Over the past week, ATR has been breaking open the Obama budget to examine all the new tax hikes (on international income, small business, and more to come).  Today, we wanted to take a quick look at the "tax gap" and "tax compliance" tax hikes in the budget.

People often make the mistake of skimming over tax compliance measures, but that would be a big mistake.  Over the 10-year budget window, the Obama budget projects that these compliance "reforms" will raise $13.8 billion to close the so-called "tax gap," $7.4 billion to "improve compliance by businesses," $4.4 billion to "strengthen tax administration," $36 million in increased penalties, and $23.7 billion in backdoor death tax hikes.  You can view the scores here (Table S-8).  Add these together, and you get a $49.4 billion total tax hike.  That's more than double the amount raised by taxing carried interest as ordinary income, so this is a lot of money.

There are a couple of dozen individual proposals, so we'll focus on just the most damaging ones for small business owners and those who work for small businesses:

• Corporate Information Reporting ($9.2 billion).  Under current law, small business owners and others need to issue "1099-MISC" statements to individuals and partnerships to whom they pay at least $600 for goods and services.  This expands that to also include corporations.  This could dramatically-increase the number of these forms that are issued, which will increase headaches for small business owners every January.
   
• Landlord Information Reporting ($3.1 billion).  This further expands the above reporting requirement to owners of rental properties.  Those to whom rent is paid would need to receive a 1099-MISC.
   
• Independent Contractor Discrimination ($7.3 billion).  This would permit the IRS to more easily re-classify independent contractors (who only need to receive a 1099-MISC in January) as employees (which requires hiring a payroll company, quarterly filing and tax payments, and a W-2 in January).  The real reason behind this is to make it easier to unionize people who are currently not employees.
   
• Economic Substance Doctrine ($4.2 billion).  This would give the IRS the power to determine that a transaction used to lower a tax bill "lacks economic substance."  This is an arbitrary standard, and would subject every small business decision to the whims of an IRS auditor

No new taxes on people making less than $250,000, that's the line. Tricks like these are how such a promise is skirted.

Al Gore is responsible for this. He taunted Mother Nature. Consider this her memo: Don't Presume To Know What I Have in Store.

Here in Fairfax County, we thought we were prepared. I had purchased enough milk to last our family of five for a week. We had plenty of food. As the blizzard raged Friday night, we were tucked comfortably in the family room under blankets alternately watching a movie and observing the snow blowing sideways past the windows. The only interruptions to our comfort were the obligatory trips to the (decreasingly visible) driveway for Cali, our 10-week-old puppy.

It was around the 3 a.m. outing that the power went out. I hadn't really worried enough about that possibility. Though we often lose power due to summer storms, and occasionally if there's ice, snow has never before left us dark. But this is no ordinary storm. This is Al Gore's blizzard. My husband opened the garage door manually. We fumbled with flashlights to find Cali's leash and get her safely in and out. Back under the covers until 6 a.m., by which time the house was pretty cold and Cali needed to go out again. One of the kids did this trip. The snow was about 10 inches deep but the storm showed no signs of abating.

When the ambient temperature drops below 50 degrees, door handles send a chill down the spine, and we won't speak of bathroom experiences. A warm drink can make all the difference. But our cook top is electric, as is the oven. All was dark and inert. In good pioneer spirit, we lit a fire in the fireplace and used a stainless steel pan to boil water. Those silicon oven mitts have never done more useful service! Pour the boiling water over the (thankfully previously ground beans) et voila -- hot coffee. Slightly smoky tasting, but hot. The world is righted. Repeat procedure for the kids (yes, my teenagers drink coffee).

Our hot water heater uses gas, so we could at least wash our hands and faces in warm water. And unlike our less fortunate neighbors, we have county, not well, water so the lack of electricity doesn't shut down our water supply. But actually taking a shower, only to emerge into near freezing air, didn't seem appealing. We plugged in the one corded phone we keep for such emergencies. Dominion Virginia Power estimated restoration by 11 a.m. Thinking of Sisyphus, we started shoveling. Now there were 13 or 14 inches. We helped the stranded cars near our house dig out.

At 12:30, the power did jump to life, then faltered, then came back on. Rejoice! There was a rush to power up everything we could -- laptops, cell phones, BlackBerries. You could read by the light of the charge brigade. I threw a turkey breast and some potatoes into the oven -- and dashed upstairs for the shower and (bless you, Dominion Power!) the hair dryer.

As the inside temperature climbed, we noticed that our supply of firewood was getting unexpectedly low. Did you dig all around the rack? Some may have fallen and might be covered with snow. Yes. We were nearly out. Well, no problem. We had power. Until 4 p.m. -- that sickening sound of buzzing when your computer backup needlessly tells you what you already know. And the outside temperature was plunging into the teens. Now we had 34 inches of snow, just a few logs left, and approaching darkness.

