by | ARTICLES, BUSINESS, FREEDOM, GOVERNMENT, LAW, POLITICS
In 2017, Congress passed the Tax Cuts and Job Act, which has been beneficial on the corporate side of tax reform. On the individual side, Congress allowed politics to get in the way of real reform, and that is inexcusable. The most egregious example of this was the elimination the miscellaneous itemized deduction.
The miscellaneous itemized deduction was truly the only legitimate deduction in the Internal Revenue Code (IRC). Its inclusion was absolutely necessary to maintain the integrity of the tax code. This deduction allowed taxpayers the ability to write off expenses that were incurred as part of the process to earn the income they are taxed on! For instance, under prior tax law, a person who earned $100K on an investment but had to pay $30K in legal fees, investment management fees, accounting fees, or other expenses to get it, would pay taxes on only the $70K net that was actually made during the process. With the new change now removing the miscellaneous itemized deduction, this person will have to pay taxes on the full $100K!
Let’s take a look at how this changes affects the little guy, the middle guy, and the wealthy guy in a fictitious New York setting:
The Little Guy: Here’s a fellow who is renting an apartment for his family and he has to deal with landlord security interest. For people who rent and have tenant security, their landlords pay them interest on it and the landlords are allowed to keep 1% per year, essentially as a fee for keeping track of the tenants. When interest rates are low (as they have been for the past few years), it’s not uncommon to have a rate of 1.25%, of which the landlord keeps 1%; this leaves the .25% to the tenant. For example, if the tenant had a $5K security deposit, his interest is $62.50. The landlord would keep $50, leaving $12.50 for the tenant. But the tenant will have to now pay tax on the full $62.50. Even at a modest tax rate of 25%, the tax would be $15.75; therefore the tenant earns $12.50, pays $15.75 in taxes, with a net loss of $3.25.
The Middle Guy: This person has filed a lawsuit to recover lost wages. In most lawsuits (except physical injury), the legal settlement is taxable. It is not uncommon that, between the lawyer and his fees, they keep 35% and the person keeps 65%. That means, if he wins $100K in his lawsuit, the lawyer gets $35K and he gets $65K. But now, under this change in the provision, his $100K win is taxed on the full amount even though he only actually received 65%. Not only is this unequitable, but it is likely to push him into a new tax bracket. That means he now pays $40K to the IRS (~ 40% tax bracket including federal and state taxes), plus the $35K to the lawyer, netting him only $25K out of the original $100K.
The Wealthy Guy: We have a hedge fund investor. When you have hedge fund investments, rather than reporting and paying taxes on profit, the IRS requires you to break it up into component parts. (Those component parts include interest, qualified and non-qualified dividends, short term gains, and long term gains.) These are all things that contribute to the positive side of calculation. On the negative side, you have operating expenses. The investor then profits from the net of the income, less the expenses. Prior to the change in the tax law, all of the other expenses that reduce profit – which, with hedge funds, include virtually all operating expenses to earn income, including fees to the managers – were required to be recorded as miscellaneous itemized deductions. Now, with the removal of the deduction, the hedge fund guy has to pay taxes on all of it. For instance say he earned a net profit of $2 million. It was reported to him as income of $3.5 million and operating expenses of $1.5 million, thus netting him the $2 million. Now, even though he earned $2 million, he now pays taxes on the full $3.5 million. The average tax rate for such a taxpayer may be approximately 40% (32% for federal + 8% NY taxes). This means he pays about $1.4 million in taxes. Therefore, hedge fund guy makes $2 million net, pays an actual effective tax rate of 70% (because he is taxed on the full $3.5 million) and gets to keep only $600,000. It should also be noted that if the hedge fund lost money, he would get little-to-no tax benefit as a result of that loss.
The loss of the miscellaneous itemized deductions affects all levels of taxpayers. Simply put, if you can’t deduct miscellaneous itemized expenses, you wind up paying taxes on income that you actually didn’t earn. That is simply outrageous — and unfortunately, it is now the case as a result of last year’s tax reform. Allowing such deductions is truly the construct for fair tax law; everything else is merely subsidies, politics, picking winners and losers. Congress must act to restore this equitable provision and restore confidence to the taxpayers.
by | ARTICLES, BUSINESS, FREEDOM, GOVERNMENT, POLITICS, TRUMP
In 2017, Congress passed the Tax Cuts and Job Act, which has been beneficial on the corporate side of tax reform. On the individual side, Congress allowed politics to get in the way of real reform, and that is inexcusable. The most egregious example of this was the elimination the miscellaneous itemized deduction.
