GOP Senator: Republicans Are Open To Tax Increases In Grand Bargain

Sen. Bob Corker (R-TN)

Sen. Bob Corker (R-TN) believes Senate Republicans would be open to increasing revenue through tax reform as part of a “grand bargain” to reduce the deficit. During an appearance on Fox News Sunday, Corker argued that entitlement reform should be a top priority, but left the door open to reaching bipartisan consensus on deficit reduction in the next few months.

In past negotiations, the GOP leadership has repeatedly walked away from the table due to unwillingness to reach an agreement that included more revenue and, since the fiscal cliff deal, Republican leaders have insisted that the “the discussion about revenue … is over.”

Host Chris Wallace asked whether Corker and his party would be open to a compromise that include tax increases:

CORKER: I think there–by the way–is a chance on a deal. I know the president is saying the right things and we have an opportunity over the next four-to-five months. I think that we’ll know when the president is serious by virtue of a process is setup where he is actually at the table or he has a designee and whether he begins to say publicly to the American people, to all Americans, that he understands that Americans are only paying one-third of the cost of Medicare and that has to change for the program to be here down the road. But look, Chris, I think Republicans — if they saw true entitlement reform — would be glad to look at tax reform that generates additional revenues. And that doesn’t mean increasing rates, that means closing loopholes. That also means arranging our tax system so that we have economic growth. And I think we’ve been saying that from day one.

Sen. Assistant Majority Leader Dick Durbin (D-IL), also on the program, praised Corker’s comments as “honest and constructive,” and noted that the savings need to be done in a way that does not obliterate the system, as would be the case in the “Paul Ryan voucher approach.”

Corker is exaggerating the problems facing the Medicare program. According to the program’s 2012 annual trustee’s report, Medicare’s dedicated revenue fully pays for its costs and will do so until at least 2024. Even then, revenue will cover 87 percent of Medicare costs. At the current pace, by 2086, revenue would only be sufficient to cover 69 percent of costs — but even that 75-year figure would be more than two-thirds of the program’s costs.

The Affordable Care Act both reduced the costs of Medicare by hundreds of billions and improved its coverage for seniors. He has also recommended specific reforms that would save $57 billion annually from Medicare (more even than recommended by the Bowles-Simpson commission) and hundreds of billions in entitlement savings overall.

House Majority Whip Kevin McCarthy (R-CA) poured cold water on the idea of increasing taxes during an appearance on Meet The Press, saying, “There are no new tax increases because you don’t need it.”

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Obamacare Tax Increases Will Impact Us All

The trillion dollars in tax increases from the Affordable Care Act have the potential to hinder small business and investment, and further set back a struggling economy.

The Joint Committee on Taxation recently released a 96 page report on the tax provisions associated with Affordable Care Act. The report describes the 21 tax increases included in Obamacare, totaling $1.058 trillion – a steep increase from initial assessment. The summer 2012 estimate is nearly twice the $569 billion estimate produced at the time of the passage of the law in March 2010.

Last summer, the House Ways and Means Committee detailed the breakdown of each tax provision in a chart, which we reproduced here.

March 2010 Estimate, 2010-2019, $US billion

June/July 2012 Re-Estimate, 2013-2022, $US billion

Additional 0.9 percent payroll tax on wages and self-employment income and new 3.8 percent tax on dividends, capital gains, and other investment income for taxpayers earning over $200,000 (singles) / $250,000 (married)

“Cadillac tax” on high-cost plans *

Annual tax on health insurance providers *

Annual tax on drug manufacturers/importers *

2.3 percent excise tax on medical device manufacturers/importers* 

Limit FSAs in cafeteria plans *

Raise 7.5 percent AGI floor on medical expense deduction to 10 percent *

Deny eligibility of “black liquor” for cellulosic biofuel producer credit 

Codify economic substance doctrine

Increase penalty for nonqualified HSA distributions *

Impose limitations on the use of HSAs, FSAs, HRAs, and Archer MSAs to purchase over-the-counter medicines *

Impose fee on insured and self-insured health plans; patient-centered outcomes research trust fund *

Eliminate deduction for expenses allocable to Medicare Part D subsidy

Impose 10 percent tax on tanning services *

Limit deduction for compensation to officers, employees, directors, and service providers of certain health insurance providers

Modify section 833 treatment of certain health organizations

Additional requirements for section 501(c)(3) hospitals

Employer W-2 reporting of value of health benefits

* Provision targets households earning less than $250,000.

