If you ask a Mainer about taxes, you’re liable to get an earful: Mainers have one of the highest tax burdens in the nation. Nonetheless, on election day, Maine voters turned down proposals to cut taxes.
In a slow economy, Maine voters were leery of a proposal that would result in cuts in services. The controversial ballot issue, Question 4, asked voters if they wanted to limit future increases in state and local government spending and taxes to the rate of inflation plus population growth. The measure was known as the Taxpayer Bill of Rights campaign, or TABOR. Those opposed to the measure referred to it as “TABOR II” since a similar proposal was turned down in 2006.
Those in support of TABOR claimed that the bill would put more money back in taxpayer’s pockets. Critics wondered what the actual result of would be, as many state and local services were already facing cuts. Public schools are already operating under frozen budgets.
Voters also rejected a proposal to cut excise taxes on some vehicles and exempt hybrid and fuel-efficient vehicles from sales tax. Measures to encourage the purchase of cleaner cars are popular in states like Colorado but critics feared that tax cuts would have to be made up somewhere else. In that way, it wasn’t so much a tax cut as a shift in taxation.
While tax measures on the ballots were overshadowed by publicity over questions about making medical marijuana more available (yes) and gay marriage legal (no), the tax votes may be indicative of the mood of the nation on the eve of a huge election year… Only time will tell.
“Lesen Sie es von meinen Lippen ab, keine neuen Steuern.”
(translation: Read my lips, no new taxes.)
Okay, maybe German Chancellor Angela Merkel didn’t actually say that – but that was the gist of her message when she made a play for a second term. And it worked.
With Germany suffering through its own economic woes, taxes were a big issue in the current elections. Merkel’s opposition dug in their heels over a scheme to raise taxes on the top wage earners (hmm…. where have we heard that before?). As a result, the SPD (the party of Steinmeier, Merkel’s challenger) suffered its biggest loss since World War II.
Merkel, on the other hand, promised across-the-board tax cuts of 15 billion euros ($22 billion), claiming that she wants to be the “Chancellor for all Germans.” She also claimed that she would cut the lowest tax rate from 14% to 12% – it is 10% in the US – and raise the threshold to qualify for the top tax rate to 60,000 euros (roughly $87,774) from 40,000 euros ($58,516) – the top rate in the US hits at $372,950 for singles. Those strategies helped her win for her party, the Christian Democratic Union, together with their sister party in Bavaria, the Christian Social Union.
Of course, “win” is relative. Voter turn out was a record low and Merkel’s own party saw its worst “victory” in post-war voting. Many blame a bleak economy for the turnout.
As in the US, critics are calling Merkel’s plans for tax cuts dangerous, noting that Germany plans to double their foreign debt next year to record levels. Nonetheless, Merkel and her party believe that the cuts will spur the economy forward.
She will face at least one challenge: consensus. She owes part of her victory to the Free Democrat party, currently led by Guido Westerwelle. Westerwelle wants even more severe tax cuts than Merkel has promised. Taxes could prove to be something of a sticking point for the two moving forward. Heinrich Oberreuter, a political science professor at the University of Passau, has predicted that taxes will be “the Achilles’ heel of the Free Democrats and the (new) coalition as a whole,” claiming that tax cuts just aren’t possible in the current economic climate.
I guess we’ll see… In the meantime, the euro is expected to jump today on the news.
Just days after President Obama outlined his proposed budget, which includes tax modifications (yeah, it’s a cheesy word, keep reading) for high wage earners, key leaders in Congress are making noise that they might not be in support of the plan. Chief among them is Senate Finance Committee Chairman Max Baucus (D-MT) who questioned whether the plan would work.
The White House is touting the plan as necessary to make a dent in a spiraling deficit and to pay for the cost of health care reform. At least half of the funds for those are expected to come from revenue raised from the tax increase.
But is it a tax increase? Phase one of the plan is to increase the top tax rate on individual taxpayers earning more than $200,000 and married taxpayers making more than $250,000 from 35% to 39.6%. Opponents of the increase say that Obama is singling out successful taxpayers. But the White House is careful to point out that the “increase” is actually the result of the expiration of a tax cut enacted under President Bush. The Bush tax cuts were not made permanent and are scheduled to sunset back to the original rates in 2011. In other words, those rates will increase if Congress doesn’t do anything at all (a pretty good bet).
More problematic for the Obama administration is the plan to limit deductions. As previously blogged, the White House has proposed limiting deductions for charitable donations, mortgage interest and state and local taxes. Under the current rate structure, taxpayers in a 35% tax bracket save $350 for each corresponding $1000 in deductions. Reducing the deduction limit to 28% means that taxpayers in the highest brackets would lose $70 in tax savings for each $1000 in deductions. Interestingly, these are the same deduction limits that were in effect during the Reagan years (though the top rates were lower).
Republicans have criticized the plan, citing concerns about the effects on charitable donations. Democrats have echoed these concerns, making it clear that the proposal is by no means a done deal.
Here’s my prediction: Congress does nothing. Sure, that’s a good prediction at the best of times. But this time, I’m serious. If Congress does nothing, the top rates go up anyway and the deductions remain at their current rates. Voila! Congress at work.
Oh, it’s going to be a long January…
President Elect Barack Obama has proposed tax cuts for individuals and small businesses as part of his massive economic stimulus package. The price tag on the cuts? About $300 billion. With a b.
Don’t get too excited just yet. These are just proposed cuts. There’s a lot to hammer out first – not the least of which is that Congress is just now being seated (Minnesota and Illinois notwithstanding) for the new year. And there’s that little detail of Obama not yet being the sitting President…
So take these proposals for what they are: a quick wish list. We’ll see what shakes out in the next few weeks.
But for now, here’s what’s being considered:
Tax cuts for working folks. The tax cuts that are being considered would equal $500 a year for working individuals and $1,000 for working couples. The cuts would be in the form of a payroll tax credit. That’s good news for workers because it’s an immediate benefit – no wait for IRS checks. Employers will make the adjustment during the year by reducing federal tax withholding; workers not subject to withholding will likely be able to apply for a refund at the end of the tax year. And yes, there will likely be phaseouts and caps – meaning at an as yet unmentioned income level, the credits would be reduced or not apply. Whispers are that the income level cap will be around $200,000 but don’t hold me to it.
Business tax breaks. Okay, tax break is a strong word. What’s actually being considered is extending the net operating loss (NOL) carryback to five years (from the current two year limit). That means that businesses that have a bad year or two now can use those losses to offset tax burdens from other years.
Obama would also extend the increase in Section 179 deductions (more or less, immediate tax deductions as opposed to writing them off over a period of time) for small businesses through at least 2010. The limit has been $125,000 but was doubled for one year as part of the Economic Stimulus Act of 2008. The proposal would extend the $250,000 limit for 2009 and 2010.
Finally, to stem off rising unemployment, businesses that create jobs here in the US or avoid future layoffs would receive a tax credit.
So, it’s a lot. Is it too much? Is it enough? Will it stimulate the economy? Or just throw money away. I suspect these questions will be debated for weeks now. But what are you waiting for? Chime in now. Vote in our poll (psst, feed readers, you can’t see it unless you click onto the site) and then tell us what you really think!