We ate the turkey and potatoes by candlelight, and played a game around the kitchen table. The mood was giddy. We had warm food, two dogs, two cats, shelter, and one another. We had to dig a path for Cali. The snow was way over her head. She thought it was grand, though. A frolic. Her golden fur wore a halo of white.

The boys bedded down in the family room in front of the fireplace. My husband and I slept in our room under four blankets. Only my face was cold. But in the morning, it was getting harder to be cheerful. Almost out of firewood, we burned an old table that had been in the storage room. If we could get out of our street, we could go to a hotel. Oh, but not with a puppy who doesn't yet distinguish between the outside and the kitchen floor. More fireplace coffee, less fun this time.

For now, the power has returned. But the forecast is for another 8 to 12 inches starting tomorrow. A little snow is beautiful, but this is getting to be bad taste. We're grinding coffee and praying that the firewood will be delivered in the morning, as promised. Otherwise, I'm eyeing the kitchen chairs sadly.

San Francisco County a RedCounty?  Well, not quite, but we have just put our stake in the heart of that liberal beast---thanks to our new Editor, Ed Sheppard, and his fellow contributors, Howard Epstein and Brian McMillian.  These guys will give San Franciso County, and all of us readers of RedCounty, a much-needed,  inside conservative view of just what goes on in Mayor Gavin Newsome's backyard.   Ed's latest post briefly mentions a little known ballot measure, proposed by Board of Supervisors President David Chiu, that would prevent new buildings from casting shadows on city parks. 

If the City, and the President of the Board of Supervisors, keep tackling tough initiatives like shadows, I may just have to bookmark this county as my home and enjoy this type of news over my morning coffee.  We just knew that there would be some good stories coming out of this city and we are pleased to welcome San Francisco to our family of counties. 

Last week three House members (two Democrats and one Republican) launched yet another congressional effort to block the EPA from regulating carbon dioxide and other greenhouse gases under the Clean Air Act. The members include Collin Peterson (D-MN), chairman of the House Agriculture Committee; Ike Skelton (D-MO), chairman of the House Armed Services Committee; and Jo Ann Emerson (R-MO). Earl Pomeroy (D-ND) has a similar bill that would block EPA from regulating GHGs unless it received direct permission from Congress.

Meanwhile, in the Senate, Lisa Murkowski's resolution of disapproval of the EPA's authority to regulate GHGs is tentatively scheduled to be voted upon in March. Although the measure would not in itself block the EPA from regulating CO2, if passed it would launch a series of floor debates in the Senate with no time limit relating to the EPA's authority (or lack thereof) to regulate GHGs. As of this writing, Murkowski has 39 supporters, a list that includes three Democrats: Mary Landrieu of Louisiana, Ben Nelson of Nebraska, and Blanche Lincoln of Arkansas (all of whom are facing increased public criticism from their votes for Obamacare before Christmas).

In California, a major initiative effort is underway to suspend a 2006 cap and trade law until the state's unemployment rate drops to 5.5% (California's rate currently stands at above 12%, one of the highest in the nation). The law, known as AB32, is widely considered a massive new economic burden not totally dissimilar from the Kerry-Boxer energy tax currently in the Senate: It mandates that California's emissions drop to 1990 levels by 2020 through the controversial cap and trade system, an effort slated to begin in 2012.

A study by professors at California State University at Sacramento determined that AB32 would kill over one million jobs and saddle each small business with nearly $50,000 in new costs. They also determined that the law would cost each California family over $3,800 per year.
 

President Obama's 2011 budget proposal was so outrageously egregious that he had to hold a special press conference on Monday just to spin the news.

The scope of the proposed budget for fiscal 2011 is $3.8 trillion. The difference between revenue and expenditures for the current fiscal year will leave us with a deficit of $1.6 trillion. Amazingly, that shortfall will equal 10.6% of gross domestic product--the highest since World War II. For 2011, Obama's own Office of Management and Budget projects the deficit will fall by just $300 billion to $1.3 trillion, or 8.3% of GDP, the second highest since WWII.

While it is true that "W" was a paragon of fiscal irresponsibility, it now seems past the time allotted to be able to just blame Bush for the debt. To give you a bit of perspective of how far we've gone off the fiscal rails, the budget for all of 2001 was "just" $1.9 trillion.

Going forward, the administration is projecting annual deficits between $700 billion and $1 trillion through 2020, which would add $8.5 trillion to the nation's debt. The annual deficit is not expected to drop below $700 billion even though the administration includes just $50 billion a year in spending on the wars in Iraq and Afghanistan in 2012 and beyond, compared with the $159 billion that will be spent this year and next. (The budget calls the lowball $50 billion number a "placeholder" for "some as-yet unknown costs.")

There is an inordinate amount of obfuscation in Obama's budget. It has many moving parts, like the proposed cutting of 120 programs that will save $20 billion and a fee (not a tax mind you) on the country's biggest banks that will raise $90 billion. There is also a freeze on non-defense discretionary spending that may save $250 billion over 10 years. But the freeze is only in effect for three years and then those outlays will be allowed to grow again in line with inflation.

