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About Those Tax Increases for the “Rich”
I listened to Obama the other day. He was pretty clear on the issue of
taxes. He said that marginal tax rates on those making $250,000 or
more would go up if he got his way. It is a fair bet that this
is the way it will work out. The Bush tax cuts for those under 250K will
be retained for a few more years and taxes are going up for the fat
cats making over $250k. That sounds reasonable. After all, we are broke
and have to raise taxes someplace.
But I did not hear word one from the Big O about AMT taxes. That is
another set of tax laws that is subject to a sunset at the end of the
year. This is a screwy tax (that I have been subject to for years). If
one is subject to the AMT you lose deductibility of a number of things.
Charitable contributions, property taxes and child-care deductions are
lost. It is also dependent on the ratio of earned versus unearned
income. It is an ugly tax that everyone will hate.
This a big deal. Congress has been putting a patch on this every year
for the past five. The 2010 patch cost Treasury $70billion. According to the CBO,
if the AMT is allowed to sunset it will increase the number of
individuals that are subject to this tax from 4.5mm to 27mm in 2011.
This would result in nearly every individual or family with income of
$100k+ to pay more tax. The CBO estimate is for an increased tax bill of
$3,900 per filer. That would come to $90 billion of additional tax. The
vast majority of those making $250k or higher are already stuck in the
AMT trap. Therefore the bulk of this increased tax burden would fall on
those making between $100k and $250k.
Watch as this evolves over the next few months. Should we see the “Great Compromise”
from D.C. where marginal taxes go up for the wealthy but no action is
taken to address the AMT problem a significant percentage of the
population will be screwed. When and if that happens you will hear that
great sucking noise from the economy. When 30 odd million people get hit
with another 4k in taxes the economy will stall, again.
Of course it could go the other way. We could extend the Bush tax cuts
and “patch up” the AMT for a few more years. That would get the deficits
north of 10% of GDP. Depending on the economy we would be looking at
annual deficits pushing $2t. Debt would explode. I can’t see the upside
in that either.
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declare the pennies on your eyes
http://www.youtube.com/watch?v=dNDYArDUgSg
Stevie Ray, covering that one. It's one of my favorites.
This year, I worked 5 months, made 100K, then am taking the rest of the year off. No AMT, no problemo with the 250K cutoff. Thanks for your contributions, suckers!!
hey, what do you do? can I get into it? 100k on five months sounds like a great gig...
probably could permenantly erase AMT fix cost by offesting it with dividends being taxed at something more than 15 percent..why wages get taxed more than anything is beyond me...
Cuz middle class have jobs, Ruling Class get dividends, and govt money has to come from somewhere. Plus, the middle class can't buy politicians the way GS/AIG/JPM can.
And before some dick points out that the top 1% pays 40% of all taxes, consider they're paying 15% cap gains on dividends, or zero on tax-exempt muni bonds while the middle class is getting 28-35% chunk bitten out of their ass via AMT.
Serfdom's coming back in a big way. Be your own sharecropper.
50% of the people in this country pay no taxes at all. That's a dangerous threat to our liberty. That's 50% happy to vote morons into office that will tax and spend to trade votes for welfare checks.
You must be refering to children.
47% will pay no federal income tax
http://money.cnn.com/2009/09/30/pf/taxes/who_pays_taxes/index.htm
And you open the door, and step inside. . .
From that article:
I'll take paying 50% of half a million over 15% of $15K any day.
Install major planks of communist doctrine and it's no wonder there is class strife. Progressive income taxes to get even with 'em.
If we play it as a class warfare game, then we have nothing left but a nice waltz with Marx, after which is always the nice ass rape, as our butt cheeks are divided and conquered.
We are the all-singing, all-dancing crap of the world.
You are not a beautiful and unique snowflake. You are not the contents of your wallet. You are not your bank account. You are not your fucking khakis.
The IRS code is bigoted. Not only against those who regularly earn a nice chunk, but against every prole in this stinkhouse splurging on a 40 and a pack of smokes.
All taxation is theft.
