US Fiscal Cliff Fair Trade-Off #13: Collect Medicare Tax on High Income Employee Benefits in Exchange For US Debt Reduction

Presently, there is no wage cap on Medicare Taxes, which are 1.45% of an employees wages.  And then the company also matches this 1.45% of an employees wages.  

Thus, someone making $1 mil in his base salary in 2012 is getting $14,500 withheld from his pay for this Medicare Tax.  And the company he works for pays another $14,500 in Medicare Tax.

It does surprise me how some companies keep emphasizing how they are helping the US Debt situation by all of the US taxes they are paying.  However, the actual research shows that this isn't the case at all, particularly as it relates to the largest US Corps.

And their assertion that they are matching what the employee pays in Social Security and Medicare Payroll Taxes, is frankly very deceptively overstated.  Let me explain.

A C corporation is able to deduct these employer-matched Payroll Taxes.  Assuming the present US corporate tax rate of 35%, the actual US taxes paid related to these matched Payroll Taxes is not 100% of the Payroll Taxes, but only 65% of the Payroll Taxes.....yeah, that works out to a 35% discount to the company.

If the US Congress's objective was for the Big Corporations to fairly and truly match the employee's payroll taxes paid, then they would disallow, for US corporate federal income tax purposes, the payroll taxes paid by the corporation.  And this would make a gigantic dent in the US Debt, and do so very fairly.

On the other hand, the employee gets no like 35% discount on his Payroll Taxes paid.

This is another case where the US Congress proudly proclaims that they are fairly legislating for everyone, but then doesn't openly disclose to the US public that they are also giving a 35% tax discount to the corporation, as corporate welfare.

And this is also another case of the continuing US Congress legislation for the already wealthy, in this case the rich corporation, which further expands the already huge economic gap between the wealthy and everyone else.

Anyway, back to this Medicare Tax and how it presently is not being assessed and collected on most of the large amount of tax-free or tax-deferred Employee Benefits of High Income taxpayers.

The 1.45% Medicare Tax is assessed on Base Salaries and on Bonuses.  But Employee Benefits are also, in essence, Compensation, just as much as Bonuses are.  However, the only tax-free or tax-deferred Employee Benefit that I can think of where the Medicare Tax is assessed is on the tax-deferred Salary Deferral.

Thus, the huge amount of true employee compensation from both tax-free health insurance and tax-free health savings accounts do not have a dime of Medicare Tax assessed on them, by either the high-income employee or by the company in its "match".

So, where in the world is the logic behind the US Congress widely and loudly proclaiming that it is imperative that the middle income and lower income retirees get their Medicare Benefits and Medicaid Benefits dramatically reduced when, at the same time, this same US Congress continues to allow this massive Medicare Tax Loophole Avoidance Scheme by High Income corporate executives, and frankly also by many other high income individuals, including many doctors? 

Let me present again my short tax-free Employee Benefit list, which I showed in my earlier post on Tax-fee Employee Benefits:

1) Health Savings Accounts.....this one is huge
2) Archer Medical Savings Accounts
3) Accident and Health Insurance
4) Child and Dependent Care Services.....up to $5,000 per year
5) Disability Coverage
6) Group-term Life Insurance.....a portion is now taxable
7) Adoption Assistance Programs
8) Cafeteria Plans
9) Flexible Spending Arrangements
10) Qualified Retirement Planning Services
11) Employee Educational Expenses.....up to $5,250 per year
12) Health Reimbursement Arrangements
13) Post-Retirement Health Care and Other Benefits.....this one is huge

My understanding is that not a single one of the above tax-free Employee Benefits have the Medicare Tax assessed on them, either the 1.45% for the employee or the 1.45% "match" for the company.

And a lot of the above tax-free Employee Benefits are related to health.

So the US Congress is saying, let's give the healthier, wealthier, younger, highly-paid employees all of these health care related tax loopholes, but then, at the same time, let's also really stick it to the unhealthier, older middle income and lower income retirees by dramatically decreasing their Medicare Benefits.....after all, you old sick people are the real reason the country has such a huge US Debt.

Give me a break!  It's nothing less than a full-fronted assault by the younger, wealthier, healthier US citizens and by US large corporations, with the US Congress being their paid mercenaries, on the older, poorer, less healthy US citizens.  And it seems that the only one fighting on the side of weak here in this one-sided battle is the Obama Administration.

Where's the fairness here?  It's clearly another situation of the wealthy, who are in control of the US Congress, getting their economic benefits, in this case health care tax loopholes, piled on, while at the same time making unreasonable economic demands on the weaker, elderly US citizens.

So my first recommendation is for all taxpayers with Adjusted Gross Income above $250,000 should pay the 1.45% Medicare Tax plus another 0.9% Medicare Tax imposed started in 2013, related to health care reform, on all Tax-free Employee Benefits, and the company should pay its fair 2.35% "match".

But as large as the Tax Loopholes are on the Medicare Tax Avoidance on all of the above High Income Employee Benefits, there are other like ones that are even much larger.....Medicare Tax Avoidance related to Retirement Benefits under all Defined Contribution Plans and also related to Retirement Benefits under all Defined Benefit Pension Plans.....with both of these huge Employer-Provided Employee Benefits made on behalf of High Income Employees.

What is happening now is that Medicare Taxes are not assessed and collected on any of these Profit-sharing Contributions, neither the Employee's portion nor the company's "matching" portion, and neither on the front-end when the Profit-sharing Contributions are made, nor when the Profit-sharing Contributions, as well as the huge subsequent earnings, are much later distributed, and thus when they become taxable income to the individual.

And the same can be said for Pension Funding under Defined Pension Benefit Plans, and frankly also on Post-Retirement Health Care and Other Post-Retirement Benefit Plans, where neither the company nor the high income employee has paid a dime of Medicare Tax related to these massive employee benefits.

My first recommendation here is that the company should be assessed a 2.35% Medicare Tax on all of its Profit-sharing and similar Contributions and on all of its Pension Contributions made, in the year they are made, related to those employees making more than $250,000 in compensation in each year.  A reasonable allocation of the portion of the total Pension Contribution related to employees making more than $250,000 will be necessary here. 

And my second recommendation is that for very high asset retirement plan accumulations, the participant should pay a Medicare Tax on the fairly allocated portion of profit-sharing and similar defined contribution plan distributions, that represents the initial Profit-sharing contributions by the employer, and also on the subsequent tax deferred earnings in the defined contribution plan.  For these same high asset retirement plan accumulations, the participant should also pay a Medicare Tax on all of the defined benefit pension plan distributions. 

To be more specific:

For all cases where the total fair market value of all retirement plan assets, existing at December 31, 2012, or at December 31 of any subsequent year, for a participant are at least $10 mil, that all subsequent Profit-sharing and similar defined contribution plan retirement distributions in the next calendar year should be allocated in a fair manner between the original Profit-sharing contributions and the subsequent earnings, and a 2.35% Medicare Tax will be assessed on the original Profit-sharing contribution portion, and a 3.8% Medicare Tax will be assessed on the portion that represents the subsequent earnings in the defined contribution plan, of the subsequent calendar year retirement distributions.  Also, a 2.35% Medicare Tax will be assessed on all Defined Benefit Pension Plan Distributions made in the subsequent calendar year related to these extremely high total asset accumulations in retirement plans.

For all cases where the total fair market value of all retirement plan assets, existing at December 31, 2012, or at December 31 of any subsequent year, for a participant are at least $5 mil, but less than $10 mil, that all subsequent Profit-sharing and similar defined contribution plan retirement distributions in the next calendar year should be allocated in a fair manner between the original Profit-sharing contributions and the subsequent earnings, and a 1.5% Medicare Tax will be assessed on the original Profit-sharing contribution portion, and a 2.8% Medicare Tax will be assessed on the portion that represents the subsequent earnings in the defined contribution plan, of the subsequent calendar year retirement distributions .  Also, a 1.5% Medicare Tax will be assessed on all Defined Benefit Pension Plan Distributions made in the subsequent calendar year related to these very high total asset accumulations in retirement plans.

And for all cases where the total fair market value of all retirement plan assets, existing at December 31, 2012, or at December 31 of any subsequent year, for a participant are at least $2 mil, but less than $5 mil, that all subsequent Profit-sharing and similar defined contribution plan retirement distributions in the next calendar year should be allocated in a fair manner between the original Profit-sharing contributions and the subsequent earnings, and a 1.0% Medicare Tax will be assessed on the original Profit-sharing contribution portion, and a 1.8% Medicare Tax will be assessed on the portion that represents the subsequent earnings in the defined contribution plan, of the subsequent calendar year retirement distributions.  Also, a 1.0% Medicare Tax will be assessed on all Defined Benefit Pension Plan Distributions made in the subsequent calendar year related to these high total asset accumulations in retirement plans. 

I think that the above closing of the Tax Loopholes on Medicare Tax Avoidance on all of the above Employee Benefits of High Income individuals is a substantially better and fairer way to solve the country's health care cost problem than dramatically decreasing the Medicare Benefits and Medicaid Benefits of middle income and lower income retirees.

And the amount of additional US Government Medicare Tax Revenues raised by the above fair proposals are just huge, and should all be used to reduce US Debt.

