Tuesday, January 8, 2013

January 8, 2013

Obama's $264 Billion Tax for 2013 May Spark New Recession
by David A. Patten
January 7, 2013

With the fiscal cliff deal and many Obamacare taxes taking effect, Americans will be slammed with an estimated $264 billion in new taxes this year alone — making 2013 memorable for delivering one of the largest one-year tax increases in American history.

The math breakdown of the new taxes is simple: Key parts of the Bush tax cuts will expire as a result of the new fiscal cliff legislation, hitting American taxpayers with taxes of about $39.5 billion each year for the next decade.

In addition, the expiration of the so-called “payroll-tax holiday” will fill federal coffers with another $160 billion each year, on average, over the next 10 years.

And finally, several new Obamacare taxes begin this year, costing Americans an estimated $41.8 billion of additional taxes.

In the wake of this tax tsunami, a growing chorus of economists is warning that Congress’s last-minute effort to dodge the fiscal cliff — which added some $2.2 trillion in new revenue over 10 years, could function as a massive "anti-stimulus" – pushing a teetering economy into a full blown recession within the next 12 to 18 months.

While the number crunching continues in earnest, the tax wallop of the 157-page American Taxpayer Relief Tax Act of 2012 that Congress passed last week is gradually emerging.

In 2013 alone, the new tax revenues would include:

  • $160 Billion Hike in Payroll Taxes. This is due to the expiration of the payroll tax “holiday,” which increases the payroll tax that helps fund Social Security from 4.2 percent to 6.2 percent. According to the Tax Policy Center, this increase will actually hit lower-and middle-income taxpayers harder, in percentage terms, than the wealthy. Commentators often say “it’s just a 2 percent increase” — it’s actually a 48 percent increase over the tax rate wage-earners paid for each of the past two years.
  • $39.5 Billion in Income-Tax Rate Hikes. President Obama and the Democratic Senate insisted on letting the Bush tax cuts lapse on high income earners. Such earners making more than $400,000 ($450,000 for married couples) will see their marginal income-tax rates rise from 35 percent to 39.6 percent. That shift is projected to garner $395 billion in taxes over the next 10 years. The tax affects less than 1 percent of American households — but also impacts many high spending professionals and successful small business owners who pay taxes on the personal returns.
  • $15 Billion from Limiting Deductions. The new law calls for a “personal exemption phase out,” or PEP, affecting the exemptions and deductions that wealthier families can claim. It affects individual filers at $250,000, and $300,000 for joint filers. The tax bill for a couple earning $400,000 averaging about $50,000 in deductions each year rise by about $1,000 according to a Wall Street Journal calculation.
  • $5.5 Billion in Capital Gain and Dividend Taxes. The new tax rate for capital gains and dividends will rise from 15 percent to 20 percent (this figure doesn't include an additional 3.8 percent surcharge on investment income for high income earners, which will kick in during 2013 to help defray the cost of Obamacare).
  • $2 Billion in Estate Taxes. The law increases the top rate for gift and estate taxes from 35 to 40 percent.
Despite President Obama's promise during both of his campaigns not to raise taxes on middle-income wage earners, The Tax Policy Center reports taxes will go up for over 77 percent of American households.

The bottom line of the new taxation: Economists predict less economic growth as cash is sucked out of the economy to cover the burgeoning federal deficit. And some see a worse scenario: Greater likelihood of a new recession.

Many news outlets are reporting the tax impact of the fiscal cliff deal to be in the neighborhood of $620 billion over 10 years. This overlooks the larger impact, however, of the expiration of the payroll tax holiday, which will rise from 4.2 to 6.2 percent – a one-year increase in that tax of 48 percent.

The payroll tax reduction was originally expected to last for one year, but it was extended for a second year. Some economists have questioned the wisdom of allowing the payroll tax to increase in the middle of a sluggish economy.

