What the Republican Victory in the House Means for American Taxpayers

Leading up to the election last week, Republican candidates promised serious tax law changes in the next two years. However, since Democrats retained control of the Senate, many are wondering which, if any, of these promises will actually come to fruition.

Government Gridlock

Although Republicans took over the House of Representatives, they do not have the power to override a presidential veto. In order to pass a serious tax reform package in spite of a veto Republican leaders will need to come up with a 2/3-majority vote in both chambers of Congress. This has many worried that we will see serious government gridlock over the next two years. However, the change in power could finally push legislators to work together, and compromise on legislation that will actually help this country.

Health Care Revisions

Exit polls indicated that many voters were dissatisfied with the President's health bill, and the newly elected Republican leaders plan to listen to the dissatisfaction. Congressman John A. Boehner told reporters “the American people are concerned about the government takeover of health care. I think it’s important for us to lay the groundwork before we begin to repeal this monstrosity.”

Court Led Overhaul

Although Congress has limited options when it comes to overturning the health care reform law, the U.S. courts could take action. Currently there are 21 states that are challenging the law's requirement that all taxpayers have a qualifying health care plan. If the courts overturn part of the legislation, then it will be easy to build up public support for reforming the bill. Additionally, other experts are warning that members of Congress could add complications to the legislation and build up unpopularity of the law, which could be used as leverage to get Obama out of the White House next election. They could argue that the only way to repeal the law would be to elect a new Republican president.

1099 Changes and Manufacturer Taxes

In addition to concerns over the mandate, Republicans also plan to address two specific parts of the reform package: the new employer 1099 requirements, and the manufacture taxes. James P. Gelfand, Director of Health Policy at the United States Chamber of Commerce, has said he doesn't think "we’ll see a repeal of the health care law tomorrow." But that "Congress got the message that we need serious changes.” Gelfand claimed that he expects the new House to attempt to eliminate the provision that would require many employers to contribute to the cost of coverage for employees. Many experts claim that this provision would hurt job creation, as well as the tax on manufacturers of medical devices.

Energy and Climate Legislation

Although energy and climate reform has been a big issue for the President, it is unlikely that any major law changes will pass the new House. Last week, President Obama said he would like to move the country towards cleaner energy by focusing on smaller issues, which likely won't result in major tax law changes. "When it comes to something like energy,” the President asserted, “what we're probably going to have to do is say here are some areas where there's just too much disagreement between Democrats and Republicans. We can't get this done right now. But let's not wait. Let's go ahead and start making some progress on the things that we do agree on."

Bush Tax Cuts

Although next year there will be a Republican majority in the House, Democrats still have enough votes to extend or repeal the Bush tax cuts during the lame duck session. Obama has called for an extension of all the tax cuts, except for those that benefit highest earning taxpayers. Senate Majority Leader Harry Reid said that the Republicans' proposed extension of all tax cuts "won't happen." However, if Congress does follow the President's suggestion then there is no promise that the new Congress won't pass a retroactive extension of the cuts for wealthier taxpayers.

AMT Patch

Currently the Alternative Minimum Tax (AMT) is scheduled to affect 25 million families next year unless Congress passes a patch to the law. If Congress does not take action next year then all of these taxpayers will be faced with a huge and unexpected tax increase.

Estate Tax Compromise

Congress must address the estate tax. In 2011, this tax is scheduled to return at a rate of 55% on estates valued at over $1 million. This is a significant increase from the 2009 tax of 45% levied on estates worth more than $3.5 million. Republicans would like to completely get rid of the estate tax, but experts predict that we will see some sort of compromise that could affect estates valued at over $5 million.

Analysis: Winners and losers in Tuesday's races

Girl Power! The primary elections on Tuesday were dominated by women winners. CNN today gives Arkansas Senator Blanche Lincoln a special shout out for successfully overcoming an aggressive, multimillion-dollar campaign by national unions and liberal interest groups. Among her, were other female winners I will list below with a little information about them from CNN.com:

Nikki Haley: After enduring more than two weeks of accusations of infidelity, South Carolina state Rep. Nikki Haley nearly walked away with the 50 percent of the vote needed to avoid a runoff in the Republican gubernatorial primary. Not one, but two men have claimed to have had extramarital affairs with Haley, who deftly maintained her composure and denied the allegations. The voters responded.

Sharron Angle: The Tea Party movement and the anti-tax Club for Growth scored a win Tuesday after Sharron Angle emerged as the nominee in the crowded field of Republicans running in Nevada's Senate primary. Angle topped former state Republican Party chair Sue Lowden and businessman Danny Tarkanian for the right to challenge Senate Majority Leader Harry Reid in November.