US Fiscal Cliff Fair Trade-Off #12: Accelerate Required Minimum Distributions Date For High Dollar Retirement Plans in Exchange for US Debt Reduction

Presently, all qualified defined contribution plans, as well as traditional IRAs, 403(a) or 403(b) annuity plans, and 457(b) government plans, must satisfy a minimum distribution requirement in which distribution of an employee's interest in the plan must begin by April 1st of the calendar year following the later of (1) the calendar year in which the participant attains age 70 1/2 or (2) the calendar year in which the employee retires.

This is a reasonable plan for normal situations.

However, for retirement plans that have accumulated very large amounts of retirement assets, I think it is unreasonable, and even borders on being obscene, from a tax advantage standpoint.

And particularly when the country has a US Debt in excess of $16 trillion, with large continuing annual US Deficits projected here on end, it is particularly unreasonable to permit very large retirement assets to continue to grow tax free and not have any distributed for an unreasonable additional period of time.

Thus, below here are my recommendations related to this issue.

For all retirement plans where the fair market value of the participant's interest in all plans exceed $50 mil on December 31 of the year the participant attains age 64 1/2, the minimum distribution requirement must start by April 1st in the calendar year the participant attains the age of 65 1/2.

For all retirement plans where the fair market value of the participant's interest in all plans exceed $10 mil on December 31 of the year the participant attains age 65 1/2, but did not exceed $50 mil on December 31 of the year the participant attained age 64 1/2, the minimum distribution requirement must start by April 1st in the calendar year the participant attains the age of 66 1/2.

For all retirement plans where the fair market value of the participant's interest in all plans exceed $5 mil, but are less than $10 mil, on December 31 of the year the participant attains age 65 1/2, the minimum distribution requirement must start by April 1st in the calendar year the participant attains the age of 67 1/2.

For all retirement plans where the fair market value of the participant's interest in all plans exceed $3 mil, but are less than $5 mil, on December 31 of the year the participant attains age 65 1/2, the minimum distribution requirement must start on April 1st in the calendar year the participant attains the age of 68 1/2.

For all retirement plans where the fair market value of the participant's interest in all plans exceed $2 mil, but are less than $3 mil, on December 31 of the year the participant attains age 65 1/2, the minimum distribution requirement must start on April 1st in the calendar year the participant attains the age of 69 1/2.

And for all of the above situations, and also for all situations where the total assets in the qualified retirement plans exceed $1 mil on December 31 of the year that the participant attains the age 65 1/2, my recommendation is to eliminate the second option, which permits the deferral of the minimum distribution requirement date due to the participant not being retired yet.

The economic harm to elderly US citizens of all of the above recommendations is substantially softened, since what is happening, for the most part, is simply paying US federal income taxes a bit earlier on income already earned, not paying more US federal income taxes in total.

All of the money raised here by the US Government as scored by the CBO over the next 10 years will be very substantial.  And the amount raised over the second 10 years will be substantially higher.  And thereafter, the money raised will continue to grow by leaps and bounds.  All of this money raised should be used to reduce the US Debt.

US Fiscal Cliff Fair Trade-Off #11: Use Same Tax Benefit Rate for Everyone's Itemized Deductions and Convert Standard Deduction Into a Flat Tax Credit in Exchange For US Debt Reduction

Presently, married taxpayers filing a joint tax return can either itemize their tax deductions or instead get a standard tax deduction, which was $11,600 in 2011 and $11,900 in 2012. So, let's assume it will be $12,200 in 2013, under current law.

Let's compare two households in two completely different economic environments.

First, there is the Caucasian married couple living in the very wealthy Highland Park, TX, where the husband is an Oil & Gas executive, making total compensation of substantially more than $500,000 per year, and a stay at home wife.  This couple also has substantial amounts of dividend income, taxable interest income, non-taxable interest income, and net capital gain income.

And second, there is the financially-strapped Latino couple, living in Miami, FL, where the husband works 1,300 hours per year for minimum wage at Walmart, and also works a like number of total hours in construction as an independent contractor, and makes a total gross income of $25,000 per year.  The Latino mother works full time at Costco and makes $40,000 per year.  They have no dividend income, no interest income and no capital gain income.

The Highland Park couple have total itemized tax deductions of $140,000 in 2013.  Thus, the tax benefits received in 2013 for these itemized tax deductions are $55,440, or 39.6% marginal income tax rate X $140,000.

The Miami couple, who owns a modest home and also gives a significant amount of their take home pay to the church in weekly cash contributions, have total itemized tax deductions of $13,000 in 2013.  Since these total itemized deductions exceed the $12,200 standard deduction, the tax benefits received  in 2013 for these itemized tax deductions are $1,950, or 15% marginal income tax rate X $13,000.

The Highland Park couple should be receiving substantially more in total tax benefits from their itemized deductions than the Miami couple since they have substantially more of itemized deductions.  That's only fair.

But why in the world would the US Congress give the Highland Park couple a substantially higher income tax benefit rate (39.6%) on their itemized deductions than the income tax benefit rate (15.0%) it gives the Miami couple?

Does it make any sense that the mortgage interest paid, the property tax paid, and the amount given to various charities by the Highland Park have a massively more lucrative 24.6% (39.6% minus 15.0%) income tax benefit rate than the Miami couple gets for its mortgage interest paid, its property tax paid, and the very healthy amount it contributes to the church each week?

There is something way wrong with this.

Now let's compare another two couples on two distinct economic scales, neither of whom own homes, nor do they itemize their deductions.

First, there is the younger Caucasian married couple, with no children, renting a large, luxurious, choice lakefront location in Chicago, where these two University of Chicago MBAs make substantially more than $200,000 each, and thoroughly enjoy traveling the world on exotic vacations, and also frequently shop at expensive boutiques.  Their Total Adjusted Gross Income is substantially higher than $500,000.

And second, there is the financially-strapped African-American, middle-aged married couple, with three children, renting a home in the smaller Chicago suburban city of Robbins, IL where the husband works 1,200 hours per year being paid just above minimum wage at Walmart's Sams, and also works a like number of total hours each year in construction as an independent contractor, and makes a total gross income of $30,000 per year.  The mother works full-time at the nearest Costco in the Chicago area and makes $40,000 per year.  They have no dividend income, no interest income and no capital gain income.

Both of these families take the standard deduction.

The Chicago jet-setters receive a total tax benefit from this standard deduction in 2013 of $4,831, or 39.6% marginal income tax rate X $12,200 standard deduction.

On the other hand, the Robbins couple receive a total tax benefit from this standard deduction in 2013 of a much lower $1,830, or 15.0% marginal income tax rate X $12,200 standard deduction.

So, why should the wealthy Chicago younger jet-setters receive a tax benefit from their standard deduction which is 2.64 times that of the Robbins middle-aged couple?

There is something clearly wrong here too.

To correct for the above two tax policies legislated by the US Congress, which some could view as racist, and all would view as clearly biased against all lower middle income taxpayers, both white and of color, I recommend that the US Congress use the same income tax benefit rate for all itemized tax deductions for all taxpayers and also turn the standard deduction into a much fairer standard tax credit, which is the same for all taxpayers.

I would set as a goal a certain amount of Total Tax Revenues you want raised by the US Government on this issue.....and the Total Amount of Tax Revenues should be substantial, given the dire financial situation the country is in.

Then, I would set the same income tax benefit rate for all itemized deductions for all taxpayers, and also convert the standard deduction to a standard tax credit, such that the desired amount of Total Tax Revenues raised by the US Government on this issue reaches the desired amount of Total Tax Revenues.

The end result would be a substantial reduction of the tax benefit for itemized deductions for wealthy taxpayers and an increase in the tax benefit for itemized deductions for many of those in the middle class.

And the end result would also be a reduction in the tax benefit from standard deductions for wealthy taxpayers and an increase in the tax benefit for standard deductions for many in the middle class, and also for many trying to get into the middle class.

And what would also very fairly happen here is that there will be more middle income taxpayers, and particularly more in the bottom half of the middle income taxpayers, who will be getting a higher tax benefit for their itemized deductions under this proposal.

Why?

Well, let's say that the end result is that a 25% income tax benefit rate for itemized tax deductions is that one that yields the overall result you want for Total US Government Revenues raised from this issue.

Under this 25% income tax benefit rate assumption, many married couples, who previously would have taken the standard deduction, will now instead itemize.  Assuming they are at a 15% marginal income tax rate, their total tax benefit if they take the standard deduction in 2013 is $1,830, or 15% X the $12,200 standard deduction.  Thus they would only need total itemized deductions of roughly at least $7,400, to be better off itemizing than taking the standard deduction.

Given the substantial amount of US Government Tax Revenue raised here by this proposal and also to make it even more equitable, I would take it one step further by also increasing substantially the tax credit equivalent of the present standard deduction.  In addition to being fairer to all US citizens, it also would reduce the administration burden caused by the increase in the number of taxpayers itemizing.

So in summary, in addition to wisely reducing the US Debt by a substantial amount, these recommendations will also reverse US Congressional action, sometimes done unintentionally, which has pretty much consistently resulted in legislation that has expanded the substantial wealth gap between the wealthy and every one else.

If you want to build the US middle class out, the above recommendations are steps that get you there.