Yep. Yet we authorize perfectly corruptible regimes to implement them at will, and use the proceeds to enforce compliance.
Time to expunge the sorry history of a rogue central government stealing present and future.
I like the fee on use of money. It then becomes voluntary. Sure, maybe dealing in barter or PM's might not be your cup of tea, but would still allow you to choose NOT to be robbed.
Incredible ain't it Crockett?
The same people who pay zero taxes wish to use the police power of the state to tax someone else even more.
So, when we have people who end up paying zero federal taxes asserting a "tax the rich" position we are looking at the mirror image of what these people say they abhor.
That is, they must loathe themselves, because they are citing a perceived inequality in the tax system in which they contribute nothing but hot air...LOL.
http://www.youtube.com/watch?v=68LAbJtd4uk
50% of the people in this country pay no taxes at all.
Counting on the vote of "Paul" has been a pretty sound electoral strategy for a couple generations of entrenched politicians (especially from urban centers). Gonna be interesting to see what happens when "Peter" runs out of $$ from which to be robbed.
"50% of the people in this country pay no taxes at all."
Indeed.
And what about our fearless leaders who survive by our taxes?
"The IRS information does not identify delinquent taxpayers by name, party affiliation or job title and does not indicate whether members of Congress are among the scofflaws. It shows that 638 employees, or about 4 percent, of the 18,000 Hill workers owe money.
The average unpaid tax bill is $12,787 among the Senate's delinquent taxpayers and $15,498 among those working in the House."
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/09/AR201009...
As one of our best and brightest said..."This is a big effin deal" ;-)
http://www.washingtonpost.com/wp-srv/politics/irs-federal-workers/index....
About 15 years ago, my wife and I ended up owing about $4000 at tax time. We were flat on our backs at the time. The FED/State split was around 3300/700. The IRS was actually pretty easy to deal with, set up a six month payment....No problems.
The state however, turned out to be the ones who acted like the friggin' Nazis. I agreed to pay the $700 within six months. When the deadline neared, I opted to pay off the IRS, and make the lump sum to the state on my next payday; ONE WEEK LATE. I called the state and gave them the scoop; 48 hours later I had a registered letter informing me that if the balance wasn't paid in full within x number of (don't remember for sure) days they would be putting a lien on my house. Over 700 lousy effing dollars that was mainly the result of owing capital gains on land we sold to cover some emergency expenses.
I'm telling you there simply are not enough lamp posts to account for the number of people who need their necks stretched.
agreed, states are nazis and often pursue cases IRS would not bother with...here in MN there is professor, a wage earner that had taxes deducted from her paycheck and had no other sources of incomes. After many years of getting large refunds she reduced her auto withholdings....but then did not file paper work for taxes (absent minded professor) for two years. I figure such a person would get wapped with fees, not get refunds that might of been due if paperwork had been filed properly, maybe get some sort of misdeamor thing for not filing etc....IRS didn't seem particularly concerned, but MN state charged her with 12 felonies. Now if you paid no state taxes for years (as some small businesses do, keeping their state sales tax to themselves) and had tried to evade/hide from state, criminal charges might be appropriate, but 12 felonies for paying most of your taxes but not filing and maybe, maybe owing a thousand or two, 12 felonies?
How ironic that we are discussing the same state.
by the way, a friend of mine was helping out her Grandma clean out her garage, she found some her tax returns from 1973. Her Grandma and Grandpa's combined income was just below 40k, in todays dollars thats 200k according to Fed inflation calculator. Grandma did not work til she was 45, had no college, then worked for 15 years as secretary at Rockwell (aerospace). Her grandpa had a HS degree and had worked his way up to a sales manager for a mattress company around this time. Pretty nice take, huh? Her grandma claims they did not think of themselves wealthy or that they were making a bunch more than their peers.
But it gets better, say they had taken out a mortgage in 1968 for 35k, the median price in Cali, their state, was 28k and they were in their forties, so 35k in 68, plus some equity from previous, house would have gotten them a very nice house. Say they paid 10 percent interest (prime was 8 percent in 68), their PnI would be $375 on a 15 year loan. I would think most Californians today making $40k would love to have a mortgage payment of $375.
