Common Misconceptions About the Wall Street Bailout

With ongoing media coverage from every angle, the Wall Street bailout legislation has become a web of complicated myths and facts that can be difficult for the average taxpayer to untangle. In times like these we turn to political leaders to let us know what is going on and what they are going to do about it. Unfortunately, we are at the tail end of an election season and many of our leaders are more concerned about the election then fixing our economy. It hard to trust candidates fighting for your vote or leaders who waste time playing the blame game. To help out the readers of my blog sort through this web of facts, I have compiled this list of common misconceptions about the Wall Street bailout.

Myth: The bailout will only help Wall Street, not people living on Main Street

Reality: Although Wall Street has lost the trust of taxpayers, our economy depends on it. The bailout isn't made to directly "help" any one specific person, but to help maintain the lifestyle of all Americans. It means keeping your bank accounts, loans, small business, insurance, and job in place. It means keeping your life in place.

Myth: Nancy Pelosi's speech changed Republican votes

Reality: While Pelosi’s speech was a toe over the line and obviously attacked Republicans, it is still doubtful to me that it actually changed any votes. By the time congress was in session that day, they should have sufficiently reviewed the bill and already had their votes decided. While some Republicans and Democrats alike were upset by what Pelosi said, her words caused outrage—not the death of the first legislation.

Myth: Congress spent too much time passing the bill

Reality: While many were upset by the first bills failure, Congress was simply doing their job. It is their duty to review, re-review, and thoroughly discuss important bills. Hundreds of billions of dollars were on the table, and rash decisions were simply not the right way to go. I doubt anyone really wanted them to push the bill through without giving it the attention it deserved.

Myth: The entire economic crisis is Bush’s fault

Reality: While it'd be easiest to point the finger at a single person, the fact is the economic crisis been coming for longer than just eight years. Democrats and Republicans alike pushed changes to regulations that governed financial institutions. In addition, I would not solely blame improper loan companies or even the corporations that need bailing out. This is a deep-rooted crisis cause by dozens, if not hundreds of mistakes that have been made.

Myth: The bailout will provide immediate relief

Reality: While the country watches as more jobs are lost and the DOW continues to fall, they are wondering why the bailout is not working yet. The truth is that the U.S. Treasury Department needs to set up a system to distribute the funds, and it could take as long as six weeks before they get to that point.

Myth: Innocent taxpayers are paying for the bailout

Reality: What a lot of people do not realize is that their money is not being wasted. In exchange for the funds, the federal government will take partial ownership of the companies it bails out. Then will then be able to sell these shares in the future, possibly even for a profit! Additionally, by investing into companies it will assure a more sound American economy, which will benefit everyone who lives in this country.

Myth: Why bail them out? The sooner they fall, the sooner we recover

Reality: While this could work, the downside is that if it does not, we will all be in the hole. Unfortunately this country is not just relying on itself, and a pretty big chunk of our debt lies on foreign investors who are not very impressed with the situation. If those investors decide to pull their funds from American investments, then the economy could get much worse.

Myth: The bailout will reduce the value of the dollar

Reality: The U.S. dollar is on a flux, meaning that it is not going up or down... it is doing both. Even before the bailout this was the case, and it is not likely to affect inflation dramatically either way. The financial meltdown is a worldwide crisis, and the dollar has actually made significant improvements over foreign currencies over the past few weeks.

It's Time to Think Big on Tax Cuts

From the Wall Street Journal:

John McCain needs to show the nation that he has the economic recovery plan to restore long-term economic growth. To do that, he needs to refocus his campaign with a new tax plan. Mr. McCain should come out for an alternative, optional flatter tax system, which he has already supported.

Under this proposal, Americans could file their income taxes under the existing tax code or they could choose instead to pay taxes under a simpler code with fewer deductions but lower tax rates. Building on work already done by Steve Forbes and House Budget Committee member Paul Ryan, a Wisconsin Republican, Mr. McCain could propose an optional tax system with just two rates, 10% and 25%, compared to the six rates of the current code ranging from 10% to 35%.

What's more, such a proposal would include a cut in income taxes, and tax rates, for every American who pays taxes. The alternative system would impose no income taxes on the poor and what is often called "the working class" (the bottom 40% of income earners who don't pay federal income taxes now). This proposal would also eliminate federal income taxes on the middle class, the middle 20% of income earners who pay only 4.4% of all federal income taxes today.

The new tax system would allow most Americans to file their taxes on a single sheet of paper, saving them the hundreds of dollars they spend today to have their taxes professionally prepared.

And such a tax reform would be an antidote to the class warfare, neocollectivist tax policies of Barack Obama. If implemented, it would also jump-start the economy. Under this optional tax system, savings would increase and investment would soar as capital around the world is drawn to a suddenly more confident U.S. economy.

