by | ARTICLES, BUSINESS, ECONOMY, FREEDOM, GOVERNMENT, TAXES
Americans for Tax Reform is keeping a running list of companies who have chosen to make “tax reform bonuses, raises, or 401(k) hikes” as a result of the tax law passed in December by Congress.
The list is sorted both by state and alphabetically; you can read a description of the positive financial choices each company has made as a result of the tax savings incurred by the tax overhaul. It’s worthwhile to see how companies across America are giving back.
You can read the entire list here.
by | ARTICLES, BLOG, BUSINESS, ECONOMY, GOVERNMENT, NEW YORK, POTUS, TAXES, TRUMP
Governor Cuomo has come out blasting the new tax law, and in particular the substantial reduction in the deduction for State and Local Taxes (“SALT”), as unconstitutional and an “attack only on blue 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 All the Governor’s raving does is show that he and his entire staff are either totally clueless, or they know that their statements are total nonsense, but think so little of voters that they can be fired up with something that is utterly phony.
If Cuomo is concerned about what is devastating to New Yorkers, it is astounding that he is objecting to this law and yet he did not object to other tax issues in the past that clearly targeted his constituents. Despite acknowledging the very bad effects of high taxes on New Yorkers, Where was Cuomo’s concern when:
1) the federal government (Obama) raised taxes on capital gains by almost 60%?
2) the federal government raised the regular rate by 25%?
Furthermore:
1) Cuomo reneged on his campaign promises and kept income tax rates on New York’s high income earners outrageously high,
2) he continues to hide from his constituents that his tax law already denies New Yorkers some or all of their deduction for SALT.
3) he continues to hide that NY tax law also denies middle and high income earners significant parts of the charitable deduction as well, buried so deep that most New Yorkers are not even aware they are being fleeced.
4) as a final point, a New Yorker who dies leaving $10 million to his heirs would now pay no federal estate tax – but he would owe $1.06 million to New York State.
But now Cuomo is bothered by the elimination of the SALT deduction in New York? He was AFFIRMATIVELY IN FAVOR of all of these past provisions, which have been devastating to his constituents for some time. Cuomo’s sudden compassion is complete hypocrisy.
by | BLOG, GOVERNMENT, LAW, TAXES
Everyone talks about how true reform of our tax laws should have three goals: 1) equitable; 2) efficient; and 3) simpler. In doing that, many have argued for removing the individual mandate, but at the same time have left in things like charitable deductions, SALT, and the mortgage deduction. This is ludicrous. With those three concepts above, the other provisions need to be addresses, as they are not equitable, efficient, or simpler — they are political. To leave them in, while removing the individual mandate, is illogical.
by | ARTICLES, BLOG, ECONOMY, GOVERNMENT, POLITICS, POTUS, TAXES, TRUMP
Richard Rubin makes some major errors in his summation of burgeoning tax bill. He uses a scenario of five people and goes through how they would be affected by the current proposed legislation. However, he does not get his calculations correct. He’s comparing apples and oranges. He’s also not looking at the reasons for the tax law changes and if the changes make the tax law fairer. He’s only looking blindly at how the tax law changes affect the current tax burden of the people. Rubin should have run his article by a real tax accountant before he published his account.
From the article, under the GOP plan:
“The executive would pay $868,000 in taxes.
The manufacturer pays $704,400, but might be able to argue her way into a lower bill.
The passive business owner pays $576,000.
The dividend-earning investor pays $476,000.
The heir to the estate pays nothing.
The manufacturer, the estate and the passive owner all get big tax cuts from the GOP plan. The investor and the wage earner generally don’t.”
Now, in this scenario, Rubin doesn’t explain that the the first person — the executive — would remain unchanged; His tax rate is 43.4%, which is a 39.6% rate + 3.8% medicare tax.
The manufacturer’s lower tax bill has to do with how flow-through businesses do things, because they are not a corporation.
The passive business owner is changed because he pays a new 25% tax rate + the 3.8% medicare tax.
The dividend investor pay the $476,000 because he pays 23.8%. It’s a dividend tax. However, what Rubin does not explain is that the dividend investor already paid another tax, a corporate tax, before the dividend was issued. That part of the tax law remains unchanged, and the investor remains unchanged.
The heir to the estate doesn’t pay any taxes because it is not income. Never has an heir paid an estate tax, because it has already been paid.
