Breaking News

WASHINGTON – President Barack Obama’s proposed tax increases are being met with misgivings by both Republicans and Democrats in Congress as he sends his Treasury secretary to Capitol Hill to defend them.

Lawmakers in both parties question Obama’s call to reduce high-income earners’ tax deductions for the interest on their house payments and for charitable contributions. Also drawing fire is his proposal to start taxing industries on their greenhouse gas pollution — a move sure to raise consumers’ electric rates.  Obama and his top aides have been promoting the budget package since unveiling an outline last week, but Tuesday will provide the lawmakers their first opportunity to publicly question top officials about the details.

Administration officials say the nation’s economic crisis requires bold action to right the economy and expand access to health care while providing tax breaks to middle- and low-income families.

The economy took another hit Monday when the Dow Jones Industrial Average plunged below 7,000 for the first time since 1997.

Treasury Secretary Tim Geithner was scheduled to appear Tuesday before the tax-writing House Ways and Means Committee, which also is likely to question him about Obama’s declaration last week that he may be asking Congress this year for another $750 billion bailout for troubled banks.

Meanwhile, White House Budget Director Peter Orszag was to testify Tuesday before the House Budget Committee on Obama’s spending priorities in the administration’s $3.5 trillion budget blueprint for the 2010 fiscal year beginning Oct. 1.

Taxes only on wealthiest?
Obama has been careful throughout the presidential campaign and since being elected to say he would impose higher taxes only on the wealthiest. Republicans, however, say Obama’s energy proposal amounts to a tax that would increase energy costs for all Americans.

“This massive hidden energy tax is going to work its way through every aspect of American life,” said Rep. Dave Camp of Michigan, the top Republican on the Ways and Means Committee. “How we light our homes, heat our homes and pay for the gas in our cars, in every phase of our daily lives, we will be paying higher costs.”

Under the energy plan, Obama wants to reduce the emissions blamed for global warming by auctioning off carbon pollution permits. The proposal, known as cap and trade, is projected to raise $646 billion over 10 years.

Most of the money would be used to pay for Obama’s “Making Work Pay” tax credit, which provides up to $400 a year to individuals and $800 a year to couples. The plan also would raise money for clean-fuel technologies, such as solar and wind power.

Orszag has acknowledged that the energy proposal would increase costs for consumers, but he argues that the vast majority of consumers will get tax breaks elsewhere in Obama’s budget package.

Budget crises in Kansas and California have already forced those states to halt tax refund processing. In California, there’s even been talk of sending out government IOUs instead of money.

In New York, state officials insist they have enough money set aside to pay tax refunds, but tax preparers in the state say refund checks are taking an awfully long time to arrive. And around the country, with 46 states facing budget crises, according to the Center on Budget and Policy Priorities, some taxpayers worry that their refund checks might be withheld as well.

When Camarillo, Calif., resident Christine Hughes logs in to check on the status of her refund, all she sees is this disheartening message:

“Your refund cannot be issued at this time. Due to the state’s persistent cash flow problems, the State Controller has directed (this agency) to stop sending refund requests to the State Controller’s office for processing.” Hughes says she and her husband are awaiting $1,000 in refunds from California. “It’s pretty ridiculous, but what can we do?” she said.

California officials suspended tax refund payments in January to free up $2 billion for state operations as the state’s budget crisis reached epic proportions — with a $42 billion deficit and coffers essentially running on zero for 17 months. Despite the budget compromise forged on Feb. 19 by Gov. Arnold Schwarzenegger and the state Legislature, it’s still not clear when refund payments will resume.

In Kansas, refunds were halted temporarily by a budget battle pitting Democratic Gov. Kathleen Sebelius against the Republican-controlled Legislature. The lawmakers passed a budget with spending cuts of around $300 million, but Sebelius refused to sign it. At the same time, she had asked to borrow $225 million from another government agency to cover the refund payments, but Republicans blocked that. The two sides reached a deal last week and state officials there say refund checks should be sent out shortly.

Placing tax refund payments in limbo could make states liable for interest payments, but many state governments have given themselves a wide grace period – much more than your bank gives you. In California, residents who are forced to wait for their returns are entitled to interest payments only if the delay extends 45 days beyond April 15.

Hughes said she thinks it’s unfair for state officials to treat her refund like a free loan. She plans reduce her paycheck withholding for state taxes until her refund arrives.

“If they can’t pay the taxpayers back what we are owed, we should not be obligated to give them any more of our hard earned money to mismanage,” she said.