This new surge of capital would end the credit crunch, and allow old businesses to expand and new ones to start. Wages would grow, along with the overall economy. And as the world invested in America, the dollar would strengthen, as happened in response to the tax cuts that generated the 1980s Reagan boom. This would ease inflationary fears and pressures on the Fed.

With a strong dollar, the Fed would be under less pressure to try to revive the economy through monetary policy. That would give Mr. McCain the flexibility to push for a new "price rule," which would base monetary policy on prices of a basket of commodities, including gold.

Tax Misrepresentations in Last Night’s Debate

Last night was the second debate between Senators Barack Obama and John McCain, and as usual there were numerous misrepresentations of the facts. Thanks to The Tax Foundation Blog, who have reviewed the CNN transcript, below are the tax related errors from both candidates.

Obama's Errors

Early in the debate, Sen. Obama took a shot at the fiscal policies of President Bush:

But I think it's important just to remember a little bit of history. When George Bush came into office, we had surpluses. And now we have half-a-trillion-dollar deficit annually.

When George Bush came into office, our debt -- national debt was around $5 trillion. It's now over $10 trillion. We've almost doubled it.

And so while it's true that nobody's completely innocent here, we have had over the last eight years the biggest increases in deficit spending and national debt in our history. And Sen. McCain voted for four out of five of those George Bush budgets.

First, on the issue of a surplus when Bush came into office, it's somewhat unfair to say that he inherited a surplus situation given that a recession began the month he took office. (The deficits of the recent years are another story.) Regarding the claim that we have had $500 billion deficits annually under Pres. Bush, that is not entirely true. The deficit for the fiscal year that was just completed (Sept. 30) was estimated to be $438 billion. However, the highest deficit of the seven years previous was $413 billion in FY 2004. The average deficit in that eight year period was $248 billion (which includes a surplus year of FY 2001) and the average deficit of the past four years has been $292 billion.

It is true that for FY 2009, the deficit will likely be astronomical and higher than $500 billion, but we have not had "half-a-trillion dollar deficits annually" under Pres. Bush. As for the debt rising from $5 trillion to $10 trillion, the starting point is closer to $6 trillion than $5 trillion (5.7) when Bush assumed office.

As for the claim that Sen. McCain voted for Bush's budgets, there are many parts of the budget that are voted upon each year. And actually, Sen. McCain voted against two of the major provisions that added to the national debt: the 2001 and 2003 tax cuts. (More on this later.)

On the issue of Sen. McCain's tax cuts, Obama said this about who would benefit:

Now, when Sen. McCain is proposing tax cuts that would give the average Fortune 500 CEO an additional $700,000 in tax cuts, that's not sharing a burden.

The $700,000 figure is only an "additional" tax cut for those CEOs if you do not count the Bush tax cuts that have already been put in place. Since those tax cuts are set to expire, that's a technically valid point. But this is somewhat misleading voters when he says "additional tax cuts" because it can be interpreted by many that those CEOs would be getting that much in tax cuts on top of the tax cuts they have received from the Bush tax cuts, which are set to expire on Jan. 1, 2011.

Responding to Sen. McCain's comments about tax policy, Sen. Obama made many claims about his tax plan and that of his opponent in rapid succession in this portion of the debate:

So let's be clear about my tax plan and Sen. McCain's, because we're not going to be able to deal with entitlements unless we understand the revenues coming in. I want to provide a tax cut for 95 percent of Americans, 95 percent.

If you make less than a quarter of a million dollars a year, you will not see a single dime of your taxes go up. If you make $200,000 a year or less, your taxes will go down.

Now, Sen. McCain talks about small businesses. Only a few percent of small businesses make more than $250,000 a year. So the vast majority of small businesses would get a tax cut under my plan.

And we provide a 50 percent tax credit so that they can buy health insurance for their workers, because there are an awful lot of small businesses that I meet across America that want to do right by their workers but they just can't afford it. Some small business owners, a lot of them, can't even afford health insurance for themselves.

Now, in contrast, Sen. McCain wants to give a $300 billion tax cut, $200 billion of it to the largest corporations and a hundred thousand of it -- a hundred billion of it going to people like CEOs on Wall Street.

He wants to give average Fortune 500 CEO an additional $700,000 in tax cuts. That is not fair. And it doesn't work.

Sen. McCain's Errors

Like Sen. Obama, Sen. McCain repeated many of the same misleading statements on tax policy that he has made on the campaign trail throughout the campaign season

Early in the debate, Sen. McCain made it a point to complain about the $10 trillion national debt:

We obviously have to stop this spending spree that's going on in Washington. Do you know that we've laid a $10 trillion debt on these young Americans who are here with us tonight, $500 billion of it we owe to China?

If Sen. McCain is concerned with the national debt, his tax proposals do not show it. That's because over the next ten years, according to the Tax Policy Center, Sen. McCain's tax proposals would grow the national debt by over $4 trillion. He can't cut that much spending by just going after earmarks. (Sen. Obama also doesn't balance the budget under his tax plans and likely spending over the next ten years, according to TPC.)

