New Year’s Tax Resolutions
by Linda Beale
A quote from Amartya Sen, and my New Year’s Tax Resolutions (for Congress and the Obama Administration)
The time between December 30 and January 4 seems to be filled with lists. Along with the ever-present list of “to dos” that haven’t been done and still are hanging around waiting for our attention, there are everyone’s “10 best” lists (e.g., the ten best movies–regretably, I don’t think I saw ten new movies in 2009, so can only say I thought Slumdog was a decent showing) or their opposite (e.g., the ten worst celebrities of the year, every one of them with Tiger Woods and Gov. Sanford firmly placed near the top). And of course there are those New Year’s resolutions that we are supposed to deliberate over and then deliver on when the New Year rolls around–mine is to join my hubby in his morning walk and to give up doughnuts completely.
Not being one to gather quotes all year just for this final celebration, here’s one quote that I believe is worth thinking about as we head into the new year. Amartya Sen writes, in “The Idea of Justice” (Belknap Press 2009), at 32:
Being smarter may help the understanding not only of one’s self-interest, but also how the lives of others can be strongly affected by one’s own actions. Proponents of so-called ‘Rational Choice Theory’ (first proposed in economics and then enthusiastically adopted by a number of political and legal thinkers) have tried hard to make us accept the peculiar understanding that rational choice consists only in clever promotion of self-interest (which is how, oddly enough, ‘rational choice’ is defined by the proponents of brand-named ‘rational choice theory’). Nevertheless, our heads have not all been colonized by that remarkably alienating belief. There is considerable resistance to the idea that it must be patently irrational–and stupid–to try to do anything for others except to the extent that doing good to others would enhance one’s own well-being.”
In light of Sen’s helpful clarity about the ridiculousness of ‘rational choice theory’, I also offer the following as the resolutions that I wish Congress and the Obama administration (and/or various administrative agencies thereof) would make (and follow through on) for this new year of 2010.
1) The Treasury should resolve that it will no longer provide special dispensation to the financial institution powers that be, such as its invalid notice indicating that it would not enforce the law on loss corporations for too-big-to-fail banks, thus allowing too-big-to-fail banks to become even bigger by buying loss banks, and then allowing them to use those losses in direct contravention of the law and avoid paying income tax for years (or perhaps decades). A similar “notice” went out recently–Notice 2010-12–stating that Treasury will continue to fail to enforce the rules under section 956 regarding what constitutes an obligation and hence relieving US shareholders of controlled foreign corporations ( many of them possibly the same too-big-to-fail banks) of further US taxpaying obligations. (This notice continued the nonenforcement decision Treasury had made in 2008, in Notice 2008-91. Too bad decisions do not make a good decision.)
2) The Supreme Court should resolve to deal with the problem of financial institutions claiming patent protection for all kinds of financial software and financial engineering “solutions” and for others claiming patent protection for tax planning strategies by releasing a decision in the Bilski case that clarifies the “abstract idea” exception. The Court should say that no patent can be granted for innovations that merely utilize the positive laws to assert that a transaction carried out in a particular way will have a particular legal result, or for other methods of conducting transactions or of organizing human activity that do not involve the technological arts, as understood under European patent law.
3) Congress should resolve to end the preferential treatment of those few Americans who own most of the financial assets of the country by ending the capital gains preference.
4) Congress should resolve to eliminate the preferential tax treatment of the earned income of hedge fund and equity fund managers (the so-called “carried interest”), and any other “partners” that manage partnerships and earn a share of the partnership’s gains as their compensation (such as real estate partnerships).
5) In order to restore some sort of balance between worker and employer, Congress should eliminate the business deduction for any compensation in excess of 20 times the average salary (about $1 million). The cap on compensation deduction to apply to compensation in any form (stock, assets, cash), whether or not “performance related”.
6) In order to treat the gifts of ordinary Americans to charities of their choice the same as the gifts of multi-millionaires to charities of their choice, Congress should repeal the special rule that permits a charitable contribution deduction for the value of stocks rather than the investment basis in the stocks. Will that limit contributions that are made? Perhaps, though it is clear that contributors do so for many reasons and not merely for the contribution deduction.