Rubin is essentially trying to be provocative here by using a $2 million base figure as a means to show a great difference in numbers, when really, this random list of five people makes no sense. The comparisons don’t really compare, such as including some things that are not income items. Rubin needs to be more careful with his writing.
by | ARTICLES, BUSINESS, CONSTITUTION, GOVERNMENT, OBAMA, OBAMACARE, TAXES, TRUMP
While we’re on the subject of tax reform, one particular item that could be included in the package is the elimination of the individual mandate. Since SCOTUS classified the penalty as a tax, it is one that can be repealed as part of the reform, and would produce an estimated savings of $338 billion over 10 years, according to current CBO figures.
Eliminating the individual mandate would not affect Medicaid or pre-existing conditions; it would simply allow taxpayers to have the freedom to decide if he or she wants to forego insurance without being penalized (taxed) for their choice. According to the Wall Street Journal and IRS data, more than 90% of households who paid the “individual shared responsibility payment” (tax) earned less than $75,000. The tax is essentially a tax on the poor.
Republicans would be wise to repeal the mandate, ease the tax burden on taxpayers, and use the savings gained within the rest of the tax package to strengthen other parts of the reform proposals and provide meaningful relief for all taxpayers.
by | ARTICLES, BLOG, GOVERNMENT, POTUS, TAXES, TRUMP
The House Republican tax reform plan has been released. Here are the highlights:
The top individual rate for high-income earners will stay at 39.6%
The corporate rate will be cut to 20%
Tax brackets will go from seven to four: the rates will be: 12, 25, 35 and 39.6%
The standard deduction will increase for single filers to $12,000 and joint filers to $24,000 , so that those filers below those thresholds will pay no income tax.
The child tax credit will increase from $1,000 to $1,600 per qualifying child. There will also be a new family credit (considered an expansion of the child tax credit) that provides a $300 credit for each parent to help with everyday expenses.
The mortgage interest deduction remains fully intact for currently existing mortgages. In contrast, those purchasing a home in the future will only be allowed to deduct interest paid on the first $500,000 of the total cost of their mortgage.
Retirement incentives for 401(k)s and IRAs remain unchanged.
The estate tax will be fully repealed but not for six years. Between now and then, In the interim, the estate tax exemption will double.
A deduction for state and local property taxes will be capped at $10,000.
Once the House Ways and Means committee begins to gather feedback , changes will inevitably be made with a hopeful time frame of Thanksgiving for a final bill and vote.
by | ARTICLES, BLOG, GOVERNMENT, LAW, TAXES
The stated intent of the new proposed Tax Reform Package is to grow the economy while providing tax cuts and simplification for the middle class. Forget the fact that as the most progressive tax system in the World, our lower and middle classes already carry a substantially smaller tax burden than in any other country. Just note that the principal middle class tax cuts being proposed is simple political theater and do little or nothing to simplify the tax law, grow the economy, or help the taxpayer.
The lawmakers have proposed nearly doubling the standard deduction from $12,700 to $24,000 for married couples and from $6,350 to $12,000 for single filers. On paper, that sounds good. It provides a tax reduction for those who do not itemize their deductions, though it is neutral for those who will continue to itemize. It has no benefit for economic growth – it just reduces taxes owed.
The tax proposal goes on to get rid of personal exemptions. Currently, taxpayers can claim a personal deduction of $4,050 each taxpayer and dependent. The exemption functions just like the standard deduction in that it reduces the taxpayer’s taxable income for the year. Eliminating the exemption would cause a net tax increase to most taxpayers, but the tax writers seem to be trying to offset this by increasing the child tax credit. This credit has the same effect as the exemptions had – that is, to reduce the tax for individuals, with more benefit going to those households with more dependents, and with no additional contribution to the economic growth of the economy. But since credits are always more complicated than deductions in its operation, this swap of credits for exemptions is a change for the worse.
It should be noted that one reason Congress is pushing for the tax credit instead of exemptions is that the credit can be “refundable”. That means that even if a taxpayer has no tax to pay, the credit would be sent to him in a refund. As such, this is not part of our tax structure – it is simply welfare Government spending wrongly dressed up as a tax reduction.
Thus, these changes really don’t simplify the tax code; it merely shifts formulas and amounts around. In fact, since credits are more difficult to implement than deductions, this actually adds complexity to the Tax Code. A far better solution would be to eliminate the Child Tax Credit, and use the standard deduction and exemptions to reduce the tax burden (using exemptions to the extent that you would like to confer a benefit to larger families).
by | ARTICLES, BLOG, GOVERNMENT, LAW, TAXES
There is a very real problem within the Internal Revenue Code (IRC) that deserves attention. The IRS generally requires that hedge fund investors pay taxes on huge amounts of “income” that does not exist. This is derived from rules that require investors to pay tax on investment income while denying them an offset for the expenses that were incurred to generate that income. That is the very definition of inequality.
