The White House stepped up pressure on Congress to cut a deal with President Obama on deficit reduction and the fiscal cliff -- warning that fear of a sharp increase in taxes on the middle class could discourage consumer spending through Christmas.
"As we approach the holiday season, which accounts for close to one-fifth of industry sales, retailers can’t afford the threat of tax increases on middle-class families," the White House said in a report released on Monday.
The average family will pay $2,200 more in taxes next year if Congress does not agree to extend the Bush-era tax cuts, the report cautions. The White House report said that a yearend boost in taxes and scheduled spending cuts would threaten to interrupt a string of positive data suggesting that Americans are increasingly opening their pocketbooks after years of post-recession caution. - Read the report here
STUDY QUESTIONS TAX BREAKS ON SAVINGS A new study that suggests the $100 billion a year the government spends on tax breaks to encourage Americans to save for retirement may have little bearing on the amount they actually save.
Researchers from Harvard, the University of Copenhagen and the Danish National Center for Social Research examined data on a similar pension incentive program in Denmark and found that every dollar that the Danish government spent on tax breaks increased total savings by about only one cent. In contrast, policies that automatically saved a portion of a worker's income increased total savings by a substantial amount.
The researchers looked at Danish data partly because analogous American numbers are far less detailed. They conclude that tax breaks do not increase the overall level of savings by much, and do not tend to change the behavior of most workers - particularly the less wealthy, who often need the most help in preparing for retirement.
"The findings reported here call into question whether subsidies are the best policy tool to increase retirement savings," the authors write. "Our findings strengthen recent arguments for using 'nudges' such as automatic payroll deductions or savings defaults to stimulate retirement savings instead of subsidies." - Read more at The New York Times
ANTI-TAX SENTIMENT FADES WITH NORQUIST'S POPULARITY Conservative activist Grover Norquist had a rough holiday weekend as more senior Republicans distanced themselves from his anti-tax pledge in an apparent effort to signal their willingness to reach agreement on a deficit-reduction plan before the end of the year.
Sen. Lindsey Graham, R-S.C., and Rep. Peter King, R-N.Y., became the latest lawmakers to publically break with Norquist’s pledge to oppose any tax increase. "The world has changed," said King, "and the economic situation is different.” Grahm told ABC on Sunday that he was “willing to generate revenue” but would not agree to raise tax rates to do it. “I will cap deductions,” He said. Eliminating tax write-offs and deductions without a dollar-for-dollar match in lower tax rates is against Americans for Tax Reform’s strict anti-tax pledge, because it would raise the effective tax paid by some groups. - Read more at Business Insider
BUFFETT CHIMES IN ON NORQUIST Billionaire investment whiz Warren Buffett joined the growing criticism of Grover Norquist’s no-new-taxes stance in a New York Times op-ed on Monday: "Suppose that an investor you admire and trust comes to you with an investment idea. ... Would your reply possibly be this? 'Well, it all depends on what my tax rate will be on the gain you're saying we're going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.' Only in Grover Norquist's imagination does such a response exist. The ultrarich, including me, will forever pursue investment opportunities.”
Buffett added that Congress should enact a minimum tax on high income earners. He said he supports President Obama’s proposal to eliminate the Bush-era tax cuts for high-income taxpayers, but said he prefers the cutoff point -- which Obama has pegged at families earning more than $250,000 annually -- to be around $500,000. - Read more at The New York Times
MLB FREE AGENTS PLAN TO SIDESTEP THE CLIFF Who knew that ARod and Jose Reyes studied tax policy like, well, a hawk? The AP says that some big money players are wrangling for all they can get before the end of the year to avoid a take hike in 2013. "Front-loading would make sense if at all possible as tax rates will definitely go up on January 1st on all high-income taxpayers," agent Greg Genske said in an email. "The only question is HOW MUCH will the rates increase????"
With baseball contracts worth as much as $275 million (Alex Rodriguez) and the major league minimum $480,000, tax policy affects every player who spends most of the season in the big leagues.
All-Star shortstop Jose Reyes, who has a $10 million salary next year, was traded from the Miami Marlins to the Toronto Blue Jays. While Florida has no state income tax, Reyes remains a New York resident from his days with the Mets and had high taxes to begin with. Ontario's provincial tax rises to 11.16 percent - on top of a Canadian federal level as high as 29 percent.
Among states with big league teams, income tax rates go as high as 10.3 percent in California and 8.82 percent in New York. At the other end, Florida, Texas and Washington have no state income tax. The top rate in the District of Columbia is 8.95 percent. - Read more at CBS Atlanta
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