Are new taxes fair?
The presidential election may have decided in favor of Obama, but a creepy reminder of Mitt Romney tax policy keeps creeping into view. With the fiscal cliff just around the corner every American is waiting with bated breath for these tax talks to be resolved.
A new idea from an unlikely source is getting bipartisan attention as a way to broaden the base of taxpayers while limiting loopholes and deductions taken by the wealthy. This proposal that just so happens to be the brainchild of the failed presidential contender Mitt Romney would limit the amount of itemized deductions to a certain monetary limit.
“There’s renewed interest” in the cap on deductions, Senator Kent Conrad, the North Dakota Democrat who heads the Senate Budget Committee said.
This seems like a too good to be true generic way of taxing everyone equally without getting any sore feelings from lobbyists or or powerful interests. Since it seems as if no one can pin down the actual specifics of any plan a politician puts forward until the thing is passed and already effecting our lives. Tax experts disagree that this methodology would serve as a quick fix for our broken tax system claiming that it would disproportionately effect different tax bases.
But this solution doesn’t tackle the larger tax preferences, which make up a large part of the Buffet rule, saying that no wealthy person should be paying less in taxes than their secretary.
These experts have their suspicions that this tax proposal may be a wolf in sheep’s clothing that disproportionately increases the tax burden on the poor and middle class while do nothing to curb the favorable tax environment for the wealthy. This would also effect the entire donor model which so many nonprofits, schools, and museums require to survive.
Martin Feldstein, a Harvard economist and the chairman of the Council of Economic Advisers under President Reagan, thinks that this methodology is a great way to lower the deficit. His proposal calls for capping deductions at 2 percent of income for all individuals.
But this cap on deductions would hit the lower socioeconomic classes where they need it the most… in the charitable sector. That is because this deduction is largely discretionary and at the will of the taxpayer to how much he or she would deduct from their tax bill.
Will this cap on deduction send the charitable sector or our economy into dire straights or is capping deductions that silver bullet needed put the breaks on the economy that is heading towards a fiscal cliff.
Categories: Federal Tax, Income Tax, Tax Law Tags: buffet rule, charitable deduction, corporate tax, federal income tax, federal tax, mitt romney, tax deduction, tax increase, tax reform
Federal Tax Planning for the “Fiscal Cliff”
The American stock market has been going down for several days now since the sprouting of fiscal cliff debates after the election. Proponents argue that, along with less government and federal tax spending, the fiscal cliff will help cut down federal budget deficits by the end of 2012 and early 2013.
However, many critics warn that the expiration of federal tax cuts and the introduction of new federal taxes in 2013 will cause another economic recession in the future.
If the fiscal cliff takes effect, US taxpayers will witness a rise in the federal taxes. For instance, the top federal tax bracket for income will rise from 35 percent to 39.6 percent, while top capital gain rates will rise to 20 percent from the present 15 percent. The federal tax for employee payroll goes back to 6.2 percent as soon as the payroll tax holiday expires by the end of December and dividends will now be taxed as ordinary income. Moreover, estates worth over $1 million will be taxed at 55 percent from the present 35 percent.
With the impending federal tax increases at the turn of the year, there are several federal tax planning strategies to help tax payers cope with the possible federal tax rate changes after the implementation of the fiscal cliff. Investors and taxpayers are advised to take advantage of the federal tax programs before they expire, convert to Roth IRA, invest in municipal bonds, and sell appreciated assets in 2012 in order to avoid federal tax rate gains and Medicare surtax in 2013.
Categories: Federal Tax Tags: federal income tax, federal tax, fiscal cliff, income tax, tax increase, tax law, tax reform
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