California's CEOs: Meg Whitman and Carly Fiorina turned impressive resumes in the business world into Republican tickets for the November show. Whitman, the former eBay CEO, spent more than $71 million of her own money to ensure that she defeated rival Steve Poizner in the race for California's Republican gubernatorial nomination.

Fiorina, the former Hewlett-Packard CEO, beat out conservative Assemblyman Chuck DeVore and centrist former Rep. Tom Campbell for the right to challenge Democratic Sen. Barbara Boxer in November. And Boxer and Fiorina are wasting no time attacking one another in what will very likely be a brutal and expensive general election campaign.

A Guide to the Biggest Primary Day of the Year (So Far)

Today is an election day. I hope you remembered to get out and vote! Voters from California to South Carolina will choose which candidates will be on the general election ballot in a series of primaries today. What do you need to know on a state to state basis for the election? The New York Times put together a guide of sorts. If you are in California, like me, here is the scoop:

CALIFORNIA: Republicans will select nominees for Senate and governor, with two former business executives poised to become the party’s standard bearers in the fall. Meg Whitman, in the governor’s race, she is the former chief executive of eBay and billionaire, and has invested a small share of her personal fortune in her race against Steve Poizner, the state insurance commissioner, who put up $24 million of his own money into his primary campaign.

It’s a back-to-the-future race. The winner will challenge Jerry Brown, the state’s attorney general, who was first elected governor of California three decades ago.

In the Senate primary, Carly Fiorina, a former chief executive of Hewlett-Packard, is running against Tom Campbell, a former congressman, and Chuck DeVore, whose candidacy has drawn the backing of many Tea Party activists. The winner will face Senator Barbara Boxer, a Democrat, in the fall.

Representative Jane Harman, who represents the state’s 36th District, in Southern California, will find whether she, too, is swept aside by the anti-incumbent sentiment. Ms. Harman, a centrist Democrat, is facing Marcy Winograd, a leading figure in the progressive movement in Los Angeles.

Get the rest of the scoop here.

Candidates' tax-cut rhetoric swamps voters

From the Seattle Times:

In an outbreak of class warfare, John McCain and Barack Obama swapped sharply worded charges over tax cuts Saturday, each accusing the other of shortchanging middle-income Americans at a time of economic hardship for millions.

McCain, in a paid weekly radio address and at a North Carolina rally, fired the first volley, likening Obama to the socialist leaders of Europe and saying he wanted to "convert the IRS into a giant welfare agency, redistributing massive amounts of wealth at the direction of politicians in Washington."

Obama responded at a St. Louis rally that attracted 100,000 people, saying his rival "wants to cut taxes for the same people who have already been making out like bandits, in some cases literally."

"John McCain is so out of touch with the struggles you are facing that he must be the first politician in history to call a tax cut for working people 'welfare,' " Obama said.

Based on the candidates' tax proposals, Obama would provide more assistance to low-income and middle-income taxpayers than McCain.

Take a family earning the national median income of $50,233, as calculated by the Census Bureau for 2007. The family would pay $4,837 in federal income taxes for 2009 under McCain's plan, vs. $4,309 under Obama's proposal, according to a mathematical program that University of Southern Maine economics professor Jeffrey Gramlich helped develop.

8 Signs the U.S. Economy is NOT Headed Towards a Recession

As I discussed in a blog entry last week, 8 Signs the U.S. Economy is Headed Towards a Recession, dozens of leading economists adamantly claim that we are either headed towards a full fledged recession, or that we are already into the first few months of a recession. Although we can all admit to feeling the pains of a poor economy, saying that we are definitely headed for a recession may be a bit drastic.

As with most economic and financial issues, there is always room for debate. A looming recession is no exception. Dozens of highly educated, well respected, economists still proclaim that we are not headed towards a recession. The majority of their argument is that “yes” the economy is worse than it was a few years ago, but we are still a long way away from a recession.

"My view is that taking all the new data into account, that there is really no material change in our expectations for the U.S. economy since I last reported to Congress a couple weeks ago," claims Federal Reserve Chairman, Ben Bernanke. "If the housing sector begins to stabilize and if some of the inventory corrections that are still going on in manufacturing begin to be completed, there's a reasonable possibility that we'll see some strengthening of the economy sometime during the middle of the year."

So are we headed towards a recession or not? The truth is that no one can give a 100% sure answer. The economy can be sporadic. Moreover, just because we seeing some signs of a looming recession does not mean that the economy will not bounce back in the next few months. The only way to really know for sure, is just to wait and see. In the mean time, enjoy the following list of 8 signs that the U.S. economy is not headed towards a recession.

