Posts Tagged ‘Tax’
By Laurence Kotlikoff – Aug 10, 2010 6:00 PM PT
Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.
What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.
Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”
But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”
The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.
Double Our Taxes
To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.
Such a tax hike would leave the U.S. running a surplus equal to 5 percent of GDP this year, rather than a 9 percent deficit. So the IMF is really saying the U.S. needs to run a huge surplus now and for many years to come to pay for the spending that is scheduled. It’s also saying the longer the country waits to make tough fiscal adjustments, the more painful they will be.
Is the IMF bonkers?
No. It has done its homework. So has the Congressional Budget Office whose Long-Term Budget Outlook, released in June, shows an even larger problem.
Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.
For example, our Social Security FICA contributions are called taxes and our future Social Security benefits are called transfer payments. The government could equally well have labeled our contributions “loans” and called our future benefits “repayment of these loans less an old age tax,” with the old age tax making up for any difference between the benefits promised and principal plus interest on the contributions.
The fiscal gap isn’t affected by fiscal labeling. It’s the only theoretically correct measure of our long-run fiscal condition because it considers all spending, no matter how labeled, and incorporates long-term and short-term policy.
$4 Trillion Bill
How can the fiscal gap be so enormous?
Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.
This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.
Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.
And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.
Worse Than Greece
Read the entire article HERE.
By David L. Ganz, Numismatic News
June 29, 2010
A blizzard of paperwork could be about to hit numismatics.
Passage by Congress of the national health care legislation has had an unintended consequence to the nation’s coin collectors, vest-pocket dealers who buy and sell coins, and larger dealers who are frequent buyers of coins that collectors periodically liquidate as they trade up their collections for better coins, or simply sell to take a small profit or loss.
What has happened is that effective Jan. 1, 2012, the whole system of giving and receiving Internal Revenue Service 1099 forms will be turned on its head and all persons (including corporations) who are in business will now have to give 1099 tax reporting forms for coins and other goods that they sell as well as buy.
The responsibility for issuing forms kicks in at $600 for coins or bullion – not a very high level and one that has already started sounding alarm bells. It doesn’t matter in what form payment is made, whether cash, check, credit card, or Yap stone money, the $600 threshold applies.
There’s a bill introduced by Rep. Dan Lungren (H.R. 5141), which has gathered over 80 members of Congress as co-sponsors to repeal this section. Evidently, however, the drafters of the provision think there is a $17 billion loophole that this plugs.
The Industry Council for Tangible Assets is alerting member dealers and the public at large in the hope that some sense of outrage will lead to a ready modification before the law becomes operational in 2012.
Form 1099 is used to report independent contractor income, income from dividends, income from other things – and is one of the reasons why children receive tax bills for work or labor or services performed.
Section 9006 of the Patient Protection and Affordable Care Act (Public Law 111-148, signed into law by President Obama this spring) turns 1099 forms into reporting forms not only for independent contractor’s income – what they have long been used for – but also to show sales, gains and losses on purchases and sales of goods as part of a trade or business.
The section reads (in relevant part) “SEC. 9006. EXPANSION OF INFORMATION REPORTING REQUIREMENTS. (a) IN GENERAL. – Section 6041 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsections:
‘‘(h) APPLICATION TO CORPORATIONS. – Notwithstanding any regulation prescribed by the secretary before the date of the enactment of this subsection, for purposes of this section the term ‘person’ includes any corporation that is not an organization exempt from tax under section 501(a).
‘‘(i) REGULATIONS. – The secretary may prescribe such regulations and other guidance as may be appropriate or necessary to carry out the purposes of this section, including rules to prevent duplicative reporting of transactions.’’
(b) PAYMENTS FOR PROPERTY AND OTHER GROSS PROCEEDS. –
Subsection (a) of section 6041 of the Internal Revenue Code of 1986 is amended –
(1) by inserting ‘‘amounts in consideration for property,’’ after ‘‘wages,’’
(2) by inserting ‘‘gross proceeds,’’ after ‘‘emoluments, or other’’, and
(3) by inserting ‘‘gross proceeds,’’ after ‘‘setting forth the amount of such.’’
The property section means that if B. Max Mehl was selling coins to another major dealer of that era, a 1099 would have to be issued. When he bought from the public, the same thing is also required. The “report” does not necessarily measure profit or loss, but it does show activity.
The old exemption against corporations is also gone. If you buy or sell more than $600 of coins, or whatever, from, to or with a bullion dealer, for example, you have an obligation under the new law to issue 1099s.
Read the original article HERE.
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