US Fiscal Cliff Fair Trade-Off #10: Limit Interest Deduction for High Income Taxpayers in Exchange For US Debt Reduction

Presently, all homeowners can usually deduct interest on their second vacation homes. 

In addition, presently, all married taxpayers can usually deduct mortgage interest on their qualified residence on mortgage loans of up to a maximum limit of $1 million.

Clearly, high income taxpayers get the most advantage by far of the mortgage interest deduction.

And given that the country is faced with more than $16 trillion of debt, which under any reasonable projection is scheduled to increase substantially each year, here on out, it only makes sense that high income taxpayers fairly do their part, and be required to reduce the massive interest deduction they now can take advantage of.

And it's not just that high income taxpayers now get substantially more mortgage interest deductions than all other taxpayers.  They also get their tax benefit on their much higher mortgage interest deduction at a much higher marginal income tax rate, which will be a top income tax rate of 39.6%, starting in 2013.

Thus, I have two recommendations on changes to itemized deductions for mortgage interest.

First, no taxpayer with Adjusted Gross Income above $250,000 can deduct any interest on his or her second vacation home.

And second, a taxpayer with Adjusted Gross Income above $250,000 will be able to deduct mortgage interest on mortgage loans up to a maximum limit of $500,000, a reduction from the present maximum limit of $1 mil.

And consideration should be given to staggering in this loss of interest deductions as Adjusted Gross Income increases from $250,000 to $1 mil.

All of the Tax Revenues generated from the reduction of this high income interest tax deductions will be used to reduce the US Debt.

US Fiscal Cliff Fair Trade-Off #9: Tax Appreciated Stock Contributed to Charity in Exchange For US Debt Reduction

Presently, if an individual contributes stock that has been held for more than a year to a qualified charitable organization, he or she gets an itemized tax deduction for the fair market value of the stock contributed, and also gets to avoid the capital gain tax that would otherwise apply if the stock were sold.

Thus, for very high income individuals, the tax benefits endowed on them by this practice, particularly starting in 2013, are really obscene.

Let's say a taxpayer making above $1 mil in 2013, contributes long-term capital gain common stock, which has a tax basis of $10,000, but is worth $200,000 when contributed.  Thus, this taxpayer not only gets a charitable itemized tax deduction of $200,000, which yields a tax benefit of 39.6% X $200,000 = $79,200, but he also is able to avoid capital gains tax of 20% on the $190,000 appreciation, or another $38,000.  Hey, that's not bad.

Clearly, the tax loophole here is that capital gains tax of $38,000 is avoided.

Thus, my recommendation is that starting in 2013, this egregious tax loophole of avoiding capital gains tax is eliminated entirely, on high income taxpayers with Adjusted Gross Income above $1 mil, and with taxpayers with Adjusted Gross Income above $250,000, but less than $1 mil, having a portion of this capital gain being taxed, with this percentage recognized increased as Adjusted Gross Income above $250,000 increases.

Some people argue that this is going to hurt charities.  But when the country is in such dire financial traits, I would much rather eliminate this clearly egregious tax loophole that benefits charities rather than having to cut critical items like Medicare Benefits, Medicaid Benefits, Food Stamps to the poor, and Pell Grants.

All of the US Tax Revenues raised by the elimination of this egregious loophole favoring the very wealthy should be used to reduce the US Deficit.

US Fiscal Cliff Fair Trade-Off #8: Convert Personal and Dependency Exemptions to a Fair Flat Tax Credit in Exchange For US Debt Reduction

Presently, an individual may claim a personal exemption and also an exemption deduction for each person he or she claims as a dependent on his or her federal income tax return.  The amount of each of these exemption deductions was $3,700 in 2011 and $3,800 in 2012.  So let's assume it is scheduled to be $3,900 in 2013.

Let's compare a Caucasian family with two children dependents living in the very wealthy suburb of Greenwich, CT, with both parents working on Wall Street and making more than $500,000 each, with a Latino family with two children dependents living in Santa Ana, CA, and the father works at Walmart and makes $18,000 per year, and the mother works at Costco and makes $40,000 per year.

The Greenwich family receives a tax benefit on their 2013 federal income tax return of $3,900 X 39.6% marginal income tax rate X 4 = $6,178, or $1,544 for each of their four exemptions.

The Santa Ana family receives a a tax benefit on their 2013 federal income tax return of $3,900 X 15% marginal income tax rate X 4 = $2,340, or $585 for each of their exemptions.

So the way I look at it is that in this specific example of two families on substantially different economic scales, the US Congress has made the determination, that from a rewarding of a tax benefit standpoint, that the white child living in Greenwich is worth to the country 2.64 times what the Latino child living in Santa Ana is worth.

There is something way wrong with this.

To correct for this tax policy legislated by the US Congress, which some could view as racist, and all would view as clearly biased against all taxpayers trying to get into the middle class, both white and of color, I recommend that the US Congress fairly turn exemptions into a tax credit, with the tax benefit for each exemption being the same.

I would set as a goal a certain amount of Total Tax Revenues you want raised by the US Government on this issue.....and the Total Amount of Tax Revenues should be substantial, given the dire financial situation the country is in.

Then, I would set the exemption tax credit at a fair flat dollar amount per exemption, such that the desired amount of Total Tax Revenues raised by the US Government on this issue reaches the desired amount.

The end result would be a significant reduction of the tax benefit for exemptions for wealthy taxpayers and an increase in the tax benefit for exemptions for those significantly below the middle class.

So, in addition to wisely reducing the US Debt by a substantial amount, this recommendation will also reverse US Congressional action, sometimes done unintentionally, which has pretty much consistently resulted in legislation that has expanded the substantial wealth gap between the wealthy and every one else.

If you want to build the US middle class out, the above recommendation is a step that gets you there.

US Fiscal Cliff Fair Trade-Off #7: Tax All Hedge Fund and Private Equity Manager Compensation as Ordinary Income in Exchange For a Lower Business Income Tax Rate

A common hedge fund and private equity manager compensation arrangement includes two parts, that could be something like this:

*The manager receives a fee of 2% of the value of the fund and presently this is taxed at ordinary rates.

*The manager also receives 20% of the annual profits of the fund and presently this is taxed at a very attractive capital gain tax rate.

Clearly, the part that is a tax loophole is that all fund manager compensation should be taxed at ordinary rates, particularly for the larger hedge funds. Frankly, it is just crazy, from a fairness standpoint, to allow hedge fund managers a much lower tax rate than what working stiffs must pay.

My recommendation is to tax all fund manager compensation for managing hedge and private equity funds at ordinary income tax rates, starting in 2013.

But also, I think that the Net Business Income of all pass through entities, like Partnerships, LLCs, and REITs, should have a somewhat lower income tax rate at the individual level than that related to compensation.

Thus, my recommendation is that, starting in 2013, all compensation of Hedge Fund and Private Equity Managers should have a top income tax rate of 39.6%, as is stipulated in the Tax Code.

However, I think that, starting in 2013, all Net Business Income should be income taxed at the individual level at a top income tax rate somewhere between the 35.0%, which is applicable for 2012, and the 39.6% top tax rate, as is stipulated in the Tax Code starting in 2013.

I also think that a logical, fair conclusion here is to split the difference, and use a top income tax rate on Net Business Income passed through of 37.3%, starting in 2013.

But a lot more important to maximizing US job creation is to also apply much lower income tax rates on Net Business Income passed through at the individual level to the lower amounts of Net Business Income passed through.

Thus, I think a US Fiscal Cliff fair trade-off is for the US Government to use the huge Tax Revenue inflow from disallowing any Hedge Fund and Private Equity Manager Compensation to be eligible for the lower capital gain tax rate to lower the income tax rates at the individual level for all Net Business Income.

And Congress needs to make a clear demarcation as to what constitutes compensation and what constitutes Net Business Income of Hedge Fund and Private Equity Managers.

US Fiscal Cliff Fair Trade-Off #6: Deposits on Open IRS Corporate Audits in Exchange For Highly Stimulative US Job Creation Iniatives

It takes a very long time for all of the many issues on IRS audits of large corporations to be settled.

Thus, what you see are huge Tax Reserve Liabilities on corporate balance sheets which must reflect, under audited US Generally Accepted Accounting Principles (GAAP), how much the large corporations expect they will have to pay the IRS on each open issue.

And because these IRS audits take so long to settle, there are substantial amounts of interest expense related to these Tax Reserves that are also included as a liability on audited under US GAAP corporate balance sheets.

Because of the importance of Tax Reserves to investors, US GAAP also requires extensive footnote disclosure related to these IRS Reserves.

In a post I made several years ago, based on a quick review of footnotes of some large US corporations, and also some large foreign corporations with heavy US operations, I found 384 companies that had amounts owed for all open IRS tax audit years in excess of $100 mil each, that in the aggregate totaled $268 bil, including accrued interest, at the most recent fiscal year end, which for the majority of these companies was December 31, 2009.

Massive Big Corp Tax Reserves 
 
It is frequently noted how Big Corporations are stopping US economic growth, and the desperately-needed US job creation, by sitting on massive amounts of Cash and Investments.