7) Congress should resolve to resolve the estate tax situation once and for all, before some do-nothing heir-to-be decides that 2010 is the right time for the wealthy person in his life to go. Congress should enact a modest exemption of $2 million but should make the estate tax rates progressive (beginning at2009s 45%, but moving up to at least 65% for the largest estates).
8) Congress should resolve to revisit the tax brackets. We have an economy in which the average income is around $50,000, but there are individuals who make more than $500 million a year. That spread is so large that it cannot be adequately addressed by brackets that focuse on the first $350,000 or so. Those who make $200 million a year have incredibly more freedom of choice, and the few dollars they pay in taxes are merely peanuts compared to the precious funds from an average family. We need to make the income tax more progressive by adding additional rate brackets–perhaps as many as 3 or 4 more. That would still be a far cry from the income tax system before Reagan took office, when we had top rates more than double today’s top rates. But it would address the dire fiscal need of the country in a way that is doable without creating undue suffering.
9) Congress and Treasury should resolve to clean up the partnership tax rules so that they do not offer such extraordinary flexibility to partners to arrange their affairs to avoid taxation–for example, by eliminating the electivity permitted to partners in many places in the rules (make the remedial method the only method allowed for taking into account book-tax disparities in contributed property) and by changing the way that partners take account of partnership debt (such as being able to get distributions of nonrecourse debt that monetize partnership property appreciation).
10) Congress should re-visit the rules on mergers and acquisitions, so that a tax-free merger becomes an unusual event. Part of the problem we are facing today is that multinational corporations have grown so big that they wield enormous power globally and can sometimes appear to be able to order laws to suit them. Witness the fact that we are well beyond the beginnings of the financial system crisis, and no single piece of legislation imposing new and better regulations on the banks have been enacted. The size of corporations ensures that they will become as focused on raising rents for their managers as they will on making profits for shareholders, and that they will care not one whit for the ordinary American who is their customer, or their low-wage employee, or the resident of a town that they leave derelict when they move to sunnier shores. We say that the rationale for tax-free reorganization provisions is to encourage efficient organization of corporations. But efficiency is not God, and in fact focus on efficiency may leave democracy and fairness far behind. We should give tax-free treatment only to shareholders who get no boot for any of their stock, and only in transactions where a high percentage of the consideration is stock (perhaps 80% or more).
Should, should, should. should……..in a plutocracy it’s like what COULD get past those who control the nation. Fat chance.
Not likely that the Masters of the Universe will give up their gold without a fight. Keep in mind, that they have convinced the many that have little, that it is most important and the American Way, that the status quo be maintained.
Another minor tax change, change the treatment of company stock held in 401ks so it does not get capital gains treatment but is taxed at ordinary rates. This would tend to discourage holding company stock in 401ks. Much more doable than repealing capital gains as a whole. (Unless you want to go whole hog and repeal the corporate income tax completly and then wipe out capital gains. (Would need a retained earnings tax of some sort however)
Well, I can agree with #4.
We tried #5, it spawned an immense wave of creativity in stock options, and wow was that a mistake.
#7 is a welfare plan for lawyers and life insurance companies, and will require family owned businesses to focus on estate planning contortions rather than growth and job creation. I find it stunning that anyone would think a $2M valuation is a large business. Ironically, the estate tax causes family-owned businesses to sell out to large evil corporations. Duh
#2 is, not surprisingly, a scam driven by lawyers, gee how unusual.
Not very many poor people sign a paycheck, but don’t let that bother you.
I agree that the “carried interest” scheme is a sham. Even more so, the 1031 exchange rule, which lets enourmous real esate profits remain untaxed virtualy forever, is a loophole with no redeeming value. Capital gains taxes have been debated ad infinitum. Raising them will encourage businesses to raise capital though debt rather than equity. Right now, that’s not a big deal. If interest rates rise, capital intensive business like manufacturing will be screwed. Obama’s idea of a modest rise in capital gains rate is a sensible middle ground. Reducing charitable contributions is a good idea; all charity should come from the government anyway.