** Includes CBO’s $216.0 billion estimate for “Associated Effects of Coverage Provisions on Tax Revenues” and $6.0 billion within CBO’s “Other Revenue Provisions” category that is not otherwise accounted for in the CBO or JCT estimates.

Source: Joint Committee on Taxation Estimates, prepared by Ways and Means Committee Staff

These new taxes will hit small businesses hard. Owners of small businesses will face a tax increase on self-employment income and the employer mandate will pose huge challenges to many small businesses. Businesses that work with small profit margins and have workers with relatively low wages may have to close up shop. Businesses that are able to comply will be forced to reduce worker wages and raise prices on customers.

The cost of compliance is another ding on the budgets of small business, large business, medical providers and individuals. The Obamacare Burden Tracker pegs the total cost of compliance at 127.6 million hours. That’s 127.6 million hours of productive work the U.S. economy loses to complexity. 

Add the complexity and the cost to small businesses to the investment tax increase in the ACA, and the tax provisions in the law could do some real damage to economy. Following the fiscal cliff tax increases and the additional 3.8 percent investment tax from the ACA, the U.S. now has a combined state and federal capital gains rate of 28 percent, up from 19 percent in 2012. High investment tax rates discourages the free flow of capital and damages long-term economic growth.

The economic effects of the increases in investment taxes from the ACA won’t necessarily be felt immediately, but will harm future development. Less capital will lead to less future productivity, which will lead to lower future wages.

But small businesses and individuals will feel the other effects of the tax increases in the ACA much sooner, as businesses learn to comply with the law and all its provisions over the next couple years.

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New tax increases unlikely to encourage investment

New tax increases unlikely to encourage investment - The Hill's Congress Blog @import "/plugins/content/jw_disqus/tmpl/css/template.css"; li.item435,li.item437,li.item439,li.item441,li.item443,li.item497,li.item499,li.item501,li.item503,li.item605,li.item689,li.item691,li.item693,li.item695,li.item697,li.item683,li.item685{display: none;} var _comscore = _comscore || []; _comscore.push({ c1: "2", c2: "10314615" }); (function() { var s = document.createElement("script"), el = document.getElementsByTagName("script")[0]; s.async = true; s.src = (document.location.protocol == "https:" ? "https://sb" : "http://b") + ".scorecardresearch.com/beacon.js"; el.parentNode.insertBefore(s, el); })(); function getURLParameter(name) { return decodeURI( (RegExp(name + '=' + '(.+?)(&|$)').exec(location.search)||[,null])[1] );}(function(d, s, id) { var js, fjs = d.getElementsByTagName(s)[0]; if (d.getElementById(id)) return; js = d.createElement(s); js.id = id; js.src = "//connect.facebook.net/en_US/all.js#xfbml=1&appId=369058349794205"; fjs.parentNode.insertBefore(js, fjs); if (getURLParameter("set_fb_var") == '1') { jQuery.cookie('set_fb_var', 'true', { expires: 7, path: '/' }); return true; } if (!jQuery.cookie('set_fb_var') && d.referrer.match(/facebook.com/i)) { window.fbAsyncInit = function() { FB.init({ appId : '340094652706297', status: true, xfbml: true, cookie: true, oauth: true }); }; }}(document, 'script', 'facebook-jssdk'));if((navigator.userAgent.match(/iPhone/i)) || (navigator.userAgent.match(/iPod/i))) {document.write('');}if(navigator.userAgent.match(/iPad/i)) {document.write('');}if(navigator.userAgent.match(/Android/i)) {document.write('');} Follow @thehill!function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0];if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src="//platform.twitter.com/widgets.js";fjs.parentNode.insertBefore(js,fjs);}}(document,"script","twitter-wjs");Advanced Search Options » Home/NewsSenateHouseAdministrationCampaignPollsBusiness & LobbyingSunday Talk ShowsCampaign 2012Business & LobbyingK Street InsidersLobbying ContractsLobbying HiresLobbying RevenueOpinionColumnistsEditorialsLettersOp-EdWeyants WorldCapital LivingCover StoriesFood & DrinkNew Member of the Week20 QuestionsMy 5 Min. W/ObamaAnnouncementsMeet the LawmakerJobsVideoGossip: In The Know Briefing RoomHillicon ValleyE2-WireBallot BoxOn The MoneyHealthwatchFloor ActionTransportationDEFCON HillGlobal AffairsCongressGOP12In The KnowPunditsTwitter Room HomeSenateHouseAdministrationCampaignPollsBusiness & LobbyingSunday Talk ShowsBlogsBriefing RoomHillicon ValleyE2-WireBallot BoxOn The MoneyHealthwatchFloor ActionTransportationDEFCON HillGlobal AffairsCongressGOP12In The KnowPunditsTwitter RoomOpinionA.B. StoddardBrent BudowskyLanny DavisDavid HillCheri JacobusMark MellmanDick MorrisMarkos Moulitsas (Kos)Robin BronkEditorialsLettersOp-EdsJuan WilliamsJudd GreggChristian HeinzeKaren FinneyJohn FeeheryCapital LivingCover StoriesFood & DrinkAnnouncementsNew Member of the WeekMy 5 Min. W/ObamaAll Capital LivingVideoHillTubeEventsVideoClassifiedsJobsClassifiedsResourcesMobile SiteiPhoneAndroidiPadLawmaker RatingsWhite PapersOrder ReprintsLast 6 IssuesOutside LinksRSS FeedsContact UsAdvertiseReach UsSubmitting LettersSubmitting Op-edsSubscriptions   New tax increases unlikely to encourage investmentBy Leigh Griffith, tax attorney and partner at Waller, Nashville Tenn.-01/08/13 01:00 PM ET Tweet !function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0];if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src="//platform.twitter.com/widgets.js";fjs.parentNode.insertBefore(js,fjs);}}(document,"script","twitter-wjs");

