Monday, February 4, 2013

The Fiscal Cliff Sham… I Mean Deal…

Apparently, Congress is populated by comedians with a penchant for satire. As evidence of this, they passed a "Fiscal Cliff" agreement that was supposedly all about protecting the middle class. Instead, it is 250-pages of muck.

How bad is it? The New York Times offers one example:
Fiscal Cliff Includes Big Favor to Big Drug Company 
WASHINGTON — Just two weeks after pleading guilty in a major federal fraud case, Amgen, the world’s largest biotechnology firm, scored a largely unnoticed coup on Capitol Hill: Lawmakers inserted a paragraph into the “fiscal cliff” bill that did not mention the company by name but strongly favored one of its drugs.

The language buried in Section 632 of the law delays a set of Medicare price restraints on a class of drugs that includes Sensipar, a lucrative Amgen pill used by kidney dialysis patients. 
Read the full text of H.R. 8… it is depressing.

It begins loftily enough, letting us know the Senate is adhering to the Constitution by not passing a retroactive tax measure. No, you see January 1, 2013, is really part of December 31, 2012. It's a very long day, that December 31. Also, since a fiscal measure must originate in the House, the Senate does the Constitutionally appropriate thing by passing House Resolution 8.
In the Senate of the United States,

January 1 (legislative day, December 30, 2012), 2013.

Resolved, That the bill from the House of Representatives (H.R. 8) entitled "An Act to extend certain tax relief provisions enacted in 2001 and 2003, and to provide for expedited consideration of a bill providing for comprehensive tax reform, and for other purposes.", do pass with the following
Oh, but wait, the Senate didn't like the House bill. What is the solution? Strike everything after the first paragraph (called the the "enacting clause") and replace the entire bill with the Senate version. Personally, I see this as flagrantly disregarding the intent of the Constitution, but that little thing doesn't seem to bother our political leaders or most commentators. It's a common practice, after all, to replace entire bills from the House with nice, shiny, Senate editions. This was also how the Affordable Care Act was handled — the bill was "amended" in its entirety without regard for the fact the House must originate spending measures.

Anyway, here's the striking of the old, replacing with the new:
AMENDMENTS:

Strike all after the enacting clause and insert the following:

SECTION 1. SHORT TITLE, ETC.

(a) SHORT TITLE.—This Act may be cited as the "American Taxpayer Relief Act of 2012".

(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.
I've long argued that we need to toss out the entire Internal Revenue Code and simplify it. Instead, we've been gluing amendments to the 1986 code, creating a monstrous mess. As of 2004, the federal tax code was 3.4 million words. Think about that. Since 2004, we have amended the code with significant "extensions of temporary provisions" four times.

The complete Internal Revenue Code is more than 24 megabytes in length, and contains more than 3.4 million words; printed 60 lines to the page, it would fill more than 7500 letter-size pages. What should be a 100-page (or less) document, fills more than 100 volumes — which I can't imagine anyone can understand.

Here is the 2012 H.R. 8 table of contents, with some observations:
(c) TABLE OF CONTENTS.—The table of contents for this Act is as follows:
Sec. 1. Short title, etc.
TITLE I—GENERAL EXTENSIONS
Sec. 101. Permanent extension and modification of 2001 tax relief.
Sec. 102. Permanent extension and modification of 2003 tax relief.
Sec. 103. Extension of 2009 tax relief.
Sec. 104. Permanent alternative minimum tax relief.
We kept hearing the "Bush tax cuts" were a bad idea. Now, the Congress and president are making them permanent. I think this is a bad idea. Not because I like higher rates, but because I believe everyone with any income should pay something. I'd get rid of the AMT entirely, not merely offer "relief" for some people.

My idea is simple: Three tax brackets, starting at whatever 150 or 200 percent of poverty is. And none of this taxing married couples differently. Taxes should be individual, period, with no deductions. None. Keep the rates low and the system simple.