Well, a portion of these Cash and Investments are there because of the above $268 bil of Tax Reserve Liabilities related to open tax audits, which are also on the books.

Yeah, that's a grossed up corporate balance sheet, inflated by both Cash and Investments on the asset side, and Tax Reserves owed to the US Government, and thus owed to US taxpayers, on the liability side.

Since a large portion of these Tax Reserves that the Big Corporations disclose they owe are owed to the US Government, this significant portion is in essence really the US Government's money, and it only makes sense that these Big Corporations make partial tax deposits to the US Government related to these open IRS audits.

By doing so, those funds can be used by the US Government to stimulate the US economy now, and to create US jobs, instead of waiting for the open IRS audits to settle, which frequently happens many years later.

And there is no economic harm to the Big Corporations for making these partial tax deposits on open IRS Tax Audits, since for the amounts of these tax deposits, subsequent IRS interest is stopped.

This seems like a no brainer to me.

Require Big Corporations to pay a portion of the amount that they disclose that they owe the US Government on open IRS audits as deposits, which is similar to the way estimated quarterly corporate estimated tax payments work.

This ends ups being a substantially positive CBO score to the US Government over the next ten years, since the tax amounts owed on open IRS tax audits are paid in a much more accelerated fashion.

Then in the present US fiscal cliff deliberations, the US Congress now has a substantial amount of funding that can be used to mostly stimulate the US economy immediately with wisely-designed US job-creation initiatives, such as US Job Creation Directly Linked Business Tax Incentives, like 100% first-year tax expensing on equipment purchases, like much accelerated first-year tax depreciation on buildings and building remodelings, and like investments tax credits on equipment and building investments, but with the requirement that to earn these tax benefits, US full-time payroll counts must increase sufficiently, and remain for several years.

I don't see how it could be any better for the Big Corporations.  They simply accelerate a portion of what they agree that owe the IRS on tax audits, and their interest stops.  And the US Government uses this money the Big Corporations pay them to stimulate the US economy by giving these same Big Corporations very lucrative tax incentives.

US Fiscal Cliff Fair Trade-Off #5: Remove Social Security Wage Cap in Exchange For Underemployment Tax Benefit and Social Security Fund Enhancement

The Medicare federal payroll tax for 2012 for both the employee and the employer is 1.45% of the employees wages.  In other words, there is No Wage Cap for Medicare taxes.

Ignoring the one-time, one-year 2.0% payroll tax holiday for the employee portion for 2012, the Old-age, Survivors and Disability Insurance (OASI) federal payroll tax for both the employee and the employer is 6.2% of the employees wages, but only up to a maximum Wage Cap of the first $110,100 of the employees wages.

The one-time, one-year payroll tax holiday is clearly a substantial tax loophole for all working employees.  But the tax benefit received here by the upper middle class and above, or those making say $100,000 or more, was substantially better than it was for those making much less, or in other words, especially better than it was for the clearly neglected "Underemployed".

And those unemployed for all of 2012 get no payroll tax holiday, since they received no wages.

Thus, clearly the one time, one-year payroll tax holiday further widened the economic gap between the very and the somewhat wealthy, and everyone else.

The Medicare tax is the fair one, since there is No Wage Cap on it.

On the other hand, the OASI payroll tax is the one with a clear tax loophole for the wealthy, since it is only assessed on the first $110,100 of employee wages in 2012.

Thus, it only makes sense from a fairness standpoint to remove this Wage Cap for OASI payroll tax purposes, for both the employer and the employee.

But the real problem is the huge gap between the very wealthy and everyone else.  Someone making $100,000 a year is not wealthy, especially if they live in a high-cost area, or have to pay for college tuition, or have to pay very high interest on homes that are underwater.

Thus, that is why it is fair for the country to focus on increasing the taxes paid by those making $250,000 or more, and to use the funds to reduce the US Debt.

Thus, to be fair, for OASI payroll tax purposes, starting in 2013, I would keep the Wage Cap like it is presently constituted, but then remove it for all of those making $1 mil or more.  And then I would fairly scale up the removal of the Wage Cap for those making $250,000 or more.  For example, the additional OASI federal payroll tax could be designed something like this:

For W-2 Wages of $250,000 to $400,000.....1.0%
For W-2 Wages of $400,000 to $550,000.....2.0%
For W-2 Wages of $550,000 to $700,000.....3.0%
For W-2 Wages of $700,000 to $850,000.....4.0%
For W-2 Wages of $850,000 to $1,000,000..5.0%
For W-2 Wages above $1,000,000.................6.2%

And then the company would have to match this increased OASI federal payroll tax paid by the employee.

OK, that raises a lot of money for the US Government, but how best to use it?

Well, clearly the employed people who are neglected are the "Underemployed", with many of them, especially those employed in retail, being paid at or near the minimum wage, and working several part-time jobs.  And individuals working in smaller, and in rural areas, are much more likely to be "Underemployed".

And you know who else are much more likely to be "Underemployed"?  It's the lowly-paid "Independent Contractor", who gets the additional "privilege" of paying payroll taxes twice, since clever-by-half, greedy corporation after greedy corporation do everything in their power to classify someone working on their behalf as "Independent Contractors", rather than as either part-time or full-time employees.

Thus, I would give a permanent complete payroll tax holiday for the first $20,000 of wages for each employee for every year, with this amount stepped up for inflation each year.  Effectively, this works like a back door increase in the minimum wage, since if the Underemployed are paid a total of $20,000 or more in 2013, they would be receiving a reduction in the federal payroll taxes they would otherwise pay of 7.65% X $20,000, or of $1,530, which could really come in handy for these Underemployed.

And these financially-strapped Underemployed would, in all likelihood, spend this $1,530 right away, which stimulates the US economy.

And not just the Underemployed, but all employees would be receiving a complete payroll tax holiday on their first $20,000 of wages in 2013.

And companies would get a like matching permanent payroll tax holiday for the first $20,000 of wages for every employee for every year.  This gives them a nice incentive to hire, because every new, non-very highly paid employee is going to cost them much less in total employee benefit costs.

And what this permanent payroll tax holiday for the first $20,000 of wages does is just the opposite of what has been happening in the past two decades or so.  Instead of unfairly expanding the wealth gap between the wealthy and everyone else, it fairly reduces the wealth gap between the wealthy and everyone else.

And with the additional US Government Payroll Tax Revenues received here, I would use it to reduce the Total US Debt, by strengthening the Total Social Security Fund Bank.

And if the CBO scoring comes out such that the projected increase in the Total Social Security Fund Bank is of insufficient size, then you could reduce the permanent payroll tax holiday 7.65% percentage for the first $20,000 of wages.  Or alternatively, you could change this payroll tax holiday from a permanent one to one lasting for just a number of years.

If you want to build the US middle class out, the above recommendations are steps that get you there.

US Fiscal Cliff Fair Trade-Off #4: US Economy Stoppage Fee on Excess Stock Buybacks in Exchange For Highly Stimulative US Job Creation Initiatives

Since the horrible 2008 financial meltdown, the singularly most significant cause of the huge growing US Deficit has been the financial demands on the US Government due to the continuing high US unemployment and US underemployment levels.  And the same can be said for the financial demands on US State Governments.

Thus, in the US Fiscal Cliff Debate, I think in deciding what to tax, what not to tax, what US Government expenditures to cut and what not to cut, the driving force behind these decisions should be what choices result in the maximum amount of sustainable US full-time job creation, at a livable wage, as quickly as possible, and after giving due consideration to the cost of doing so.

It is clear to me that there has been continuing severe harm to the US economy, and to US job creation, from the huge amounts of corporate stock buybacks.

CFOs, CEOs, and Corporate Board of Directors have all figured out that the best use of the company's money is to buy back their own stock.
 
Below here is a past post I made on companies making excessive stock buybacks.

US Big Corp Stock Buybacks

With interest rates so low, these companies have decided that an investment in their own company's stock is much more attractive than other investments they can make.

And more importantly, by buying back their own stock, these companies have discovered that their company's Earnings Per Share (EPS) gets substantially elevated due to the minor negative reduction in the numerator earnings numbers, as compared with the substantially larger positive impact from the lower denominator number of common shares outstanding.

And once they have figured out how much their EPS gets bumped up from these stock buybacks, they then pile on, after they realize it's not only the positive EPS impact from stock buybacks, but that they can also get substantial EPS growth over the prior year just by increasing the amount spent on stock buybacks over the prior year.  And the higher the increase in stock buybacks over the prior year, the more dramatic the EPS increase over the prior year.

Also, this higher EPS and EPS growth from stock buybacks substantially raises the total executive compensation they ultimately receive, since a combination of EPS and EPS growth determine what their common stock trades for.

And even members of Board of Directors own a lot of common stock of the company, and thus this upward expansion of both EPS and EPS growth, driven by stock buybacks, enhances their personal wealth, as well.

Further, all stockholders love stock buybacks, because their company's stock price is increased, and thus their economic wealth is further enhanced.

And with dividend income tax rates scheduled to go up dramatically starting in 2013, corporations will be even more incentivized to increase their stock buybacks.  Why?  Because starting in 2013, a stockholder will much rather see an increase in stock price rather than a cash dividend, because on an after-tax basis, the stockholder comes out much better with a capital gain than with a cash dividend.