Perhaps appropriately, the “American Taxpayer Relief Act of 2012” (the “Act”) started off passing the Senate in the dark wee hours of January 1, 2013, and was ultimately signed by the President by autopen from Hawaii on January 2, 2013. This “fiscal cliff” legislation, with great political and press drama, may have kept the country out of a self-created fiscal/political tax ditch, but the country is still on the edge of the real fiscal cliff.

There are many problems with the Act, but one raises particular concern. The 2013 tax adversely impacts the most successful of the closely held businesses operating as limited liability companies, S corporations, or other pass-through tax entities. Additionally, though not discussed herein, because deficit spending was not addressed, no solution to the country’s fiscal problems has been reached. We are still peering over the edge of a fiscal cliff, with spending cut issues, debt ceiling issues and undoubtedly more tax issues to be dealt with before March 1, 2013.
 
Individuals with pass-through tax entity income
 
According to the Congressional Research Service, pass-through tax entities (principally S corporations and LLCs) represent over half of the business income in the United States. These are now the predominate form of closely held business and a source of much of the current job growth. Such business income, even when retained in the business, is included in the owners’ individual taxable income.
 
The active owners of pass-through entities are classified as self-employed, and the passive owners who provide capital for the business are investors with investment income. The Act increases the income tax rate to 39.6 percent on individual taxpayers (including owners of pass-through entities on the income remaining in the business) with adjusted gross income (“AGI”) above specified thresholds (generally $400,000 or $450,000).
 
This 39.6% increase also interfaces with other increases effective in 2013 to raise the tax burden further. For example:
 
a) the phasing out personal exemptions and phasing down itemized deductions for taxpayers with income above $250,000 (individuals), $300,000 (married filing jointly and surviving spouses), $275,000 (head of households) or $150,000 (married filing separately) which is simply a back door rate increase;
b) a new .9 percent increase in the self-employment tax for self-employment income in excess of $250,000 (married filing separately) and $200,000 (individuals);
c) an increase in the capital gains tax rate to 20 percent for taxpayers in the 39.6 percent bracket; and
d) the new 3.8 percent tax on investment income for taxpayers in the 33 percent bracket.
 
