Postal Service Fine Without Taxpayers

As the US Postal Service continues to struggle with revenue problems, many taxpayers have become worried about the possibility of another huge bailout effort. However, according to the Washington Times representatives from the USPS have no desire to request a taxpayer-funded bailout.

It's election time in an era of polarization, but that doesn't excuse misleading the public with claims that the U.S. Postal Service seeks a taxpayer bailout ("Time for another government bailout," Commentary, Sept. 21). Nor does it excuse congressional interference with bargaining between the Postal Service and its unions. Unfortunately, the article by Rep. Darryl Issa fails on both counts.

The Postal Service doesn't seek a taxpayer bailout. It proposes to use a surplus in its pension account within the Civil Service Retirement System (paid for by postage rate payers and postal employees - its own funds, not taxpayer funds) to cover the cost of future retiree health benefits. Congress imposed the cost of pre-funding these future retiree health benefits - $5.6 billion per year - on the USPS in 2007. This requirement, which no other agency or business in America faces, is the major cause of the recent financial crisis at the USPS, not the Internet or the recession. Without the pre-funding requirement, the USPS would have been profitable two of the past three years.

The USPS also has plenty of flexibility to downsize - it has cut more than 100,000 jobs since the recession began in late 2007. The no-layoff contractual clause the congressman criticizes covers only workers with more than six years of service - leaving some 160,000 career and noncareer employees subject to layoffs.

Sadly, these problems are worsened by congressional inaction on resolving the unfair pre-funding burdens on the Postal Service. Yet Mr. Issa proudly vows to block legislation to address the situation.

Politicizing one of America's great institutions by getting Congress involved in the collective bargaining process is the last thing we should do. The Postal Service has not received a dime of taxpayer support in more than 25 years and offers the best, most affordable service in the world.

Where Are They Now? Seven Villains of the Financial Crisis

After the financial crisis, a lot of people were looking for someone to point the finger of blame at, but as this article from Daily Finance, there are multiple individuals that contributed to the bank collapse.

In 2008, as the economy seemed to be in free-fall, pundits, politicians and the public cast about in search of the ultimate villain, the Wall Street weasel who could assume the blame for massive foreclosures, skyrocketing unemployment, and plummeting stock values. While the disaster was too big to pin on any single schemer, a handful of likely candidates quickly emerged.

Some, like Ken Lewis and Jimmy Cayne, seemed merely inattentive and inept, while others like Angelo Mozilo and Fabrice Tourre appeared to be actively involved in cheating the public. Yet, whether their position was in Wall Street or Washington, the CEOs office or the analyst's desk, all seven of the people on our list carried some measure of the blame for the events of 2008.

Two years later, most members of the class of 2008 have moved on to new jobs, cushy retirements or fresh challenges -- often involving the Securities & Exchange Commission. Yet, regardless of where they go, all seven will continue to carry the marks of 2008, the end of a ride that gave them billions in salary, yet cost them their reputations.

Jimmy Cayne: Playing Bridge While Bear Burned

In the two and a half years since Bear Stearns went belly up, the company's chairman of the board James E. "Jimmy" Cayne has become famous -- indeed, notorious -- for two things: smoking weed and playing cards.

Winner of 13 national championships, Cayne is among the world's top masters at the game. In 1969, he was playing bridge professionally in New York when fellow player Alan "Ace" Greenberg hired him to be a stock broker at Bear Stearns. Over the next 32 years, Cayne rose to become president, CEO, and ultimately chairman of the company; along the way, he continued to play bridge, becoming famous both for his playing style and for the rumor that he smokes marijuana after tournaments.

BP Oil Spill To Cost U.S. Taxpayer Almost $10 Billion

From Reuters.com:

Oil giant BP said it plans to offset the entire cost of its Gulf of Mexico oil spill against its tax bill, reducing future contributions to U.S. tax coffers by almost $10 billion.

BP took a pretax provision of $32.2 billion in its accounts for the period, for the cost of capping the well, cleaning up the spill, compensating victims and paying government fines.