So they had a combined gross income of $3300 a month, with maybe a monly $375 mortgage payment, if they hadn't already paid off their mortgage by their mid 40s. Nice....those were the days my friends.
The median wage in 1970 was around $8000, but remember there were many single income households so lots of people making no waygs....so Gpa and Gma were making almost 5 times median...todays median is $41k, so if you were in todays dollars doing that much better than your peers, you'd be making $205, just about same thing inflation calculator says. Doubt most 205k earning couples can buy a nice house in Cali with 15 year mortgage for $1700/$1800 equivalent to what they may have done.
Unified Federal budget in 1973 (and in 2010 $)
Receipts: $230,799M ($1,172,725M)
Outlays: $245,707M ($1,248,475M)
Deficit: $14,908M ($75,750M)
Calculated from: http://www.dollartimes.com/calculators/inflation.htm
Those were the days.
Amazing how Pelosi/Reid can slap together a thousand page stimulus bill. Pelosi/Reid together pull two thousand pages out of their ass for Obamacare. Pinch out a thousand pages for FinReg. Yet all these years they keep kicking the AMT down the road. Vote every bastard out.
Corporations wrote those bills, not politicians. The politicians just sign them like good little slaves.
I'd point out that the AMT disproportionately affects Democratic congressional strongholds - New York, California, Mass, NJ... all the places with high state and local taxes. That's why Dems are always eager to "patch" this tax.
i am all in favor of taxing bankster bonuses under amt or rico - whichever yields a greater pound of flesh....a top 1% tax would also be a great boon.
I sorta always liked the idea of a top 1% tax. Price is Right tax. How close to the top 1% can one get without ending up there. I hate the little tweaks to the ugly stain of the IRS code on our republic, but something like that could have the effect of moderating certain gross excesses, profiteering, greed, etc. that although I don't really have any fundamental problem with, has still generated/supported the L-curves of income and wealth distribution.
Once the elections are over and one party rule is purged, the Dem Critters will be downright dangerous until the new regime is sworn in. Ousted politicians should never be allowed to vote on legislation during the transition period. They spend all their time cutting deals for their next job. Then slip straight off the Beltway radar screen.
Hillary's speech about weakening foreign policy due to the huge deficit is a big tell. Likewise the so-called " bipartisan " December report coming from the deficit reduction commission. The setup is developing.
All is leading up to the Great Taxpayer Fleecing ( better known as upper income redistribution ). Then the States can have their turn. More lost jobs coming right up. Count on it.
yeah, then we would have a the tax system and tax rates still below what we had in 50s, 60s and 70s, man...those were horrible times for the middle class in US
You really want to re-live the 70's? Or even the 60's?
Seriously?
economically speaking, 60s were the best of times in US, look at an economic stat...one guy, HS education, buy house, raise family, get pension, wife didn't need to work....there are lots of things that have improved since sixties and lots that have worsened...someone was talking about how high taxes would doom economy...60s prove it is not so, not saying we should have 91 percent tax on highest incomes, not saying taxes and special tax breaks don't pervert economy...just that it is false to assume low taxes willl fix economy and make common wealth better and false to assume high taxes kill economy...there are many issues and things are not that black and white.
Of course. Bear in mind, though, that is the 1770s.
Touche!
And these days of rampant crony capitalism are far better ?? We just ain't past the 3rd inning, that's all.
Give the government more money ?? Reagan was right. Might as well give the electeds the keys to your car and a bottle of whiskey. How could a body of people with a long term addiction to fiscal irresponsibility and corruption possibly handle even more money .....?? Let me know if you've raised anybody from the dead too, while you're at it.