On the issue of tax history, McCain made this statement to attack Obama's tax plan:

But he wants to raise taxes. My friends, the last president to raise taxes during tough economic times was Herbert Hoover, and he practiced protectionism as well, which I'm sure we'll get to at some point.

My friends, that depends upon your definition of "tough economic times." Pres. George H.W. Bush raised taxes in 1990, a period of stagnant economic growth. And FDR, who followed Hoover (take note, Joe Biden, if you are reading) in 1933, raised taxes throughout the 1930s and 1940s.

In that same portion of the debate, McCain also criticized Obama for frequently changing his tax plan. While it is true that many key parts of Obama's tax plan started off murky in this campaign and became clearer as the campaign moved on (payroll tax cap and capital gains, to name two), a similar problem is that Sen. McCain had different plans at different times of the day. Both he and Sen. Obama will say one thing on the stump and tell organizations like the Tax Foundation or Tax Policy Center something else. Sen. McCain does that with his rhetoric about how he would provide Americans with an alternative flat tax (a la Fred Thompson), as well as repeal the AMT, when in fact he would merely patch it. Furthermore, his position on tax policy has changed rather significantly given his opposition to the 2001 and 2003 Bush tax cuts, and now his support for the extension of those tax cuts plus many more tax cuts.

IRS eases tax rules on US firms with foreign units

From the Associated Press:

The Internal Revenue Service, seeking to make cash more available during the current credit crunch, has issued a rule making it easier for U.S. corporations to bring home money made by their foreign subsidiaries.

The IRS temporarily expanded a 1988 ruling allowing corporations to borrow money held by foreign subsidiaries without having to pay the 35 percent corporate income tax.

"We were recognizing that there were liquidity restraints for companies" during the current credit crisis, Treasury Department spokesman Andrew DeSouza said Tuesday. He said the action would make it easier for foreign subsidiaries to provide loans to their domestic parents.

The current rule allows a company's foreign units to make a tax-free loan to the company as long as it is repaid in 30 days. Over a one-year period, the company can have outstanding loans from its subsidiaries for up to 60 days.

The temporary rule change would allow the U.S. company to keep cash from a single loan for up to 60 days. In total, the company could have borrowed money for up to 180 days in a one-year period.

To avoid being subject to taxation, the money would have to be paid back and could not be used as distributions such as dividends.

Congress, as part of tax legislation passed in 2004, enacted a similar break giving corporations a one-time deduction of 85 percent on dividends received from foreign subsidiaries. That act, aimed at encouraging domestic investment, lowered the effective tax on qualifying dividends from 35 percent to 5.25 percent.

The IRS said in a recent report that 843 corporations took advantage of the deduction. It said that $312 billion in repatriated dividends qualified for the deduction, creating a total deduction of $265 billion.

The Candidate’s Tax Returns Compared

Thanks to the TaxProf Blog, below is a chart comparing the tax returns of the four major presidential and vice presidential candidates (Sen. Barack Obama, Sen. John McCain, Sen. Joe Biden, and Gov. Sarah Palin). As you can see, Mr. Biden donated the lowest percent of his income to charity, but made more in the past two years than Mrs. Palin.

Tax Profs Agree: Gov. Palin's Tax Returns Are Wrong

From Tax Prof Blog:

Jack Bogdanski (Lewis & Clark) & Bryan Camp (Texas Tech) have independently reviewed the tax issues raised by the release of Gov. Palin's 2006 and 2007 tax returns and financial disclosure form, as well as the remarkable opinion letter issued from Washington D.C. tax lawyer Roger M. Olsen. Jack and Bryan conclude that there are serious errors in Gov. Palin's returns as filed and that she and her husband owe tens of thousands of dollars in additional taxes.

Jack Bogdanski, There's No Debate: Palins Owe Thousands in Back Taxes:

There is no serious debate (at least, none that has been brought to our attention) about the fact that at least the amounts paid for the children's travel -- $24,728.83 in 2007, according to the Washington Post -- are taxable. The campaign's tax lawyer has got at least that much of the law, and perhaps more, wrong. ... The Palins, who had their tax returns done by HR Block, simply got it wrong. And the fact that the state payroll office got it wrong, too, doesn't erase the Palins' unpaid tax liability.

Bryan Camp, A Brief Analysis of Governor Palin's Tax Returns for 2006 and 2007:

The release of an opinion letter by attorney Roger M. Olsen dated September 30, 2008, has stirred up the pot once again about the accuracy of Sarah and Todd Palin’s 2006 and 2007 tax returns. Not only that, but Mr. Olsen’s letter raises a couple of new issues.