Red Tape Wrestling Tips: A withholding cautionary tale
Of course, residents of any state with an income tax would have nothing to fear if they’d set their paycheck tax withholding amounts to the appropriate level. Many people don’t, and in fact relish the thought of a big refund check every spring. That’s wrong-headed.

BankRate.com says that last year, the average federal tax refund check was $2,700, meaning the average taxpayer gave Uncle Sam $225 too much every month. Fine-tuning that withholding amount could be your very own stimulus package.

But don’t overdo it. If you underpay your taxes this year and owe a big bill next April 15, in most cases you’ll be charged underpayment penalties.

You can change your withholding amount at any time by getting a W-4 form from your employer. The IRS offers a handy withholding payment Web-based calculator. This form will only help you fine-tune your federal tax payments, but state tax payments are generally based on similar formulas, so the tool is still helpful.

If you haven’t examined your withholding elections for a while, now is a good time to look. In this economy, you should keep as much of your money in your own hands as much as possible.

President unveils budget; aims to expand health coverage, hike some taxes and is eyeing more bank-rescue funds.

WASHINGTON – President Barack Obama is sending Congress a “hard choices” budget that would boost taxes on the wealthy and curtail Medicare payments to insurance companies and hospitals to make way for a $634 billion down payment on universal health care.

Obama’s first budget, which will top $3 trillion, predicts the deficit for this year will soar to a whopping $1.75 trillion. The huge deficit reflects the massive spending being undertaken to battle a severe recession and the worst financial crisis in seven decades.

The new budget also plans for additional financial bailouts of up to $750 billion, a senior administration official told NBC News. But the White House believes that as the economy improves it will get roughly $500 billion back, so the expected cost to taxpayers is $250 billion.

Obama, in a morning briefing, spoke of “hard choices that lie ahead.” He called his budget “an honest accounting of where we are and where we intend to go.”

“We need to be honest with ourselves about which costs are being racked up,” said the president. He pledged that the budget will focus on rebuilding the “foundations” of the American economy.

One administration official called the request for additional bailout resources a “placeholder” in advance of a determination by the Treasury Department of what will actually be needed.

The spending blueprint Obama is sending Congress is a 140-page outline, with the complete details scheduled to come in mid to late April, when the new administration sends up the massive budget books that will flesh out the plan.

However, the submission of the bare budget outline was certain to set off fierce debate in Congress over Obama’s spending and tax priorities. The document includes additional requests for the current year and Obama’s proposals for the 2010 budget year, which begins Oct. 1.

The budget balances efforts to fulfill Obama’s campaign pledges to deliver tax cuts to the middle class, expand health care coverage and combat the economic crisis with an effort to keep an exploding deficit over the next few years from becoming a permanent drag on the economy. However, Republicans assailed the budget for the tax increases and some Democrats worried that Obama was not doing enough to get the deficit under control.

“I would give him good marks as a beginning, but we have to do a lot more to take on this long-term debt buildup,” said Senate Budget Committee Chairman Kent Conrad, D-N.D.

Republicans zeroed in on the tax increases to fund half of Obama’s health care expansion.
“Everyone agrees that all Americans deserve access to affordable health care, but is increasing taxes during an economic recession, especially on small businesses, the right way to accomplish that goal?” asked House Minority Leader John Boehner, R-Ohio.

The $634 billion down payment on expanding health care coverage would come from a $318 billion increase over 10 years in taxes on the wealthy, defined as couples making more than $250,000 per year and individuals making more than $200,000. The tax increase would occur by reducing the benefit the wealthy get on tax deductions. As one example, taxpayers in the current top tax bracket of 35 percent would see their tax deduction for every $1 given to charity drop from 35 cents to 28 cents.

The other half of the down payment on Obama’s drive toward universal health care — $318 billion — would come from curtailing payments to hospitals and insurance companies under Medicare and drug payments under Medicaid.

To meet his pledge of tax cuts for the middle class, the president wants to make permanent the $400 annual tax cut due to start showing up in workers’ paychecks in April as part of the $787 billion stimulus package just passed by Congress. Obama’s budget also extends the middle class tax cuts passed by the Bush administration in 2001 and 2003. Those cuts were due to expire at the end of 2010. If Congress approves Obama’s recommendations, the Bush tax cuts would only expire for couples making more than $250,000 per year.

The cost of the stimulus bill and the increased bailout support would push the deficit for this year to $1.75 trillion, a level — as a percentage of the economy — not seen since World War II. The deficit is expected to remain around $1 trillion for the next two years before starting to decline to $533 billion in 2013, according to budget projections.

Obama’s plan proposes achieving $634 billion in savings on projected health care spending and diverting those resources to expanding coverage for uninsured Americans. The $634 billion represents a little more than half the money that would be needed to extend health insurance to all of the 48 million Americans now uninsured.  Americans now spend a total of $2.4 trillion a year on health care.