I think AMT, and really the whole way we do income tax is flawed. If we think of person as a "business", even when they are an employee, say a doctor, lawyer, software guy, those that earn more money DUE to the fact their profession(business) requires higher costs, we still tax their income, without adequate deductions for their higher expenses. Say if you are doctor and have 150k student loans, get paid a higher salary cause they need to pay you more to get you to work in higher housing cost area like NYC, or SF, your net income after paying student loan debts and big old mortgage or high rents, may be less than an accountant with 4 yr degree living in NE. A big chunk of your higher wages are to cover the higher expenses of your profession or local housing costs, why should you pay more taxes if you net no more, business with high revenue and higher expenses just pay on the net, why not individuals.
So the deductions for mortgage interest and student loan debt partially cure this issue, but by no means do they fully address it. If you don't fix AMT every year like they keep doing, things are even more unfair for those in high education cost professions and those in high cost regions.
Really, Repubs are less of champions on this one then Dems, because Blue staters and many Dem "knowlege" workers have higher education costs and higher real estate costs...so Dems and Blue state get swapped by AMT.
Other reason AMT is never premanently fixed is because then you would have to acknowledge the cost to govt in lost revenue for a 10 year budget cycle, and no way politicians want to admit to ten year cost of tax fairness for upper middle class. So they fix each year.
It's nice to see commentary so unmoored from status-quo thinking/discussion on this subject.
At this point in my life, I ain't got shit. I don't make anything worth a damn at my full-time job, and I live in a high-cost region. So I don't care one whit what happens with income taxes.
But boy it's some conversation to get into with folks who've bought into some particular subset of the fictions that define our "shared reality."
How about we just forget about income taxes completely and tax WEALTH?
Too crazy to consider, I'm sure. But I lack a great understanding of why some of the guys I went to school with and/or worked for over the years never had to lift a finger to live the high-life because their parents were members of the aristocracy. Generally those same people ended up in relatively high-paid jobs anyway because of the social factors--if you grew up knowing tons of rich people, OF COURSE you had more opportunity to end up working with them and making more money than some schlub who came from nowhere and had to break through all the social barriers in order to earn a good wage.
The best part about the noveau riche is that they haven't even learned the rules of wealth yet. They often spend what they make because it's all such a novel experience.
Is there a strong argument for why the guy who earns $250K and keeps $50K in a savings account should be paying anywhere near the same taxes as the guy who earns $250K and keeps $20 million in tax-free bonds and real-estate holdings?
Hell, for that matter, what does it even mean to "earn" money? What's the comparison between the guy who's pulling in six figures because he sells weenies from a cart for 18 hrs a day and the guy who calls his investment manager every day after reading the papers for 2 hours over coffee?
Talk about taxation is always so damned depressing.
Excellent posts, MM and BDog. I get excited when you all get nitty gritty on the income tax sham.
"Why don't we tax WEALTH?" Once one looks at the correlation between income and wealth, seems better than what we have.
But my favorite idea is junk all the taxes, especially on income (why are we punishing people for getting ahead?) IRS code is one of the biggest distorters of the economy out there. And it doesn't even come close to paying the bills. And it represents, along with the Fed, and the 17th amendment, the disgustingly slow and insidious death spiral of our Constitutional government.
The vast majority of flows these days are electronic. Technologies in wide use on the internet represent the infrastructure necessary to reinstate a funding mechanism for our governments at various levels, but with the added benefits of (relative to 1040BS) anonymity and real-time assessment.
If we cut out the graduated income tax (Communist Manifesto) and every other tax, and start over with a redesign of funding the government in light of modern technology, we could get a hell of a lot closer to some semblance of fairness, with bonuses to include a respect of the Fourth Amendment, as well as employ a simple method to tax black markets.
No, Leo, not Chinese Solars. But a little fee that, compared to all the sales-income-property-inheritance-FICA-telecom-ad nauseum taxes, is orders of magnitude more affordable--a fee on the use of USD.
If the US economy was viewed as a business, the profit margin (GDP) would be about 0.375%. $15T on "sales" in the neighborhood of $4000T. And all the squabbling about the tax code is almost completely within this tiny sliver.
Jack Kemp, IIRC used to talk a lot about "growing the pie." Tended to work out well, until the bubble would pop. But I say let us, for once, consider the WHOLE pie. All $4Q of it, and institute a pay-to-play rake structure that doesn't discriminate. Rather than letting special interests buy their special treatments within the tax code, I say that we should end this practice by burning the whole stinking mess.
