Dave Camp Spanks Tim Geithner

Michigan Republican Dave Camp, the chairman of the powerful tax-writing Ways and Means Committee, gave Treasury man Timothy Geithner a tough spanking yesterday. In a hearing on the president’s budget, Camp stated that nearly $2 trillion in tax increases will take more money away from employers, investors, and savers, and would push the top rates close to 45 percent. Camp noted that the bottom half of earners pay no federal income taxes, and that 70 percent of income taxes are paid by the top 10 percent, a group which includes the small businesses that are so important to job creation.

Why should Uncle Sam take nearly half of their income?

Camp then honed in on the Obama proposal to triple the tax on dividends from 15 percent to nearly 45 percent. The chairman went on the say, “Because dividends are paid out of income that has already been taxed at the corporate level and then are taxed again in the shareholder’s hands, this proposal would push the total federal tax rate on dividends to 64 percent.” (Italics mine.)

Camp next hammered Geithner on corporate tax reform. As in, “Where is your plan?” As in, “The U.S. will have the highest corporate tax rate in the industrial world.” Camp asked Geithner why the U.S. is at a competitive disadvantage in the world marketplace. (I would note that while the U.S. corporate rate is 39 percent, Canada’s combined federal-provincial corporate tax is 25 percent.) Camp could have added that Team Obama is going to have a corporate tax plan, and that it will raise $350 billion, including $150 billion for something called a “global minimum tax,” a new tax that has nothing to do with tax reform.

Finally, Camp hit Geithner on the debt problem, stating that our total debt load is now 102 percent of GDP -- certainly a warning point for future economic growth.

I’m glad Dave Camp is on the warpath. One thought: He should report his bold corporate-tax-reform plan out of committee and onto the floor, where the GOP House can then pass an exemplary pro-growth, corporate-tax reform to turn up the heat on the White House and the Democratic Senate.

Obama's Class-Warfare, Tax-the-Rich Budget

If you shake out the Obama budget in terms of bold headlines, it’s really a class-warfare, tax-the-rich budget. Layer upon layer of tax hikes are piled on successful investors, small-business owners, and corporations.

The capital-gains tax goes from 15 percent to 24 percent (including Obamacare). The dividends tax goes from 15 percent to nearly 40 percent, and that’s not including the double tax on corporate profits embodied in dividends and capital gains. The Bush tax cuts for top earners are repealed. There’s the 30 percent Buffett-rule minimum tax on millionaires. The carried-interest tax for private equity, hedge funds, and other investment partnerships goes from 15 to 39.6 percent. The estate tax jumps to 45 percent. Oil and gas companies get hit. And there’s probably more stuff in there I haven’t read yet. (Jimmy P. lays it out nicely.) Paul Ryan’s press release calls it $1.9 trillion tax hike, with $47 trillion in government spending over the next decade and the fourth straight year of trillion-dollar deficits.

Some kind of corporate tax reform may be released in a few weeks. But we don’t know much about it. And while it may lower the top rate, it’s going to penalize U.S. firms operating abroad. Just what business does not want.

Former Bush economist Keith Hennessey estimates that new proposals would create a ratio of 1.2 dollars of tax increases for every dollar cut in spending. Most of the spending cuts would slam Medicare doctors and other health providers. Unlikely to happen. And there is no overall entitlement reform. Somehow the Obama budget is being offered as a substitute for the $1.2 trillion in spending cuts from the supercommittee. But the slam down in defense remains a huge problem.
The deficit for the coming year, which is $1.3 trillion, would be 8.5 percent of GDP. More important, budget spending remains at over 24 percent of GDP. Debt held by the public for 2013 would be $12.7 trillion, or 77.4 percent of GDP. In terms of ten-year totals, spending would rise by $47 trillion and deficits by $6.7 trillion.

Really, this is a budget that says we must raise taxes in order to raise spending. It’s a 1 percent vs. 99 percent budget. But if these tax hikes ever went through it would be a 100 percent whack at future economic growth.

Obama chief of staff Jack Lew was wrong yesterday to suggest that a budget passed in the Senate requires 60 votes. By law, budget reconciliation requires only 51 votes. But this budget is dead on arrival. All the Republicans and many of the Democrats are not going to vote for across-the-board tax hikes. That’s a good thing.

But the question now is: What happens next? The U.S. is in a heap of fiscal trouble -- on the verge of bankruptcy. What are we going to do about it?

Bernanke: Right on Taxes

For one time in a row Fed head Ben Bernanke got the story right. No, it wasn’t King Dollar. It was taxes.

Testifying before members of the Senate Budget Committee today, Bernanke referred to the scheduled repeal of the Bush tax cuts. He said, “If no action is taken by January 2013, there will be a very sharp change in the fiscal stance of the United States government.”

