Mark Twain on Taxes
CPAs know all the good jokes…
Quickly Noted: Obama “Very Interested” In Raising Taxes Through Executive Action
Bernie Sanders recently advocated for President Obama to raise $100 billion in taxes by the old “closing corporate loopholes” schtick. The difference this time, is that Obama is actively exploring his abilities to do so via Executive Order. Townhall has the scoop:
“White House Press Secretary Josh Earnest confirmed Monday that President Obama is “very interested” in the idea of raising taxes through unitlateral executive action.
“The president certainly has not indicated any reticence in using his executive authority to try and advance an agenda that benefits middle class Americans,” Earnest said in response to a question about Sen. Bernie Sanders (I-VT) calling on Obama to raise more than $100 billion in taxes through IRS executive action.
“Now I don’t want to leave you with the impression that there is some imminent announcement, there is not, at least that I know of,” Earnest continued. “But the president has asked his team to examine the array of executive authorities that are available to him to try to make progress on his goals. So I am not in a position to talk in any detail at this point, but the president is very interested in this avenue generally,” Earnest finished.
Sanders sent a letter to Treasury Secretary Jack Lew Friday identifying a number of executive actions he believes the IRS could take, without any input from Congress, that would close loopholes currently used by corporations. In the past, IRS lawyers have been hesitant to use executive actions to raise significant amounts of revenue, but that same calculation has change in other federal agencies since Obama became president.
Obama’s preferred option would be for Congress to pass a corporate tax hike that would fund liberal infrastructure projects like mass transit. But if Congress fails to do as Obama wishes, just as Congress has failed to pass the immigration reforms that Obama prefers, Obama could take actions unilaterally instead. This past November, for example, Obama gave work permits, Social Security Numbers, and drivers licenses to approximately 4 million illegal immigrants.
Those immigration actions, according to the Congressional Budget Office, will raise federal deficits by $8.8 billion over the next ten years.”
Obamacare Forms: 1095A, 8962, and Deadlines
This year, taxes will get extra tricky, because filers will be required to account for their health insurance on their forms. There are four ways to do so:
1) For taxpayers who do not have Obamacare, the process is simple: check a box indicating you have insurance. This is U.S. Individual Income Tax Return for 2014, line 61
2) If a person opted not to have any insurance, he or she needs to pay the fine/tax, which has been named the “shared responsibility payment”. This is on U.S. Individual Income Tax Return for 2014, Form 1040, line 61; Form 1040A, line 38; or Form 1040EZ, line 11. The instructions to calculate that are here, on page 5.
3) If you have a Marketplace-granted coverage exemption or you are claiming a coverage exemption on your return, fill out form 8965, and mark it on the U.S. Individual Income Tax Return for 2014, Form 1040, line 62.
4) For those who enrolled in an Obamacare plan through the Marketplace, they will have a more comprehensive section and required forms. Here’s the crucial information you need to know about the Form 1095 (Health Insurance Marketplace Statement) and the Form 8962 (Premium Tax Credit, or PTC).
The 1095a
First — please note, you must have the 1095a form to file your Premium Tax Credit form. If you are filing the Premium Tax Credit form, you can’t file a 1040 EZ form and will need to file a traditional 1040.
Now, the 1095a is a form that will be mailed to each household who enrolled in an Obamacare health insurance exchanges plan, whether it was for your state or it was a federal marketplace. The IRS is very clear: This is your proof of insurance.
The 1095a forms were supposed have arrived by January 31, the same date as W-2s and 1099s, but now it seems the new date is Feb. 2nd. You should also be able to download the 1095a form for your household from the exchange website.
The 8962
“Unfortunately, the Obamacare tax form you’ll get from your health-insurance provider won’t have all of the information you’ll need to report to the IRS. The Premium Tax Credit Form (8962), requires you to refer to your adjusted gross income on your tax return, as well as looking up the appropriate federal poverty line figure for your state. In addition, you’ll need to do many of the calculations to compare the information you provide from Form 1095a with other tax information from elsewhere on your return.”
Why do I need a form for a form?
When you applied for Obamacare coverage, you estimated your earnings for 2014. The exchange used that figure to calculate your Obamacare credit/subsidy. But, things change with income and households. Therefore, the 8962 is a worksheet to calculate the income amount again based on what you actually made in 2014; and if the figures do not match, your credit amount will have to be adjusted.