The miscellaneous itemized deduction was truly the only legitimate deduction in the Internal Revenue Code (IRC). Its inclusion was absolutely necessary to maintain the integrity of the tax code. This deduction allowed taxpayers the ability to write off expenses that were incurred as part of the process to earn the income they are taxed on! For instance, under prior tax law, a person who earned $100K in a business but had to pay $30K in legal fees to get it, would pay taxes on only the $70K net that was actually made during the process. With the new change now removing the miscellaneous itemized deduction, this person will have to pay taxes on the full $100K!
Simply put, if you can’t deduct miscellaneous itemized expenses, you wind up paying taxes on income that you actually didn’t earn. That is simply outrageous — and unfortunately, it is now the case as a result of last year’s tax reform. Allowing such deductions is truly the construct for fair tax law; everything else is merely subsidies, politics, picking winners and losers. Congress must act to restore this equitable provision and restore confidence to the taxpayers.
by | ARTICLES, BUSINESS, ECONOMY, FREEDOM, GOVERNMENT
The Trump Administration is on the path to rack up a trillion dollar deficit for fiscal year 2018-2019, due to a combination of declining total tax revenues and administrative overspending.
The federal government collected a record $1,521,589,000,000 in individual income taxes through the first eleven months of fiscal 2018 while corporation income tax collections and total federal tax collections were in decline.
Trump needs to work on cutting spending in order to reduce the massive deficit he has accumulated this past year. It wasn’t good when Obama did it and it’s not good that Trump is doing it.
by | ARTICLES, BLOG, ECONOMY, GOVERNMENT, POTUS, TAXES, TRUMP
House Republicans have put forth a bill that would make some of the tax cuts and changes permanent instead of expiring after a few years. This includes:
- The reduction in the individual tax rates
- The increased new standard deduction, which went to $12000/individual and $24000 married couples
- Special deduction for pass-through business owners
It’s worth noting that the corporate tax reduction was already permanent with last year’s law. Other additional financial parts of this new legislation include:
- Allowing employers to join together to offer 401Ks in order to lower costs
- Allow 401K users who have an annuity to transfer it tax-free to an IRA
- Remove the age ceiling (70½) requiring distributions from IRAs and 401Ks, and continue to contribute up to $6,500/year in an IRA
- Create a new universal savings account with a maximum of $2,500/year
after tax funds that can used for non-retirement purposes
- Allow parents to remove up to $7,500 from a retirement plan without penalty under certain child-related conditions.
- Allow 529 college savings accounts to fund various other educational expenses, including apprenticeship programs, home schooling, or child student loan payments.
As if on cue, Democrats rebuke the legislation as being overly beneficial to the wealthy — as if the economic upswing which has helped everyone across-the-board, has not happened. They also chide the bill for adding to the federal deficit, even though Democrats were virtually silent when Obama had very sizeable deficits throughout most his administration. However, putting forth the legislation at this time indicates that Republicans are interested in talking about the strong economy ahead of the midterms elections — which is the smartest thing they can do right now. The GOP missed the chance to make the Bush Tax cuts permanent. They would do well not to make the same mistake twice.
by | ARTICLES, BLOG, FREEDOM, GOVERNMENT, TAXES
When is a tax not a tax? When it’s a user fee — at least in New Jersey. That’s what one lawmaker is attempting in the legislature. A bill that would tax water based on use, in order to “ is fix a crumbling water delivery infrastructure in the state.”
The problem is that a tax already exists for that purpose. It was enacted in 1984, and is charged as a public utility franchise tax on water system operators of $0.01 per 1,000 gallons of water delivered to a consumer in order to “ensure clean drinking water in New Jersey.” This new tax/fee would be instituted on tap water, adding 10 cents for every 1,000 gallons of water a home uses.
Considering that the governor of New Jersey, Phil Murphy, just raised taxes roughly $2 billion, this new “user fee” is utterly ridiculous. New Jersey must be trying to catch up to New York, which already taxes water (albeit bottled, not tap.) New Jersey should kill this bill.
by | ARTICLES, BLOG, CONSTITUTION, FREEDOM, GOVERNMENT, HYPOCRISY, LAW, TAXES
New York Governor Cuomo leads a four-state lawsuit against the federal government over the tax reform law that passed last fall. Governor Cuomo declared it “a practical act of self-defense against an adversarial federal government” and suggested that the bill was aimed to target left-leaning states.
But everybody who has any knowledge of taxation and its constitutionality knows that Cuomo’s assertion is ludicrous. The SALT deduction – and ALL deductions – are at the complete discretion of Congress. And as long as deductions apply under the same rules to every taxpayer no matter where situated, constitutionality can never be an issue.