Now, lest we give him too much credit, Bernanke was kind of making a Keynesian point. Why? Because he said in his “fiscal stance” argument that sharp spending cuts would also damage recovery. But at least he made his tax-hike opposition clear. And at least he opposes higher tax rates, which would in fact damage the economy.

He could have gone further. The Wall Street Journal is reporting that President Obama’s budget for 2013 will propose higher tax rates on the rich. Additionally, Obamacare in 2013 will raise the payroll tax 3.9 percent, and apply that to investment taxes such as capital gains and dividends.

Bernanke didn’t comment either on Obama’s millionaire-tax proposal or the Obamacare tax hike. But you can be sure investors and entrepreneurs are well aware of it.

One-on-One with Senator Marco Rubio

Rising Republican star, Senator Marco Rubio of Florida, was right on message concerning pro-growth tax reform, spending cuts, deficits and debt. He told me that President Obama never responded to the Rubio letter blaming the prez for creating a deadbeat nation that looks more and more like Western Europe. And Rubio told me he didn’t have all the answers, but he wants the GOP to be the party of legal immigration.

One-on-One with Newt Gingrich

Newt Gingrich and I go a long way back to the beginning of the Reagan supply-side revival of free market capitalism. I thought we shared that philosophy. But his attacks on Bain Capital using the class envy language of the left against capitalist success is a great disappointment to me. Newt resumed that Bain attack when he said in Florida that Mitt “lives in a world of Swiss bank accounts and Cayman Island accounts and automatic $20 million income for no work.”

Romney’s success earned his income. And his successful investments all represent market opportunities. However, once again I fear that Newt is all too willing to sacrifice his principles for political expediency in the heat of the campaign. Here is the interview with my criticisms and Newt’s responses (in two parts):

Obama's Tax Hike 'Designed to Come at Me': Romney

President Obama's proposal to increase taxes on the rich is "designed to come at me," GOP presidential contender Mitt Romney told me in an exclusive interview yesterday.

In his State of the Union speech Tuesday night, Obama proposed a minimum 30 percent tax rate on Americans earning more than $1 million a year.

The proposal—known as the "Buffett Tax" after Warren Buffett famously said his secretary pays a higher tax rate than he does— was a key part of the president's populist push for "fairness" in his speech to the nation.

The plan is "designed to come at me if I'm the nominee," Romney said in a taped interview. "If I happen not to be the nominee, he'll still take the 99-versus-one attack. He's really trying to divide America."

Romney, who gave a glimpse inside his personal fortune on Tuesday by releasing his U.S. tax returns, paid an effective tax rate of 13.9 percent in 2010 and expects to pay a 15.4 percent effective rate when he files his return for 2011.

Those rates are far below the top income tax rate on wages, which is 35 percent, because the U.S. tax code favors capital gains and other investment income by taxing them at 15 percent.

"The question is whether we're going to eliminate the capital gains tax break," Romney said. "So if you say we're going to raise that dramatically, you're going to choke off a lot of the capital that goes into creating new enterprises and creating jobs. It's the wrong way to go."

Romney said Republicans are not all about the rich. "I'm fighting to help middle class Americans get better jobs and better incomes. People who have been successful understand the path to success — we want everyone to enjoy success in America."

Blame Obama for Washington Gridlock: Senator Mitch McConnell

When President Obama outlines his goals for 2012 during Tuesday’s State of the Union address, he shouldn’t expect a lot of cooperation from Republicans, senate Minority Leader Mitch McConnell (R-Ky.) told “The Kudlow Report” Monday.

“With the Obama economy established now … unemployment is still at 8 ½ percent,” McConnell said. “It didn’t work, and we’re not interested in doing more of the things that don’t work.”

Obama will use his State of the Union address to outline a lasting economic recovery that will “work for everyone, not just a wealthy few.” He is expected to call for higher taxes on the rich, among other things.

While it sounds like more gridlock ahead in Washington, McConnell put the blame squarely on the president.

He said Obama was “AWOL” last year on his bus tour when Republicans wanted to tackle tax reform and entitlements, and he expects more of the same this year.

“He was not involved whatsoever,” McConnell said. “So I’m not optimistic, frankly, that in an election year that he’s likely to be any more engaged than he was last year.”

What’s more, he thinks the logjam in the nation’s capital is part of Obama’s agenda.
“That’s his strategy … to demonize Congress, to complain because he can’t continue to get everything he wants, like he did the first two years,” he said. “It’s all about his re-election and not about the country.”

One thing that McConnell thinks will get done is the payroll tax cut extension, which was extended for only two months in December when Congress couldn’t come to an agreement.

“We’ll be back at trying to figure out how to do that for the balance of the year and how to pay for it,” he said. “We don’t want to add to the deficit.”