New York, U.S.A. – Despite their passion and fury, contemporary Americans are remarkably clueless about how their tax system works.  ”In a recent poll, a majority of Americans either think that Social Security tax and Medicare taxes are part of the federal income system or don’t know whether they are or not. More than six out of ten think that low-income or middle-income people pay the highest percentage of their income in federal taxes. “Neither is correct,” according to Len Burman and Joel Slemrod, authors of Taxes in America (OUP).

With heated debates over taxation now roiling Congress and the nation, an understanding of our tax system is of vital importance. Burman and Slemrod offer a clear, concise explanation of how our tax system works, how it affects people and businesses, and how it might be improved. There are some dire predictions of what would happen if the tax increases and spending cuts went into effect. But they have done some research that suggests that might be overblown.

Most economists agree that in the long-term we need a combination of tax increases and spending cuts, because the long-term budget is so out of whack. But right now we’re in a very delicate recovery and there is legitimate concern that substantially raising taxes and cutting spending can cancel the recovery or slow it down.

Burman and Slemrod challenge many common tax myths and ideologies.  They explain leading reform proposals, and are available to discuss topics such as: :

• Why is the fiscal outlook so dire?
• Is this the right time to think about raising taxes and cutting spending?
• Is progressive taxation class warfare?
• Is it true that half of households owe no income taxes?
• Do we tax capital income the same as labor income?
• How do we tax capital gains and dividends?
• What makes a tax system fair?
• Which is a better economic stimulus, cutting taxes or spending more?
• Why do smart, serious people disagree about optimal tax policy?
• Why not run deficits forever?
• What is the “starve the beast” theory?
• What are sensible tax reform ideas?

Author Joel Slemrod says “I think of it more as approaching a mountain, and there are good ways and bad ways to go up that mountain.”

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In a little under 181 days, Americans will head to the voting booths to decide who will be president for the next four years. The committed Left and Democrats will vote for Barack Obama. The committed Right and Republicans, though not all not at all Conservatives, will vote for Mitt Romney.

Stuck in the middle will be the independents, liberal Republicans, and conservative Democrats. These are the people Obama and Romney will be fighting over to secure the White House. The campaign will be brutal, it will be hard fought and each man will try to sell his vision of America to the voters he needs. It is this last part, “a vision of America,” that will really be at the heart of the 2012 presidential election.

Within a 200-year span, America has become the most powerful and successful country in the history of the world. It did not accomplish this because its citizens are smarter; they are not. America accomplished this because its system of governance, the framework of capitalism and the idea of freedom for every individual in regards to their purpose in life.

These things allowed the people of America to capitalize on the huge amount of resources at America’s disposal. It has not always been pretty, but the U.S. is still the best country for an ambitious, poor person to live.

In November of 2012, we will, for the first time since the founding of this country, decide whether that will remain the case. The country has reached a tipping point. The President has increased the debt so high, so fast that we are a short distance from financial collapse.

Many in the country want more entitlements, more spending, more benefits, in two or three years Supreme Court Justice Kennedy will retire, leaving open a slot that could Left or Right, depending on this election. President Obama represents one path, Governor Romney another path.

On the Left 

In one corner, we have Barack Obama, a man who exemplifies one set of choices. America needs to be transformed, changed and humbled. We know this because this is what the president has told us. Throughout his campaign, he preached the ideas of change and transformation. On the day of his electoral win, his victory speech was capped off with the words, “Change has come to America.”

His two signature programs would be a stimulus package of nearly a trillion dollars, followed up with increases in every single social program the government has with the coup de grace being the ‘Obamacare’ law that took the country one step closer to single-payer healthcare.

In the last three years, change and transformation have meant spending more money, according to the Congressional Budget Office, than all previous presidents combined. In order to pay for this, Mr. Obama has fallen on the politics of envy, telling millions of high-income Americans they are not paying their fair share.

Indeed, in the next election, it has almost become a repeated mantra of his: “Pay their fair share,” “Everyone needs to sacrifice and pay their fair share,” or “Everyone needs to pay their fair share, and do their part.” The single fact that the top 10% of wage earners already pay 65 percent of the tax bill seems lost on the president and those that support him.