However, the net impact on BP's bottom line will only be $22 billion, with the company recording a $10 billion tax credit, most of which will be borne by the U.S. taxpayer, a spokesman said.

BP's UK tax bill will also be reduced, BP added.

Analysts said BP could prompt more public and political anger in the United States by deducting all the costs, and especially the expected fines BP will face.

In 2006, Boeing Co decided to forego seeking a tax deduction for any of a $615 million settlement with the government in 2006 over ethics charges, under pressure from lawmakers.

Small Banks That got Bailout Money May Need More

According to the Congressional Oversight Panel, many of the smaller banks that received bailout money from the government may need more cash in order to survive. Less than 10% of these smaller financial instructions have paid the government back the funds they were loaned, and some have even missed dividend payments. I have included a section of a WalletPop.com story below on this new development, but you can find the full text here.

If you keep up on banking news, you may have heard the most recent dire report on small banks: If your small bank has taken bailout money from the federal government, that's a good sign your financial institution may be in trouble.

That's the latest from the Congressional Oversight Panel, which last week unveiled a report that drew attention to the fact that most of the small banks that received bailout money are struggling to pay it back.

If you're doing business with a small bank and are suddenly worrying about its health, here's some perspective:

Most of the small banks out there are doing just fine. The U.S. has approximately 8,000 banks, from a handful of giant, nationally known banks and all their branches (Bank of America, for instance, has approximately 7,500 branches across the country) to all those regional and local banks scattered across the 50 states.

Out of the more than 7,900 small banks that remain after you take away, say, the nation's 30 largest banks, a scant one-tenth -- just 707 banks -- took $205 billion of the $700 billion in bailout money. So plenty of small banks out there didn't take any bailout money and are doing quite well.

Signs of the Stimulus

We have all seen those signs at road construction sites letting us know that are tax dollars are being put to use. Some of these signs are for your local taxes, and others promote the American Recovery and Reinvestment Act. What you may not realize is how much money is being spent on these signs, and who is really paying for it. Check out the following article from ABC News on the topic below.

As the midterm election season approaches, new road signs are popping up everywhere – millions of dollars worth of signs touting "The American Reinvestment and Recovery Act" and reminding passers-by that the program is "Putting America Back to Work."

On the road leading to Dulles Airport outside Washington, DC there's a 10' x 11' road sign touting a runway improvement project funded by the federal stimulus. The project cost nearly $15 million and has created 17 jobs, according to recovery.gov.

However, there's another number that caught the eye of ABC News: $10,000. That's how much money the Washington Airports Authority tells ABC News it spent to make and install the sign – a single sign – announcing that the project is "Funded by The American Reinvestment and Recovery Act" and is "Putting America Back to Work." The money for the sign was taken out of the budget for the runway improvement project.

ABC News has reached out to a number of states about spending on stimulus signs and learned the state of Illinois has spent $650,000 on about 950 signs and Pennsylvania has spent $157,000 on 70 signs. Other states, like Virginia, Vermont, and Arizona do not sanction any signs.

Continue reading at ABC News.com…

Two Senators Propose Reinstating Estate Tax

From Reuters.com:

Two senators, a Democrat and a Republican, have reintroduced a proposal to reinstate the estate tax, which lapsed this year amid a row among lawmakers over taxing the wealthy when they die.

Democratic Senator Blanche Lincoln and Republican Senator Jon Kyl late on Tuesday reintroduced a plan to tax estates over $5 million at a rate of 35 percent. The estate tax that expired last year had taxed estates at a rate of 45 percent, above an exemption of $3.5 million for individuals and above $7 million for couples.

There is no estate tax in 2010 because lawmakers last year failed to reach a deal to extend the tax. The House of Representatives last year had passed an extension of the 2009 rates, but senators clashed over the level of the tax.

Without action, under current law the tax will rise to 55 percent, with an exemption level of $1 million.

Several billionaires have died this year, escaping the estate tax, including former New York Yankees owner George Steinbrenner.

