopholes!  You can hardly step anywhere in the personal or corporate tax codes without falling into a loophole.  Most every tax break was created in the name of helping a good cause (e.g. electric cars) or encouraging people or corporations to buy of something (e.g. homes or ethanol).  Still, the loopholes reduce tax revenue and add great complexity to the tax code.

 You can see for yourself how ridiculous the tax code is simply by looking at IRS Publication 946 at http://www.irs.gov/pub/irs-pdf/p946.pdf.  Be forewarned: it is large .pdf file.  Do not blame the IRS, they are simply enacting what various Congresses and Presidents have put into law. Econscius thinks these 118 pages, which merely cover tax rules for depreciation, are a microcosm of what is wrong with the tax code.  These 118 pages are a like a few drops of water in the lake of tax complexity, too.  But I assume most readers will be perfectly fine with just one helping of accountant-speak. 

What is Depreciation?  When a company buys an asset like a railroad car, it is not allowed to expense the $100,000 cost right away.  The cost is expensed in little pieces over its theoretical ‘useful life’ of, according to the IRS table, 15 years.  Or seven years if the company is using an accelerated depreciation method. 

What is Accelerated Depreciation?  In order to encourage companies to purchase more assets, e.g. more airplanes, the Tax Code includes the ability to depreciate many assets more quickly than their ‘useful life’.  A 15 year asset may be deducted in seven years.

From a taxpayer’s standpoint, accelerating depreciation is valuable.  Increasing your expenses today means less income and less income means less tax paid.  In theory, the government gets all the tax money in the long run but the fact that the deductions are sped up is valuable because of what we call ‘the time value of money’: because of inflation, a dollar today is worth more than dollar five years from now.

I challenge anyone, Left or Right, to skim through the 118 pages and tell me the tax code is not unnecessarily complex.  There are loopholes aplenty, lying right before your eyes. 

On pages 25-28, we find the Gulf Opportunity Zone break, enacted after Hurricane Katrina.  There’s the Qualified Cellulosic Biofuel PLant Property benefit on page 28.  There are extremely generous accelerated depreciation rules on electric cars on page 66.  There are special depreciation rules for Indian Reservations on pages 38-39.  Fruit and nut trees and vines are covered on page 42.

Table B-1, which runs from page 103 to page 112 is a fine print example of tax loopholes.  You will notice there are different columns as there are different depreciation methods.  We can skip the mind-numbing complexity of GDS (MACRS) vs. ADS depreciation to make a few simple points:

(1.) Whenever the GDS and ADS depreciation recovery periods are different, we are really talking about a tax break.  The different method means a potential tax break because companies can depreciate more quickly than the true ‘useful life’ of the asset.  When you look through the IRS Publication 946, you see how most classes of assets do, in fact, have some sort of accelerated depreciation option.

(2.) Are so many classifications really necessary?  There are special depreciation rules for Cable TV-Microwave Systems, Railroad Track, Railroad Wharves and Docks, Manufacture of Foundry Equipment, manufacture of Leather and Leather Products, Sawing of dimensional Stock from Logs, Manufacture of Textile Yarns, and the ever-important Cotton Ginning Assets.

 

My personal favorite depreciation category is found on page 105: “Any Horse That Is More Than 12 Years Old At The Time It Is Placed In Service And That Is Neither A Race Horse Nor A Horse Described In Class 0.1222.” Got that?

There are special tax breaks for the oil and gas industry.  Surely you have heard of them before.   One of the breaks was enacted in 2004 to encourage companies to manufacture in the U.S.  That break lets most companies deduct 9% of profits from domestic manufacturing.   Oil and gas companies were classified as manufacturers, but their deduction was capped at 6%.  [1]  President Obama’s 2009 Stimulus package included an accelerated depreciation tax break for corporate jets on the theory it would encourage corporations to buy more jets, employing more Americans . [2]  President Obama often talks as if the accelerated depreciation for aviation and oil & gas drilling were the only tax breaks in the tax code. 

The oil and gas industry breaks are surely there, but ethanol, solar and wind actually enjoy far more favorable tax treatment.  Anyone looking at this IRS Publication 946 will see how disingenuous it is for politicians to focus on oil when almost every industry seems to have its hand in the till, even highly profitable areas like computers. 

Without question, an awful lot of time goes into interpreting and complying with the tax code.  Corporations and interest groups lobby for their narrow interests within the tax code. 

How do we fix this?  A flatter, simpler tax code with universal rules and few, if any, special deductions would be a place to start.  Ask everyone to give up their favorite tax breaks and we will all be better off; call it mutual tax break disarmament.  The US corporate tax rate in the highest amongst developed nations; why would we not want to lower the rates, drop the loopholes and end up with the same amount of revenue but with a lot less work? While there are some issues with Herman Cain’s proposed “9-9-9 plan”, it is a bold attempt to throw out the old tax code and start afresh.  Ideas like that would help get rid of monstrosities like IRS Publication 946.

[1] http://www.usatoday.com/money/industries/energy/2011-05-12-oil-industry-tax-breaks_n.htm

[2] http://www.foxnews.com/politics/2009/02/18/stimulus-includes-tax-break-promote-private-jet-sales/

Pictures from Wikipedia Commons.  IRS html from IRS link above.

As always comments are welcome.  Love the Tax Code?  Hate it?  Feel free to share below.