War Costs

Obama also will ask for an additional $75 billion to cover the costs of wars in Iraq and Afghanistan through September, the end of the current budget year. That would be on top of the $40 billion already appropriated by Congress, the administration official said.

The administration will also ask for $130 billion for Iraq and Afghanistan in 2010 and will budget the costs of operations in Iraq and Afghanistan at $50 billion annually over the next several years.

Obama’s budget proposal would effectively raise income taxes and curb tax deductions on couples making more than $250,000 a year, beginning in 2011. By not extending former President George W. Bush’s tax cuts for such wealthier filers, Obama would allow the marginal rate on household incomes above $250,000 to rise from 35 percent to 39.6 percent.

The plan also contains a contentious proposal to raise hundreds of billions of dollars by auctioning off permits to exceed carbon emissions caps, which Obama wants to impose on users of fossil fuels to address global warming.

Some of the revenues from the pollution permits would be used to extend the “Making Work Pay” tax credit of $400 for individuals and $800 for couples beyond 2010, as provided in the just-passed economic stimulus bill.

About half of what officials characterized as a $634 billion “down payment” toward health care coverage for every American would come from cuts in Medicare. That is sure to incite battles with doctors, hospitals, health insurance companies and drug manufacturers.

Some of the Medicare savings would come from scaling back payments to private insurance plans that serve older Americans, which many analysts believe to be inflated. Other proposals include charging upper-income beneficiaries a higher premium for Medicare’s prescription drug coverage.

To raise the other half, Obama wants to reduce the rate by which wealthier people can cut their taxes through deductions for mortgage interest, charitable contributions, local taxes and other expenses to 28 cents on the dollar,

rather than the 35 cents they can claim now. Even more money would be raised if the top rate reverts to 39.6 percent, as Obama wants.

Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, called Obama’s proposal to tax the wealthy to finance health care reform a starting point. But he wants to also examine taxing some of health insurance benefits provided by employers — an idea rejected by Obama in last year’s presidential campaign.

Budget documents provided to The Associated Press show that Obama will not lay out a detailed blueprint for a health care overhaul, but a set of broad policy principles and some specific ideas for how to raise a big chunk of the money.

Obama’s promise to phase out direct payments to farming operations with revenues above $500,000 a year is sure to cause concerns among rural Democrats.

Even after all those difficult choices, cutting about $2 trillion from the budget over 10 years, Obama’s budget still would feature huge deficits.

The $1.75 trillion deficit projected for this year would represent 12.3 percent of the gross domestic product, double the previous post-war record of 6 percent in 1983, when Ronald Reagan was president, and the highest level since the deficit totaled 21.5 percent of GDP in 1945, at the end of World War II.

At $533 billion, the deficit in 2013 will be about 3 percent of the size of the economy, a level that administration officials said would be manageable.

Bill 390 “would remove all penalties in California law on cultivation, transportation, sale, purchase, possession, or use of marijuana, natural THC, or paraphernalia for persons over the age of 21,” Ammiano’s press secretary Quintin Mecke told the San Francisco Weekly.

Ammiano, a rookie state legislator and former San Francisco supervisor, may have a unique opportunity to win support for the bill in the wake of the state’s budget debacle.  “California has the opportunity to be the first state in the nation to enact a smart, responsible public policy for the control and regulation of marijuana,” he said.

Mecke suggested taxes on the trade could amount to $1 billion according to advocates.  And I’d bet that’s a conservative estimate.

“With the state in the midst of an historic economic crisis, the move towards regulating and taxing marijuana is simply common sense,” Ammiano said at a morning news conference at the state building on Golden Gate Avenue in San Francisco.

Estimates value the state’s crop of marijuana at $13.8 billion, double that of the vegetable and grape markets combined. Nationwide, it may be the fourth largest cash crop, behind corn, soy and hay but ahead of wheat.

The proposed bill would allow Californians over the age of 21 to grow, transport, sell, possess and consume the plant, with state and local law enforcement professionals barred from enforcing the federal ban.

The tax would amount to $50 per ounce of marijuana, which retails on the black market for anywhere from $250 to $500 depending on the source and quality.

While it may sound like a pipe dream, with communities from the emerald triangle of Humboldt, Mendecino and Trinity Counties to liberal districts all along California’s cost all strapped for cash, other lawmakers and voters might just tune in and turn on.

Frankly, I think they should sign an endorsement deal with Olympic gold medal swimmer Michael Phelps.

Jackson West figures libertarian stoners will inevitably complain about the tax.