So, huge and growing corporate stock buybacks are a big win for everyone, right?

Actually, not so at all....just the opposite, for the overwhelming majority of US citizens.

Why?  Because it further expands the already huge economic wealth gap between the wealthy, who own the common stocks of companies making large stock buybacks, and everyone else, who are not as fortunate to own the common stock of companies buying back their own stock.

By corporations buying back their own stock, no US jobs are created.  What the US economy needs is for those corporations to invest in US capital expenditures, in US R&D, in US job creation.....this is what grows the US economy and enhances US job creation.....not doing the opposite by either taking your money and investing it in your own common stock, or by just sitting on your Cash and Investments.

Given the huge gap between what the large corporations want, which is clearly to excessively buy back their own common stock, and what the US economy needs, which is a movement away from stock buybacks to company investments in US job creation, the US Government must step in to correct this situation.

The best way to do this is with a carrot and stick approach.

The stick should be to charge companies that excessively buy back their own stock a US Economy Stoppage Transaction Fee for buying back their stock.  They can still buy back their own stock, but if they do it excessively, they will be paying a stiff fee for doing so, which increases as the amount of the excessive buybacks increase.

And to add an effective porcupine sting to the stick, companies that have made excessive stock buybacks in the past should be penalized more intensely for doing so, if they decide to continue it in the future, which is only fair, since these companies have already severely harmed the US economy by their greedily overdozing on excessive stock buybacks in the past.  The way this can be wisely designed is that the annual US Economy Stoppage Fee on excessive stock buybacks can be computed based on a cumulative test.

And the carrot is very strong US tax incentives for making US capital investments, US R&D investments, and US job investments.

Thus, the substantial amount of money raised by the US Government from this US Economy Stoppage Transaction Fee on Excessive Corporate Stock Buybacks should be used for the maximum amount of sustainable US full-time job creation, at a livable wage, as quickly as possible, and after giving due consideration to the cost of doing so.

Thus, this one is double-barreled  US economic stimulation.

First, you charge transaction fees for companies buying back their own stock excessively, to prevent them from doing so.

And second, you use the money raised here for explosive US tax incentives for companies to stimulate the US economy.

US Fiscal Cliff Fair Trade-Off #3: Eliminate High Income Other Employee Benefit Tax Loopholes in Exchange For Highly Stimulative US Job Creation

I think it would be wise for the US Government to very visibly disclose to the US public the detailed W-2's of say 100 highly-paid executives working for 100 different large US corporations.

To be fair, I would want to have all of the executive names and corporate names redacted out.

But I think it would be clearly eye-opening to US taxpayers as to the extent of the number of employer-provided other employee benefits to these highly-paid executives, as well as the dollar amount of each of these employee benefits.

Armed with this key information, I think the public will be in a much better position to decide what is the best way to fund US Deficit reduction.

In two earlier recent posts, I addressed two very substantial company-provided employee benefits received by highly-paid executives.....namely employer-provided health insurance and salary deferral to 401(k) Profit-sharing plans.  And yes, the US Government allows these two significant executive compensation components to be either tax free forever or tax deferred for many years for US federal income tax purposes.

In this post, I will address other Employee Benefits received by highly-paid employees which also are tax free.  I only will be covering a small handful of them.  To get to the true extent of how many there are, you need the US Government to disclose that to the public.....that is being financially transparent.....salient information the public needs to properly make an informed assessment as how best to fund a US Deficit reduction.

So anyway, here goes a handful of these tax free employee benefits received by highly-compensated executives:

1) Health Savings Accounts.....this one is huge
2) Archer Medical Savings Accounts
3) Accident and Health Insurance
4) Child and Dependent Care Services.....up to $5,000 per year
5) Disability Coverage
6) Group-term Life Insurance.....a portion is now taxable
7) Adoption Assistance Programs
8) Cafeteria Plans
9) Flexible Spending Arrangements
10) Qualified Retirement Planning Services
11) Employee Educational Expenses.....up to $5,250 per year
12) Health Reimbursement Arrangements
13) Post-Retirement Health Care and Other Benefits.....this one is huge

And there are so many others.  When you add up the total dollar amount here of tax free income, it is really incredibly huge.

And then on top of that, you have highly-paid executives receiving substantial retirement benefits.  The dollar amounts of retirement benefits to highly-paid executives I find frankly obscene.  I already addressed in another post the huge salary deferral one.

But below here are some other retirement benefits for highly-paid employees that could easily and fairly be reduced, which would give a lower US federal income tax deduction to the employer, and thus higher Tax Revenues received by the US Government, and the first two below have annual maximum limit amounts which increase each year.  Further, if you decrease the annual maximum limits, you also decrease substantially the amount of the subsequent tax-deferred earnings growth of these retirement plans.

1) $200,000 employee maximum benefit limit in 2012 for a defined benefit plan
2) $50,000 employee maximum defined contribution plan limit for 2012
3) No $17,000 annual limit on employer matching contributions for 2012
4) Employer deduction for contributions to a defined contribution plan is the greater of (a) 25% of compensation and (b) the amount the employer is required to contribute to a SIMPLE 401(k) plan.

Just think how incredibly lucrative the tax loophole is for just #2) above.  The company making the $50,000 profit-sharing contribution to the highly-paid employee gets an immediate tax write off for the $50,000.  And the end result is the highly-paid employee can get up to $50,000 per year in profit-sharing contributions made to his tax-deferred account, and this $50,000 maximum limit grows each year.  This highly-paid person works for this company for just 20 years, and could very easily have more than $2 mil accumulated in his tax-deferred account at the end of 20 years, which includes the tax-deferred earnings for 20 years.  And after 20 years, he is probably still only in his 40s! 

When the country has this $16 trillion of debt, and conservatives in the US Congress are lusting over substantially reducing Medicare Benefits and Medicaid Benefits of lower and middle income retirees, and these same US Congressmen have legislated for the tax-deferred massive US Government funding to multi-millionaire status for hundreds of thousands, and perhaps even millions, of these already pretty well-heeled profit-sharing participants, there is something clearly wrong with the justice of what has happened here.

These conservative Republicans, and even many Democrats who have voted the same way, have created a US economic environment where only the already very well off get much more well off, and everyone else flat out struggles financially.

This is wrong, and I mean seriously wrong.  The Occupy Movement has totally missed the massive injustice that has happened here with the many gargantuan employee benefit tax loopholes to the already well-heeled.

And lower and middle income retired people have every right to be outraged with what the US Congress has facilitated here.  And now the US Congress wants to dramatically cut their Medicare Benefits?  Give me a break!

But it's not just tax deferred Profit Sharing Retirement Plans.  Just check out what happened below to the Increase in Accrued Pension Benefits of the CEOs of five Big Corps, which have defined benefit pension plans.  This information is derived from Proxy Statements which are filed with the SEC annually.

				Three Year
	2011	2010	2009	Total
	Increase	Increase	Increase	Increase
	in Value of	in Value of	in Value of	in Value of
	Pension	Pension	Pension	Pension
CEO of	Benefits	Benefits	Benefits	Benefits
	000's	000's	000's	000's
Exxon Mobil	9,755	7,476	5,467	22,698
Pfizer	6,893	10,977	1,916	19,786
AT&T	3,330	7,096	8,990	19,416
Johnson & Johnson	3,435	7,085	7,983	18,503
Chevron	6,592	2,273	1,554	10,419
Total all 5	30,005	34,907	25,910	90,822

Yeah, that's right, $91 mil increase in the value of their Pension Benefits in just the past three years, for only five CEOs.  When you extrapolate this over the entire universe of all highly-paid executives, the total amount of Increase in Pension Values in the past three years has to be just incredibly mind boggling.  And that's just the increase.....the actual Pension Values must be totally off the charts.  And yes, earnings on Pension Assets are tax deferred.  Not only does the Big Corp get an income tax deduction on the front end, but the highly-paid executive doesn't get his pension income taxed until it is distributed usually many, many years later.

This is clearly another case of US Congress overreach on tax deferrals for the already financially well-heeled.....the lucrative tax incentives put into the Tax Code here by an irresponsible US Congress, legislating for the wealthy, has resulted in a situation where defined benefit pension plans and profit-sharing plans can be fairly labeled as "Tax Deferral Gone Wild".

And the Obama Administration had a lot to do with these massive increase in Pension Values due to the stock market moving up dramatically during the Obama Administration.

And another obscene compensation tax loophole for rewarding highly-paid executives is the increasingly popular use of company restricted stock.

And this restricted stock award to highly-paid executives can be creatively structured to allow for the deferral of all tax until the time of the sale of the stock, and for all appreciation to be taxed then at very low capital gain rates.

Yeah that's right, the executive gets this clearly very lucrative restricted stock bonus award, and doesn't have to pay a dime of tax when it is given to him.

And to pile on, when the stock goes up in value and sold, it is possible to recognize the gain at very favorable capital gain tax rates.

This US Government tax largesse in the restricted stock area is another case of the US Government piling on the welfare to the highly-paid executive, and at the same time, the many conservatives in the US Congress doing everything in their power to keep the unemployed from getting unemployed benefits, even though these same US Congress "legislators for only the already well-heeled" and "filibusterers" are the ones who are also preventing desperately-needed US economic stimulus from happening, which could change the status of many of these unemployed to employed, and could also change the status of many underemployed to "employed on a full-time basis".