This paper focuses on five problems: three raised in the tax returns and two new ones raised by Mr. Olsen’s letter. Here’s a summary of the five problems and my conclusions, for those who want to cut to the chase. My analysis will follow.

1. The Palins did not report as income some $17,000 that Governor Palin’s employer (the State of Alaska) paid her as an “allowance” for her travel. Can they do that? Yes, most likely.

2. The Palins did not report as income some $43,000 that the State of Alaska paid the Governor as an “allowance” for her husband and children’s travel. Can they do that? No, most likely not.

3. The Palins deducted $9,000 on their 2007 return, claiming it was a loss from Mr. Palin’s snow machine racing activity. Can they do that? Most likely not, but more info could make the deduction o.k. If any of the above issues goes against the Palins they then risk getting hit with the section 6662 penalty for “negligence or disregard of rules or regulations.”

4. Can the Palins avoid the section 6662 negligence penalty by claiming that they reasonably relied either (a) on the W-2’s sent to them by their employer, which did not reflect either the $17,000 or the $43,000, or (b) on their tax return preparer H&R Block, or (c) on Mr. Olsen’s opinion letter dated September 30, 2008? The three reliance defenses are unlikely to succeed, but more info may make the (b) defense a good one.

5. Does Mr. Olsen have any exposure to sanctions by the IRS because of his letter? I believe Mr. Olsen’s letter probably violates 31 C.F.R. section 10.35. If so, he would be exposed to possible sanctions from the IRS Office of Professional Responsibility.

Hybrid Sales Decent in September, but Still Down

With the credit freeze, and people scared of loosing their savings accounts, car sales have dropped drastically in the last month. Although most companies saw sales drop by as much as 30% in September, according to AugoblogGreen, “U.S., General Motors actually did better than many companies with only a 15.8 percent drop in September compared to last year. There were even some bright spots in the numbers with the Malibu being up 192 percent and the Vibe jumping 91.1 percent. GM's hybrid models are also continuing to gain ground with 1,957 units moved during the month. The combined total of Tahoe and Yukon Two-Mode Hybrids topped 1,000 for the first time and the Malibu and Vue mild hybrids held steady at 382 and 443 respectively. The new Escalade hybrid still hasn't climbed into triple digits and the Saturn Aura still doesn't seem to be more than an afterthought with 31 sales. All together, GM has sold 9,053 hybrids through nine months.”

Although General Motors does have impressive numbers, according to CanadianDriver.com, “ales of hybrids in the U.S. in September dropped 8.9 per cent to 20,836 units when compared to September 2007, the lowest September sales volume since 2005, according to a report by the Green Car Congress. Overall sales of light-duty vehicles in the U.S. in September dropped 26.6 per cent year-on-year; hybrids accounted for 2.2 per cent of the new vehicle market share for the month.

Sales of the Prius dropped 13 per cent to 10,873 from September 2007, which Toyota said is due to continuing limited availability. The Prius will be built at a plant in Mississippi in late 2010 to help meet demand. Camry Hybrid sales were down 33.6 per cent to 2,785 units, representing 9.4 per cent of all Camry models sold in the month; total Camry sales were down 27 per cent. The Highlander Hybrid rose to 921 units, up from 193 in September 2007, and represented 16.1 per cent of all Highlander sales, which dropped a total of 30 per cent from 2007, to 5,729 units.”

Palin tax returns for 2006 and 2007 released

From the Associated Press:

Sarah Palin is the breadwinner and husband Todd is, well — he takes a lot of deductions for his fishing and snowmachine racing careers, according to 2007 and 2006 federal tax returns released Friday.

Sarah Palin makes $125,000 a year as Alaska governor. Plus, since she took the job in December 2006, she hasn't paid taxes on the more than $17,000 she received in controversial per diem payments for working out of the family's lakeside home in Wasilla — some 575 miles from the capital of Juneau.

For the 2007 tax year, Todd Palin's self-employment brought him $66,893 in gross receipts — $49,893 from fishing and $17,000 from snowmachine racing. But, the returns show, he claimed so many deductions that he reported only $15,513 net profit from the fishing operation and claimed a $9,639 loss from his racing, leaving him with an overall net income of only $5,874. In addition, Todd earned $43,519 last year working part-time on the North Slope for BP Exploration.

The self-employment deductions left the Palins, who have four dependent children, with a 15 percent tax rate for 2007 and a rate of less than 10 percent for 2006. Todd Palin also deducted for the business use of their home in Wasilla. A fifth child was born to the couple this year.

An Associated Press analysis of the returns released by the McCain campaign also reveals that the Palins underpaid their estimated taxes with an April extension and likely owe interest.

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IRS Sends Compliance Questionnaires to 400 Colleges and Universities

According to the newest IRS press release, “approximately four hundred U.S. colleges and universities will begin receiving compliance questionnaires from the Internal Revenue Service in the next few days as part of the agency’s focused effort to study key areas in the tax-exempt community. The college and university questionnaire will focus on unrelated business income, endowments and executive compensation practices. The questionnaires are being sent to a cross-section of small, mid-sized and large private and public four-year colleges and institutions.