But the problem with all this debt and fiscal profligacy is clear. Every dollar of debt is a promise to repay that same dollar … and with interest. Estimates indicate that the publicly traded debt will rise to $18.5 trillion by 2020. To compare, the total national debt outstanding today is already an unbelievable $12.3 trillion and the publicly traded portion of that debt is $7.7 trillion. Having publicly traded debt increase from $7.7 trillion to $18.5 trillion may result in catastrophe. It will greatly increase the odds of causing a U.S. dollar and bond market crisis.

A dramatically falling dollar and soaring bond yields will cripple our economy. We must get our fiscal and monetary house in order today! I'm sorry to say but former Treasury Secretary Paulson's new book On the Brink will have to be re-written and given a new title. Maybe something like Pushed Over the Cliff would be appropriate. A country cannot rescue the private sector by moving the debt to the public sector. In truth, we haven't bailed out the private sector at all, just mortally wounded the public sector. But there will be no one around to bail us out in the future. We have delayed and exacerbated the inevitable confrontation with our debt.

Can Treasury Secretary Timothy Geithner really ask the Chinese to let their currency rise, which means that they will have fewer dollars to buy Treasuries, while at the same time asking them to increase their purchases of Treasuries to the tune of almost $11 trillion in the next 10 years? Does that sound like a credible strategy or a sound plan for America? Obama, Geithner and Federal Reserve Chairman Ben Bernanke have failed to recognize that the true nature of the problem is our debt. Instead of allowing the nation to deleverage, they viewed taking on more debt as a panacea. This failure in vision will lead to a crisis more severe than the one most think we have avoided by taking on all this government debt. The sooner we realize that, the sooner we can begin to cut spending and to the greatest extent possible, mollify the inevitable economic crisis.

In the interim, investors should position their portfolios to hedge against a falling dollar and higher inflation. That's because, historically speaking, monetization of the debt has been viewed by governments as an easy way out. I recommend international commodity stocks that pay a dividend like (SQM) and the new Platinum ETF (PPLT).

Michael Pento is chief economist at Delta Global Advisors and a contributor to greenfaucet.com.

American Solutions has been working the last several months with the help of the Freedom of Information Act (more background about those efforts here) to get to the bottom of "Drillgate," the continuing saga of trying to find out from the Department of the Interior (DOI) what were the results of the six month long public comment period on the five year plan for new offshore oil and gas development. 

Finally, as reported this week in the Wall Street Journal, the Minerals Management Service (MMS) of the DOI delivered some indirect confirmation in its response to our FOIA request that pro-drilling comments surpassed anti-drilling comments by a 2-1 margin.

Notwithstanding this new information, it's now over four months after the close of the comment period (in which 530,000 comments were received) and still no official public announcement by Interior Secretary Ken Salazar about the final results, who had said in April 2009 that President Obama directed him in respect of the comment period to "to make sure that we have an open and transparent government" and make sure that DOI was "maximizing the opportunity for the public to give us guidance on what it is that they want to do" because "these are not decisions that are going to be made behind closed doors."

Lacking confidence that the DOI would be prompt and efficient in announcing a tabulation - especially since we were informed by sources that the result of the tabulation showed a 2-1 advantage of pro-drilling to anti-drilling comments - American Solutions filed a Freedom of Information Act (FOIA) request on October 26, 2009 for documents related to the comment period tabulation.  Following weeks of delay, and a second FOIA request, American Solutions received yesterday over 500 pages of emails from the MMS responsive to our FOIA request.

And while MMS has still failed to produce an organized summary of the tabulated results - its latest letter to us says that MMS will send us additional information by February 17, 2009 so perhaps there's still hope -- one internal email they did provide confirms indirectly the overwhelming support for offshore drilling recorded during the comment period.

In an email dated October 27, 2009, Minerals Management Service Director Liz Birnbaum wrote to other senior MMS and DOI officials (including Salazar's chief of staff, and DOI's Deputy Director) and brought to their attention an October 26, 2009 press release from American Solutions about our first FOIA request.  In her email, Ms. Birnbaum noted that Secretary Salazar may get questions about this FOIA request during his trip to Houston.  She explained that the preliminary tabulation of the comment period results has not been given to the Secretary so he could still truthfully say in response to any questions that "he's not yet seen the analysis of the comments - staff is still working on it."  Birnbaum then adds "I did, however, confirm to him the 2-1 split that these guys [at American Solutions] are emphasizing."

There you have it.  Open and transparent this Obama government is not.  Is there any doubt that Secretary Salazar and his team must find it a real stumbling block to have to explain all their anti-energy development actions in light of the comment period's overwhelming results in support of new offshore drilling?  

The lesson we should learn in this little episode is that if the Obama Interior Department doesn't like the guidance they get from the American people, they'll cover it up.