PILLA TALKS TAXES

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LOOK FOR OBAMA TO START SLASHING—

Your Deductions, That is

The mindset of the current crop of Washington social planners is nothing short of unbelievable. When it comes to national income, they believe with religious fervor that all the money belongs to the government. They do not for a minute embrace the idea that taxpayers own their own money but are forced under penalty of law to turn it over to the government.

Furthermore, these social planners believe that when you are allowed a tax deduction, that really means the government is spending its own money to fund the deduction, rather than allowing you to keep more of your money by claiming the deduction.

Does this sound messed up to you? Well it should because fundamentally, there is no such thing as government money. There’s only taxpayers’ money—period. In fact, there are just three ways the government can get money. And in all three ways, the bottom line means that you have less of your own earnings available to spend, save or invest.

The three ways are:

1. Taxing. The government imposes taxes directly upon people, industries or transactions to raise money. In that case, you have less to spend.

2. Borrowing. The government can borrow from banks the same as you and I do, but just like you and I, the government must repay the loan with interest. To do this, the government must impose taxes upon people, industries or transactions. See number 1 above.

3. Printing. The government can print currency then spend it into circulation as a means of paying its debts. This is called “inflation.” Please note that inflation is NOT rising prices. Rather, rising prices are CAUSED by inflation. When inflation sets in, the costs of all goods and services become more expensive. It now costs you more money to buy the same amount of goods or services as it did prior to the inflation cycle. In that case, you have less real income and therefore less to spend, save or invest. In this very real way, inflation is a hidden tax but a tax nevertheless because only government has the power to inflate the currency.

The thinking of President Obama’s budget and economic team is best evidenced by the recent statement of Joshua Odintz, former Legislative Counsel in the Treasury Department’s Office of Tax Policy. He is now working for Obama’s National Commission on Fiscal Responsibility and Reform, as the commission’s chief tax counsel. Obama created the commission to explore ways to “balance the budget.”

Odintz recently stated at a New York Bar Association conference that “federal tax expenditures” must be carefully scrutinized because they “account for as much as one-third of all federal spending.” To understand just how astonishing this remark it, let’s first understand what a “tax expenditure” is.

I discussed this issue last month in my article entitled, “OBAMA PROMISES NO TAXPAYER RELIEF: AMT Will Not Be Eliminated.” In that article, I explained the idea of a tax expenditure as follows:

“Tax expenditure” is a phrase tax theologians use to describe a tax deduction. You see, in the mind of the typical tax theologian, the concept of a tax deduction is not a mechanism that allows you to keep more of your own money.

On the contrary. A “tax expenditure” is what happens when the government spends its money by allowing you to take advantage of a deduction. Think of it this way (since that’s how tax theologians think of it): all money is “government money.” When the government allows you to keep some of its money by reducing your tax hit through a deduction, the government has actually incurred an “expense.” This expense is known as a “tax expenditure.” The more “tax expenditures” there are in the law, the less money the government gets.

That’s why politicians often make the statement, “we can’t afford X tax cut.” It’s as if they are spending their own money to do you a favor.

Odintz took the idea even one step further by suggesting that “tax expenditures” amount to direct federal spending in the form of line items in the annual budget. He’s simply out of his mind. Line item budget expenditures include such things as defense, interest on the debt, the judiciary, social security, etc., etc., There is no budget item for “mortgage interest deductions” or “charitable contributions.”

Odintz’s statement illustrates just how dangerous the thinking is of those in control in Washington today. It is no exaggeration to say that they believe all the money is theirs—period. Allowing you to keep any amount you earn is purely a matter of their grace.

Understand what this guy is saying: he believes that eliminating your tax deductions is a way of “cutting” federal spending. Thus, for the current band of social planners to entertain the idea of cutting spending, they really mean to eliminate your deductions.

By the way, that has the same effect as RAISING YOUR TAXES.

Even many so-called conservative Republicans entrenched in Washington believe this same non-sense. For example, former Wyoming Republican Senator Alan Simpson, currently serving as the co-chairman of Obama’s commission, addressed the issue of “tax expenditures” in a recent appearance. He agreed that “tax expenditures should be scrutinized” by the commission and Congress. He also said that it’s “unfair to call the rolling back of tax expenditures tax hikes.”

Why? We don’t know.

What tax deductions might be on the chopping block? The “expensive” ones, of course. After all, if you’re going to be effective at cutting spending, you must cut the largest expenditures, right? Well, here they are:

The tax deduction for employers’ contributions to employee health care plans is a big one. This “costs” the federal government about $144 billion each year. Remember, this is not $144 billion of private money that employers are able to spend on their employees. No. According to Odintz, this is $144 billion of unaffordable federal spending that must be cut from the budget.

Think for a minute: if your employer’s deduction for his contributions to your healthcare plan is eliminated, what do you suppose will happen to your employer-sponsored healthcare plan?

Some of the other major deductions—I mean “expenditures”—are:

·        $79 billion for the deduction on home mortgage interest,

·        $57 billion for accelerated depreciation for businesses,

·        $53 billion for allowing a lower tax rate on capital gains, and

·        $49 billion for the earned income tax credit.

And don’t forget the deduction for charitable contributions, state and local taxes, employee business expense, etc. After all, these “costs” add up fast.