1. Overall Economic Growth

Although it is more of a technicality, the economy must exhibit negative growth 2 quarters in a row to validate a full-fledged recession. Yet, between January and March of 2008 the economy actually grew at a rate of 0.9%, and the overall growth was at 1.9% for 2007. As such, the economy is not in an actual recession. In addition, no one can claim that we are until there is data to back up the statement.

2. Consumers are Still Spending

Although the numbers have dropped, there are still plenty of people spending their hard earned cash on things they don’t necessarily need. Just look at the millions of people who lined up to buy the new iPhone. Box office sales are also doing well, with major summer hits drawing in crowds, such as “Dark Knight,” the new Batman movie, which is already performing above expectations. Are people just forgetting to be frugal, or do we have a better grip on our cash than we thought?

3. Election Year

The looming election may seem far off, but a change in the White House may make all the difference. Backed by his former competitor Sen. Hillary Clinton, Sen. Barack Obama plans on changing tax codes to better benefit the US economy. Obama has publicly blamed President Bush and contender Sen. John McCain for misleading the public on a looming recession. He argues that he is "the only candidate in this race to propose a genuine middle-class tax cut," and claims the nation needs as president a leader who "doesn't defend lobbyists as part of the system, but sees them as part of the problem."

4. Media Awareness

Possibly due to the popular election coverage this year, more Americans seem to be keeping up with the news. Practically every major news station has covered the possibility of a recession, and viewers have taken notice. An aware public makes a drastic difference in economic affairs, and many will be watching to see what they can do to prevent our economy from failing.

5. Confusing Unemployment Figures

Unemployment rates are misleading. The percentage comes from individuals collecting unemployment from the government for the 2 months they’re allowed. These numbers are unreliable, because there is no real way to tell just how many people have or do not have jobs, and certain factors just are not being added in. Economists also argue that unemployment may be rising, but that more people are seeking out alternative forms of income, such as self-employment or independent contracting. In addition, any studies conducted at this point of the year have to be discounted to account for the influx of high school and collegiate aged individuals seeking work for the summer.

6. Decrease in Abroad Travel = Increase in U.S. Travel

Due to limited spending money, more people are spending their summers and vacations in the States. This is beneficial because the cash they would be spending in Europe is now being fed directly into our economy instead. As more and more families take road trips this summer, the money generated from tourism is likely to help the economy.

7. Isolated Housing Crash

The housing and mortgage crash of recent years is widely considered one of the leading causes of a poor performing U.S. economy. Home sales are continuing to drop, and more and more Americans are facing foreclosure. However, many economists claim that the housing crash is somewhat isolated. Moreover, other sectors of the economy are actually picking up extra slack. Additionally, experts also predict that the housing market will cool off in the next few months, and will help improve the economy overall.

8. Reasonable Inflation Rates

Although there are many signs that point towards a recession, the inflation rate of the U.S. dollar does not. When you look at our “core inflation” – which excludes food and energy prices – it is actually under 2%. Some economists argue that if we were headed to a recession, this number would be much, much higher.

McCain Tax Cuts Would Bloat Deficit Or Take Huge Spending Curbs

The Wall Street Journal had added this interesting article on the disadvantages of McCain’s tax plan. Below is picture that summarizes his plan, but you can check out the full article by clicking here.

Open Request to Presidential Candidates

The upcoming presidential election is one of the most talked about in recent history. However, tax and economic views are a major topic that nearly none of the candidates seem to be addressing. As we move into the general election, the economy will likely get more attention. However, I think it is important to talk taxes now!

As such, I have posted numerous blog entries on the candidate’s tax views on both my personal blog, and the RDTC Tax Help blog. Some of the entries include: Tax Views of Top 10 Presidential Candidates, Where the Candidates Stand On the Issues, and Huckabee’s Tax Plan: The Achilles Heel of his Campaign.

In continuing with my effort to bring attention to the candidate’s tax views, I am putting out an open request to all the presidential hopefuls to talk more about taxes. Additionally, I would love the opportunity to speak with any of the candidates about their views. Either through e-mail, telephone, or even in person. I encourage any of the candidates to contact me as soon as possible to give more detailed information to the readers of my blog.

Republican Debate Comments From Tax Foundation

The other night was a Republican primary debate with the topic on taxes and the economy. Tax Foundation.org has put together a good review of the debate with their comments and observations on various things candidates said in the debate. Topics include revising the current tax code, government subsidies, the federal budget, corporate taxes, and others. Check out the full review at Tax Foundation.org: Observations from the Republican Debate.