Moody’s chief economist Mark Zandi issued a projection that the tax burden will cut GDP growth by three-quarters of 1 percent, causing the creation of 600,000 fewer jobs in 2013. But the general consensus among economists is that the impact will be much worse – about a 1.5 percent loss of GDP growth. Such a serious dip could push an already lackluster economy close to the brink of actual contraction.

But the impact of the fiscal-cliff taxes are only part of the story. That’s because several of the taxes that Congress approved as part of the Patient Protection and Affordable Care Act, dubbed Obamacare, are also kicking in this year.

Based on the average per-year cost of those taxes, they will net the federal government an additional $41.8 billion in new tax revenue in 2013.
The cost of the new Obamacare tax hikes coming in 2013:

  • $21 Billion in Medicare Taxes. The healthcare law calls for a nine-tenths of 1 percent increase in the hospital-insurance (Medicare) payroll tax paid by couples earning more than $250,000 a year, or $200,000 per year for single filers.
  • $11 Billion from Surcharge on Capital Gains and Dividends. Married couples earning more than $250,000 per year, or single filers earning $200,000 will be slapped with a 3.8 percent surcharge in the tax rate for capital gains and dividends -- in addition to the “fiscal cliff” compromise that hiked taxes on capital gains and dividends from 15 to 20 percent.
  • $4.5 Billion in Limiting Deductions. Obamacare eliminates corporate deductions for retirees’ prescriptions, raising tax costs to employers.
  • $2 Billion in Excise Fees. A 2.3 percent excise tax on manufacturers and importers of medical devices, which is expected to be passed along in higher costs to consumers.
  • $2 Billion in Limiting Healthcare Itemized Deductions. This reflects a reduction in the amount that middle-class families facing high medical expenses can deduct from their income taxes if they incur high medical expenses.
  • $1.3 Billion from Limiting Flexible Savings Accounts. A $2,500 limit will go into effect on tax-free flexible spending accounts, which employees use to help defray medical expenses.
The tax burden associated with healthcare reform will climb even higher next year, when the tax penalty for not complying with the mandate to purchase healthcare insurance begins to kick in.

Some experts predict millions of Americans may opt to pay the tax penalty, rather than comply with the mandate.

The CBO estimates the U.S. Treasury will get $167 billion in such fines over the next 10 years.

Some observers also argue that the rising private insurance premiums due to Obamacare mandate are a hidden tax that will directly hit insured individuals and companies.

Overall, the House Ways and Means Committee has estimated that all 21 tax increases associated with the health care law will bring in over $675 billion over the next decade — an average of over $67 billion each year.

Small Business Targeted

One big unknown is how the nation’s most prosperous taxpayers, notably small business owners, will respond to the spike in taxes.

A 2011 Treasury department report found that 750,000 small businesses would be impacted if taxes were raised on individuals making more than $500,000.

Many small-business owners, who account for most job creation in the United States, often organize their businesses as “Chapter S” corporations, or S-corps.

These entities do not pay corporate taxes, but rather distribute their profits each year to partners who then declare income directly through the partners’ individual tax returns. Those returns are now vulnerable to the high marginal tax rates of 39.6 percent, limitations on deductions, and the Obamacare surcharge on capital gains and dividends. Those earning more than $450,000 would see their tax rates rise to close to 45 percent. That would mean high-income earners could see close to a 20 percent increase in their tax rates starting in 2013.

NFIB President and CEO Dan Danner welcomed some aspects of the fiscal cliff deal. But he added: “It’s hugely disappointing to the small-business community that the legislative bridge to avert the ‘cliff’ did not address our country’s most pressing economic issue: unchecked spending that leads to crushing deficits and debt.”

Heritage Foundation economist Romina Boccia tells Newsmax the higher taxes on capital gains and dividends will make start-up capital harder to find.

“The large tax increase on dividends and capital gains makes it more difficult for startup firms to get financing,” she says. “This means fewer opportunities for innovation and increases in productivity — the engines of economic growth. . . . . it will dampen job creation from new and existing businesses.”

Recession Risk

“In isolation, it poses a major risk of putting us in a recession,” says Robert A. Wiedemer, economist and co-author of the best-selling “Aftershock." Wiedemer predicted the housing and subprime meltdown of 2007 and '08.

