Grassroot Perspective – Jan. 16, 2003-Alternative Minimum Tax Will Cancel Bush Cuts for Many Families; Balance Sheet; Mackinac – Looks at Michigan's Unemployment Situation

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”Shoots (News, Views and Quotes)”


– Alternative Minimum Tax Will Cancel Bush Cuts for Many Families

As President Bush’s tax cuts of 2001 phase in over the next few years, the tax relief many middle- and upper-income families were anticipating will be offset by the alternative minimum tax. That is the warning contained in a new study from the Urban Institute-Brookings Institution Tax Policy Center.

The alternative minimum tax (AMT) was originally designed to assure that wealthier Americans with many deductions did not escape paying taxes of some sort, and as recently as three years ago fewer than one million Americans were subject to it. But if nothing is changed, by 2010 about 36 million taxpayers will face its complex provisions.

*When the Bush cuts become fully effective, 85 percent of taxpayers with two or more children will be forced off the regular income tax and onto the AMT system.

*It will largely affect families with incomes of $75,000 to $500,000.

*Under AMT, many deductions are denied — including those for children, the taxpayers themselves, and for state and local taxes.

*Married couples are 25 to 30 times more likely to be subjected to it than single people — which tax experts call “a nasty marriage penalty.”

The study concludes that almost any remedy to the problem will cost the Treasury hundreds of billions of dollars or require raising taxes elsewhere to compensate for the losses.

Although the White House is reportedly aware of the problem, no action is expected anytime soon.

Source: David Cay Johnston, “Study Says Middle Class to Lose Much of
Bush Tax Cut’s Benefits,” New York Times, Sept. 19, 2002; Leonard E. Burman, William G. Gale, Jeffrey Rohaly and Benjamin Harris, “The Individual AMT: Problems and Potential Solutions,” Sept. 18, 2002, Urban-Brookings Tax Policy Center.

More details see Daily Policy
Digest 9/19/02

– Balance Sheet

Clark County, Nevada, has decided not to outlaw lap dances at local strip clubs. Local officials started with a rule that dancers could get no closer than six feet to their fans. But they reversed their position after hearing that such sedate offerings would drive business to nearby lap-dance-friendly Las Vegas.

GRIH Comment: Let’s see, how to apply competition in Hawaii: Why not allow outlying communities to incorporate and reduce counties to
counties? Or, allow private enterprises to operate door to door transit
service with same subsidy as government transportation receives? Wow! You could expect some real charge.

”Roots (Food for Thought)”

Like the rest of the country, Michigan is working its way out of what
turned out to be a relatively mild recession, with unemployment still
rather high. For thousands of Michigan families, the recession won’t
end until new jobs open up — and job creation usually doesn’t pick up until the very end of a recession.

Fortunately there is something Congress can do to speed the process.

The Federal Unemployment Tax Act (FUTA) requires employers to pay a tax of 0.8 percent on the first $7,000 earned by their employees. This tax does not fund unemployment insurance — the actual funds that go to the unemployed are collected through a separate state tax. Funds collected under FUTA are returned to the states to cover the costs of administering their unemployment insurance systems.

At least that’s what’s supposed to happen. As it turns out, the federal
government is keeping most of this FUTA revenue. Researcher William B. Connerly, Ph.D., of the American Institute for Full Employment in Klamath Falls, Ore., recently discovered that only 47 percent of FUTA taxes actually go to running state unemployment insurance programs. The rest stays in Washington, where it has the effect of making the budget surplus look larger than it actually is.

Michigan fares better than most states on this deal, but of the $246.6
million Michigan employers pay in FUTA taxes annually, only $134.9
million — a little more than half-comes back to Michigan’s unemployment insurance system.

The Bush administration has proposed a hefty funding cut for FUTA, from 0.8 percent down to 0.2 percent. In effect, this would leave the states to cover the costs of their own unemployment insurance systems, while the remaining FUTA funding would cover functions such as loaning money to states that exhaust their unemployment funds, or providing money for 13-week benefit extensions in states with high unemployment.

The FUTA tax cut would save Michigan employers over $184 million
annually. Even if the state government were to hike unemployment taxes to make up its administrative costs, employers would still come out ahead, to the tune of around $50 million annually (the $184 million saved minus the $134.9 million it costs to run Michigan’s system).

What would be even better would be to eliminate FUTA altogether. The reason: Making the states come up with the funds to run their own unemployment insurance systems is likely to make those systems more efficient.

A basic tenet of sound public policy is that nobody spends someone
else’s money as carefully as he spends his own. And the Michigan
Unemployment Agency (MUA) is a perfect example. In 2001, the MUA paid out more than $1.6 billion. If past years are any guide, more than 10 percent of the funds paid out were not properly payable under Michigan’s unemployment law. According to the U.S. Department of Labor, 10.35 percent of the monies paid out of the state’s unemployment insurance funds in 2000 were overpayments. Because states like Michigan administer their unemployment insurance with federal FUTA tax money, there is no pressure to use the money efficiently.

Making the state Legislature responsible for funding the Michigan
Unemployment Agency would mean that the agency and its budget would be under the control of elected officials from Michigan, rather than being monitored from afar by one-size-fits-all-minded bureaucrats in Washington. State lawmakers are more in touch with the unemployment situation in Michigan, and are more responsive to the needs of job seekers and employers. This would translate into closer scrutiny and more flexibility in how the fund is administered.

As things now stand, Michigan’s unemployment insurance program is being run in a way that wastes taxpayer dollars. Being laundered through a large federal bureaucracy weakens accountability and provides little incentive for efficiency or innovation in the handling of state unemployment insurance funds.

While it is a relatively small item in Michigan’s budget, the FUTA tax
is aimed at the heart of Michigan employment. It is levied directly on
employers and goes up every time new workers are hired.

Now is a perfect time for Congress to cut the cost of hiring new workers. Lowering or abolishing the FUTA tax would be a good way to start.

(Paul Kersey is labor research associate with the Mackinac Center for
Public Policy. Permission to reprint in whole or in part is hereby
granted, provided the author and his affiliation are cited.)

Above article see

”Evergreen (Today’s Quotes)”

*More enforcement? Nobody knows what’s in the code. Who can make heads or tails of this: “Line 20b(1). – You must complete this line if there is a gain on Form 4797, line 3; a loss on Form 4797, line 12; a loss on Form 4684, line 35, column (b)(ii). Enter on this line and on Schedule A (Form 1040), line 22, the smaller of the loss on Form 4797, line 12; or the loss on Form 4684, line 35, column (b)(ii). To figure which loss is smaller, treat both losses as positive numbers.”

We should junk the code and start over. Replace it with a simple,
single-rate system that has generous exemptions for individuals.
– Steve Forbes on IRS Tax Code 12/9/02

*Completely disrupt the Republicans by saying “yes” to a flat tax. Can you imagine? In one stroke this would tar the Republicans as lap dogs for special interests. The Dems have always said that about Republicans — but never to much effect. This time the charge would stick to the Republicans like poo-poo on Vibram. It would take a generation to wipe it off. A flat tax is fully within the Jeffersonian principles of the Democratic Party. It is moral (a flat-rated tithe is referred to in the Bible’s Leviticus) and populist. Everybody would pay the same rate! No billionaire would get to play the system with pricey legal help. – Rich Karlgaard, Forbes 12/9/02 “Advice to Democrats”

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