Monday, October 8, 2007

Wash & Spin (Commentary on Forbes Commentary)

Nothing gets me more fired up than a politically skewed description of a problem, especially when the spin is so clearly evident (and when it spins away from my point of view). I ran across one of these today when reading an article in Forbes Magazine (found here authored by Mr. Forbes himself. I planned to take the day off, but I just could not resist this one.

In the commentary under “Too Bad We Can’t Tax Economic Idiocy” Mr. Forbes sounds the tired old cry that the Democrats (and some Republicans) want to tax you, and if this happens we will have devastation in the form of recession and crashing financial markets. Let’s examine some of the logic used in this argument. First of all, expiration of the Bush tax cuts is referred to as tax increases. The real truth is that the Bush tax cuts are temporary because congress could not have passed them if they made them permanent. So they used a congressional rule to pass tax cuts that they try to extend whenever they can. Mind you this was done when the Republicans controlled Congress and the White House. He then argues that if these “tax increases” go through, it will devastate small business because most are Subchapter S Corporations paying the individual tax rates. Because small business creates jobs, any tax rate increase will destroy job creation.

Well, this devastation did not occur all throughout the 1990s before the Bush tax CUTS were passed by THE REPUBLICANS, so I would like to see the evidence for his conjecture. In fact, I think there were a few pretty good small business venture success stories in that decade. Another question I have about this is why it is assumed that small business must be organized as pass through tax entities? They do not, and any small business owner is free to use the C form over the S form. Looks like we can avert that disaster too. In addition, I want to point out that the Republican Congress passed The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This act makes it more difficult for individuals to file a Chapter 7 bankruptcy proceeding and wipe the slate clean (note the title of the act vs. its actual purpose). Talk about discouraging entrepreneurship in this country! We know that many, if not most, entrepreneurs fail at least once. They then settle their affairs (which often includes credit card debt used as seed capital), pick themselves up, and try again. If instead they are strapped to payments over a long period of time, they are much less likely to garner the resources necessary to try again. Talk about damaging the job creation process. Oh, by the way, who was behind this act to protect the consumers? If you think credit card issuers and their benefactors you will get there.

Mr. Forbes then goes on to make the link between taxing the income of hedge fund managers at normal rates (the ones you and I pay) to pension funds. This argument cannot stand up to even the most common-sensical analysis. This argument is that if hedge fund managers are forced to pay the same tax rates that you and I pay, they will stop what they are doing and pension funds of (yes, here we go again) teachers and firemen (not Mr. Forbes’ words in this comment, but the words of others making the same argument) will be negatively impacted by the loss of these great investment vehicles. First of all, I have never seen the research behind this claim. How much MORE have pensioners earned because of the existence of hedge funds? In addition, if hedge fund managers have their multi-million dollar annual incomes taxed at normal rates, they will stop doing this and go where to earn more? Oh yes, the argument that if you tax this more you will get less of it, and that’s bad. Well, if that’s how we should look at it, then let’s just tax the teachers and firemen less. Why not go directly to the source?

The last point in Mr. Forbes’ commentary is that we need to cut corporate tax rates. So, we need to keep the current tax cuts, cut taxes on corporations, and he also mentions we should eliminate the estate tax (referred to by the Republicans as the “death tax,” another tired ploy). He points out that the rest of the world is cutting taxes, even Old Europe! Well, cutting taxes from what to what? Where are the numbers? Even if the numbers show (after a careful analysis including all of the corporate welfare) that our corporate tax rates are high, what can we do about it? Just cut taxes so we can compete? Well, unfortunatley those thrifty Republicans have gotten us bogged down in Iraq, and that costs a few dollars to support. Old Europe doesn’t have to worry about that. Those thrifty Republicans have also dug us deep into the largest deficit in our history just when we should be saving for future entitlement outlays (like my social security that I have paid into for over 20 years and at a much higher percentage of my compensation than Mr. Forbes). So, the reality is, we cannot afford to simply cut taxes because we need the revenue because the Republicans have created a huge national debt and ongoing deficit. Those darn Democrats are at it again!

OK, to be fair, Mr. Forbes does say that “a number of GOPers” are also thinking wrong on these issues. But I challenge anyone to read the commentary and then tell me it is not meant to bash the Democrats. His conclusion is that if Republicans make low taxes the major issue in the upcoming campaign, a Republican can win the election notwithstanding the Republican Party’s unpopularity. I hope this is a vast underestimation of the American electorate.

Finally, I must say that I agree with Mr. Forbes on the issue of new taxes from areas such as real estate. This is not the time to be looking there. An expansive example of his point is occuring in Long Island, with the proposed Brookhaven Community Preservation Fund. Talk about spin, the advertising for this “transfer fee” of 2% of the sale price of real property in excess of the first $250,000.00 “will not affect sales taxes or your property taxes” (the quoted portions in this paragraph come from the advertising flyer from The Town of Brookhaven). This is not a tax, it is a “real estate transfer fee that most residents will never pay.” Why will most residents never pay it? Because the purchaser of the property pays it. Does that mean there is no cost to current homeowners? If you read up to this point, you already know the answer. By the way, spin is bi-partisan.

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john m said...

I just discovered your blog today and I like your style. You've made my bookmark list. Please keep writing, you're good at it.

Palermo's Blog said...

Thanks John - as time permits I shall make additional efforts. I hope they keep your interest!