From my perspective, this whole restricted stock to highly-paid executive scheme, the massive profit-sharing and pension tax deferral, the very significant tax-free Health Savings Accounts, and all of the other very significant above Employee Benefit tax loopholes is nothing short of welfare to the rich....both to the highly-paid executive and to the corporation.  It is another case of the US Congress, on both sides of the aisle, continuing to legislate only on behalf of the wealthy, thereby further expanding the economic gap between the very wealthy and everyone else.

And all of the above tax loopholes for the wealthy executives and the rich corporations do absolutely nothing to create US jobs.

But yet from eliminating all of the above Other Employee Benefit Tax Loopholes of the very wealthy executive and of the corporation, there would be all of this massive positive US Government CBO Scoring that could be wisely used mostly for very healthy near-term US full-time job creation economic stimulus.

And some of these US Government funds can also be used to reduce the US Debt.

The above Other Employee Benefit Tax Loopholes here overwhelming favor the very wealthy employees.....they are the ones taking the maximum benefit from them and at a tax benefit rate that is substantially higher than the tax rate that would apply to regular employees.  And in the case of restricted stock awards, the ultimate tax rate paid by the executive can be at extremely favorable capital gain tax rates.

Thus, the focus of sound, fair US governance should be to address the most egregious element here, and that clearly is the substantially higher tax largesse received by an employee having a very high Adjusted Gross Income.

Therefore, I think that a key component of the US Fiscal Cliff deliberations should be the elimination of all of the above Other Employee Benefit Tax Loopholes just for those making an Adjusted Gross Income of more than $250,000.  And yeah, this also means that there will be quite a few more US taxpayers who will now have some of their income taxed at a higher tax rate just because these Other Employee Benefits, which are now not included in their Adjusted Gross Income, will fairly increase their Adjusted Gross Income, starting in 2013.

But to be totally fair, I would scale in the elimination of these Other Employee Benefit Tax Loopholes, and thus the amount of this tax loophole elimination would increase as Adjusted Gross Income above $250,000 increases, but for sure, anyone with Adjusted Gross Income above $1 million would get the entire amount of these Other Employee Benefit Tax Loopholes eliminated for US federal income tax purposes starting in 2013.

OK, so that's what I think is the very convincing case for eliminating these above numerous, large dollar Other Employee Benefit Tax Loopholes for the very wealthy employee.

And the money raised here by the US Government from the closing of so many of these Employee Benefit Tax Loopholes over the next ten years would be just huge.

But what to do with the massive amount of positive ten-year CBO scoring that results from eliminating these Other Employee Benefit Tax Loopholes, which overwhelmingly has benefited the very wealthy employee?

One simple answer.....spend a huge portion of it to maximize, in the near term, full-time, sustainable US job creation, at a livable wage.

Thus, here's my optimal list of effective, quick-hitting, directly-targeted US economic stimulus, which optimally maximizes US job creation, and gets the most bang for the buck.

First, heavy US infrastructure investments, which also is wisely funded in part by user charges.

Second, heavy US school, US community college, and US public college construction fix ups, with a particular focus on climate change benefiting energy-efficiency investments, which also have an additional benefit of economically saving future energy costs.

Third, heavy US Government energy efficiency investments, with those made by the US military leading the way here.  And a huge part of the funding here would come from the future year energy cost savings.

Fourth, for all of 2013, all US businesses should be allowed 100% first-year tax expensing of equipment purchases, and also much more highly accelerated first-year tax depreciation on new building and building remodelings, and also investment tax credit on both equipment and building investments, but these massive tax benefits are earned only if the US business also increases its US full-time payroll counts by sufficient amounts, and with this payroll count increase remaining for at least three years, or else these lucrative tax benefits are recaptured.  A significant portion of the funding of the fourth one here is the self-funding coming from the additional US Government Revenues (i.e. the higher individual income taxes and payroll taxes) derived from the necessary increase and retention in full-time payroll counts in order for the US businesses to be able to earn the tax benefits.

Fifth, an extension of renewable energy tax credits for four years, and making them refundable, with all of this paid for by the permanent elimination of all Oil and Gas tax subsidies of larger Oil and Gas companies, including not just repeal of expensing of intangible drilling costs, and repeal of percentage depletion, but also repeal of LIFO Inventory for Oil and Gas companies, the elimination of the domestic activities production deduction for Oil and Gas companies, and eliminating the incredibly egregious US tax policy of permitting foreign royalties paid by Oil and Gas companies to be used as dollar-for-dollar foreign tax credits for US federal income tax purposes.

Sixth, a substantial increase in US Government Research expenditures for critical long-term initiatives, including, among other things, for advanced manufacturing, for high technology, for education and employment training, for medical research, for research on better, more effective, and less costly health care delivery, and for climate change research.

Seventh, for all of 2013, US multinational corps would be allowed to repatriate their foreign earnings, at a somewhat discounted US federal income tax rate, which would be at a very progressive US federal income tax rate based on the amount of foreign earnings repatriated.  However, to earn this discounted US federal income tax rate, a US multinational corp would have to increase its US full-time payroll count in 2013 by a sufficient amount, and this increased payroll count must be retained for at least three years, or else the very lucrative tax benefits of this discounted, very progressive US federal income tax rate would be recaptured.  The end result here is that this seventh tax incentive, instead of costing the US Government money, will actually substantially increase US Tax Revenues.

Eighth, enhance the current domestic production activities deduction to 10.7%, and increase it even more for advanced manufacturing.  This will also be paid for by the permanent elimination of all Oil and Gas tax subsidies, explained in detail in the fifth one above. 

Ninth, make the current R&E tax credit over a base amount permanent, and increase the simpler R&E tax credit over a base amount option from 14% to 17%.  This would be paid for by the fifth one above related to the elimination of all annual tax subsidies of all larger Oil and Gas companies, by the seventh one above related to foreign earnings repatriation, and by the initiation of new annual minimum tax on foreign earnings. 

The key point here is that to best bring down the US Deficit, by far the best way is to wisely and prudently decrease both US unemployment and US underemployment as dramatically and as quickly as possible.

US Fiscal Cliff Fair Trade-Off #2: Eliminate High Income Elected Wage Deferrals Into 401(k) Profit Sharing Plans in Exchange For Highly Stimulative US Job Creation

Since the horrible 2008 financial meltdown, the singularly most significant cause of the huge growing US Deficit has been the financial demands on the US Government due to the continuing high US unemployment and US underemployment levels.  And the same can be said for the financial demands on US State Governments.

Thus, in the US Fiscal Cliff Debate, I think in deciding what to tax, what not to tax, what US Government expenditures to cut and what not to cut, the driving force behind these decisions should be what choices result in the maximum amount of sustainable US full-time job creation, at a livable wage, as quickly as possible, and after giving due consideration to the cost of doing so.

Presently, employees of US companies having defined contribution 401(k) profit-sharing plans can elect to defer up to $17,000 of their wages in 2012 into these 401(k) profit-sharing plans.

Yeah, that's $17,000 of wages for just one year that can be shifted to future years and just for one employee.  When you do US Government CBO scoring over a ten-year period, the total amount of US reduction in Tax Revenues caused by the Elected Wage Deferral is gargantuan.  You not only have ten years of continually increasing annual wage deferrals, but also the cumulative earnings from these wage deferrals grow on a tax deferred basis.  And in addition, the C Corp and other legal entities can deduct its matches of this elected salary deferral, which further adds substantially to this loss of US Tax Revenues.

Thus, if the US Congress decided to eliminate this incredibly lucrative salary deferral, the funds raised over the next ten years would truly be incredibly high.

But we need to take a closer look at  this wage deferral and whether it is a wise US Government policy, especially given the more than $16 trillion of US Debt, coupled with the still very high levels of US unemployment, US underemployment and tepid US economic growth, with no significant increase in sight.

Is this incredibly robust tax incentive fair to all US citizens?

It's really not.  It further expands the already huge gap between the very wealthy and everyone else.

Why?  Because unemployed US citizens cannot take advantage of it.

Also, underemployed US citizens usually cannot take advantage of it.

And regular employees cannot take nearly the same advantage of it as the wealthy employees can.  With the crushing US economy, regular employees need all of their take-home pay, and even more, just to make ends meet.....to just feed and house their families.

On the other hand, the wealthy employees are the ones that take the maximum advantage of the total amount of annual salary deferral.

And the wealthy employees also get a substantial portion of the company match of the elected salary deferral.   

Further, the wealthy employees are able to defer a larger amount of the US federal income tax on their salary deferral because their top marginal income tax rate is much higher than that of regular employees.

Is this fair US Government tax policy, that clearly favors the wealthy employee over all other employees?  I don't think so.  What is in essence happening is another "under the radar screen" further expansion of the economic gap between the wealthy and everyone else, that the US Congress consistently legislates for, and which the non-wealthy are frankly sick and tired of.

And if this incredibly lucrative tax incentive for the wealthy employees were eliminated, there would be absolutely no resultant US jobs lost.

