Where is the US economy headed?

Obama faces Democrat discord on spending plans
By Thomas Ferraro Thomas Ferraro Sun Mar 15, 10:04 am ET

WASHINGTON (Reuters) " Republicans are not the only ones in the U.S. Congress squawking about President Barack Obama's record $3.55 trillion budget plan.

Some of the president's fellow top Democrats also are upset with certain provisions -- including ones dealing with farm subsidies, tax deductions and industrial emissions -- setting up hurdles within his own party that Obama must overcome.

"Everyone is starting to wake up to the fact that the all-Democratic controlled Washington doesn't mean pure liberalism. It means more centrist, more moderate," said Ethan Siegal of The Washington Exchange, a private firm that tracks the federal government for institutional investors.

Republicans see Obama's proposed record spending, much of it aimed at helping to lift the U.S. economy out of a deepening recession, as too costly.

Opposition from Democrats and Republicans is likely to grab headlines again in the weeks ahead as committees get down to complete their work in drafting details.

Democrats, who expanded their hold on Congress in the November election that brought Obama to power, are proving to be a contentious bunch.

"Democrats also have more moderate and more conservatives in their ranks and more issues that will divide them," said Andrew Taylor, a political science professor at North Carolina State University. "It's the cost of doing business."

The budget proposal Obama put forward last month outlines a bold governing agenda, which includes expanding healthcare, upgrading education, moving the U.S. toward energy independence and combating global warming.

It projects a deficit for this fiscal year of $1.75 trillion, falling to $1.17 trillion next year, prompting Republican complaints about Obama's proposed spending and worrying members from both parties who say there should be more deficit reduction.

In its December 2008 report on the use of tax havens by American corporations,[4] the U.S. Government Accountability Office was unable to find a satisfactory definition of a tax haven but regarded the following characteristics as indicative of a tax haven: (1) no or nominal taxes; (2) lack of effective exchange of tax information with foreign tax authorities; (3) lack of transparency in the operation of legislative, legal or administrative provisions; (4) no requirement for a substantive local presence; and (5) self-promotion as an offshore financial center.

The problem is that corporate losses have been socialized, but the profits are private.

Advocate wrote:

The problem is that corporate losses have been socialized, but the profits are private.

Fairly cute phrase - but meaningless and deceptive.

Evidently you don't own any stock in Chrysler, GM, Citibank, CircuitCity or in many other firms.

The federal government takes 35% of corporate profits and the states (on average) another 5%.

March 18, 2008
U.S. States Lead the World in High Corporate Taxes
by Scott A. Hodge

Fiscal Fact No. 119

America's political leadership is finally waking up to the fact that the tax rates businesses face in the U.S. are way out of step with our major economic competitors. Last year, for example, Ways and Means Chairman Charles Rangel proposed cutting the federal corporate tax rate from 35 percent to 30.5 percent. While a 5 percentage point cut in the federal corporate tax rate may sound significant, it may not be sufficient to meaningfully improve the competitiveness of the United States.

Currently, the average combined federal and state corporate tax rate in the U.S. is 39.3 percent, second among OECD countries to Japan's combined rate of 39.5 percent.1 Lowering the federal rate to 30.5 percent would only lower the U.S.'s ranking to fifth highest among industrialized countries.

More recently, other members of Congress"including Sen. John McCain and Congressman Eric Cantor"have released proposals to cut the corporate rate even deeper to 25 percent. While this lower rate would improve the U.S.'s international ranking and competitiveness, that improvement would be mitigated by the high corporate tax rates imposed by many states.

Many states impose state corporate income taxes at rates above the national average of 6.6 percent. Iowa, for example, imposes the highest corporate tax rate of 12 percent, followed by Pennsylvania's 9.99 percent rate and Minnesota's 9.8 percent rate. When added to the federal rate, these states tax their businesses at rates far in excess of all other OECD countries.

When compared to other OECD countries:

24 U.S. states have a combined corporate tax rate higher than top-ranked Japan.

32 states have a combined corporate tax rate higher than third-ranked Germany.

46 states have a combined corporate tax rate higher than fourth-ranked Canada.

All 50 states have a combined corporate tax rate higher than fifth-ranked France.

Thus, if lawmakers are serious about making the U.S. corporate tax system more competitive internationally, corporate tax rates will have to be reduced both in Washington and in state capitals. State officials should be champions of substantial cuts in the federal corporate tax rate because there is only so much they can do to improve their own competitiveness. After all, even corporations that operate in the three states that do not impose a major state-level corporate tax"Nevada, South Dakota, and Wyoming"still shoulder a higher corporate tax rate than fifth-ranked France and 24 other OECD countries because of the 35 percent federal corporate rate.
http://www.taxfoundation.org/publications/show/22917.html

There is another way to get weaned off oil imports. Prevent people using oil. Either by directives or with the price mechanism. Oil could be reserved for strategic purposes, exclusively for the use of the political elites or to sell into world markets.

