President Obama Doesn’t Know the First Thing About Economics

By Iain Murray

Published July 16, 2011 | FoxNews.com

 

As the Oscar buzz surrounding actress Meryl Streep keeps growing — thanks to her portrayal of Margaret Thatcher, it’s worth remembering one of the real Iron Lady’s most famous observations: that any housewife could manage the British economy. 

President Obama should heed that advice, and realize that economy begins at home. Unfortunately, his recent statements on the economy give little reason for hope on that front.

The president’s press conference on Monday epitomized the “do something” nature of his administration. He wants to do something about … well, everything—from getting more kids into college to fighting global warming (although the latter is less evident these days, at least in public). The trouble is that he thinks he needs more and more of our money to do it, so he wants any budget deal to include tax rises.

Let’s take the example of college education grants, which the president suggested should be funded by an increase in taxes on millionaires like himself. The president’s budget request for 2012 contains an allocation of $36 billion for increased Pell grants for students from poor backgrounds to attend college. That’s out of an entire federal budget request of $3.7 trillion, which makes Pell grant expenditure just 1 percent of the total.

Looking at that from the viewpoint of Mrs. Thatcher’s proverbial housewife, we can compare it to the median household income of about $46,000, which, after taxes, is about $3,000 a month. 

The size of the problem that President Obama singles out as requiring tax increases is equivalent to a household budget shortfall of $30 a month. A competent economic manager should be able to deal with that sort of problem by tightening his or her belt elsewhere. The president’s seeming incapability to contemplate this demonstrates just how out of control the federal spending machine is.

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Open Those Pockets: Why Aggressive Marketing Spending Makes Sense in a Recession

The conversation often turns to depressionary clichés like “flat is the new growth” and the use of a “pacing” of brand investment and marketing spend as a primary coping strategy. To say most marketers are being risk-averse is an understatement.

One of my favorite, and sincerest, pieces of advice to clients is that it’s riskier not to take a risk. But is this sage advice in a recession? Should they be playing it safe, as many marketers are? After all, wasn’t it a zealous pursuit of risk that got us all into this financial mess?

I’ve spent a great deal of time pondering this and I net out that a recession is the best time for marketers to not play it safe, to be aggressive, and yes, to take risks. Recessions create ripe opportunities for marketers to steal share and customers. And many of the world’s largest marketers are turning the recession into an opportunity:

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Analysis of Obama’s Tax Proposals

The Dog That Didn’t Bark

Washington, D.C. (June 2, 2009)

By Dean Zerbe, alliantgroup

The new administration released its budget and included its revenue proposals, detailed by the Treasury Department in the “Greenbook.” There is quite a bit of material, so I want to focus on the proposals that didn’t happen that are of concern to accountants and clients.

As I (and others) have been predicting for some time, the administration did not seek to increase the top two rates in 2009 or 2010. The budget proposal is to have the two rates increase to 36 and 39.6 percent on Jan. 1, 2011 (when they expire under current law).

The salary level at which the rates apply will be indexed annually for inflation. I expect the Democratic leadership in Congress to follow the administration’s budget here, and only continued bad news on the economic front would cause a rethink in D.C. about allowing the rates to go up.

I do expect the Republicans to cause some significant discomfort to the Democrats on the issue of the marriage penalty in the rates: $200K for singles; and $250K for married couples when the 36 percent rate kicks in.

Capital Gains and Dividends
As with the top rates, the administration is not seeking to accelerate the Jan. 1, 2011 date for when the capital gains and qualified dividend rates would return to their pre-2003 levels. The administration is proposing to permanently extend the zero and 15 percent tax rates for dividends and capital gains (which would otherwise expire) for lower incomes. While the administration does plan to raise the top capital gains rate to 20 percent in 2011, it would maintain the current connection between capital gains and dividend rates. Again, I anticipate Congress to follow the administration’s proposals in this area.

Interest-Charge Domestic International Sales Corporation is without a doubt one of the most beneficial tax provisions in the code for small and midsized businesses that export goods and certain services. Because the bureaucrats in Brussels and the World Trade Organization don’t like IC-DISC, there was some concern that the administration might propose its elimination.

The administration’s budget is loud in its silence on this issue. It appears that the administration has no immediate interest during this economic downturn in eliminating IC-DISC. The White House can read the tea leaves that a proposal to eliminate IC-DISC would be a political loser and would meet very real bipartisan opposition in the Senate. IC-DISC will remain in place for the foreseeable future.

