Worst tax ideas of 2009

I often head over to the Tax Policy Center for commentary and analysis on current topics in the tax arena. They have a way of making a pretty dry topic interesting. So I've reprinted here a posting from their blog - Lump of Coal Award: The Worst Tax Ideas of 2009...

10. The Roth Rollover. Let’s see, allowing people to turn their tax-deferred retirement savings into fully tax-free investments starting on Jan. 1 will be a long-term fiscal catastrophe. And in the short run, the up-front taxes people must pay to roll into a Roth could depress the stock market and damage the shaky recovery. What’s not to like?

9. The Bo-Tax and the Tanning Bed Tariff. This is what happens when you need money and won't talk seriously about revenues.

8. Obama’s Middle-Class. This is a rerun from last year, but it is too good to leave out. The President thinks we will somehow reduce the deficit and fix the tax code without raising taxes by a dime for those poor souls making a quarter million dollars-a-year or less. Unfortunately, that's 95 percent of us. Can’t wait to see how he does it.

7. Taxing the Rich. Why not let a handful of wealthy taxpayers finance all your new ideas. So let’s drive the top rate north of 45 percent, even though no one will really pay it. On the other hand, except for Barbra Streisand and those other Hollywood types, they are mostly Republicans anyway.

6. The Estate Tax. Now you see it. Now you don’t. Wait, there it is again. So what if nobody has any idea how to do estate planning anymore. On the other hand, Congress has had only eight years to fix this mess.

5. Tax-free health insurance. If Congress is serious about controling medical costs, taxing expensive employer-sponsored insurance is a good way to start. But the unions have made this a litmus test issue, and neither Obama nor congressional Democrats want to take them on.

4. California. It claims to be the fifth largest economy in the world but can’t pass a serious budget, and can’t govern itself. It is the poster child for dysfunctional state governments and fiscal crises everywhere.

3. The homebuyer credit. Congress started the year by giving away $8,000 in subsidies to "first-time" homebuyers, as many as 74,000 of whom, it turned out, never quite got around to buying a house. Then, it extended the boondoggle to current owners who buy up. Bottom line: People who were already going to buy will get billions of dollars in government subsides. But you gotta make those real estate agents happy.

2. The Obama Tax Reform Panel. Not only will it fail to propose an improved tax code, it missed its own deadline. Nothing beats being both disappointing and late. “After the holidays,” the Obama people say. Does anybody care?

1. And the winner is, of course, the HAPPY Act. We've got a $1.5 trillion deficit and a Republican congressman named Thaddeus McCotter wants a $3,500 deduction for the cost of caring for our pets. Why? Because we love them.

Kind of like ROTC...

On Thursday, Senator Susan Collins introduced a bill to help bolster the federal government's acquisition workforce. The Acquisition Workforce Improvement Act of 2009 would pay tuition, room, and board for a three-year work/study program at Washington, D.C. area universities. Coursework and on-the-job training would focus on federal acquisitions (naturally); a quick read of the bill reveals some similarities in scope to a program in Harvard's Kennedy School of Government. Recipients of the scholarship would focus on academics for one year, then spend the next two years studying and working at various federal agencies. Graduates would earn a Master's degree and be granted federal employment, whereupon they would incur a three-year federal service requirement.

All in all, this looks like a good first step in getting qualified professionals into the acquisition workforce. One risk to this type of program is investing that time and effort into developing a young professional who takes the Master's degree and valuable job experience and jumps ship as soon as possible. True, that's a risk that might be worth the investment, as a number of individuals would certainly choose a career in the acquisition workforce and assume senior leadership positions down the road. But this bill would stand to gain from incentivizing the federal career path. Perhaps the three years of study could count toward seniority and pension benefits. When the individual hits the three-year study / three-year work point, it might be a little easier to decide to "stay fed" with only another 14 to get a defined pension.

The initiative has merit and should find a relatively easy ride to passage. This "ROTC for civilians" would do well to focus needed attention to an area that consistently underperforms. However, this should be viewed as only one small step toward improving the system. The appropriations process, including earmarks, and baseline cost and schedule estimating have inherent weaknesses that no bright young professional can fix alone. But it's hard to argue the value of a program that will no doubt attract promising talent to this vital part of the federal workforce.

What's in a name?

I'll take this opportunity to point out a recent intersection of wine and politics. After several years of consideration, including a fair amount of controversy, the Alcohol and Tobacco Tax and Trade Bureau (TTB) approved Calistoga as the newest American Viticultural Area (AVA).

So what does that mean? You might not have given much thought to the writing on your wine label beyond the name of the winery and the varietal (the type of grape(s)). To help consumers make informed decisions, and to give viticulturalists the opportunity to showcase the nuances of the grapes they grow, the federal TTB sets standards that govern when wines must carry the name of their origin and what name they can list.

You probably have noticed the name "California" or "Napa County" on your wine bottle. These are known as appellations and indicate where the grapes used to make the wine were grown. The TTB requires an appellation of origin be listed when the label includes, among certain other information, a vintage or a varietal. The winery may list an appellation of origin if at least 75% of the grapes to make the wine were grown in that place. So when a winemaker sources grapes from across California's Central and Northern Coasts to churn out 200,000 cases of wine at $8 a bottle, you will see "California" on the label (in at least 2mm print). If the winemaker chooses instead to use grapes grown mostly in Sonoma County, that is the name you will see. That wine might also cost a few dollars more, as Sonoma County as a whole tends to be a pretty good place to grow grapes and it has a certain amount of name recognition and cache (it's also a smaller area than the state, so fewer grapes in a favorable area increases the price per ton).

Moving on from appellation of origin, there is a more specialized naming system called viticultural area of origin. These are areas with distinct physical boundaries (mountains, hills, rivers, valleys, etc.) and characteristics (sandy, loamy, or volcanic soils, arid, cool, warm, high altitude, etc.) that give rise to distinct growing conditions and distinct flavors. AVAs can be quite small; some more popular names in California include Alexander Valley (32,536 acres), Rutherford (6,650 acres), Oakville (5,760 acres), and Stags Leap District (2,700 acres). If you're touring Northern California's wine country, you won't always know that you've left one AVA and entered another. The TTB considers applications for AVAs, and they require that at least 85% of the grapes used to make a bottle of AVA-designated wine must have been grown in that area.

The stakes can be quite high for getting a new AVA approved, as some wineries' reputations have been made based on their location in a well-known AVA. The areas I listed above also happen to include historic, well-known wineries including Beaulieu Vineyards, Quintessa, Caymus (all Rutherford), Opus One, Robert Mondavi, Silver Oak (all Oakville), Stag's Leap Wine Cellars, and Clos du Val (both Stags Leap District).

The historic area of Calistoga had never been granted an AVA. The application, spearheaded by Master Winemaker Bo Barrett of Chateau Montelena in Calistoga (who was also depicted in the enjoyable 2008 movie Bottle Shock) ran into trouble when two wineries, Calistoga Cellars and Calistoga Estate Vineyards, complained that approval of the AVA, and the ensuing labeling restrictions, would unfairly hurt their business. By virtue of the new AVA name prominently displayed on their labels, they will either need to start using at least 85% Calistoga-grown grapes in their wines or change the name of their winery. The TTB proposed a compromise that would have grandfathered in the two operations, but a massive effort by winemakers, vintners, and trade associations throughout the west coast squelched that idea.

Barrett says that he is already placing orders for labels that show a Calistoga viticultural area of origin.