This is not an accusation or an assertion; it is on the White House webpage. It is easy for anyone to add up and see. This is the America that Barack Obama is fighting to create. A country where the few take care of the many and the government decides what you need.

The path he would take America on is one that the world has previously seen. It is a place where the state takes care of the citizen. It is the duty of the government to provide healthcare, education at all levels, determine rules for what is or is not fair. It is a government that spends large amounts of money on social programs designed to make a person’s life better, even if it means running their life.

On this path, businesses large and small are to be watched closely, regulated tightly, and provide something for the common populace to do during the day. To pay for this path, the government will play Robin Hood and take from society’s most productive people in order to pay for all the rest. What it cannot make up in tax revenue or confiscation, it will pay via loans and debt to other countries.

America today is a debtor nation, no different from the man hocking his computer to pay for his habit, except America’s drug of choice will be money for birth control, abortions, food stamps, or worst yet, another bridge with a politician’s name on it. Food stamp usage has increased under President Obama exponentially.

And despite the Democrats cry of racist foul play toward Newt Gingrich over calling President Obama the food stamp President, his reelection team is using a TV ad proclaiming proudly the increased usage. The battle over giving women, rich or poor, free birth control has become the policy mascot in the Democrats insistence that there is a “War on Women.”

This is the fiscal path that President Obama has chosen to lead the country on. This is the transformation he for which he is fighting, a change in the social contract. A contract that gives, and gives, and gives, regardless of the cost.

President Obama is the current standard-bearer for the liberal mindset, and that mindset is one of no judgments, and excuse-making. It is how you get gay marriage, not as an equal right, but as some sort of equivalency to normal marriage. It is why obesity is the fault of soda companies, McDonald’s, or not enough side walks in the country, and not a parent’s inability to say no to a five-year-old, or pull the honey bun away from his or her own mouth.

The issue of whether any of these examples: social spending, socialism, alternative life styles, etc., are okay or should be seen as acceptable is not the issue. The issue is that this is one path that America can take. This is one of the choices we face.

On the Right

In the other corner, we have the vision of the Right. A vision that says anyone with the drive and ambition can move from being poor to being a billionaire in their lifetime. Jorge M. Perez managed to do it, even though he came to this country poor, uneducated and unable to speak English. The President’s biggest cheerleader Oprah Winfrey did it, despite her well documented trials of physical abuse and rape. The vision being championed this time around by Mitt Romney wants all people to have the same opportunity as Winfrey, Perez and millions of other Americans.

It is a country where charity to the needy is golden, but the healthy must put in work. It is a country where the rules for business are simple: do not lie, cheat, or defraud the public and if you do, then you go to jail, but otherwise, do what you want. Do all businesses follow that path? No, they do not, and when they do not, they are punished.

Much in the same way we punish individuals for robbing banks, speeding, or physically assaulting someone, but we do not believe most people act in those ways. There is no transformation that needs to take place. The vision on the Right rejects the idea that we are a deeply flawed nation.

The views of how business should be treated is perhaps best illustrated in the tale of two states: California and Texas. California follows the dreams of the Left; high taxes, social Liberalism, tightly regulated businesses and, they have a 15 billion dollar deficit. Starting a business is costly and tedious, so businesses are leaving the state, along with their tax revenue and jobs. Many are going to Texas where taxes are low, and regulation is smart, but not onerous.

As a result Texas has low unemployment and has had low unemployment for years. The idea of making it harder to open a business is silly to those on the Right. Conservatives want a path that embraces the entrepreneurial spirit of each person, wants it to take flight, and when it does, congratulates you for being successful.

Individualism, personal responsibility, and personal choice is the path being fought for by Mitt Romney. As the standard-bearer for the Right, he is fighting to create or maintain a structure that encourages entrepreneur-ism and self-reliance. It is a view that says the needy get help, but everyone else needs to step up to the plate, and take care of themselves.

New ideas, new innovations, products, and services that help people and make individuals money, that is the path that built America and created all the tools we take for granted. The Imac, I-pod, and I-phone were not created in a department in Washington. No, Apple was founded in a garage by a bright individual, whose company has become a powerhouse that provides thousands of jobs, and billions in tax revenue.