Feds Bust Billion-Dollar Mortgage Fraud Ring

Federal agents have arrested former mortgage-lending executive Lee Farkas for his involvement in a billion dollar fraud ring. As the former chief of Taylor Bean & Whitaker, a wholesale mortgage lender, Farkas "operated a sophisticated shell game" to prop up his struggling company and take advantage of investors and taxpayers.

According to CNN.com, Farkas could spend life in jail if found guilty. Officials claim he “ripped off the Federal Housing Administration and investors in at least two financial firms, and tried to make off with funds from the Troubled Asset Relief Program”

"The gravity of this fraud is really quite amazing," said Assistant Attorney General Lanny A. Breuer. He said losses from the scheme will be measured "in the billions."

Among other things, authorities said, Farkas filed false information to get TARP loans via an investment in TBW's biggest lender, Colonial Bank of Alabama. Colonial failed last August in the third-biggest bank failure of the year.

Taylor Bean also was a huge lender under Federal Housing Administration programs. Officials said the FHA and Ginnie Mae, another government mortgage lender, lost some $3 billion in the Taylor Bean fraud. It is the FHA program's biggest-ever loss, they said.

Continue reading at CNN.com…

Personal Income Drops Across the Country

From the Wall Street Journal:

Personal income in 42 states fell in 2009, the Commerce Department said Thursday.

Nevada's 4.8% plunge was the steepest, as construction and tourism industries took a beating. Also hit hard: Wyoming, where incomes fell 3.9%.

Incomes stayed flat in two states and rose in six and the District of Columbia. West Virginia had the best showing with a 2.1% increase. In Maine, Kentucky and Hawaii, increased government benefits, such as unemployment insurance and Social Security, offset drops in earnings and property values.

Nationally, personal income from wages, dividends, rent, retirement plans and government benefits declined 1.7% last year, unadjusted for inflation. One bright spot: As the economy recovered, personal income was up in all 50 states in the fourth quarter compared with the third. Connecticut, again, had the highest per capita income of the 50 states at $54,397 in 2009. Mississippi ranked lowest at $30,103.

Americans Remain Skeptical Over Health-Care Revamp

From Bloomberg.com:

Americans remain skeptical about the health-care overhaul even after the U.S. House passed landmark legislation that promises to provide access to medical coverage for tens of millions of the uninsured.

At the same time, most say the government should play a role in ensuring everyone has access to affordable care, a Bloomberg National Poll shows. A majority also agree that health care is a private matter and consider the new rules approved by Congress to be a government takeover.

The poll found the percentage of Americans who favor the almost $1 trillion 10-year plan remained at about just four in 10 following the House vote on March 21 to send the bill to President Barack Obama, who signed it into law today.

“Anything called a ‘massive overhaul’ will be complicated, and it is hard for people to see what is in it for them,” said J. Ann Selzer, president of Selzer & Co., a Des Moines, Iowa- based firm that conducted the nationwide survey. “Even as Americans of all stripes agree there are problems with the current system, the escalating deficit makes them worry what the country can really afford.”

The poll of 1,002 adults was conducted March 19-22 and has a margin of error of plus or minus 3.1 percent. There was no meaningful movement of opinion the final night of interviewing, after the vote was taken.

Democratic lawmakers who approved the revamp over the unanimous objections of Republicans are counting on public support to grow once voters see the benefits of the legislation, which places new restrictions on insurers from denying coverage to people.

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Geithner Says A.I.G. Rescue Prevented a Depression

Treasury Secretary Timothy Geithner spent several hours being questioned this morning, on the government’s actions during and after the bail out of American International Group (AIG). Geithner said that the decision prevented another great depression and – despite what it looked like – was made to protect the American people.

According to a New York Times story, the committee did not seem impressed with his answers and spent a decent amount of time questioning the Treasury Secretary. You can read a segment of the piece below.

Mr. Geithner said he was not involved in the decision to withhold information about deals that sent billions of taxpayer dollars from the bailout of A.I.G., the insurance giant, to big banks.

“I withdrew from monetary policy decisions,” Mr. Geithner said, “and day-to-day management of the New York Fed.”

