From the “you can’t make this stuff up” file …
Last year a fried filed his NJ income tax return using Turbo Tax,
Based on the TurboTax calculations, he filed for a refund of $2,582.
A few weeks later, the State sent him a refund check for $3,556.
Not quite Power Ball, but a nice surprise.
Now, a few months later, the story takes an odd twist …
According to a Cato Institute recap …
A couple of economists at a German think tank put together a “tax attractiveness” ranking based on 16 different variables.
They looked at the statutory tax rate … and, they also considered policies such as “the taxation of dividends and capital gains, withholding taxes, the existence of a group taxation regime, loss offset provision, the double tax treaty network, thin capitalization rules, and controlled foreign company (CFC) rules.”
Drum roll …
Out of 100 nations, the German economists rated the U.S. #96 … in the pack with Indonesia, Philippines, Zimbabwe, Japan and Egypt.
Here are the rankings for all nations assessed …
Short answer: After-taxes … if you’re talking no income Red state (think Texas) and a high tax Blue state (think California).
Just ask former Laker Dwight Howard as he packs to head to the Houston Rockets.
Here’s the skinny and some nums…
Last week, the American Legislative Exchange Council (ALEC) – a right-leaning economic analysis group – released its 6th annual report on state economic performance.
= = = = =
The 10 states that had the best economic performance over the decade 2000 to 2010 were …
Notice anything common across those states?
Here’s the code-breaker …
This week, Apple CEO Tim Cook was hauled in to DC to testify about Apple’s low corporate tax rate …
Cook explained that Apple makes a lot of money outside the U.S. … selling products that are made outside the U.S. under licenses held by foreign subsidiaries and sold in non-U.S. countries.
Said simply, no part of that income is earned in the U.S. either thru the development, manufacture, sales, or distribution of the products.
None.
But, our wise Senators think that Apple should pay U.S. corporate income taxes on that money any way.
Why?
Because Apple was legally formed in the U.S. and has it’s Corporate headquarters in the U.S.
Here’s the code-breaking question to ask …
Since yesterday was tax day, I thought you might like to see a recap of how much dough (some) Americans fork over to the government …
Americans pay a tad over $5 trillion in taxes to the Feds, States and Local Governments.
Technical note: In government parlance, the taxes are called “revenue”.
By taxing authority
Drilling down, the $5 trillion is split roughly 50%-30%-20% to the Feds, States and Locals, respectively
Here’s more detail …
Interesting idea in today’s WSJ … introduce an alternative maximum tax.
Here’s the gyst of the idea:
We need an alternative maximum tax as a simple, rough-and-ready way to limit the economic damage of increasing taxes.
How much is the most anyone should have to pay? When do taxes indisputably start to harm the economy and produce less revenue — when government takes 50% of people’s income? 60%? 70%?
I like half, but the principle matters more than the number.
Once the country settles on a number, each of us gets to add up everything we pay to government at every level: federal income taxes, yes, but also payroll (Social Security, Medicare, etc.) taxes, state, city and county taxes, estate taxes, property taxes, sales taxes, payroll taxes and unemployment insurance for nannies, household workers, or other employees, excise taxes, real-estate transfer taxes, and so on and on, right down to your vehicle stickers and those annoying extra taxes on your airline tickets.
Once this total hits the alternative maximum tax, you’ve done your bit and federal income taxes can take no more.
You compute federal income taxes as usual, but then you get to reduce the “tax due” that the total is less than the alternative maximum.
For the dude’s supporting argument, see the the article America Needs an Alternative Maximum Tax
The plan has some holes, but it has potential …
* * * * *
Follow on Twitter @KenHoma >> Latest Posts
According to Pew Research …
Overall, 33% of Americans say they do their own taxes while 56% say someone else prepares their taxes.
A majority of Americans (56%) have a negative reaction to doing their income taxes 1 in 4 say they hate doing them.
Among those who dislike or hate doing their taxes, most cite the hassles of the process or the amount of time it takes:
About a third (34%) say they either like (29%) or love (5%) doing their taxes.
Here are some details re: the “likers” and lovers …
Timing is everything, right?
Yesterday, like many – err, make that some Americans, I was putting the finishing touches on my 2012 tax returns (which are due in a couple of days).
Like some – err, make that a few Americans, I have to pay income taxes.
Yesterday morning I swallowed hard and wrote out the check … the big check.
Lots of money … at least half of it will be out-and-out wasted by a cost-bloated government machine,
Most of the rest will be spent on stuff that I don’t agree with or support.