Take your pick of a product cell phones, internet, cars, air conditioning, high tech medicine, shopping malls, and Walmart. These items did not come out of a government program. These products were not conceived in some over-bloated governmental department. Americans did this in a nation that is a capitalist society. It is the backbone of the Great American Experiment. We have a system in America that allows a 19-year-old freshman at Harvard create a business and product that changes the world.

It is a country that allows another company to create a product, called Farmville, for the aforementioned company founded by that 19-year-old and generate 340 million in revenue. This is the country America is, and this what the Right represents. A vision that does not just fight for the millionaire or billionaire, but for the right and ability of you, your kids, and grandkids to become a millionaire or billionaire yourself.

This is what the election is about. Who are we going to be as a country? Are we going to be a North American version of France with social programs for every citizen and a laissez-faire population, or are we going to be  Americans? In America we work hard, people that do not perform get fired (unless they are union teachers), and compared to the rest of the world our economy shows it.

In France, you get 8 weeks of vacation, you cannot be fired easily, and you get riots from people if they try to change retirement by two years. More important, their economy reflects that as well. France, and other countries with similar policies have stagnant economies, and a financial house that is crumbling even as you read these words.

This is not a bashing of France. Judging by the recent presidential vote, they are proud to be socialists. The issue is what America wants to be. Is the path of national healthcare, eight-week vacations, and a nanny state that polices where we want to go?

This election is the one that will answer that question.

There will be many long arguments in the coming weeks and months about which path is better. Make no mistake, this is the election that will be a defining one in your life, my life, and in the world. If we go in one direction, we could end up going the path of empires before us such as Rome, Carthage, the British Empire, etc.: into a path of slow decay. Not because the notion of helping others is bad, but because to give people stuff, you have to pay for it, and there is never enough money in a social democracy.

If this is not the case then why are Spain, Greece, France, Italy, Ireland and others finding out that truth today? If there is more than enough, then why is Europe a heartbeat away from collapsing economically? Depending on what direction this next election takes, America may find out the answer to those questions. If we move Left, we might not like the answer.

Image Courtesy of  K2 images / Shutterstock.com

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The Republicans “Cut, Cap and Balance” plan will get nowhere. President Obama has vowed to veto the plan if it makes it to his desk. The plan would condition a debt ceiling hike on a constitutional amendment requiring the federal government to balance its balance each year. The proposal would also demand significant spending cuts and a spending cap in order to raise the debt ceiling.

President Obama released a statement on Monday threatening to veto the bill. “Neither setting arbitrary spending levels nor amending the Constitution is necessary to restore fiscal responsibility,” reads the statement released by the White House. “The bill … would set unrealistic spending caps that could result in significant cuts to education, research and development, and other programs critical to growing our economy and winning the future. It could also lead to severe cuts in Medicare and Social Security, which are growing to accommodate the retirement of the baby boomers, and put at risk the retirement security for tens of millions of Americans.”

The proposal also “sets out a false and unacceptable choice between the Federal Government defaulting on its obligations now or, alternatively, passing a Balanced Budget Amendment that, in the years ahead, will likely leave the Nation unable to meet its core commitment of ensuring dignity in retirement,” the statement continues.

Ultimately, the bill “is inconsistent with this responsible framework to restore fiscal responsibility and is not an appropriate method of reducing the Nation’s deficits and debt,” it concludes.

The White House and Congress continue to try to find a compromise in order to raise the debt ceiling by the fast approaching deadline. Republicans are using this opportunity to try to force Obama and the Democrats to make drastic cuts to spending while refusing to raise taxes on the wealthy. A strange position to be in, for sure. The Republicans don’t see it that way though. Incredulously.

House Speaker John Boehner (R-Ohio) said Obama’s veto threat is “disappointing.”
“While American families have to set priorities and balance their books, this White House obviously isn’t serious about making the same tough choices,” Boehner said in a statement. “This unfortunate veto threat should make clear that the issue is not congressional inaction, but rather the President’s unwillingness to cut spending and restrain the future growth of our government.”

“The House will proceed as planned with its vote on the Cut, Cap and Balance Act,” Boehner added.

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