The committee called Mr. Geithner, former Treasury Secretary Henry M. Paulson Jr. and other officials to explain, once again, the confounding results of an $85 billion rescue loan made to A.I.G. in September 2008. The loan sheltered big banks from any losses, but saddled A.I.G. with a debt so crushing that the Treasury soon had to step in and provide even more rescue money. Mr. Geithner was the president of the Federal Reserve Bank of New York in September 2008, when the first rescue loan to A.I.G. was extended.

After Mr. Geithner’s statement, the questions focused almost immediately on trying to determine why those negotiating on behalf of the taxpayers did not push the banks to make concessions, like returning the collateral to A.I.G. or accepting less than full value for their contracts with the insurer.

Bank Tax Unfair, To Have Serious Effects - Bank Group

From CNN Money:

U.S. banks are worried about the impact of a planned tax on lenders and believe other industries that received federal money, such as car makers, should be targeted, a top economist at a banking group said Friday.

"We're concerned that such a high tax directed at the wrong parties will have serious consequences," James Chessen, Chief Economist at the American Bankers Association, told a press conference presenting ABA's latest economic forecasts.

Thursday, President Barack Obama said banks have a responsibility to make taxpayers whole for the financial-sector bailout and should pay a proposed tax by rolling back big bonuses.

If approved by Congress, the new tax--which the White House calls a "financial crisis responsibility fee"--would force about 50 banks, insurance companies and large broker-dealers to collectively pay the federal government roughly $90 billion over 10 years.

Wall Street's Bonus Baby Steps

After U.S taxpayers sacrificed billions of dollars to bail out Wall Street, the rescued financial institutions promised to cut executive bonuses and extravagant business expenses. However, data shows that many of the same companies that we bailed out earlier in the year, are planning to give out hefty bonuses in the first few weeks of the New Year. As this story on CNN Money.com explains, many of the major banks in this country are showing no signs of reducing their executive bonuses.

Under pressure to prevent another meltdown, Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500) have been cutting back on cash bonuses and insisting on so-called clawbacks -- arrangements that allow companies to reclaim past bonuses when there is employee misconduct.

Yet for all their supposed reform-mindedness, the banks show no sign of pulling the emergency brake on the great compensation escalator.

A year after taxpayers saved the finance industry from collapse, the big banks will hand out billions of dollars in bonuses in the coming weeks -- at a time where unemployment tops 10% and many people are still losing their homes to foreclosures. To say this rankles in some quarters is an understatement.

"There is a need to show restraint considering the unusual circumstances of the past year or so," said Tim Smith, a senior vice president at socially responsible investment firm Walden Asset Management in Boston. "That's what you're not seeing right now."

Continue reading at CNN Money.com…

Taxes to Watch Out for in 2010

During 2009, the country’s economy has gotten worse, unemployment rates increased, and the Senate recently increased the Federal government’s debt ceiling. With two ongoing wars and a new health care reform plan, combined with record low tax revenues, Congress is going to need to find ways to increase Federal revenue. Senators and House of Representative members are on a Winter break for now, but when they return on January 20, 2010 they will decide the fate of a slew of tax law changes. To help my readers stay ahead of the game, I have put together this article on taxes to watch out for in the New Year.

Value Added Taxes

I have warned about the possibility of a value added tax (VAT) in several blog entries throughout the year, and every day it becomes a more likely possibility. The benefit to the government is that a VAT could generate billions of dollars in revenue. It is meant to add taxes to manufacturers but consumers always end up paying higher prices as a result. Proponents claim that increased tax credits for low-income families would help with the added VAT burden, but in today’s economy consumers are not spending like they used to. If a VAT was implemented it would almost certainly reduce consumer spending.

Fair Tax

You may remember hearing the phrase “fair tax” during the recent presidential election. Republican candidate Mike Huckabee was a large supporter of this tax, which would pretty much eliminate the current tax system, and possibly even the IRS. It may sound nice, but to make up for the lost revenue the Federal government would need to impose a 23 to 30% tax on the purchase of all goods. Although supporters say that the price of products would decline without payroll or corporate taxes, there is no way to know what the “break even” point would be. This new type of tax is unlikely to come to fruition in 2010 as there are no bills currently being debated in Congress. However, it may gain traction as a campaign talking point during the run-up to Congressional elections in late 2010.