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What Obama’s Gallup Rating Shows About Racism

In Gallup Polls, Obama Administration, Political Rhetoric, Racism on August 30, 2011 at 11:57 pm

Gallup Portrait.jpg

Many Democrats attribute the continuing gradual slide in the President’s approval ratings to racism. [1] [2] [3]

Several points counter the claim: 

(1) In Gallup’s first poll of Obama’s Presidency, Obama had 69% overall approval with 43% approval from Republicans. Republican disapproval of Obama started at just 30%.

For comparison, 41% of Republicans disapproved of the job Clinton was doing in early 1993 and, “in early February 2001, 46% of Democrats disapproved of the job George W. Bush was doing as president.” [4]  Barely half the people of the opposition party tend to grant a “honeymoon” to a president of the other party.  It is the natural order of politics in the USA for any President, of any party, to be disapproved by partisans of the other party.

Consider the implications of that first Gallup poll: President Obama started with 70% approval/no opinion amongst Republicans!

The white Bill Clinton started with a much higher DISAPPROVAL rating amongst Republicans than Barrack Obama did.  GOP approval of Mr. Obama is very low now (11% on 8/27/11 [5]), yet that reflects perceptions of Obama’s performance and policies subsequent to the start of his presidency. 

To those of you who believe it is “racism” that caused President Obama’s subsequent drop in the polls, I ask if you posit racist Republicans would register Obama approval in a poll back in 2009?  Presumably not. Do you think racist Republicans would register a neutral opinion of a black President in a poll back in 2009? Presumably not.  It does not follow, either, that the 30% of Republicans who started off disapproving Mr. Obama were “racist” since a higher proportion actually opposed the white Mr. Clinton right off the bat and more Democrats started off with disapproval of President George W. Bush. 

Some have argued code words are being used to “remind” white voters President Obama is black [2] but that claim makes little sense.  Surely every voter was aware of Mr. Obama’s race in 2008.  The Rev. Jeremiah Wright episode also brought the issue of racial identity to the fore back in 2008.  There was massive press attention to the fact Mr. Obama would be the first black American President.  I find it highly unlikely there are many white voters who were comfortable voting for a black Mr. Obama in 2008 who would now have changed their view in a racist direction on account of “coded language”.  A much more plausible explanation is the public has grown weary of the unemployment rate and continuing housing slump and holds the President at least partly responsible.

(2) Yahoo! News Contributor Michael Thompson recently wrote, “Amid all the euphoria that came forth with Obama’s election and inauguration, the reality remained that he had claimed only 43 percent of the white vote, with shares down in the teens in some Southern states.”

Mr. Thompson’s point actually argues against white racism in the 2008 election.  Mr. Obama’s 43% of the white vote was slightly greater than either John Kerry (41%) or Al Gore (42%).  In fact, no Democratic Presidential nominee has won the white vote since Lyndon Johnson in 1964. [6]  For reasons economic and cultural (e.g. foreign policy, guns, religion), whites have voted Republican for President over white Democrats for decades.

(3) This is not to say there are no racists out there nor that some people are not impacted, at least in some way, psychological issues about race.  Clearly (and fortunately!), very few people now run around in bed sheets burning crosses.  Surely, there are at least a handful of old-fashioned, unreformed racial bigots who voted in 2008 and it is safe to assume they did not vote for the black man.  But, that does not make McCain or the Republican Party in any way “racist”.  If the GOP were to nominate Presidential contender Herman Cain in 2012, surely the Klansmen will find not vote for the black Mr. Cain, either.

I would caution Democrats from jumping to conclusions about why people do not support Mr. Obama.  The Gallup data show more whites supported Mr. Obama in 2008 than had supported Messrs. Kerry and Gore.  More Republicans gave Mr. Obama approval in early Gallup polls than did for Mr. Clinton.  Very few people are today overtly racist.  We do not know why other people vote the way they do.  True racism is downright appalling.  You will notice I rarely write of race because I like to think of people as individuals not as members of ethnic and racial groups. 

This is a nation of 310 million people and you can always find a few who hold crazy ideas (not only racism, by the way, but belief in Roswell aliens, JFK conspiracies and so forth).  You will find some offensive signs at rallies.  But that does not mean a significant portion of the people who register disapproval of President Obama are motivated by racism.  Racism is a very serious charge and not something that should be carelessly bandied about.  You cannot plausibly argue that, say, a distaste for Cash For Clunkers is “racist”. 

Obama meets with Bush in the Oval Office. Both sit at a distance in front of the presidential desk with their legs crossed and their backs on an angle toward the camera. They sit at right angles to each other.

[1] http://news.yahoo.com/racism-factor-obamas-low-rating-211500256.html 

[2] http://www.salon.com/news/opinion/joan_walsh/politics/2009/09/14/obama  Joan Walsh writes: “They’ve blackened Obama, in both senses of the word — simultaneously diminishing his support and emphasizing his ethnicity. Simply by raising consciousness about the president’s race and associating him with radical identity politics, they’ve diminishing his standing among a large swath of the public.”

[3] http://www.guardian.co.uk/commentisfree/2009/nov/16/obama-racism-conservatives-opposition  Mr. Tomasky does say, “First, it’s said, the anger felt towards Obama – among the “tea party” contingent, for instance – is in the main ideological. Let me be clear: I agree with this. It is in the main ideological,” before he states there is some latent form of racism as well.

[4] http://www.gallup.com/poll/113968/Obama-Initial-Approval-Ratings-Historical-Context.aspx

[5] http://www.gallup.com/poll/149225/Obama-Weekly-Average-Approval-Holds-Term-Low.aspx

[6]  http://www.slate.com/id/2204251/sidebar/2204308/

Pictures from Wikipedia Commons.