It is simply not uncommon for hedge fund investors to pay tax rates of 70-100% or more on the hedge fund income they earn.
Yes, you read that correctly. 100% or more. In fact, in my practice I see clients every year forced to pay more taxes on an investment than that investment earned. True, it is a small percentage of people affected in any given year, but this does not mitigate the blatant unfairness. How does this injustice take place?
It follows from what is the most inequitable provision of the current tax code, namely, the severe limitation on the ability to deduct the necessary expenses incurred by a hedge fund operator (or any individual taxpayer for that matter) in order to earn income: investment fees and expenses, accountant’s fees, legal fees for collecting a settlement, etc.
The tax code requires those expenses — which include virtually all operating expenses of private equity hedge funds, including fees to the operators — to be listed under the category of “miscellaneous deductions”.
However, these deductions may not be claimed until and unless they reach 2% of the taxpayer’s entire income. The upshot of this is that most taxpayers do not get to benefit from these deductions. To add further insult to injury, that even if investors have expenses which exceed the threshold, these expenses become addbacks for the dreaded alternative minimum tax (“AMT”).
This taxpayer abuse then certainly discourages investment and is a major source of inequity in the code. If Congress were ultimately concerned with reforming the hedge fund industry, this problem — the inability to deduct necessary expenses incurred while earning income — would be the right one for Congress to fix.
by | ARTICLES, BLOG, BUSINESS, GOVERNMENT, LAW, POTUS, TAXES
A major problem in constructing tax legislation is the “No deficit after 10 years” problem.
It takes a 60 vote majority in the Senate to pass permanent legislation. A key exception is what is known as “budget reconciliation”, whereby financial budget items, including tax changes, can pass with a simple majority vote. But this requires that any proposed legislation cannot produce a deficit after 10 years. To satisfy this requirement, legislation often contains a provision that it will terminate at the end of the tenth year.
The Bush tax cuts of 2001 (and 2003) was the poster child for that problem. Tax rates were reduced in 2001 and 2003 using budget reconciliation This required that the lower rates would automatically expire (sunset) in 2011 so as to comply with the “no deficit after 10 years” issue. Everyone ignored the cuts which then became a big headache and political battle when the time came to renew them – or let them expire. After ten years, the lower rates suddenly terminated for those most important for growing the economy, creating one of the largest tax increases and worst economic recoveries in history. This disaster has made Congress hesitant of passing badly needed tax cuts and reform in fear of the 10 year spring back. But this does not to be so.
The best way to deal with sunset clauses within the tax code is to extend them annually during the budget process so that we don’t enact a tax change and then forget about it over time. This is something to consider as Congress embarks on potential major reforms to the tax code in the coming months.
Trump’s tax reform proposal includes a major pro-growth change to depreciation rules. The change would allow for claiming an immediate deduction for the cost of new equipment, without having to spread the write–off over many years. This would be a boon to the economy. But due to budget constraints this change would likely be scheduled to terminate after 10 years. That should not be allowed to happen. Instead Congress should examine the policy yearly, and extend it out an additional year from that date. This way the tenth year will never come and there will be no unnecessary tax battle. This process could continue until there are the votes to make the provision permanent.
by | BLOG, GOVERNMENT, NEW YORK, TAXES
It is virtually impossible to defend the part of the Internal Revenue Code that provides for a deduction for individuals who pay State and Local income taxes (“SALT”). The deduction is simply a subsidy for those states who levy high income taxes on their constituents. It actually incentivizes those states to levy high taxes, knowing that their constituents will have their federal taxes reduced as their state taxes go up. But this is patently unfair to constituents who live in low tax states, whose share of the federal tax burden therefore goes up.
Senator Chuck Schumer is leading the attack against proposed Tax Reform legislation that would eliminate the deduction for SALT. But since there is no rational argument to attack the proposal directly, he argues that the tax deduction is fair because NY (and other big blue states) send much more tax money to Washington than they get back.
But this is hypocrisy of the highest order. It is Schumer’s own preferred legislation that causes this imbalance. He has successfully advocated for policies that greatly increase the size of the federal Government (sends money to DC), that increase the welfare state (benefits going disproportionately to the poorer parts of the country), and substantially raise the tax burden on the wealthy (many of whom live in NY). So he created the problem and is now asking to be bailed out?
As I have repeated many times before, If Kansas ever gouged its farmers, or Texas ever gouged its oilmen, like New York legislators (like Schumer) gouge their financial community, they would be run out of town!