Just read and ponder how obvious the pandering is in the individual tax provisions:
TITLE II—INDIVIDUAL TAX EXTENDERS
Sec. 201. Extension of deduction for certain expenses of elementary and secondary school teachers.
Yes, because other professions don't have to spend money on supplies, training, or anything else. I'm sorry, but I've been a teacher. Many of my friends are teachers. We aren't paid as poorly as people might imagine.
Sec. 202. Extension of exclusion from gross income of discharge of qualified principal residence indebtedness.
Sec. 203. Extension of parity for exclusion from income for employer-provided mass transit and parking benefits.
Sec. 204. Extension of mortgage insurance premiums treated as qualified residence interest.
Sec. 205. Extension of deduction of State and local general sales taxes.
Sec. 206. Extension of special rule for contributions of capital gain real property made for conservation purposes.
Sec. 207. Extension of above-the-line deduction for qualified tuition and related expenses.
Sec. 208. Extension of tax-free distributions from individual retirement plans for charitable purposes.
Sorry, but if I could rewrite the tax code, everyone one of the above provisions would be gone — even the tax-free distribution from an IRA to a charity. Again, keep it simple, keep rates low, and a lot of other expenses will fall. Imagine not needing software, accountants, or lawyers to prepare tax returns.

The last of the individual tax-payer provisions must have an interesting story behind it. However, I don't care.
Sec. 209. Improve and make permanent the provision authorizing the Internal Revenue Service to disclose certain return and return information to certain prison officials.
The business tax extensions range from well-intentioned to the absurd — but we don't need this much clutter in the tax code. Trust me, I understand wanting to encourage some behaviors, but I adamantly oppose using tax code to influence people or companies.

You want to know who gets favors from Congress? I'm putting some of the more absurd items in bold text.
TITLE III—BUSINESS TAX EXTENDERS
Sec. 301. Extension and modification of research credit.
Sec. 302. Extension of temporary minimum low-income tax credit rate for nonfederally subsidized new buildings.
Sec. 303. Extension of housing allowance exclusion for determining area median gross income for qualified residential rental project exempt facility bonds.
Sec. 304. Extension of Indian employment tax credit.
Sec. 305. Extension of new markets tax credit.
Sec. 306. Extension of railroad track maintenance credit.Sec. 307. Extension of mine rescue team training credit.Sec. 308. Extension of employer wage credit for employees who are active duty members of the uniformed services.
Sec. 309. Extension of work opportunity tax credit.
Sec. 310. Extension of qualified zone academy bonds.
Sec. 311. Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.Sec. 312. Extension of 7-year recovery period for motorsports entertainment complexes.Sec. 313. Extension of accelerated depreciation for business property on an Indian reservation.
Sec. 314. Extension of enhanced charitable deduction for contributions of food inventory.
Sec. 315. Extension of increased expensing limitations and treatment of certain real property as section 179 property.
Sec. 316. Extension of election to expense mine safety equipment.
Sec. 317. Extension of special expensing rules for certain film and television productions.Sec. 318. Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.
Sec. 319. Extension of modification of tax treatment of certain payments to controlling exempt organizations.
Sec. 320. Extension of treatment of certain dividends of regulated investment companies.Sec. 321. Extension of RIC qualified investment entity treatment under FIRPTA.
Sec. 322. Extension of subpart F exception for active financing income.
Sec. 323. Extension of look-thru treatment of payments between related controlled foreign corporations under foreign personal holding company rules.
Sec. 324. Extension of temporary exclusion of 100 percent of gain on certain small business stock.Sec. 325. Extension of basis adjustment to stock of S corporations making charitable contributions of property.
Sec. 326. Extension of reduction in S-corporation recognition period for built-in gains tax.
Sec. 327. Extension of empowerment zone tax incentives.
Sec. 328. Extension of tax-exempt financing for New York Liberty Zone.Sec. 329. Extension of temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands.
Sec. 330. Modification and extension of American Samoa economic development credit.Sec. 331. Extension and modification of bonus depreciation.
If you read the details of many of the Title III extensions, it is easy to see that some companies are "more equal than others" in the eyes of Congress. Why does the film industry need a special tax break? Why are "motorsports" mentioned by name? It is painfully obvious the tax code isn't fair when you see a list like the above. And President Obama, constantly complaining about the unfairness of our tax system, supported this horrible legislative Frankenstein.

You really want unfair, consider the nonsense behind "green energy" tax breaks. Section 403 below was included for a company in Oregon. The company makes electric motorcycles and wanted a break after donating to a Democrat's reelection campaign.