The only books we should be burning right now is volumes of the Internal Revenue Code. It is a bane. It is demonstrably unfair in hundreds of ways. It gives excuse for federal thugs to harass, and for capital to flee. It is an anathema to a free economy and a free people. Dinking around with the AMT or rates or deductions or refunds or any of that crap is just plain denial.
So let's think. If $4000T is bet in the casino every year, a rake of 0.1% would yield $4T. I'd rather play there, than a place that only lets me keep maybe half my earnings, after I've documented every hand I've played, with every fish, at every game, in triplicate and submitted to the power-tripping control freaks that think they run the place (and they'll take your house if you give them any lip).
There's some awefully smart folks around here, but when thinking about taxes are stuck in 1913, hand-feeding the Fed the most delectible parts. I think we can evolve, but any student of evolution knows that doesn't happen gradually--on the long timeline, it's practically instantaneous.
Nice post and please keep posting. You're one of the few IMHO who sees through the claptrap. That's because you are sensitive to injustice, which does automatically confer a different perspective. Unfortunately, that's always the last voice to be heard.
There tends to be Alternative Minimum Justice, at best.
Not really an issue: Congress will continue to apply annual kluges to the AMT, both parties are agreed on that. Likewise with the annual (or more often) kluges to Medicare payment caps.
http://keynesianfailure.wordpress.com/2010/09/10/delayed-deleveraging-meets-the-keynesian-endpoint/
27mm that is 1 in 10 of Americans but 1 in 3 or WORKING Americans
What? Only 81MM (26%) Americans work? Oh, you must mean that they are the ones that actually do stuff. No wonder I feel like I do everything at my job.
You are mouthing the party line. It's singles over 200K, couples over 250. bahh
How sad for America that people who make the equivelent of what was the purchasing power of $95K in 1980 are considered "rich".
In Sowiet Russia you where considered Rich if you could put Meat on the table and not just 'kartofels' and I bet you 1oz Au that in 20 years in America it will be the same and they will blame the evil 'speculators' for this and deman more socialism, Human race is sick!
Wow! What a shame, what a shame, what a shame....
I guess Gerry Connelly, Ben Neson and the rest won't actually fix what is about to really hike taxes. The $250K/Yr brackett is nothing compared to the number of urban professionals that will be yinced by the AMT!
The AMT, or Alternative Minimum Tax is invoked when the government thinks that you won't pay enough by using the standard method of tax calculation. The AMT is not an "alternative" in the sense that a taxpayer has a choice of which method of calculation will be used. The AMT is the higher of the two calculated tax payments and it is the one you must pay.
Therefore, the AMT is not an Alternative Minimum Tax. it is a Mandatory Maximum Tax. Turns out that the government is lying to you!
It had to be Alternative Minimum Tax because, when it was enacted, there already was a Minimum Tax.....which had already been chewed to bits by special interests.
Sorry, wrong thread...
S'ok. I've cross-threaded a few things in my life as well.
It is my understanding that the AMT tax code allows a $70,950? exemption for 2009 with the patch for Married filing jointly or seperately. Without the patch, it would be $45k for married and $34k for single. So, I'm not completely certain, but that would mean a married couple making $100,000 normally in the 15% tax bracket with itemized deductions and personal exemptions would have to pay an extra 11% to equal the AMT rate of 26% on income above $45k. That would be an extra $6,050 added to their tax bill that they probably haven't paid through withholding. And the only real offset to this would be qualified mortgage interest and possibly tax deductible retirement contributions? Most other credits and itemized deductions would not be allowed. Many of these people are probably on a very tight budget and that may not destroy them, but it would hurt significantly even at a $3k tax bill, not to mention the economy overall. The AMT tax is ridiculous. Even if they do patch it, it would be nice if they could do it before January/February of the following year so that people could at least attempt some tax planning beforehand. This is not a tax on the rich, but a tax on the middle class--even the lower middle class.