1) Eliminate farm subsidies and pressure other developed nations to do so as well. Restore value in agricultural enterprises as a solution to job creation. Subsidize instead on the demand side (globally. [U.N., World Bank etc.]). Use IMF to provide low-cost loans to increase production to the limits dictated by soil and water factors. Use biochar where applicable to increase soil options; and to allow the cultivation of marginal soils which have locations convenient to water sources. (Produce biochar from waste materials only [timber salvage due to blights, other waste that is currently being used for landscaping etc.])
2) Collect urban run-off and process through water treatment facilities. Use water to expand agricultural production. Also collect from water-shed sources prior to their convergence with fisheries.
(dead zone abatement)(create jobs)
3) Tax fossil fuels to whatever level needed to provide incentives for substantial increases in localized commerce. Use tariffs to encourage other nations to do the same. (create jobs)
4) Use price controls to stabilize staple goods prices. Produce agricultural surpluses that allow biofuels to replace fossil fuels to whatever extent allowed by soil and water considerations. The rising sea levels are the obvious source for more than ample water supplies, whether by way of collection efforts or desalination plants. The availability of highly fertile soil, which is currently limited to 3% of the planets land mass, will be the limiting factor. However biochar not only improves the fertility of marginal soils, which exist as a much higher percentage of land mass, but because carbon storage is much deeper, biochar also allows for tilling without releasing as much of the stored carbon which is collected by crops.
5) Cease the pretense that wealth creation is limited by inflation. Inflation is caused by too little supply or too much demand, not by too much currency. We CAN simply print and produce our way out of this mess. And if we work as hard at meeting mankind’s needs, as we do at all things militaristic, and materialistic, we could stop the viscous cycle of conflict that is our folly. And this will instill purpose in all of lives.
(create jobs [unlimited wealth])
6) Produce high quality goods with every possible consideration given to sustainability of resources. Lend as dictated only by incentive considerations.
(create jobs [even for bankers and administrators])
7) Cease the obstruction of technological advances by job creation concerns.
(only applies in conjunction with 1 — 6.
8), 9), 10) Incentives for education (global).
The debt overhang will eventually be solved, I feel certain, by a combo of 1)inflation; 2) a VAT; and 3) cuts in entitlements, probably mostly at the expense of the poor who always get the tiny end of the stick in the USA.
Re biofuels: hasn’t the ethanol market fallen out of bed? I think corn region ethanol plants have been going bankrupt in the last couple of years.
If Obama has any political power left, I’d take the bull by the horns and put a 75% tax on all income over some rather high limit, like ten million. Even if it didn’t raise vast revenue it would make lots of people feel better to know the superplutocrats aren’t completely immune. Was not the top rate under FDR something like 90%? I’d also institute a wealth tax of the sort they have in Europe in which total wealth is taxed along with income. I’d put a special tax on palatial homes that exist only for show and ego. Does Candy Spelling really need a $150,000,000 house? I would not ask her for fear she would say “sure I do.”
Officially known as “The Manor,” the property — which looks like a French chateau and is slightly larger than the White House — is the largest home in Los Angeles County. Spelling, the mother of actress Tori Spelling, describes it as the “greatest entertainment house ever” with a “kitchen where you can cook for two or 800.” The parking lot, dubbed the “motor court,” can accommodate 100 vehicles, with 16 carports to boot.
It’s all become a little too much for Spelling, 63, who is downsizing to a 16,500-square-foot condo in Century City. But she said the Holmby Hills spread was filled with fond memories.
“All the stars came through,” Spelling said of her 18 years in residence. “Prince Rainier, Prince Charles, Jackie Kennedy — every star from every one of Aaron’s shows.”