But yet, there would be all of this massive positive US Government CBO Scoring from eliminating it that could be wisely used mostly for very healthy near-term US full-time job creation economic stimulus.  And some of these US Government funds can also be used to reduce the US Debt.

And eliminating this annual salary deferral wouldn't be nearly as economically harmful to a wealthy employee as eliminating a permanent tax loophole, such as the tax-free employer-provided health insurance, would be.  Why not?  Because in the case of eliminating salary deferral, for the most part, the wealthy US taxpayer does not pay much in the way of additional income tax in total, he/she only pays it much earlier.

The salary deferral here overwhelming favors the very wealthy employees.....they are the ones taking the maximum benefit from it and at a tax benefit rate that is substantially higher than the tax rate that would apply to regular employees.

Thus, the focus of sound, fair governance should be to address the most egregious element here, and that clearly is the substantially higher tax largesse received by an employee having a very high Adjusted Gross Income.
  

Therefore, I think that a key component of the US Fiscal Cliff deliberations should be the elimination of this annual salary deferral just for those making an Adjusted Gross Income of more than $250,000.  And yeah, this also means that there will be quite a few more US taxpayers who will now have some of their income taxed at a higher tax rate just because this present salary deferral, as well as the income earned from it, both of which are now not included in their Adjusted Gross Income, will fairly increase their Adjusted Gross Income, starting in 2013.

But to be totally fair, I would scale in the elimination of this salary deferral tax loophole, and thus the amount of this tax loophole elimination would increase as Adjusted Gross Income above $250,000 increases, but for sure, anyone with Adjusted Gross Income above $1 million would get no salary deferral for US federal income tax purposes starting in 2013.

OK, so that's the case for eliminating the salary deferral for the very wealthy employee.

And the money raised here for the next ten years is off-the-charts.  Just think of one wealthy employee taking the maximum salary deferral of $17,000 in 2012.  Well, the maximum amount of annual salary deferral keeps increasing each year.....it was $16,500 in 2011.  Thus for ten years, the total salary deferral for the next ten years for one wealthy employee is roughly $200,000, and the US federal income tax deferral at 39.6% on it is $79,200 for just one employee, and that ignores the income tax on the earnings of this $200,000, which could no longer be tax deferred.  Further, the elimination of the huge company match of the elected salary deferral of the wealthy employees would also raise a substantial additional amount of positive CBO scored US Government Revenues.

But what to do with the massive amount of positive ten-year CBO scoring that results from eliminating this salary tax deferral tax loophole, which overwhelmingly benefits the very wealthy employee?

One simple answer.....spend a huge portion of it to maximize, in the near term, full-time, sustainable US job creation, at a livable wage.

Thus, here's my optimal list of effective, quick-hitting, directly-targeted US economic stimulus, which optimally maximizes US job creation, and gets the most bang for the buck.

First, heavy US infrastructure investments, which also is wisely funded in part by user charges.

Second, heavy US school, US community college, and US public college construction fix ups, with a particular focus on climate change benefiting energy-efficiency investments, which also have an additional benefit of economically saving future energy costs.

Third, heavy US Government energy efficiency investments, with those made by the US military leading the way here.  And a huge part of the funding here would come from the future year energy cost savings.

Fourth, for all of 2013, all US businesses should be allowed 100% first-year tax expensing of equipment purchases, and also much more highly accelerated first-year tax depreciation on new building and building remodelings, and also investment tax credit on both equipment and building investments, but these massive tax benefits are earned only if the US business also increases its US full-time payroll counts by sufficient amounts, and with this payroll count increase remaining for at least three years, or else these lucrative tax benefits are recaptured.  A significant portion of the funding of the fourth one here is the self-funding coming from the additional US Government Revenues (i.e. the higher individual income taxes and payroll taxes) derived from the necessary increase and retention in full-time payroll counts in order for the US businesses to be able to earn the tax benefits.

Fifth, an extension of renewable tax energy credits for four years, and making them refundable, with all of this paid for by the permanent elimination of all Oil and Gas tax subsidies of larger Oil and Gas companies, including not just repeal of expensing of intangible drilling costs, and repeal of percentage depletion, but also repeal of LIFO Inventory for Oil and Gas companies, the elimination of the domestic activities production deduction for Oil and Gas companies, and eliminating the incredibly egregious US tax policy of permitting foreign royalties paid by Oil and Gas companies to be used as dollar-for-dollar foreign tax credits for US federal income tax purposes.

Sixth, a substantial increase in US Government Research expenditures for critical long-term initiatives, including, among other things, for advanced manufacturing, for high technology, for education and employment training, for medical research, for research on better, more effective, and less costly health care delivery, and for climate change research.

Seventh, for all of 2013, US multinational corps would be allowed to repatriate their foreign earnings, at a somewhat discounted US federal income tax rate, which would be at a very progressive US federal income tax rate based on the amount of foreign earnings repatriated.  However, to earn this discounted US federal income tax rate, a US multinational corp would have to increase its US full-time payroll count in 2013 by a sufficient amount, and this increased payroll count must be retained for at least three years, or else the very lucrative tax benefits of this discounted, very progressive US federal income tax rate would be recaptured.  The end result here is that this seventh tax incentive, instead of costing the US Government money, will actually substantially increase US Tax Revenues.

Eighth, enhance the current domestic production activities deduction to 10.7%, and increase it even more for advanced manufacturing.  This will also be paid for by the permanent elimination of all Oil and Gas tax subsidies, explained in detail in the fifth one above. 

Ninth, make the current R&E tax credit over a base amount permanent, and increase the simpler R&E tax credit over a base amount option from 14% to 17%.  This would be paid for by the fifth one above related to the elimination of all annual tax subsidies of all larger Oil and Gas companies, by the seventh one above related to foreign earnings repatriation, and by the initiation of new annual minimum tax on foreign earnings. 

Tenth and more.....to come.

The key point here is that to best bring down the US Deficit, by far the best way is to wisely and prudently decrease both US unemployment and US underemployment as dramatically and as quickly as possible.

US Fiscal Cliff Fair Trade-Off #1: Tax Employer-Provided Health Insurance in Exchange For a Lower Business Income Tax Rate

When I ponder ways to solve the US Fiscal Cliff, there are two items which clearly make little sense to me, from a fairness perspective.

I can’t see the logic of the Obama Administration’s proposal in their Business Income Tax Reform of reducing the top corporate income tax rate from 35% to 28%, and then, at the same time, also wanting to increase the individual income tax rate up to 39.6% on the higher amounts of net business income of individuals and of business income passed through to individuals by SubS Corps, by LLCs, and by Partnerships.

Now granted there are some entities that are formed mainly to just avoid C Corp income tax, such as many REITs and many Master Limited Partnerships.  The best way to fairly deal with that is to simply make these entities pay income tax just as a C Corp does. 

And also granted, there needs to be a clear demarcation as to what is truly owner compensation and what is net business income, but the true net business income portion is no different from C Corp Taxable Income, and thus I think there shouldn’t be such a huge difference in the top income tax rates applied to it (39.6%) as that which is applied to C Corp Taxable Income (28%).

Frankly, I think a reduction in the top corporate income tax rate from 35% to 28% is too extreme.  I would instead make the tax rates dramatically more progressive, since the lower amounts of business income is where the maximum amount of US job creation is derived, and perhaps reduce the top corporate income tax rate on the highest amount of C Corporate Income to something like 30%.  But still, that is 10% higher than the roughly 40% tax rate on the highest amount of taxable income if we go with the Clinton individual income tax rates.

So, I think John Boehner has a good point when he says that the top tax rate on net business income of 39.6% is too high.  But I do think his definition of business income is incorrect……a lot of it is truly compensation of owners, much of which clearly should be taxed at the higher 39.6% tax rate.  But true net business income passed through shouldn’t be taxed at 39.6%.  It should clearly be higher than the present 35.0% top income tax rate, but perhaps splitting the difference between the 39.6% and the 35.0% tax rates would be the fair way to go, which would yield a top income tax rate for net business income of 37.3% at the individual tax level.    

So how do you offset the lower than 39.6% top tax rate on some of this net business income?

Well, the most egregious tax loophole on the individual side is employer-provided tax-free health insurance benefits to its employees.

Why is it the most egregious?

Well, there clearly is nothing wrong with a business paying for health insurance for its employees.  It is a very key ingredient of an employee's total compensation package.

Presently, if these employees didn't have this company provided health insurance, they could either obtain health insurance on their own and also pay for it on their own, or they could elect to not have any insurance at all.

But what in the world gives the US Government the right to effectively turn this key element of a total compensation package into something akin to tax-free municipal interest?

What this US Government tax policy does is significantly expand further the economic gap between the rich and the poor, and more specifically in this case, the huge economic gap between the employed and the unemployed, and also the huge economic gap between the employed and the underemployed.

So this US Government tax policy is a clear tax loophole, which singles out a clearly compensation component of a total compensation package as something that should be free of income tax, forever.

In this US Fiscal Cliff Debate, I think in deciding what to tax, what not to tax, what US Government expenditures to cut and what not to cut, the driving force behind these decisions should be what choices result in the maximum amount of sustainable US full-time job creation, at a livable wage, and as quickly as possible.