With GDP growth only hovering around 2 percent, and with consumers already skittish about the economy, Wiedemer predicts that the post-cliff tax jolt will “have a negative effect on the stock market, on real estate markets, and on consumer spending.”

Wiedemer emphasized that ax jolt may be mitigated by the Federal Reserve which could offset the fiscal contraction from the new taxes by further increasing the the money supply, which he argues will create a new set of problems.

Economist Chris Edwards, director of tax policy studies at the CATO Institute, says the short-term impact of the tax hikes will be negative, but warns the long-term impact will be even more negative.

“The more regulation, and the higher the tax rates we have,” he says, “the less flexible the economy becomes, and the longer it will take to recover from any negative blow.”

“Compared to what the economy would have been had we extended all tax policies,” Heritage Foundation Senior Policy Analyst and tax expert Curtis S. Dubay tells Newsmax, “we’re going to have a slower-growing economy, we’re going to have fewer jobs, less opportunity for Americans of all income levels.”

Read more: http://goo.gl/iatKD

Obama CIA Pick John Brennan in 2010: Jihad a 'Legitimate Tenet of Islam'
by Kerry Picket
January 7, 2013

Monday, President Barack Obama picked top counter-terrorism adviser John Brennan to become the next head of the CIA. Brennan's views on radical Islam may concern hawkish Senators who will scrutinize Obama's choice for CIA chief.

In May of 2010, Fox News reported Brennan defended Jihad as a "legitimate tenet of Islam.":
The president's top counterterrorism adviser on Wednesday called jihad a "legitimate tenet of Islam," arguing that the term "jihadists" should not be used to describe America's enemies.  
During a speech at the Center for Strategic and International Studies, John Brennan described violent extremists as victims of "political, economic and social forces," but said that those plotting attacks on the United States should not be described in "religious terms."  
He repeated the administration argument that the enemy is not "terrorism," because terrorism is a "tactic," and not terror, because terror is a "state of mind" -- though Brennan's title, deputy national security adviser for counterterrorism and homeland security, includes the word "terrorism" in it. But then Brennan said that the word "jihad" should not be applied either.  
"Nor do we describe our enemy as 'jihadists' or 'Islamists' because jihad is a holy struggle, a legitimate tenet of Islam, meaning to purify oneself or one's community, and there is nothing holy or legitimate or Islamic about murdering innocent men, women and children," Brennan said. 
The Washington Times Opinion Page met with Brennan three months later at an editorial board meeting and asked him about his remarks. Brennan asked for the meeting because he objected to an editorial the opinion page had written previously.

Brennan lost his temper relatively quickly during the question and answer time between him and then-TWT deputy editorial page editor (now with USA Today) David Mastio:

Then TWT Senior Editorial Writer Jim Robbins questioned Brennan about the issue of jihad. Brennan lost his patience at one point and decided to leave the TWT offices without answering any more questions:

TWT: You mentioned jihad, for example, and would you agree with the lesser and greater and lesser jihad framework? I mean, that’s pretty standard.

BRENNAN: Sure, it is...absolutely.

TWT: Can you give me an example of a jihad in history? Like, has there ever been a jihad...an armed jihad anywhere in history? Has it ever existed for real, or is it just a concept?

BRENNAN: Absolutely it has.

TWT: Example?

BRENNAN: I’m not going to go into this sort of history discussion here.

TWT: But it’s important to frame the concept, because we want to say that what al-Qaeda is doing is not jihad. They say it is, and Abdul Azzam has said, in fact, ‘there’s not even a greater jihad.’ That that’s  just a myth—that hadith didn’t  even really happen. That there’s only armed jihad. Ayatollah Khomeini said ‘there is only armed jihad, and it would be useful to be able to characterize or to contrast what they’re doing and what they claim against a legitimate armed jihad in the past.

BRENNAN: I think we’ve finished. I have to get going.

Read more: http://goo.gl/bhNWV

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