Built in 1991, the three-story house has many rooms customized for specific purposes. There’s Aaron Spelling’s automated projection room (one of Candy Spelling’s favorites), a bowling alley, a flower-cutting room, a wine cellar/tasting room, even a silver storage room with humidity control. Outside there is a swimming pool with pool house, tennis court, a koi pond, gardens and a citrus orchard.
To house the staff, a service wing has five maids’ bedrooms and two butlers’ suites, one of which has a kitchenette. The house is believed to have more than 100 rooms. Spelling said she isn’t sure, because she’s never counted them.
I intended to convey that the biofuels in my fantasy are made from surpluses. Corn ethanol is being produced at the detriment to food supplies. Corn ethanol is still problematic for food supplies and should not be confused with biofuels in general, some of which are produced from by-products.
Here is another American to compare to Candy Spelling:
And, they live in the same country. Way too much vs. way too little. And nobody seems to care.
“3) Tax fossil fuels to whatever level needed to provide incentives for substantial increases in localized commerce. Use tariffs to encourage other nations to do the same. (create jobs) “
Tax gasoline, diesel and stove fuel in the US to pay for the wars and US war machine presence in the Persian Gulf since 1973.
And tariff products from Asian nations receiving Gulf oil for their share of the US taxpayera’ long suffered burden of keeping ARAMCO profitable.
I borrowed the following from the article you provided:
“The surge in this precarious way of life has been so swift that few policy makers have noticed. But it attests to the growing role of food stamps within the safety net. One in eight Americans now receives food stamps, including one in four children.”
25% of the world’s prison population lives in U.S. prisons. The U.S. still has more crime in nearly every category than any nation on Earth (nominal). So I wonder how many U.S. citizens are actually benefiting from crime while being subsidized by food stamps and other welfare programs. As you might surmise from my fantasy above, I am a progressive thinker and have been so for nearly 40 years. But I have also learned to be wary of statistical data.
I have spent some time in third world countries and so it is difficult for me to pity those who are living in poverty but manage to have better stuff than what I do. But that does not affect my views on how imbalanced wealth distribution is. Over time I have learned to think more globally and in part I do so as a way to avoid the complicated circumstances of poverty in the U.S.. It is important though to realize that crime in the U.S. is subsidized by well-intended but stupid policies. Our inner cities are quickly becoming training grounds for criminality and, without government funding the “trainees” would not have so much time on their hands. This is not meant to suggest that I think people should be left to languish in poverty but, the incentives must always encourage productive behavior.
“all charity should come from the government anyway.”
No it should not all come from government, because if that were the case then only the politically powerful would get any useful charity.
Hmmm…so food stamps cause crime? Interesting. If poor people were left to starve, then of course they would be dead and not criminals. What a nice idea. I must ponder that.
Of course Candy’s hoarding so much wealth for herself (like many others in the USA) is not criminal at all, is it? Superrich people can’t be criminals. Madoff made that very clear, right?
Nothing criminal here:
Doubtless due to not using food stamps.
Only a small fraction of people living in poverty actually starve. The number of malnourished reached 1 billion just this past year and so there is a good arguement that food aid is a necessary evil but your comment is disengenuous and a distortion of what I said. Your use of “Candy’s hoarding” as commonsurable with Madoff’s criminality is also disengenuous and if you were not so rude I would take the time to explain to you why. But then that explains how people with narrow thinking remain narrow in their thinking, and I don’t have time to explain that to you either.
This will be the last time I respond to you.
I apologize for posting something to which you cannot respond, but I would claim that I think rather “broadly” and regard people like Candy Spelling “criminal” in gorging themselves on so much when others have so little. I am not aware of any attempts by her to rectify the situation via vast charity on her part. Not all criminal behavior involves murder, etc, I regard the reckless and greedy selfishness of Wall Streeters that brought on the economic collapse and the ruin of so many families around the world as criminal too, although they will never be prosecuted at all. So I think it might be you who think narrowly about what is criminal, not I.
So Candy Spelling loses her ugly mansion, and the servants who tend to it lose their jobs, and LA loses the property taxes. Feel better now?