What this tax-free health insurance compensation does is to reward people who already have a job.  You can't get it unless you are employed.  Thus, by eliminating this tax loophole, you lose no US jobs.  But yet you provide a substantial amount of money for the US Government to fund true US full-time job creation, at a livable wage.

And the unemployed are totally removed from the opportunity to take advantage of this tax loophole.  There is no way they can get this tax-free health insurance provided by the US Government because they don't have a job, and thus don't have an employer providing this benefit for them.

And the same goes for the many underemployed, whose employer will not provide them with health insurance, thus they can't take advantage of this US Government provided tax loophole for just those fortunate to be employed full-time.

But it's more than expanding the economic gap between the employed and both the unemployed and the underemployed.

This US Government tax loophole also further expands the economic gap between the very wealthy employed and all the rest of the employed.

Why?  Well, there's a couple of things at play here.

First, the very wealthy employed receive substantially more in company provided health insurance benefits than do everyone else employed by the company.  Thus, they not only get more of this employer-provided health insurance compensation, but they also receive more of a US Government tax loophole from having a higher amount of this tax-free health insurance excluded from their taxable income.

And second, the very wealthy employed get an additional US Government tax loophole amount of tax benefit here because they have a higher top marginal income tax rate.  Thus, they not only get a larger amount of tax-free income, but their after-tax benefit impact is even more substantial because they now are able to avoid this tax-free income, which would otherwise be taxed at 35% presently, or at 39.6% starting in 2013 under President Obama's tax proposal.

On the other hand, the tax benefit rate for so many of the non-wealthy employees will not be at a 39.6% tax rate, but rather at a tax benefit rate that is substantially lower, with the overwhelming majority of it at a tax benefit rate of 15% or lower, although some would have a tax benefit rate of 25%.

So, let me do the math to shed additional light on this.

Let's say you have an executive, whose total compensation is significantly above $250,000, and who also receives a very lucrative $20,000 of employer-provided health insurance.

Thus, in 2013, this executive would be receiving an after-tax loophole from the US Government of $7,920, or 39.6% X $20,000.

Then let's say you have an accountant, working for the same company, whose total compensation is say $50,000, and who also receives a fair-to-middling $10,000 of employer-provided health insurance.

Thus, in 2013, this hard-working green eyeshader would be receiving an after-tax loophole from the US Government of only $1,500, or 15% X $10,000.

Thus, in the above example, the highly paid executive receives a tax largesse from the US Government of $7,920, which is a massive 5.3 times the $1,500 tax largesse received by the accountant.

Where's the fairness here?

And people don't understand why there continues to be such a huge gap between the wealthy and everyone else?

And the US Congress, from both sides of the aisle, continues to enact patently unfair tax policies like this one, and then piles on by attempting to hide from their constituencies their votes on, or not allow there to be a vote on this at all, which continues to further expand the huge economic gap between the wealthy and everyone else?

Because there is such a huge difference between what the tax largesse the wealthy executive receives here and what the just regular employee receives, the focus of sound, fair governance should be to address the most egregious element here, and that clearly is the substantially higher tax largesse received by someone having a very high Adjusted Gross Income.
  

Thus, that's why I think it is imperative that this tax-free health insurance of those making over $250,000 be taxable, as a key component of this US Fiscal Cliff deliberations.  And yeah, that means that there will be quite a few more US taxpayers who will now have some of their income taxed at a higher tax rate just because this present tax-free health insurance compensatory income, which is now not included in their Adjusted Gross Income, will fairly increase their Adjusted Gross Income, starting in 2013.

When you consider that the above example resulted in $7,920 of higher US federal income taxes in just one year for just one highly-paid executive, the total amount of US Government Revenues that could be raised here has to be just huge.

But to be totally fair, I would scale in the elimination of this egregious tax loophole, and thus the amount of this tax loophole elimination would increase as Adjusted Gross Income above $250,000 increases, but for sure, anyone with Adjusted Gross Income above $1 million should have his/her entire health insurance compensation be taxable starting in 2013.

And going back to the driving test between choices in solving the US Fiscal Cliff, the elimination of this tax loophole for just those making more than $250,000 will result in absolutely no US full-time jobs lost.

But then using the substantial tax revenues raised here to lower income tax rates on lower amounts of true US Business Income taxed at the individual level, coupled with not raising the top income tax rate on US Business Income much above 35.0%, would clearly be very stimulative to the US economy and to US full-time job creation, at a livable wage, and right away.

I think this is a wisely-crafted, fair trade off to help solve the US Fiscal Cliff, which is causing such havoc on the US economy.

Furthermore, I think it would be unconscionable for the US Congress to pass a reduction of Medicare Benefits in order to either solve the US Fiscal Cliff and/or the US Debt Grand Bargain, and at the same time, to permit very wealthy individuals to continue to exclude from their US federal taxable income the huge amounts of employer-provided health insurance compensation they receive each year.

If this were to happen, I think you would have an incensed retirement and near retirement communities.

Also if this were to happen, I think that retirees could logically conclude that their reduced Medicare Benefits are in essence paying for the large tax loopholes received by the younger very wealthy Americans from their tax-free employer-provided health insurance compensation.....in essence, a massive transfer of after-tax health care wealth from older Americans to the very wealthier, much healthier, younger Americans.

US Big Oil & Gas Corps 3Q 2012 Earnings Down 11%

I found 37 US Big Oil & Gas Corps, which file with the SEC, and which generated Ongoing, Core Pretax Income of at least $200 mil in either the 3Q 2012 or in the 3Q 2011.  Several of them are foreign corporations, but with very substantial US operations.

These 37 US Big Oil & Gas Corps generated 3Q 2012 Ongoing, Core Pretax Income of $56.1 bil, down 11% from the 3Q 2011.

The Big 2.....Exxon Mobil and Chevron.....comprise a hefty 49% of the Total Pretax Income in the 3Q 2012 of all 37 US Big Oil & Gas combined.

These Big 2 had their Total Pretax Income in the 3Q 2012 decline by 15% over the 3Q 2011.

The Remaining 35 US Big Oil & Gas Corps had their Total Ongoing, Core Pretax Income in the 3Q 2012 decline by 6%, much lower than the combined 15% decline of the Big 2.

There were substantially higher Asset Impairment Charges in the 3Q 2012 than in the 3Q 2011, with Natural Gas Impairments being the major component of these Asset Impairment Charges.  These Asset Impairment Charges, as well as the large Non-Recurring Gains and Losses were excluded from Pretax Income in deriving Ongoing, Core Pretax Income below.

Below here is the Ongoing, Core Pretax Income for both the 3Q 2012 and the 3Q 2011 for each of these 37 US Big Oil & Gas Corps.   

				PTI	PTI
		Pretax	Pretax	Increase	Increase
	State	Income	Income	(Decrease)	(Decrease)
	HQs	3Q 2012	3Q 2011	Amount	%
		mils $s	mils $s	mils $s
US Big Oil and Gas
Big 2
Exxon Mobil	TX	17,320	18,680	(1,360)	-7%
Chevron	CA	9,932	13,340	(3,408)	-26%
Total Big 2		27,252	32,020	(4,768)	-15%
Remaining 35
ConocoPhillips	TX	3,638	3,865	(227)	-6%
Phillips 66	TX	2,697	2,257	440	19%
Occidental Petroleum	CA	2,144	2,739	(595)	-22%
Schlumberger	TX	1,857	1,687	170	10%
Marathon Oil	TX	1,729	1,303	426	33%
Marathon Petroleum	OH	1,695	1,744	(49)	-3%
Apache	TX	1,594	2,094	(500)	-24%
Valero Energy	TX	1,582	1,892	(310)	-16%
HollyFrontier	TX	960	836	124	15%
Hess	NY	934	468	466	100%
Halliburton	TX	877	1,261	(384)	-30%
National Oilwell Varco	TX	874	780	94	12%
Anakarko Petroleum	TX	846	775	71	9%
EOG Resources	TX	800	470	330	70%
Transocean Ltd	TX	630	77	553	718%
Enterprise Products Partners	TX	590	491	99	20%
Devon Energy	OK	505	896	(391)	-44%
Kinder Morgan Inc	TX	446	262	184	70%
Tesoro	TX	438	562	(124)	-22%
Baker Hughes	TX	413	747	(334)	-45%
Murphy Oil	AR	407	527	(120)	-23%
Ensco Intl	TX	390	248	142	57%
Williams Companies	OK	277	354	(77)	-22%
Spectra Energy	TX	276	382	(106)	-28%
Cameron International	TX	270	198	72	36%
Noble Energy	TX	253	377	(124)	-33%
Continental Resources	OK	252	199	53	27%
Helmerich & Payne	OK	238	188	50	27%
Diamond Offshore	TX	235	335	(100)	-30%
Southwestern Energy	TX	210	290	(80)	-28%
OneOK	OK	208	195	13	7%
Denbury Resources	TX	201	233	(32)	-14%
Plains All American Pipeline LP	TX	186	294	(108)	-37%
Chesapeake Energy	OK	129	1,511	(1,382)	-91%
Nabors Industries	TX	73	212	(139)	-66%
Total Remaining 35		28,854	30,749	(1,895)	-6%
Grand Total All 37		56,106	62,769	(6,663)	-11%