Private nonprofit universities are generally exempt from tax under Internal Revenue Code section 501(c)(3) and like state universities are subject to unrelated business income tax.

‘This effort reflects our work to build a better understanding of the largest, most complex organizations in the tax-exempt sector,’ said Doug Shulman, IRS commissioner. ‘The information gathered will help us identify issues and areas that may need more outreach and education or further scrutiny.’

Among other things, the questionnaire will gather information from the schools about how they report revenues and expenses from their trade or business activities, classify their activities as exempt or taxable activities, and calculate and report income or losses on taxable activities. The questionnaire also will gather information regarding how the organization invests and uses its endowment funds and determines compensation of certain highly paid individuals.

The IRS said it expects to receive most of the responses within the next several months, analyze the results of the compliance questionnaire and conduct examinations of a sample of the organizations. The IRS said it expects to issue a report on the project in 2009.”

Senator McCain's New Tax on Health Insurance

From TPM Café:

Strange winds are blowing in economic policy land. After failing to privatize social insurance, the Bush Treasury is now socializing private insurance. The Democratic presidential candidate is running on a tax reform platform that provides three times greater tax cuts for middle class families than the Republican candidate's platform. And the Republican candidate, after advocating deregulatory policies for 26 years in Congress, has now embraced the rhetoric of a populist regulatory reformer.

But the most unlikely wind of all is Senator McCain's health care proposal which by the end of his first term would increase taxes by $1362 for middle-income American families, while raising marginal tax rates on labor income by more than President Bush's tax cuts have reduced them.

Here's how the McCain plan works. Every family receives a refundable tax credit of $5000 that can be used only to purchase health insurance. Individuals receive $2500. McCain's advisers say the cost of this tax credit is $3.6 trillion dollars over ten years. They also say that their plan is revenue neutral because they introduce a new tax on employer-based health insurance that the Joint Committee on Taxation scores as raising $3.6 trillion over 10 years.

Currently, employee compensation in the form of employer-provided health insurance is exempt from both the personal income tax and FICA payroll taxes. Most employee payments for employer-based health insurance are also tax preferred. McCain's plan would eliminate these and other health-related tax expenditures.

The fact that the plan is revenue neutral means that the tax savings for families receiving tax cuts are exactly balanced by the tax increases for families whose taxes go up. But because the tax cuts are front loaded, after just a few years most American families will see their tax bills go up under the McCain plan.

Tax Misrepresentations in Vice Presidential Debates

As many of you know, last night was the first and only Vice Presidential debate between Sen. Joe Biden and Gov. Sarah Palin. The debate covered a wide range of topics, but not surprisingly taxes and the economy engulfed a large part of the discussion. As usual, there were quite a few misrepresentations of the facts from both sides.

Fortunately the experts at The Tax Foundation have reviewed the debate transcripts and outlined all the inaccuracies in both candidates’ arguments. Below are snippets from both Biden’s and Palin’s gaffes, but you can read the full review by clicking here.

Sen. Biden's Errors

First, Joe Biden responds to a charge by Gov. Palin, who said that Sen. Obama voted to raise taxes on people making as little as $42,000. We've been over this numerous times, and while Gov. Palin's claim is misleading (see below), Sen. Biden's response contained an error as well:

The charge is absolutely not true. Barack Obama did not vote to raise taxes. The vote she's referring to, John McCain voted the exact same way. It was a budget procedural vote. John McCain voted the same way. It did not raise taxes.

While Sen. Biden is correct to say that the vote did not raise taxes, actually, Sen. McCain did not vote on this non-binding resolution. It passed 51-44, but Sen. McCain was one of five members of the Senate who did not vote in that roll call vote. Therefore, Sen. Biden's claim that he "voted the same way" is incorrect.

A little later in the debate, Joe Biden made this statement:

The middle class under John McCain's tax proposal, 100 million families, middle class families, households to be precise, they got not a single change, they got not a single break in taxes. No one making less than $250,000 under Barack Obama's plan will see one single penny of their tax raised whether it's their capital gains tax, their income tax, investment tax, any tax. And 95 percent of the people in the United States of America making less than $150,000 will get a tax break.

Actually the "100 million" figure is not families. It is not households. It is tax returns. But that's a somewhat minor issue in the whole scheme of things. The figure is incorrect because Sen. McCain, even relative to a current policy with Alternative Minimum Tax (AMT) patch baseline, does cut corporate income taxes and provides his refundable health care tax credit, which would reduce that "100 million won't get a tax break" figure. That figure is technically correct if you look only at the individual income tax and ignore Sen. McCain's health care tax plan, and if you do it relative to a current policy baseline with AMT patch. Furthermore, Sen. Biden makes the same error as Barack Obama in mixing baselines. The "95 percent" figure (when properly used) gives Obama credit for an AMT patch whereas he does not give McCain credit for an AMT patch tax cut when referring to the 100 million figure.