Compare this to the rates for publicly traded C-corporations. The maximum C corporation tax rate of 35% is currently the highest in the developed world and a recognized impediment to U.S. global competitiveness. The Act raises the non-corporate business tax rate for successful pass-throughs from the 35 percent maximum (the same as corporations) to:
 
i. a new maximum of 39.6 percent (not including the 2013 additional .9 percent self-employment tax increase and the additional taxes resulting from phased down itemized deductions and loss of personal exemptions) for all active individual owners, and
ii. 39.6 percent plus the new 3.8 percent tax on investment income (total 43.4 percent) for investor owners reaching the specified income thresholds.
 
For the successful active pass-through owners with sufficient AGI, the new 2013 increase of 4.6 percentage points is a 13 percent increase in the marginal rate  (4.6 percent divided by 35 percent) and for investors the combined 4.6 percent income tax and 3.8 percent investment tax is a 25 percent increase in the marginal tax rate (8.4 percent divided by 35 percent). It is impossible for this to have a positive effect on the financial health of the affected businesses, and likely results in less expansion, slower growth, and diminished hiring capacity.
 
In addition, the rewards for investing (in C corporations or pass-throughs) are diminished for many successful individual investors and active business owners. When the 3.8 percent tax on investment income for taxpayers with AGI in excess of $250,000 is combined with the new capital gains tax, a married taxpayer filing a joint return will have a long term capital gain tax of 15 percent, 18.8 percent or 23.8 percent depending on whether her AGI is below $250,000, between $250,000 and $450,000 or over $450,000.
 
Dividends are taxed in the same manner as long term capital gains. For taxpayers in the 39.6 percent bracket, the marginal tax increase on capital gains and dividends is 58.7 percent (8.8 percent divided by 15 percent)! Short term capital gains are taxed as investment income and for taxpayers in the 39.6 percent the effective rate is 43.4 percent. (a 24 percent increase from 2012 - 8.4 percent divided by 35 percent). These massive increases are hardly a recipe to encourage investment in U.S. business (corporate or pass-through) or for the operators and investors in pass-through entities to take additional risk (hiring people and otherwise trying to expand the business) for reduced after tax reward.
 
Griffith practices law as a partner at Waller, where he leads the firm’s tax practice.

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Yet Another Reason Why Today’s Unions Suck: Dues Devour Wage Increases

On the eve of Obama’s NLRB unleashing its new rules giving unions the ability to hold ambush elections—that is, the evisceration of employers’ ability to question or challenge unions in their quest to cherry-pick voting units—more data was just released by the Bureau of National Affairs that calls into question why anyone in their right mind would pay dues to a union today.

In addition to the $369 billion in underfunded union (private-sector) pension plans, the abundant evidence that unions kill companies and destroy jobs, today’s unions are doing such a miserable job at the one thing they’re supposed to do—negotiate contracts—that union members should demand refunds from their union bosses.

According to the April 9th issue of the Bureau of National Affairs Daily Labor Report (subscription required), unions negotiated contracts in 2011 that, in 41% of the contracts, employees received no increase in the contract’s first year.

While 41% of the contracts negotiated by unions in 2011 contained wage freezes, according to BNA’s survey, of the contracts where increases were negotiated, the average wage increase that was obtained for the first year was a pathetic 1.4%.

According to BNA:

A Bloomberg BNA analysis of collective bargaining agreements negotiated in 2011 found that the average first-year wage increase under contracts negotiated last year was 1.4 percent, compared with 1.6 percent reported in 2010. The average second-year increase in 2011 was 1.7 percent, compared with 2 percent in 2010, and the average third-year increase was 2.1 percent, compared with 2.3 percent a year earlier….

Given that union dues for most union members range from around 1.3% to 5% of pay, once union dues are deducted from members’ wages, the negotiated increases unions “achieved” for their members in 2011 are eaten up (and then some) by union dues.

Of course, union bosses continue to blame “the 1%” for their failure to garner anything better for their union members.

However, the reality is, today’s unions have become nothing more than an albatross riding on the backs of job creators and their employees.

_____________

Originally posted on LaborUnionReport.com.

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“Truth isn’t mean. It’s truth.”
Andrew Breitbart (1969-2012)

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