Estate Taxes

As I explained earlier last week, Congress failed to take any action on the estate tax. This means that in 2010 there will be no estate tax levied whatsoever, unless Congress passes a retroactive bill. However, beginning in 2011 the estate tax will return and target even more taxpayers. If current laws are not changed, in 2011 the estate tax will return to a historic rate of 55%, and it will get levied on all estates valued at $1 million, which would represent the highest estate tax since the early 1990’s. Unfortunately for anyone inheriting a sizeable estate in 2010, Democratic leaders in Congress have vowed to deal with the estate tax as soon as they return to session, which could result in a permanent 45% estate tax rate.

War Taxes

It is widely known that military spending, especially during a war, adds up quickly. Over the past eight years, the costs of the military efforts in Afghanistan and Iraq have cost an estimated $1 trillion. As such, David Obey, (D – WI) – chair of the House Appropriations Committee – has proposed a war surtax that would range from an additional 1 to 5% income tax on the highest-earning households. Not surprisingly, there is a lot of opposition to this tax, and many experts claim that unused TARP funds could be used to pay for the military costs. On the other hand, some insist that a war tax would create a nationwide sense of urgency to end the wars.

Taxes on Stocks

One of the more popular revenue-raising ideas on Capitol Hill is to tax the sale of financial instruments like stocks, options and derivatives. The main proponents of the bill are two Democratic House members – Ed Perlmutter and Peter DeFazio – who have titled their bill the “Let Wall Street Pay for the Restoration of Main Street Act of 2009.” It would be a 0.25% tax on purchases of securities, and could potentially raise $150 billion per year. Supporters claim that the bill would deter investors from making risky moves, while critics are concerned that such a tax could lead to a market crash and ruin the country’s economy.

IRA's in 2010

Unfortunately it looks like life is going to change drastically for anyone with an IRA in 2010. Starting in the New Year, income limitations will disappear for individuals hoping to convert to a traditional IRA or tax deferred retirement plan into a Roth IRA, which lets taxpayers take untaxed withdrawals. The previous limit had only allowed taxpayers making $100,000 or less to take advantage of a Roth IRA conversion.

Patient Protection and Affordable Care Act

Like my blog entry last week on the Senate’s health care bill explained, any type of health care reform is going to lead to increased taxes. In the current legislation there are taxes on tanning salons, “Cadillac” health care plans, fees on businesses that do not provide coverage and a Medicare tax increase for individuals making over $200,000. As the House and Senate work to come up with a bill that can pass through both houses, all taxpayers should pay close attention to the tax increases that will undoubtedly accompany the legislation.

Employee Health Benefits

Although the health care reform bills do not contain any taxes on employer-provided health care, the House’s legislation does include a section that would make employers show those health care benefits on employees W-2s forms. There has been a lot of discussion in Washington about taxing employer provided health benefits, and it is definitely an issue everyone should watch out for.

Marijuana Tax

Over the past year there has been more and more interest in taxing the sale of marijuana. Earlier in the year Oakland, California became the first U.S city to institute a tax on marijuana sales, with 80% of the voters approving. Professor Jeffrey A. Miron of Harvard University estimates that the legalization and taxation of marijuana in the U.S could easily raise $2.4 billion a year, taking a large chunk out of the deficit. However, many suggest that the additional costs associated with legalizing cannabis would outweigh the potential for revenue. For example, the U.S. collects nearly $8 billion per year in alcohol taxes, but the overall cost of alcohol-related problems to the government is over $70 billion. This new type of “sin tax,” is highly controversial, and also probably unlikely to be an issue Congress faces in 2010. However, it – like the Fair Tax – may come up during the run-up to Congressional elections in late 2010.

U.S. Gave Up Billions in Tax Money in Deal for Citigroup's Bailout Repayment

Taxpayers everywhere are fuming over the news that the recently bailed-out financial giant Citigroup is being granted permission to withhold billions of dollars in potential tax payments to the IRS. Usually when the government takes partial ownership of a company through a federal bail-out they are forced to give up many of the tax breaks they were used to receiving. However, in this case Citigroup is being allowed to take advantage of these breaks with the hope that it will outweigh the expected losses when the government begins selling their shares of the company to private investors.