But the "95 percent" figure is just plain wrong as well. According to the Tax Policy Center, no income quintile (including those earning under $150,000) would even see 95 percent of its tax units receiving a tax break under Pres. Obama's tax plan in 2009. Even in 2012 under Obama's tax plan relative to current law, an average of the fraction of tax units that receive a tax cut in the bottom four quintiles is less than 90 percent. In other words, Biden's statement is factually incorrect. The "95 percent" figure is fairly accurate when Obama uses it to talk about the fraction of working families that would receive a tax cut under his plan, but not the entire population nor the entire population earning under $150,000.

Gov. Palin's Errors

Gov. Palin started off early in the debate trying to label Sens. Obama and Biden as tax hikers. She said:

Now, Barack Obama and Sen. Biden also voted for the largest tax increases in U.S. history. Barack had 94 opportunities to side on the people's side and reduce taxes and 94 times he voted to increase taxes or not support a tax reduction, 94 times.

This is not true. Even if one considers the expiration of the so-called Bush tax cuts to be a tax increase (it is technically not a tax increase), it would not be the biggest tax increase in history under almost any measure that adjusts for the size of the economy. And Sen. Obama's presidential tax plan does "raise taxes" relative to a current policy baseline over ten years, but it's not even close to being the largest tax increase in U.S. history. Relative to a current law baseline, Sen. Obama is actually cutting taxes rather significantly in the aggregate (nearly $3 trillion).

Sticking with the "Obama will raise your taxes" theme, Palin also repeated the "$42,000" line that Sen. McCain has repeated over and over and over:

But we do need tax relief and Barack Obama even supported increasing taxes as late as last year for those families making only $42,000 a year. That's a lot of middle income average American families to increase taxes on them. I think that is the way to kill jobs and to continue to harm our economy.

As I wrote when Sen. McCain said this in the first debate: That was a non-binding Senate vote earlier this year, and it's different from what Obama is proposing as a candidate. Very few households making $42,000 per year would pay more in taxes under Obama's tax plan. Some may say that Obama is voting one way and proposing something else on the campaign trail. If that's fair, then McCain's drastic change of heart on the Bush tax cuts is fair game as well. McCain voted against the 2001 and 2003 tax cuts, but now supports extending almost all of them with the exception of the full repeal of the estate tax.

Gov. Palin's most egregious error of the night was actually repeated twice in 20 seconds. It was on the issue of Sen. McCain's health care plan, which neither side appears to understand.

I am because he's got a good health care plan that is detailed. And I want to give you a couple details on that. He's proposing a $5,000 tax credit for families so that they can get out there and they can purchase their own health care coverage. That's a smart thing to do. That's budget neutral. That doesn't cost the government anything as opposed to Barack Obama's plan to mandate health care coverage and have universal government run program and unless you're pleased with the way the federal government has been running anything lately, I don't think that it's going to be real pleasing for Americans to consider health care being taken over by the feds. But a $5,000 health care credit through our income tax that's budget neutral. That's going to help. And he also wants to erase those artificial lines between states so that through competition, we can cross state lines and if there's a better plan offered somewhere else, we would be able to purchase that. So affordability and accessibility will be the keys there with that $5,000 tax credit also being offered.

Sen. McCain's health care tax plan is not budget neutral. It is a $1.3 trillion tax cut over the next ten years, which is therefore the amount that would be added to the national debt under this proposal. It does cost the government something over the next ten years, and it's almost as expensive as Sen. Obama's health care tax plan, according to Tax Policy Center preliminary estimates ($1.6 trillion). To be budget neutral, Sen. McCain would essentially have to eliminate the exclusion from payroll taxes for employer-provided health insurance as well as the income tax exclusion. He does not do that. Notice that Gov. Palin, like Sen. McCain did in the first debate, doesn't give you the whole story on this plan, avoiding the inconvenient fact that he would tax employer-provided health insurance.

Helio Castronoves Heads to Court for Tax Fraud Case

From Yahoo News:

Two-time Indianapolis 500 winner and “Dancing With The Stars” champion Helio Castronoves was set to appear in court Friday to face allegations he used offshore accounts to hide millions of dollars in income from the Internal Revenue Service.

The 33-year-old driver was indicted Thursday on charges of conspiracy and six counts of tax evasion for purportedly failing to report to the IRS about $5.5 million in income between 1999 and 2004, according to court documents. Each count carries a maximum five-year prison sentence.

One of his attorneys, David Garvin, said he was disappointed that the tax dispute could not be resolved without criminal charges.

“Helio has always done the appropriate thing and hired accountants and attorneys he relied upon,” Garvin said. “We are of the strong belief that he did not do anything wrong. We’re looking forward to going to court.”