OK, it’s still my civic duty, right?
Tried to put taxes out of my mind.
Then, President Obama unveils his new budget.
The chart below tells the story.
Lots of taxes and some phony “savings” against grossly escalating budgets.
Bottom line: those who already paying all the taxes should pay even more …
Couldn’t the President at least had the courtesy of waiting for the ink to dry on my check before calling me out as a piker and saying I wasn’t paying my fair share.
Gimme a break, man.
You’re making ME want to stop working …
* * * * *
Follow on Twitter @KenHoma >> Latest Posts
Surprised me, but the answer is yes.
But, there’s more to the story.
Clinton’s (and Gingrich’s) initiative to pare the welfare rolls cut the number of people on welfare from about 5 million to under 2 million.
Surprising to me, the number has held pretty constant for the past 15 years or so.
= = = = =
As I said, there’s more to the story …
OK, Cyprus is going to slap a tax on bank accounts over $100,000.
The world is aghast. The end of financial systems as we know them is in the balance.
Say, what?
It’s not the first time that a government – think, U.S. government — has seized (oops, I meant “taxed”) private assets
Here are a couple of examples from close to home …
First, a couple of disclaimers …
1) At heart, I relish conspiracy theories.
2) You probably know this already
But … the obvious has suddenly became clear to me.
Ben is in cahoots with Barack.
Here’s how and why it matters.
As loyal readers know, I’m bearish on the stock market.
Most companies have done a monumental job deleveraging and boosting profits by restructuring … i.e. jettisoning under-performing assets and employees.
Add QE1, QE2, QE3 … and you’ve got yourself a stock market rally.
What perplexed me is why Obama would tolerate monetary policy that makes the rich richer (way richer) and keeps the poor poor.
Didn’t make sense to me.
Until the light bulb finally illuminated.
Here’s what’s going on … (more…)
Oops. Got the stories crossed.
It’s John Paulson moving to PR.
Flaaco just signed a contract making him the highest paid NFL player ever.
Well, kinda … more on that below.
Bloomberg reports that several wealthy Americans have already taken advantage of the year-old Puerto Rican law that lets new residents pay no local or U.S. federal taxes on capital gains.
Note: The marginal tax rate for affluent New Yorkers can exceed 50 percent.
Back to the Flacco story … (more…)
Last week it was Phil Mickelson … the pro golfer said he was considering relocation options to mitigate high tax rates.
Phil – a white, conservative, male – got blasted by the liberal press for his apparent unwillingness to be patriotic and pay his fair share.
Yesterday, the story got more interesting.
Rock icon Tina Turner announced that she’s renouncing her U.S. citizenship to become a Swiss-miss.
* * * * *
As you may know – or can see above – Tina is not a white, conservative, male.
So the press coverage has been, shall we say, “gentle”.
To that point …
This one strikes close to home.
Article in this morning’s WSJ E-Filing and the Explosion in Tax-Return Fraud
Over 80% of individual returns were e-filed last year.
As a direct result:
Here’s why I don’t just shrug off those stats.
Even the lowest information voters should have realized by now that their paychecks have shrunk by 2% … since the Feds didn’t renew the 2% payroll tax holiday.
The big question for the economy as 2013 gets underway is how America will react to their smaller paychecks.
Here’s a great recap prepped by the Heritage Foundation with links to deeper details …
Key takeaways:
Read ‘em and weep …
This is a relatively simple financial math question that most people I’ve asked have gotten wrong.
Answers have ranged from less than 8.8% – since only capital gains are being taxed (huh?) … 8.8% – because that’s how much the marginal rate is going up … to more than 8.8% – “otherwise you wouldn’t be asking the question”.
First, what’s magic about 8.8%?
Well, Obama did what he promised and jacked capital gains tax rates from 15% to 20% … and, don’t forget ObamaCare has a 3.8% non-payroll payroll tax on investment income starting in 2013.
So, the effective capital gains tax rate is going from 15% to 23.8% … a delta of 8.8%.
That 8.8% increase will cut after-tax capital gains by 10.35% !
If you don’t believe me, here’s he math …
Here’s an encore presentation of a HOT: Homa Online Tutorial originally posted before the election.
* * * * *
Well, Obama got his dream to come true — capital gains rates have been jacked from 15% to 23.8% …. the basic capital gains tax rate went from 15% to 20% … and ObamaCare has a 3.8 non-payroll payroll tax on investment income starting in 2013.
So, the effective capital gains tax rate goes from 15% to 23.8% … a delta of 8.8%.