A reminder also that the advantages of IC-DISC remain in place even when the rates go up — given that the IC-DISC benefits rely on the differential between the ordinary income rates and the dividend rates — and both the top rates and the dividend rates will be going up on January 1, 2011 as discussed above.

One last note: the IC-DISC benefits are only on a going-forward basis, so accountants and their clients need to get on this horse. With the economy where it is, we need to do all we can to help American manufacturers take advantage of this tax incentive.

28 Percent Cap on Itemized Deductions
While we’ve talked about dogs that didn’t bark, here is an example of a dog that barked but no one listened. The administration’s proposal to limit itemized deductions at 28 percent to help pay for its health proposals is not going anywhere.

While the press has focused on the impact on charitable giving, this actually reflects only a small part of the revenues gained under the proposal. The big dollars in this proposal are in the limitation on the mortgage deduction. Congress is in little mood to reduce this tax benefit, particularly in today’s real estate market.

Note: This proposal to limit at 28 percent is separate from the administration’s proposal to reinstate the limitations on personal exemptions and itemized deductions (PEPS and PEASE), which will be resurrected at the $200K single; $250K married level. I anticipate that the PEPS and PEASE proposals, which are effectively hidden increases in the marginal rate, will garner sufficient congressional support.

The growing consensus in Washington is that to replace the lost revenues from Congress, rejecting the proposed 28 percent cap on itemized deductions, we will instead see a limitation on the tax exemption for employer-provided health insurance.

The Finance Committee is looking at either limiting the dollar amount (e.g., no more than $10K per year tax-free) or phasing out the exemption based on income (e.g., at $200K single; $250K married, the exemption begins to phase out). Or even a combination. Most Democrats favor the phase-out based on income, but it is uncertain whether that proposal will raise sufficient revenues to pay for the health care program they envision.

Estate/Death Tax
To continue the dog theme, this is a bit of a mongrel. The Obama administration proposed, as during the campaign, to basically extend the Bush estate tax cuts as of 2009: $3.5 million unified credit and 45 percent rates. The administration also proposed a limitation on discounting/valuation of Family Limited Partnerships as well as requiring that Grantor Retained Annuity Trusts be for at least 10 years. The estimates of expected revenues that Treasury provided for these two proposals, particularly FLPs, are significantly higher than those of the official scorekeeper for Congress, the Joint Committee on Taxation.

The general outlook is that Congress will take up the estate/death tax issue this fall (the Democratic leadership does not want to do nothing and have the tax fall to zero in 2010). The chairman of the Finance Committee, Sen. Max Baucus, D-Mont., has put forward legislation (S. 722) that will most likely serve as the starting point for this debate. The legislation provides for $3.5 million (indexed for inflation) and 45 percent rates, and adds some additional estate tax relief.

For example, land would be valued at present use, not highest best use (e.g., land that was used for a winery for 10 years and used as a winery for 10 years after death will be valued as a winery, not as an office building). Another provision is portability of exemption. For example, if grandmother dies before grandfather, and they haven’t established an A/B trust, previously, grandmother’s $3.5 million dollar exemption went unused. Under Senator Baucus’s legislation, her $3.5 million exemption would be transferred to grandfather, and he would have a $7 million exemption.

It is a little too early to read Congress regarding the proposals on FLPs and GRATs, but I would say that because of the strong push by many senators on both sides of the aisle to provide estate/death tax relief beyond what the administration has proposed, it would really cause a dust-up if these two revenue raisers were included.

The two provisions would be viewed as reducing the amount of estate/death tax relief being provided, especially to family businesses (given their traditional reliance on FLP valuation discounting for estate planning). It all comes down to scoring by the Joint Committee on Taxation. When we looked at limitations on FLPs and GRATs when I was on the Finance Committee, the simple reality was that they raised a limited amount of money relative to the howling they engendered. Bottom line: It wasn’t worth the candle.

However, if members saw that limitations on FLP and GRAT raised the amount of dollars claimed by Treasury, and those revenues were used to offset greater estate/death tax relief (e.g., raising the unified credit amount or lowering the rates), then you might begin to have some interest. As of now, though, the administration is using the revenue raisers to pay for health care proposals, not further estate/death tax relief. These two proposals face a tough road.

Finally, the great unknown is whether the Democratic Congress will agree with the new administration’s budget proposal to make the $3.5 million exemption and 45 percent rates permanent law. I am very concerned that while Congress will act this fall on estate/death tax, they will only approve the Obama estate/death tax relief for two to three years, and kick the can down the road.