Payroll Taxes: A Growing Concern
You think corporations are paying their fair share on taxes? Keep this in mind…in 1969 payroll taxes and federal income taxes accounted for almost the same share of revenue going to our government. Today individuals make up 6 times the amount of corporate taxes. Still think its fair?Tax reform needs to focus on balancing the share of revenue that comes from each source.
Since the 1970’s payroll taxes have almost doubled until they reached about 2/5 of the federal revenue collected. This rise surpassed the single largest source of revenue for the federal government in 2009.
These types of taxes pay for the things individual citizens love the most including Social Security and Medicare. With these types of cuts being on the table the pressure is building to find a solution for the fiscal cliff we soon face.
So what is the problem here? Since 1970 disability recipients in the US has increased 600% of what they were in the 70’s. This bubble has led to expenses to exceed revenues by almost thirty four billion dollars. You may be aware of this intensifying welfare nation status quo and with this costs are on the rise. The number of baby boomers retiring and the number of still unemployed cast a shadow of doubt on whether or not these programs are financially viable in the long term.
Even worse health care costs are spiraling out of control and with the new advent of Obamacare who knows what will happen to the cost curves. If something isn’t done in the health sector soon to reign in costs Medicare as we know it will be in jeopardy.
Payroll taxes are regressive and only paid on income up to $110,000. Payroll taxes are also not paid on capital gains or passive income. Because of this regressive model payroll tax cuts tend to benefit the poor and middle class more than they do the wealthy and typically pack more a stimulus punch than other typical income tax cut strategies.
Something needs to be done and no one is stepping up to the plate. The AARP and other social groups show little support for any types of cuts to programs that may jeopardize the social safety net for those most in need. Their argument is that these types of programs help balance the inequality faced by the income classes in our nation.
Of course if you tampered with these payroll taxes and delinked them from the programs they support the government would have to find other sources of revenue to make up any shortfalls that may exist. We can do this by limiting the tax breaks on the wealthy or even revising the tax code to bring in more revenue thereby allowing us to retain and fund some of these programs our most desperate individuals rely on. Other ideas include implementing a carbon tax or a use tax that would disproportionately effect the wealthy and increase revenue generated by the federal government.
With the rising cost of technology in the health care industry and a lack of skilled labor cost will become an issue in the near future. This is one trend we face in the future. Are you ready to face that future?
Categories: Income Tax, Tax Law Tags: federal income tax, federal tax, fiscal cliff, income tax, payroll tax, tax increase, tax law, tax reform
Resolving the Tax Code Problem
People in California voted on Tuesday to hike the income tax rate on people who make more than $250,000 a year. This is President Barack Obama’s solution to trim the $1 trillion deficit. That’s the easy part though. The difficult part is to come up with the ways to increase the revenues to the U.S. treasury which is a complete reformation of the U.S. tax code. This is difficult in a way that changes in taxes will definitely affect everyone.
Up to now, it is still a guess on how this will be done but Dave Camp, Midland Representative, Republican and Max Baucus, Montana’s Sen., a Democratic, are working on it for 2 years now. They are trying to come up with a tax package that will lower the rate across the board and will lessen the deductions, loopholes, credits etc. For now, they come up for an agreement that included $600 billion in new tax collections and they are still working on it until now.
People are now thinking that these two individual are working on an idea conceived when both of them are under the committee responsible to lower the deficit. More than 100 business leaders including Chairman and CEO of The Dow Chemical Co., Andrew Liveris, signed off on a letter just before the Tuesday election which calling for a balanced approach to deficit reduction. Many believed that the deficit decreased matters. Millions of jobs are at risk in having a tax code that is known to be fair.
Categories: Federal Tax, Tax Law Tags: federal tax, tax code, tax reform
IRS on Medical Marijuana Dispensaries
In Washington and Colorado, marijuana is already legal and in 18 other states medicinal cannabis is already allowed. Of course, state-licensed dispensaries will be different in each of these lands. Legislatures and state voters are ok with this but it does not follow that the federal government has the same opinion, especially the IRS.
Robert W. Wood, Forbes contributor and tax attorney states that the IRS still sees these marijuana dispensaries as drug traffickers but they don’t have any deductions in their taxes. This hurts because businesses are paying their taxes on their net income not on their gross income. Since 1996, medical marijuana is already legal in California. Dispensaries have been fighting against intractable tax policies for years.
The judicial branch, in tax court, is allowing the purveyors to subtract other expenses definite from distributing marijuana which means cannabis outlets can subtract for a 2nd business of care giving. If 10% of the business’s premises are used, the company can deduct most of its rent.
IRS is also fighting for pot deductions in tax court. Martin Olive is a California businessman who is selling vaporizers at his shop. The IRS presented him a large bill and the tax court upheld it. The bottom line here is that dispensaries will walk a tight rope when it comes to IRS deductions. They need to assure the IRS that they are maintaining two businesses, one care giving—under one roof. Because of increased legalization, businesses have better chances to have their case for deductions be heard in federal courts.
Categories: Federal Tax, Tax Law Tags: federal tax, medical marijuana, tax court