That 8.8% tax rate increase will cut after-tax capital gains ROIs.
By how much?
Answer: The pre-tax ROI times 8.8%.
Here’s the math …
Back in early December, Obama reeled in corporate CEOs.
He insinuated that corporate rates would be coming down next year if the CEOs would just get in line and back his current round of individual tax increases.
The CEOs bought it line hook, line & sinker.
Now, Obama says he’s coming at their companies for tax revenue.
After the House the acted on the Fiscal Cliff by passing the Deficit Increase Act of 2013, President Obama warned Republicans:
“The deficit is still too high and I’ll stick with my demands for a “balanced” approach blending spending cuts with revenue increases, notably from the rich and wealthy corporations.”
Surprise, surprise, surprise.
* * * * *
Follow on Twitter @KenHoma >> Latest Posts
Partially obscured by the hoopla on Times Square and the bizarre Fiscal Cliff legislative process, is a simple fact: Your taxes have gone up … even if you’re not a millionaire or billionaire making more than $200,000 (oops, I meant $400,000)..
There are 2 big ones: elimination of the 2% payroll tax “holiday” … and the ObamaCare tax on “unearned income”
= = = = =
Payroll Tax
For the past 2 years, payroll taxes – you know, the automatic deductions for Social Security and Medicare – were reduced by 2% to stimulate the economy.
The so-called “2% tax holiday” ends on December 31 and there are no apparent moves to renew it.
According to USA Today:
A temporary reduction in Social Security payroll taxes expires at the end of the year and hardly anyone in Washington is pushing to extend it. Obama hasn’t proposed an extension, and it probably wouldn’t get through Congress anyway, with lawmakers in both parties down on the idea.
Even Republicans who have sworn off tax increases have little appetite to prevent this one .
Bottom line: The expiration will cost a typical worker about $1,000 a year, and two-earner family with six-figure incomes as much as $4,500.
= = = = =
ObamaCare Tax …
According to the Social Security Administration, the number of (former) workers collecting disability benefits hit a record 8,827,795 in December.
I’ll stipulate that the vast majority of the 8.8 million are honest folks who really can’t work because they’re disabled … and, I realize that an aging work force has a higher propensity for disablement.
But c’mon, man … this is starting to smell pretty fishy..
The Feds are dishing out over $135 billion annually in disability payments.
How much of the $135 billion do you imagine is going to the folks that Dateline keeps exposing as frauds?
* * * * *
Here are some more interesting Social Security factoids …
According to new Census data reported in the WSJ …
New York, Illinois, New Jersey, Connecticut and Rhode Island led the country last year in “out-migration” (measured as a share of their population).
The Tax Foundation ranks New York, New Jersey and Rhode Island among the five worst business tax climates.
Connecticut, which raised income, sales and corporate taxes last year to the tune of $1.5 billion, is not far behind.
Illinois also increased income taxes last year by 67% and the corporate rate by 46% and will likely seek to hike taxes again to backfill the state pension fund, which is $83 billion in arrears.
Where are they going?
Somebody explain this to me.
Turbo-tax Tim Geithner sent Harry Reid a conveniently timed letter yesterday, reading in part:
Dear Mr. Leader:
I am writing to inform you that the statutory debt limit will be reached on December 31, 2012, and to notify you that the Treasury Department will shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations.
OK, the fact that the U.S. is broke and has exhausted its credit line is not new news.
Here what I don’t understand.
It seems that all of the fiscal cliff attention is obsessively focused on upping income taxes (oops, I meant raising “revenues”).
Specifically, ideas are being floated to change marginal rates, eliminate deductions and close loopholes. All without dampening employment.
Yeah, right.
If the goal is really to raise tax revenue and boost employment, I suggest that the Feds look someplace else – at the payroll tax system.
For more background details, see our prior post Background: Here’s a way to raise tax revenues & create jobs.
Keep reading for the details …
This Homa FIles brief was originally posted July 23, 2008. It’s long, … loaded with with pivotal facts.
Since expiration of the Bush tax cuts looks increasingly likely, I thought they’re worth another look — just as background
On the 2008 campaign trail, candidate Obama broad-brushed all of the Bush tax cuts as “for the wealthy”.
Now, OMB estimates that extending the Bush tax cuts in their entirety would cost $3.7 trillion over 10 years … of that amount over 80% goes to folks making less than $200,000 – $250,000 annually.
In other words, over 80% of the Bush tax cuts for the wealthy went to Obama-defined “non-wealthy” folks — some of whom pay income taxes, and many of whom don’t.