While the Obama administration has said taxpayers are likely to profit from the sale of the Citigroup shares, accounting experts said the lost tax revenue could easily outstrip those profits.

The IRS, an arm of the Treasury Department, has changed a number of rules during the financial crisis to reduce the tax burden on financial firms. The rule changed Friday also was altered last fall by the Bush administration to encourage mergers, letting Wells Fargo cut billions of dollars from its tax bill by buying the ailing Wachovia.

"The government is consciously forfeiting future tax revenues. It's another form of assistance, maybe not as obvious as direct assistance but certainly another form," said Robert Willens, an expert on tax accounting who runs a firm of the same name. "I've been doing taxes for almost 40 years, and I've never seen anything like this, where the IRS and Treasury acted unilaterally on so many fronts."

Continue reading at Washington Post.com…

Can The IRS Issue a Summons?

Unfortunately, the IRS can take a lot of aggressive actions to collect money from taxpayers. As this article from Examiner.com explains the IRS can even issue summons to collect information pertaining to your tax liability.

Under the Internal Revenue Code § 7602, the IRS has the authority to issue summonses: “For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability.”

The IRS may issue summonses for testimony, records (“books, paper”), or “other data which may be relevant or material to such inquiry.” They may not, however, make unreasonable demands of taxpayers.

Under § 7609, the IRS may issue summonses to third-parties, for example to the taxpayer’s bank. However, the taxpayer must be notified before issuance of such a summons, and retains the right to request that the party not comply with the summons unless it is ordered to do so by a court.

Taxpayers receiving such a summons have 20 days to ask a federal district court to quash the summons. In such a case, the IRS may seek to compel the taxpayer. The taxpayer also has the right to seek to quash to protect the taxpayer’s information from being released to third-parties, though the IRS Reform and Restructuring Act § 3415 amended this to protect disclosure to third-parties as part of a collection attempt as distinguished from a taxpayer’s return examination.

The Internal Revenue Code provides mechanisms for the formal compulsion of the production of documents and testimony if informal attempts fail.

IRS Seeks to Return $123.5 Million in Undeliverable Refunds to Taxpayers

In a recent press release, the IRS announced their efforts to deliver $123.5 million in tax refunds to taxpayers who have not received them because of mailing errors. They also reminded taxpayers that the best way to avoid this problem is to e-file your return and have your refund directly deposited into your bank account.

“We are eager to get this money into the hands of taxpayers, so don’t delay if you think you are missing a refund,” said IRS Commissioner Doug Shulman. “The sooner you update your address information, the quicker you can get your refund.”

All a taxpayer has to do is update his or her address once. The IRS will then send out all checks due. Undeliverable refund checks average $1,148 this year, compared to $990 last year. Some taxpayers are due more than one check.

Average undeliverable refunds rose by 16 percent this year, which is in line with the 16 percent rise in average refunds for all tax returns in the latest filing season. Several changes in tax law likely played a role in boosting refunds, including the First-Time Homebuyer’s Credit and the Recovery Rebate Credit, among others.

The vast majority of checks mailed out by the IRS each year reach their rightful owner. Only a very small percent are returned by the U.S. Postal Service as undeliverable.

IRS: 15 Million Americans May Have to Return Tax Credits

According to the IRS, about 15 million Americans may have underpaid the government by around $400 because of confusion with Obama’s "Making Work Pay" tax credit. In a worst case scenario, all 15 million of those taxpayers will have to pay back that $400 on their next tax bill, in one lump sum payment.

One of the groups most affected by the bureaucratic slip-up: married couples.

If you and your spouse both work and earn more than $13,000, each has been credited $200 too much. That means you'll owe Uncle Sam $400 when you file jointly.

The amount owed goes down for couples making more than $150,000 a year because they weren't eligible for as much of the tax credit.

SMU Cox Business School professor Mike Davis explains the plan was intended to add about $33 a month to everyone's paycheck.