TITLE IV—ENERGY TAX EXTENDERS
Sec. 401. Extension of credit for energy-efficient existing homes.
Sec. 402. Extension of credit for alternative fuel vehicle refueling property.
Sec. 403. Extension of credit for 2- or 3-wheeled plug-in electric vehicles.
Sec. 404. Extension and modification of cellulosic biofuel producer credit.
Sec. 405. Extension of incentives for biodiesel and renewable diesel.
Sec. 406. Extension of production credit for Indian coal facilities placed in service before 2009.
Sec. 407. Extension and modification of credits with respect to facilities producing energy from certain renewable resources.
Sec. 408. Extension of credit for energy-efficient new homes.
Sec. 409. Extension of credit for energy-efficient appliances.
Sec. 410. Extension and modification of special allowance for cellulosic biofuel plant property.
Sec. 411. Extension of special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities.
Sec. 412. Extension of alternative fuels excise tax credits.
Sorry, but no industry should get special treatment, no matter how well-intentioned. Then again, biodiesel and biofuels are not "clean" energy. Burning anything is a bad idea. Ethanol, for example, produces more pollution than standard gasoline and it is less efficient — so you need to burn more of it! In the case of green energy tax breaks, it isn't about promoting good ideas. No, it is about winning votes.

Unemployment has been extended repeatedly. H.R. 8 includes another extension.
TITLE V—UNEMPLOYMENT
Sec. 501. Extension of emergency unemployment compensation program.
Sec. 502. Temporary extension of extended benefit provisions.
Sec. 503. Extension of funding for reemployment services and reemployment and eligibility assessment activities.
Sec. 504. Additional extended unemployment benefits under the Railroad Unemployment Insurance Act.
The healthcare provisions of H.R. 8 reveal that Congress is and will micro-manage the health care system. Medicare and Social Security (along with debt service) are leading us towards a true fiscal cliff. Nothing Congress does is going to simultaneously improve care and reduce costs. The fact healthcare dominates the fiscal cliff agreement should worry us. Controlling healthcare means controlling almost every aspect of life.
TITLE VI—MEDICARE AND OTHER HEALTH EXTENSIONS

Subtitle A—Medicare Extensions
Sec. 601. Medicare physician payment update.
Sec. 602. Work geographic adjustment.
Sec. 603. Payment for outpatient therapy services.
Sec. 604. Ambulance add-on payments.
Sec. 605. Extension of Medicare inpatient hospital payment adjustment for lowvolume hospitals.
Sec. 606. Extension of the Medicare-dependent hospital (MDH) program.
Sec. 607. Extension for specialized Medicare Advantage plans for special needs individuals.
Sec. 608. Extension of Medicare reasonable cost contracts.
Sec. 609. Performance improvement.
Sec. 610. Extension of funding outreach and assistance for low-income programs.

Subtitle B—Other Health Extensions
Sec. 621. Extension of the qualifying individual (QI) program.
Sec. 622. Extension of Transitional Medical Assistance (TMA).
Sec. 623. Extension of Medicaid and CHIP Express Lane option.
Sec. 624. Extension of family-to-family health information centers.
Sec. 625. Extension of Special Diabetes Program for Type I diabetes and for Indians.

Subtitle C—Other Health Provisions
Sec. 631. IPPS documentation and coding adjustment for implementation of MSDRGs.
Sec. 632. Revisions to the Medicare ESRD bundled payment system to reflect findings in the GAO report.
Sec. 633. Treatment of multiple service payment policies for therapy services.
Sec. 634. Payment for certain radiology services furnished under the Medicare hospital outpatient department prospective payment system.
Sec. 635. Adjustment of equipment utilization rate for advanced imaging services.
Sec. 636. Medicare payment of competitive prices for diabetic supplies and elimination of overpayment for diabetic supplies.
Sec. 637. Medicare payment adjustment for non-emergency ambulance transports for ESRD beneficiaries.
Sec. 638. Removing obstacles to collection of overpayments.
Sec. 639. Medicare advantage coding intensity adjustment.
Sec. 640. Elimination of all funding for the Medicare Improvement Fund.
Sec. 641. Rebasing of State DSH allotments.
Sec. 642. Repeal of CLASS program.
Sec. 643. Commission on Long-Term Care.
Sec. 644. Consumer Operated and Oriented Plan program contingency fund.
I do like this great little nugget at the end of H.R. 8.
TITLE VIII—MISCELLANEOUS PROVISIONS
Sec. 802. No cost of living adjustment in pay of members of congress.
How about no pay at all for Congress unless both houses pass a budget and constrain government spending to less than 20 percent of GDP? I can dream.

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