* * * * *
Summary: We’ve all heard the rants about the cuts in the top bracket rate, capital gains rate, dividend taxes, and estate taxes.
But, when was the last time that your heard anybody mention the new 10% bracket, larger and refundable child and earned income credits, negative income taxes, elimination of the marriage tax penalty, or expanded college benefits?
Here are the details of the Bush tax cuts …
In the fiscal cliff talks, I think that the Feds – both Obama & Congress – are demonstrating “no brain” thinking – working ineffectively on the wrong stuff.
* * * * *
Specifically, in the fiscal cliff talks, practically all of the focus has been on jacking up the marginal tax rates for millionaires and billionaires making more than $250,000.
Payroll taxes – for Social Security & Medicare – have been largely pushed off-stage.
That’s because both Dems & the GOP seem to agree that the 2% payroll “tax holiday” should be allowed to expire.
That may be true, but I think the payroll tax structure may be the key to hitting the seemingly conflicting objectives of raising tax revenues and creating jobs.
* * * * *
Let’s lay out some basics:
What happens to whom if the current payroll tax holiday expires?
I really don’t understand why Obama and Boehner are having such a hard time resolving the “revenue” issue, i.e. raising taxes.
Make no mistake, I’m opposed to raising taxes and then having Team Obama waste the money … both of which are eventually going to happen.
First, some background, courtesy of today’s WSJ:
The the budget talks are drifting in a drearily familiar Washington direction: Tax and spending increases now, in return for the promise of spending cuts and tax and entitlement reform later.
The tax increase now being touted as a sign of “compromise” … are still tax increases, in particular on small businesses that file individual returns.
The Fortune 500 CEOs who are lobbying Republicans don’t mind because they hope to get a cut in the corporate tax rate.
But small businesses will be stuck with a huge immediate tax increase, at least until their owners can scramble to reorganize as corporations instead of Subchapter S companies or LLCs.
OK, so how to break the log jam?
In early November, we posted:
Post-election: Government revenues will soar in Q4 … guaranteed.
The logic was simple: with higher tax rates on capital gains and dividends a virtual certainty, investors would sell appreciated securities (and companies) to lock-in the 15% tax rate … and, companies would accelerate 2013 dividend payouts into the 2012 tax year.
Sure enough.
See Told you so: “Tax induced selling” for some reports of stock & company sell-offs.
Now, I wonder: was it all a big con to generate some tax revenues?
What if tax rates on capital gains and dividends don’t go up?
Since taxes will be a big topic this, thought we’d put things in perspective.
Americans pay a tad over $5 trillion in taxes to the Feds, States and Local Governments.
Technical note: In government parlance, the taxes are called “revenue”.
By taxing authority
Drilling down, the $5 trillion is split roughly 50%-30%-20% to the Feds, States and Locals, respectively
* * * * *
How do the totals breakdown by type of tax?
OK, he really didn’t say the last part.
According to CNBC, Warren Buffett is one of several dozen wealthy people who have signed a statement calling for a “strong tax on large estates.”
Buffett & friends say:
OK, so what constitutes a sizable estate and how much of it should the government take?
In prior posts this week, we noted that – on a macro basis — there are 122 million adults in the US who are dependent on 121 million tax payers who work in private sector.
* * * * *
A microcosm of the US picture is the city of Detroit
You know, Detroit as in ”about to file for bankruptcy”
Detroit as in “we voted you in, now bail us out”.
Detroit as in “unions are the way to middle class success”.
Consistent with the emerging national picture, it turns out that the 257,576 people in Detroit who do not have a job and are not looking for one outnumber the 224,846 residents who do have jobs.
Here are some other factoids courtesy of CNS …
In a prior post — Work harder: “Tax payer dependents” are counting on you. — we worked the nums to show that there are more tax payer dependent adults than there are private sector workers.
Specifically, there are about 121 million private sector works and about 122 million tax payer dependent adults — 89 million working age adults who aren’t looking for work, the 12 million unemployeds, and the 22 million government employees (yes, our tax dollars pay their wages, benefits, and over-stuffed pensions)
That’s a total of 122 million adults who are dependent on 121 million private sector workers.
Below are the totals over time.
Back in 2000, there were about 11% more private sector workers than tax payer dependent adults.
The lines crossed in mid-2009 … and now, there are about 1% more tax payer dependent adults than there are private sector workers.
So, we’ve got to raise taxes on the workers to support those who are dependent on them.
Ponder that when your alarm goes off tomorrow.