Continue reading at WFAA.com…

Paying for the Affordable Health Care for America Act

Over the weekend, the U.S. House of Representatives passed HR3962: the Affordable Health Care for America Act of 2009. The legislation is thousands of pages long, making it difficult for regular taxpayers to understand how the bill will affect them. To help all the readers of my blog, I have analyzed the bill and put together the following explanation of how it will be funded.

The Public Option

Although it was rumored that reform legislation would not include a public option, HR3962 does set the groundwork for a public option that will take full affect in 2013. Supporters of the legislation assert that it will target those who have been uninsured for several months or were denied because of pre-existing conditions. The Health Insurance Exchange will setup to offer four different plans (basic, enhanced, premium, and premium-plus), and will limit out of pocket spending to $5,000 for an individual and $10,000 for a family. This new program will not replace Medicare, which will still be available to those who qualify. Instead, the Health Insurance Exchange will aim to provide coverage to those caught in loopholes for insurance companies. Such as low waged workers employed by small businesses that cannot afford to provide benefits.

Tax Penalties

The new legislation is very expensive, and Congress has come up with a number of ways to pay for it. First of all, there will be a shared responsibility provision that basically forces taxpayers who cannot establish acceptable health care coverage to pay an additional 2.5% tax. There will be a hardship exception though, for taxpayers who cannot afford to pay the tax.

Payroll Penalty

In addition to a penalty on taxpayers who cannot afford coverage, the government will also assess an 8% payroll tax on businesses that do not offer health insurance to their employees. However, it is widely expected that the penalty will be reduced to 5% when the Senate revises the bill.

Millionaire Surtax

One of the largest sources of funding for the reform bill is a new surtax on individuals making more than $500,000 per year, of couples making over $1 million. In the House’s bill, beginning in 2010 all taxpayers making a qualifying amount will be subject to a massive 5.4% tax increase.

Inflation Increases

In addition to adding heft tax increases, the bill also partially repeals tax indexing for inflation. This will result in more money for the Federal government as the years go by. According to the Joint Tax Committee the surcharge is only expected to generate $30.9 billion in 2011, but nearly $70 billion in 2019.

Passage into Law?

The present version of this bill is not likely to get passed into law. Despite President Obama’s optimistic stance, some Senators are already pronouncing the bill dead on arrival. Although there has been a lot of discussion about this health care reform bill, it could be months before even a highly amended version of it becomes law. The Senate is not going to vote on the bill until at least 2010, and since they are expected to make numerous modifications it will likely need to return to the House for another vote. It could be six months from now before a health care bill goes to President Obama’s desk for a signature.

Electric-Car Companies Grab U.S. Cash to Blunt Risks

From Bloomberg.com:

Electric-car makers ranging from Ford Motor Co. to California startups are using $11 billion in taxpayer funds to supply a market that doesn’t yet exist.

Fisker Automotive Inc., backed by a $528.7 million U.S. loan, said today it will join the rush to the assembly line by buying a closed Delaware plant from the former General Motors Corp. for $18 million. It will spend $175 million to refurbish and retool the factory to build plug-in hybrid cars.

Obama administration aid to spur demand for more fuel- efficient autos is luring companies including General Motors Co. and Nissan Motor Co. into the electric-car push. The result may be a supply of new vehicles that outstrips demand, said Michael Omotoso, a senior manager for J.D. Power & Associates in Troy, Michigan.

“The U.S. government is saying we’ll have 1 million electric vehicles on the road by 2015; we’re saying it will take three to five years longer,” Omotoso said. “Realistically, manufacturers could be selling 80,000 to 100,000 by 2015.”

Investors betting on acceptance of electric autos include Kleiner Perkins Caufield & Byers, the venture-capital firm that employs former Vice President Al Gore and is backing Fisker.

“A huge amount of private capital is on the sideline, so a new locus for funding right now is the U.S. government,” said Ray Lane, a managing partner at Kleiner Perkins who works on the firms’ alternative energy investments. “The Department of Energy has stepped into the role of private capital, at least temporarily.”