Car ownership in Russia is 2 in ten people. In Europe 5 in 10 and in the US 8 in 10.

"You know what they say about people on the way up--sooner of later you're going to meet them coming down."

Not practical, spendius, unless you want to drive the u.s. into the biggest depression of all time.

It proves to me that I don't want to live in Russia.

Our culture has produced the science and technology it needs to save itself. It has the wealth needed for effective action. It has, to a considerable extent, (note that unscientific, possibly ironic, qualifying phrase okie), a concern for its own future. But if it continues to take freedom or dignity, rather than its own survival, as its principle value, then it is possible that some other culture will make a greater contribution to the future.

The Effective Corporate Tax Rate Is Falling
by Martin A. Sullivan
Document originally published in Tax Notes
on January 22, 2007.

Four years ago, Treasury closed the books on another fiscal year and counted $148 billion in corporate income tax receipts for 2002. At the same time, it bravely predicted corporate receipts would increase to $234 million for fiscal 2006 " a 58 percent increase in four years.

Treasury was wrong, but nobody " least of all Treasury " is complaining. The final numbers are in, and corporate tax receipts for 2006 total a remarkable $354 billion " a 139 percent increase in four years. Figure 1 on the next page depicts this fiscal phenomenon.

After years in the doldrums, the corporate tax is back. It's a moneymaker exceeding all expectations. And its surprising strength is the main reason the Bush administration and Congress are getting a breather before they are again forced to consider the looming long- term federal budget deficit.

Surging profit is the main factor behind this good fiscal news. Figure 2 on the next page shows the latest Commerce Department data on domestic corporate profits. Like income tax receipts, profits are on a rapid upward trajectory. Domestic corporate profits have nearly tripled in the last four years, rising from $554 billion in fiscal 2002 to $1,527 billion in fiscal 2006.

From K Street to the Capitol, the corporate tax windfall is making life easier for official Washington. But before anyone gets too comfortable, it'd be a good idea to pause and consider the facts a little more closely. The data also show that the corporate tax intake per dollar of profit " that is, the effective corporate tax rate " is falling. It now stands at a 10-year low of 22.2 percent " the tail end of the solid line in Figure 3 on p. 282.

This most recent decline appears to be part of a longer-term trend. The five-year average effective corporate tax rate for 1997- 2001 was 29.7 percent. The average for 2002-2006 was 25 percent.

That trend in the national data corroborates the trend seen in other data sources. Large pharmaceutical and high-tech companies have reported declining effective tax rates in their annual reports. (See "Drug Firms Move Profits to Save Billions," Tax Notes, Aug. 7, 2006, p. 472, Doc 2006-14640 or 2006 TNT 152- 5 ; and "High-Tech Companies' Tax Rates Falling," Tax Notes, Sept. 4, 2006, p. 818, Doc 2006-18379 , or 2006 TNT 171-6).)

A Fresh Look

The dashed line in Figure 3 represents what we reported on this topic last summer ("Despite Rapid Growth, Corporate Tax Receipts Fall Short," Tax Notes, July 17, 2006, p. 216, Doc 2006-13336 , 2006 TNT 137-3 ). The difference between the two lines in Figure 3 is attributable to revisions in the official data on corporate profits over the last six months. In July, based on official estimates available at the time, we assumed that corporate tax receipts for fiscal 2006 (which ended on Sept. 30, 2006) would total $330 billion. As noted, the actual amount turned out to be $354 billion.

Standing alone, that change would have resulted in an upward revision in the corporate effective tax rate for 2006. But revisions to domestic corporate profit data (the denominator of the effective tax rate fraction) were even larger. In July the figure for fiscal 2006 was estimated to be $1,312 billion. Now, as shown in Figure 3, we know the actual figure for 2006 is $1,527 billion.

Based on the July estimates, we concluded at the time that "the current burst in corporate receipts should not give us any comfort that the era of corporate tax shelters is coming to a close."

The revised estimates, which show a more pronounced decline in the estimated effective corporate tax rate, require a stronger conclusion: The recent surge in corporate tax revenue has been accompanied by a decline in estimated effective corporate tax rates that is not explained by changes in tax law.
http://www.taxanalysts.com/www/features.nsf/Articles/9B96723BDBA236078525744B0060BAFA?OpenDocument

Because of unprecedented corporate profits which produced unprecedented corporate taxes paid to the US treasury, the effective FEDERAL corporate tax rate has retreated a bit.