"Taxes," wrote Robert Heinlein, "are not levied for the benefit of the taxed." But if that's true, the question naturally arises: For whose benefit are they levied?
In the American Jobs and Closing Tax Loopholes Act of 2010 (AJCTLA), Sander Levin, D.-Mich., the new chairman of the House Ways and Means Committee, has laid out a bevy of new taxes that would (partially) cover an even bigger bevy of benefits for Americans struggling through the Great Recession. Benefits described in the new legislation include:
- $64.9 billion to avoid a 21% cut in Medicare physician reimbursements
- $47 billion to extend unemployment insurance benefits for the near-10% of our population left unemployed after Congress' latest "jobs bill"
- $7.8 billion to extend health-care benefits to them
- And on, and on, and on...
The bill packs in a whopping $190 billion in new spending. According to The Wall Street Journal, 70% would be financed by the government taking on new debts. That assumes, of course, that both the House and the Senate vote to pass the bill, which congressional leaders want to do before the end of the month.
But what about the balance, you ask? The $56 billion that Congress wouldn't be pawning off on our children and grandchildren? This, Fools, is today's story.
Welcome! You've got taxes!
Who gets to pay for all this government largesse? That's the $64,000 question for investors. Because as it turns out, the folks getting picked up by their heels and shaken down for loose change include some of the companies that you and I invest in. Companies like …
Why do these companies fear to "cometh" anywhere near the U.S. tax man? Consider what happened to Hewlett-Packard
In any case, that shouldn't be a problem in future years. Congress aims to make multiple tweaks to the tax law, subjecting foreign-earned profits to higher taxes here at home from the get-go. This promises to crimp the companies' profitability, and in all likelihood hurt the stocks. Estimated tax haul: $14.5 billion.
Congress is using the Deepwater Horizon disaster as an excuse to raise taxes on the oil industry as well. While oil is crashing on growth fears in Europe, and at the moment when seasonal demand for gasoline (and gas prices at the pump) are poised to spike higher here in the States, Congress intends to tag oil companies with a $0.32-per-barrel excise tax, adding $10.9 billion over the next 10 years to the Oil Spill Liability Trust Fund. (I certainly hope it has a stronger padlock on it than the Social Security Trust Fund.)
Had this tax been in effect last year, it could have cost ExxonMobil
Nearly everybody else
One major target of the new "jobs bill" is the very "job-creating engine" that politicians so often ballyhoo for its benefits to society: Small business. Millions of American small-business owners try to partially opt out of the Social Security system by incorporating themselves as S corporations. For years, Congress has viewed this gambit as little more than a tax dodge. (And it is. But can you blame us?) Now Congress will try to make it harder to hide professionals' income from "FICA" -- and hopes to raise $11.2 billion in the process.
And Wall Street is a favorite target. Congress has painted a bull's-eye on the hedge fund and private equity industry. Aiming to raise $18.6 billion by changing the way the Internal Revenue Service views the income of professional money managers, it would raise taxes on three-quarters of the profit that money managers derive via carried interest. The provision would result in the private equity crowd paying higher ordinary income tax rates on the bulk of its carried interest income, much of which now qualifies for favorable long-term capital gains tax treatment.
If all the above has you feeling depressed, or thinking that things are perhaps not going to be going so great for your portfolio, take heart. As the saying goes in Washington, D.C., "whenever one loophole closes, another opens." The lobbyists managed to slip more than their share of knots into the jobs bill, including (I'm quoting The Wall Street Journal here) "subsidies for municipal bond traders, cotton farmers, yarn producers, sheep growers, Hawaiian sugar cane cooperatives, motor sports businesses, renewable energy firms, [and] the steel lobby."
I'm just giddy with glee, knowing that the profits my investments might have earned might now be going to support such worthy causes. How about you?
What do you think about the American Jobs and Closing Tax Loopholes Act of 2010? Tell us below.
Fool contributor Rich Smith does not own shares of any company named above. Microsoft is a Motley Fool Inside Value selection, Google is a Rule Breakers pick, and eBay is a Stock Advisor recommendation. Motley Fool Options has recommended a bull call spread position on eBay and a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.