In order to be extraordinarily helpful to taxpayers wrestling with how to properly file their taxes and include their health insurance information, the IRS has published a 21 page primer. You can view the 21 pages of instructions here. This has links to three long forms and nine tip sheets.
Good luck, everyone!
Obama’s Policy Proposals Are the Opposite of “Tax Reform”
Obama has consistently talked about how he is for “tax reform” all during his presidency. But clearly, he has no idea what that even means. True tax reform is a mechanism that produces a cleaner and clearer tax code. A great example of this was the 1986 IRC reform, where Reagan set the highest rate at 28% in exchange for eliminating massive amounts of tax shelters and gimmicks.
Obama’s cluelessness on the topic was evident during the State of the Union, where, instead of the simplification that Obama likes to espouse, we got a myriad of proposals that will further clutter the tax code. You can’t say you are for tax reform and then present a speech filled with the very items that true tax reform would remove, such expanded child care tax credits and new community college initiatives.
It is these very type of policies that have made the tax code so byzantine. Essentially the government uses the tax code to pick winners and losers favoring some but not others such as married vs non-married, children vs non-children, education vs non-education. This is the essence of crony capitalism, where politicians trade favors and barters to support certain initiatives or restrict others via new taxes or credits. They’re basically all gimmicks to aid in reelection or pander to a portion of the electorate — and then we never get rid of all the tacked-on programs and policies because no one wants to give up their special initiatives. The code is immensely complex because of it.
The tax code should never be used in this manner. It’s either a proper tax or not — but you don’t put an item into the tax code and then restrict it to certain people and not others. If someone is making more money, they are subjected to higher tax margins. Fine. But you don’t then add on more crony restrictions or surtaxes to try to squeeze out extra revenue. If a policy is good for the middle guy, it ought to also be good for the wealthier guy — who is already getting dinged accordingly (“paying his fair share”) by paying higher tax rates.
Obama’s version of “tax reform” is unrealistic and firmly rooted in his vision of “middle class economics”. This means using the tax code to promote “fairness” by targeting the wealthy to pay for new spending programs and credits for others. That is not tax reform — that is wealth redistribution.
Obamanomics: Capital Gains Hikes and the Economy
President Obama just told the country during his State of the Union address that he is going to increase the capital gains rate again in order to raise revenue for new spending programs. Given that Obama already knows that raising the capital gains rate actually REDUCES revenue, we are left with a President who believes that we can pay for increased spending by reducing revenue. He acknowledged this in 2008 during a televised debate against Hillary Clinton, but went on to state that rates should be hiked – despite its effect of reducing revenue – because it was more “fair” taxation (ludicrous, but a subject for another day).
Extraordinarily and equally disappointing about this fundamental economic error is that no one in the major press outlets, on the day after the State of the Union speech, pointed out the President’s gaffe. Do we really have a President who pushes for paying for increased spending projects with policies that reduce revenue? Or do we have a President who puts forth an initiative that he knows has very little chance of realization, but chooses to do so anyway so he can characterize the Republicans as protecting the wealthy while he can claim to protect the middle class? And did he believe that the press was so clueless that they would not laugh at him the following day?
Capital gains are unusual in that the taxpayer has the ultimate decision as to whether and when to sell his asset (stock, his business, a work of art, etc.) The higher the tax rate, the LESS likely he is to sell, seeing as he will only be able to enjoy or reinvest what is left of the proceeds AFTER TAX. History has borne this out – capital gains tax collections go down in the periods after increases, and go up in the years after decreases.
The actual impact of raising the capital gains rate is also devastating to the economy. By discouraging the sale of assets, there is reduced capital available for new projects and opportunities, reducing job creation and wages, and resulting in lower revenue collection.
Furthermore, with higher capital gain rates, the expected after tax rate of return on new projects will go down, assuring that fewer of them will go forward.
Additionally, there are a number of localities, like the state of California and New York City, which have tax rates of 12% or more and also a large concentration of wealthy people and high performing businesses. Couple that with the proposed increase to the federal capital gains rate and you could see total capital gains rates of more than 44%, A capital gains rate this high would virtually bring elective capital to a standstill. This would amount to a rate more than twice the rate during the Bush Administration (15%) – when growth and the economy were very strong..
Raising the capital gains rate will put a stranglehold on risk taking and available capital. Why sell an asset to fund further investment and opportunity when the government takes a large share of the gain with the loss remaining all yours. It makes virtually no economic sense to do so, and the result means an already anemic economy will continue to struggle.