Job Losses Reach 159,000 in September

In the month of September, 2008 there was a net loss of 159,000 jobs in the United States. This number represents the largest number of lost jobs in five years. According to CNN Money it was the ninth month in a row that we saw job losses. In August there were 73,000 lost jobs, which is under half of September’s record breaking total that brought the year to date total to over three quarters of a million.

“Economists surveyed by Briefing.com had forecast the loss of 105,000 jobs in the month. It was the largest monthly job loss total since March 2003, when payrolls were down 212,000, and the second-largest decline since the months that followed the Sept. 11 terrorist attack in late 2001.

Job losses were again widespread. Manufacturing lost 51,000 jobs while construction employment shrank further by 35,000 jobs. But retailers also trimmed payrolls by 40,000 workers, and the leisure and hospitality industries cut 17,000 jobs.

Professional and business services, a catchall category seen by some as a proxy for overall economic activity, had a 27,000 drop in employment.

The only two major sectors to post gains were government, which added 9,000 jobs, and education and health services, in which employment grew by 25,000. Government hiring has stayed strong throughout the downturn, as the private sector has now lost nearly a million jobs since December, when employers started cutting back.”

Schwarzenegger to U.S.: State may need $7-billion loan

From LA Times:

California Gov. Arnold Schwarzenegger, alarmed by the ongoing national financial crisis, warned Treasury Secretary Henry M. Paulson on Thursday that the state might need an emergency loan of as much as $7 billion from the federal government within weeks.

The warning comes as California is close to running out of cash to fund day-to-day government operations and is unable to access routine short-term loans that it typically relies on to remain solvent.

The state of California is the biggest of several governments nationwide that are being locked out of the bond market by the global credit crunch. If the state is unable to access the cash, administration officials say, payments to schools and other government entities could quickly be suspended and state employees could be laid off.

Plans by several state and local governments to borrow in recent days have been upended by the credit freeze. New Mexico was forced to put off a $500-million bond sale, Massachusetts had to pull the plug halfway into a $400-million offering, and Maine is considering canceling road projects that were to be funded with bonds.

California finance experts say they know of no time in recent history when the state has sought an emergency loan of this magnitude from the federal government. The only other such rescue was in 1975, they said, when the federal government lent New York City money to avoid bankruptcy.

"Absent a clear resolution to this financial crisis," Schwarzenegger wrote in a letter Thursday evening e-mailed to Paulson, "California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal treasury for short-term financing."

Senator Clinton Calls for Renewed Bipartisan Action on Economic Crisis

From Yonkers Tribune.com:

Sen. Hillary Rodham Clinton today underscored the need for quick bipartisan action to halt the growing economic crisis. In a conference call with media, Senator Clinton said the economic impact of failing to address the crisis would spread well beyond Wall Street and seriously damage Main Street as well. Senate Clinton said jobs, family incomes, and the broader economy is at risk if nothing is done to stem the crisis. She described the bipartisan plan narrowly rejected by the House of Representatives yesterday as a flawed but necessary compromise and a major improvement over the Bush Administration’s initial proposal.

“I understand the deep skepticism surrounding the proposal, and clearly I was against the original plan sent over from the Treasury because it was a blank check giving Treasury virtually unlimited powers to do whatever they saw fit,” Senator Clinton said. “But we have negotiated through the Congress on a bipartisan basis a better alternative that installed taxpayer protections, asserted oversight and accountability, and came up with the checks and balances we should have had rather than the blank check.”

Senator Clinton urged her colleagues to set aside their differences and make hard compromises for the good of the nation.

“We cannot let the perfect be the enemy of the good, or in this case the enemy of what’s necessary,” Senator Clinton said. “We have to go back and in a bipartisan fashion, face up to the difficult decisions ahead of us.”

Earmarks a Gateway Drug?

As any one who watched the debate will know, Senator McCain boldly stated that earmark spending was a “gateway drug.” However, although he made the claim he did not really back the claim up with any data. Below is a video clip from the debate where McCain discusses the topic.

McCain’s attacks got dozens of members in the blogging community riled up, with people arguing both sides of McCain’s statements. Below is quote from Volokh Conspiracy where a member attempts to better explain McCain’s statement that earmarks are a gateway drug.

“Let me give it a shot. Let's say Congressman X is an idealistic young Congressman. Some constituents in his rural district ask him to get federal funding for a new emergency room in a local hospital, because the nearest emergency room is 100 miles away. Congressman X is skeptical of earmarks, but this particular one both seems like a good idea and a way to help ensure his reelection--he won his first term with only 52% of the vote. He manages to slip the hospital funding into an appropriations bill.

Soon thereafter, Congressman X becomes aware of a new $5 billion initiative that is a complete and utter boondoggle, but will benefit the districts of several influential congressmen. He starts sending out press releases opposing the initiative, and threatens to a force a vote on an amendment removing the initiative from the bill to which it is attached.

