“A citizen can hardly distinguish between a tax and a fine, except that the fine is generally much lighter.” – G.K. Chesterton 5/25/31
Happy Birthday, Sir!
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“The economy in the U.S. contracted for the first time in three years from January through March as companies added to inventories at a slower pace and curtailed investment.
Gross domestic product fell at a 1 percent annualized rate in the first quarter, a bigger decline than projected, after a previously reported 0.1 percent gain, the Commerce Department said today in Washington. The last time the economy shrank was in the same three months of 2011”.
Is this temporary? Is it a signal of another downward slump? Next Friday’s job report will be especially interesting to see.
The NYT reported that the IRS made yet another law clarification this past week:
“Many employers — some that now offer coverage and some that do not — had concluded that it would be cheaper to provide each employee with a lump sum of money to buy insurance on an exchange, instead of providing coverage directly.
But the Obama administration raised objections, contained in an authoritative question-and-answer document released by the Internal Revenue Service, in consultation with other agencies.
The health law, known as the Affordable Care Act, builds on the current system of employer-based health insurance. The administration, like many in Congress, wants employers to continue to provide coverage to workers and their families”.
However, it seems that the real issue is less about continuing coverage and more about getting as much tax revenue for the government as possible:
Christopher E. Condeluci, a former tax and benefits counsel to the Senate Finance Committee, said the ruling was significant because it made clear that “an employee cannot use tax-free contributions from an employer to purchase an insurance policy sold in the individual health insurance market, inside or outside an exchange.”
If an employer wants to help employees buy insurance on their own, Mr. Condeluci said, it can give them higher pay, in the form of taxable wages. But in such cases, he said, the employer and the employee would owe payroll taxes on those wages, and the change could be viewed by workers as reducing a valuable benefit”.
The ruling comes as the IRS seeks to finish establishing the plans and programs for employer coverage that starts in 2015.
A nonprofit group, called The Voters Trust, “hopes to award a $1 million bounty to anyone who can provide “smoking gun” evidence to implicate IRS leadership or members of the Obama administration who purposefully targeted conservative and tea party-affiliated groups”
The Voters Trust is a 501c4, whose purpose is “to identify and mobilize Americans” and “that this is the people’s bounty to seek the truth.”
A press release from The Voters Trust says that, in order to be able to claim the prize, the seeker must be able to offer “relevant evidence including emails, eye-witness accounts, or testimony of political targeting of Americans by the IRS or the Obama administration that has not previously been reported”.
The person reporting is assured of anonymity and the evidence provided “must lead directly to the arrest and conviction those responsible”
The Pease Amendment came into play for high income taxpayers this year once again, after a bit of a hiatus. The Pease Amendment was passed as part of the Omnibus Budget Reconciliation Act of 1990, and named after Congressman Donald Pease, who introduced it. This rule provided that if your adjusted gross income (AGI) passed a particular threshold, then some deductions would be reduced on your taxes — thereby curbing your ability to limit your tax liability.
This rule has the effect of increases tax rates for those individuals by 1.2% — therefore a tax rate that was 39.6% became 40.8%. The way it was done is patently criminal because it uses the tax system to incorporate a complicated formula to hide the fact you are raising tax rates. There is no rational or logical reason for a formula like that to be used unless its intent was to deceive.
Acknowledging the irrationality of the Pease Amendment, Congress slowly scaled it back and then eliminated by 2010 after the Economic Growth and Tax Relief Reconciliation Act of 2001. During 2010 session, Congress passed the 2010 Tax Relief Act which extended the elimination of the Pease Amendment, but only through 2012.
By that time, it was understood that the tax reductions of 2001, including across-the-board rate reductions, the Pease Amendment and Personal Exemption Phaseouts (PEP) would all be gone forever. And yet, Congress declined to extend the Pease Amendment elimination further past 2012 which meant that 2013 saw a return to the previous Pease Amendment rules that existed before 2001.
Also during that time in 2012, Obama insisted as a revenue-raising measure that the rates in the Bush tax cuts be reinstated for the high income earners in 2012. This is a simple, straight-forward tax hike. But in an action that can only be considered mean spirited, and counter to any attempt to simplify the tax laws, Obama personally insisted that both the Pease Amendment and the similarly convoluted Personal Exemption Phaseouts (PEP) be reinstated for high network individuals. Their reintroduction into the tax code by Congress is unconscionable.
The tricky thing about the Pease Amendment is that it actually has very little to do with deductions, because the trigger to implement it is based on earned income thresholds. Eliminating deductions based on income — which then affects the amount of increases tax paid — is underhanded.
Coming on the heels of the actual margin rate increase in 2012 when rates for highest earners reverted to the 39.6% rate of the Clinton years, many taxpayers found themselves with even higher tax bills in 2013 without an actual tax increase due to re implementation of the Pease Amendment. The result of the rule ensured that wealthy taxpayers were squeezed just a little bit more for their “fair share” — now nearly 41% on income tax alone.
The Pease Amendment carefully obfuscates the net effect of raising taxes without having to actually do so. Perhaps the most interesting thing about the amendment is that Pease’s only claim to fame as an eight-term Congressman is that he is responsible for writing a tax rule that tricks people into paying more taxes than they believed they were paying.