Cuomo’s sudden role as tax crusader is laughable at best, hypocritical at worst. Cuomo and his cronies would do well to focus on reducing their states’ tax burden for their citizens instead of over something that is patently constitutional.
by | ARTICLES, BLOG, CONSTITUTION, FREEDOM, GOVERNMENT, IRS, TAXES
The State Department, in tandem with the IRS, has stepped up enforcement of an Obama-era law that blocks Americans with ‘seriously delinquent’ tax debt from receiving new passports — and will, at some point — be allowed to rescind existing passports of people who fall into that category.”
The roots of this law began back in 2012, when a report issued by the GAO suggested the possibility of tying tax collection to passport issuance, in an effort to collect revenue. Soon thereafter, Senator Harry Reid introduced a bill in Congress that did just that, with a threshold of $50,000 in delinquency. The bill had been attempted several times in Congress over the last few years before finally being passed in late 2015; it was quietly tucked into a highway-funding bill (HR22).
Though there are exceptions to the rule (emergency and humanitarian travel, for instance), valid criticisms of the rule were raised. For instance the law isn’t limited to criminal tax cases or even situations where the government fears you are fleeing a tax debt; your passport can now get revoked merely because you owe more than $50,000 and the IRS has filed a notice of lien. Yet a $50,000 tax debt is easy to amass today and tax liens are pretty standard. The IRS files tax liens routinely when you owe taxes. It’s the IRS’ way of putting creditors on notice so the IRS eventually gets paid; the Joint Committee on Taxation estimated that the new law would raise about $400 million over the next decade.
A serious problem, however, looms for millions of U.S. citizens living abroad. Passports, obviously, are essential for travel, residency permits, banking, school, and work visas; yet, the IRS has documented trouble with getting mail properly to expats.
Furthermore, National Taxpayer Advocate Nina Olson, say the notices to debtors often come at the same time the State Department is notified of the taxpayer’s debt, in some cases leaving not enough time to resolve tax issues before passport problems occur.
None of that seems to matter to the IRS, which has reported that 220 people have turned over $11.5 million to repay their full debts as of late June, while 1,400 others had set up payment plans to reduce their debts. Essentially, more than 350,000 Americans face passport denial when applying or renewing, with little to no recourse for an agency plagued with problems.
by | ARTICLES, BLOG, FED, FREEDOM, GOVERNMENT, HYPOCRISY
I’ve written about Andrew Weissmann in these pages before, and this article, written earlier in the year, recently came to my attention. Weissmann has a history of despicable lawyer practices, and this latest article shows growing concern about his past tactics — which could ultimately affect his role in the present investigation. I have reprinted the article below:
The top attorney in Robert Mueller’s Special Counsel’s office was reported to the Department of Justice’s Inspector General by a lawyer representing whistleblowers for alleged “corrupt legal practices” more than a year before the 2016 presidential election and a decade before to the Senate Judiciary Committee, this reporter has learned.
Described by the New York Times as Mueller’s ‘pitbull,‘ Andrew Weissmann, a former Eastern District of New York Assistant U.S. Attorney, rose through the ranks to eventually become Mueller’s general counsel at the F.B.I.
In 2015 Weissmann was selected to run the Department of Justice’s criminal fraud section and was later handpicked by Mueller to join the ongoing Special Counsel’s Office investigation into the alleged obstruction and alleged collusion between Trump’s 2016 presidential campaign and Russia.
But Weissmann’s rise to the top was rocky from the start. Although he’s been described as a tough prosecutor by some, his involvement in a case targeting the Colombo crime family in a New York Eastern District Court was the first of many that would draw criticism from his peers, as well as judges.
Civil rights and criminal defense attorney David Schoen, was the lawyer who reported Weissmann. Schoen met with Inspector General Michael Horowitz and several FBI officials to discuss Weismann in 2015. Schoen, who says he has never been a member of a political party, told this reporter his concerns about Weissmann do not stem from politics but from Weissmann’s ‘egregious’ actions in previous cases. He became involved in Colombo crime cases more than 20 years ago after evidence revealed that the prosecution withheld exculpatory evidence in the case.
Schoen said he decided to revisit the case based on new witness information and “recent evidence that has come to light in the last several months.”
“The issue with Weissmann both pre-dates and transcends any of these current political issues,” said Schoen, who also used to represent the ACLU in Alabama. “I have met with Senator (Charles) Grassley’s staff and the DOJ IG about these issues and that was well before all of this…I care about these issues as a person who chose this profession and am otherwise very proud to be able to practice law, as the proud son of an FBI agent, and as a civil rights attorney dedicated to doing my part in trying to improve public institutions.”
John Lavinsky, a spokesman for the DOJ’s Office of Inspector General, declined to comment on Schoen’s meeting with Horowitz.
Weissmann also declined to comment for this story.