The senior Congressmen who support the initiative schedule a meeting with Congressman X. Like mafia thugs, they tell the Congressman, "It would be a real shame if anything was to happen to your hospital funding--and any future funding for your district, for that matter." The message is clear; if Congressman X wants any hope of bringing federal money into his district, he had better stop opposing wasteful spending supported by his colleagues. He drops his opposition to the $5 billion project, gets the hospital funding, is reelected easily, and never again shows any "spending hawk" tendencies. Soon, in fact, he is rather senior himself, and finds himself meeting with a junior Congressman, telling him "It would be a real shame if anything was to happen to your hospital funding--and any future funding for your district, for that matter."

So, even though earmarks are a small percentage of the federal budget, they are a very important part of a broader system of corruption that leads to out-of-control federal spending.”

Euro Falls Most Since 2001 Against Dollar as Bailouts Spread

From Bloomberg.com:

The euro fell the most against the dollar since 2001 after France and Belgium led a state-backed rescue of Dexia SA, as the widening financial crisis forces governments to prop up financial institutions across Europe.

The cost of borrowing in dollars and euros reached record highs today as banks' reluctance to lend at the end of the third quarter exacerbated the freeze in global credit markets. The dollar rose against the yen on speculation the U.S. Senate will salvage a $700 billion bank-bailout plan as early as tomorrow after Congress rejected it yesterday.

``The consensus is the U.S. banking system is a little bit further along in its exposure of its toxic assets,'' said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. ``It's a case of which is relatively worse. The dollar's going to benefit against the euro because Europe has more to expose.''

The euro tumbled 2.4 percent to $1.4092 at 5 p.m. in New York, from $1.4434 yesterday, the most since a 2.5 percent slide in January 2001. The currency dropped as much as 3 percent, the biggest intraday decline since its 1999 debut. The euro slid to 149.56 yen from 150.38. The yen weakened to 106.11 per dollar from 104.18, after reaching 103.54, the most since Sept. 16.

Implied volatility on one-month euro-dollar options rose to 16.9575 percent, or the highest in almost eight years. On Sept. 18, it reached 15.55 percent, the same level that triggered the Group of Seven nations to buy euros in 2000 to halt the 27 percent slide from its 1999 debut. The dollar had its biggest drop ever against the euro Sept. 22, falling 2.1 percent.

The euro also fell against the British pound after Belgium and France said they would lend Dexia, the world's biggest lender to local governments, $9.2 billion to shore up capital.

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The Four R’s – The Reasons We Pay Taxes

The concept of taxation dates back to ancient times and it had a large impact on the creation of the United States. I mean, who hasn’t heard the phrase “no taxation without representation,” at least a dozen times in grade school? But how often do we stop and think about the real reasons we pay taxes? In fact, there are four main ideological reasons we pay taxes, and in this entry I have examined each of those four reasons.

1. Revenue

The most important purpose, taxes raise revenue for the government to spend on education, transportation, jobs, local governments, military, and judicial systems. Without taxes finding funding to build schools and buy books for them would be incredible difficult. Our country, as well as many others, is literally funded by our own taxes. Individuals, companies, and small businesses all get taxed for certain endeavors and those funds then go back into our economy.

As long as a country is thriving, there should be revenue coming in through taxes. However, concerns have arose in the past few years as to whether or not the United States is meeting expected revenue. Experts claim the economy is protected enough to let the low revenue affect taxpayer’s day to day lives.

2. Redistribution

Many debate the purpose of using taxes for redistribution, but the main idea is to tax those who can afford it (i.e. the wealthy) and use the money to fund programs for lower income families. Debate rages on as to whether or not this tactic is fair or if our government is even properly redistributing in the first place. Current presidential candidates disagree on the President Bush tax cuts in particular, which democratic candidates Sen. Barack Obama and Sen. Joe Biden feel give tax cuts to the wealthiest Americans, completely defeating the purpose of redistribution in our tax system.

3. Re-pricing

The tax system is also used to discourage and encourage. Taxes on things such as cigarettes and liquor discourage the intake of substances. The idea of implementing a carbon tax encourages fuel efficiency, but again is much like a penalty. Re-pricing is another main purpose of the inner workings of our tax system, because it is a large and equal flat tax, given to any and everyone indulging in such taxable items. Re-pricing happens all over the market in multiple ways in order to keep a sort of balance and subtle control on spending.

4. Representation

American revolutionists often coined the phrase “no taxation without representation,” so taxpayers know the government may be able to tax them, but accountability is mandatory. It is important for United States citizens and the government to be on even terms with taxes, and that all reasons and uses for said collected taxes are available to the public in multiple forms. It’s hard to remember that taxes are there to help us, but representation will always keep the information available.