* * * * *
Follow on Twitter @KenHoma >> Latest Posts
Several companies have announced that they’ll pay special dividends this year while investors are still be taxed “only” 15% on them.
My favorite had been Costco since co-founder and former CEO Jim Sinegal lambasted the rich at the Democratic National Convention, saying that they aren’t paying their fair share!
Shortly after, Costco then rushed to save its investors some taxes by announcing a special dividend to be paid before year end.
Glance at Yahoo Finance’s list of beneficiaries:
Yep, there’s the holier-than-thou Mr. Sinegal atop the leader board.
I guess he means other rich people should pay more.
Recognize the name coming in 5th at Costco?
Charles Munger is Warren Buffett’s sidekick.
Which provides a nice transition.
Following Costco’s lead, the Washington Post will pay its 2013 dividends before the end of this year to try to spare investors from anticipated tax increases.
Guess who’ll benefit from that tax avoidance move …
Yep, no other than Warren “You Should Pay More Taxes” Buffett.
You see, Buffett’s firm Berkshire Hathaway is reported to be the WaPo’s largest shareholder with an estimated 1.7 million shares … and will get a dividend payment of roughly $17 million .
C’mon man, walk the talk … or shut-up !
* * * * *
Follow on Twitter @KenHoma >> Latest Posts
Why the DC gridlock re: taxes & spending?
First, while Obama won a relatively slim majority of the countrywide macro vote … the GOP won a majority of the district-by-district micro vote.
In other words, the whole doesn’t equal the sum of the parts.
Further, as argued by Jay Cost in an Insightful Weekly Standard piece, people don’t really grasp the perilous financial situation the US is in … in part, because past economic growth rates have insulated folks from the hard choice of higher taxes or lower spending.
They’ve been able to have their cake … and eat it, too.
Here’s the essence of Cost’s argument:
As loyal readers know, I’ve been trying to get my arms around this question.
In a prior post, we drilled down on taxes … or, as my Dem friends would say government “revenues”.
We posted that in 2012 Americans will pay a tad over $5 trillion in taxes to the Feds, States and Local Governments.
Drilling down, the $5 trillion is split roughly 50%-30%-20% to the Feds, States and Locals, respectively. Note that the Federal portion is just under $2.5 trillion.
* * * * *
If these are “revenues” there must be matching services provided, right?
I found a study by the non-partisan Tax Foundation that analyzes taxes paid and benefits received.
The study is old – using 2004 data – but, in my opinion is a good starting point to calibrate the answer.
There are 2 big ones: elimination of the 2% payroll tax “holiday” … and the ObamaCare tax on “unearned income”
= = = = =
Payroll Tax
For the past 2 years, payroll taxes – you know, the automatic deductions for Social Security and Medicare – were reduced by 2% to stimulate the economy.
The so-called “2% tax holiday” ends on December 31 and there are no apparent moves to renew it.
According to USA Today:
A temporary reduction in Social Security payroll taxes expires at the end of the year and hardly anyone in Washington is pushing to extend it. Obama hasn’t proposed an extension, and it probably wouldn’t get through Congress anyway, with lawmakers in both parties down on the idea.
Even Republicans who have sworn off tax increases have little appetite to prevent this one .
Bottom line: The expiration will cost a typical worker about $1,000 a year, and two-earner family with six-figure incomes as much as $4,500.
= = = = =
ObamaCare Tax …
No secret that spending is out of control … exceeding tax revenues by 10 percentage points of GDP
Dems are saying “don’t touch Social Security, Medicare or any other entitlements”
Some folks are saying “Keep borrowing, rates are low”.
Here’s the predictable outcome … no budget left for ANYTHING except entitlements and interest on the debt … and, it can’t be solved by simply taxing the millionaires and billionaires who make more than $250,000..
Source: Mary Meeker KCPB
* * * * *
Follow on Twitter @KenHoma >> Latest Posts
Punch line: If public-sector employees just worked as many hours as their private counterparts, governments at all levels could save more than $100 billion in annual labor costs.
* * * * *
According to a report in the WSJ …
New evidence from a comprehensive and objective data set confirms that the “underworked” government employee is more than a stereotype.
Based on the American Time Use Survey, which the Bureau of Labor Statistics administers to a large and representative sample of American households each year:
In a calendar year, private-sector employees work the equivalent of 3.8 more 40-hour workweeks than federal employees and 4.7 more weeks than state and local government workers.
Put another way, private employees spend around an extra month working each year compared with public employees.
If the public sector worked that additional month, governments could theoretically save around $130 billion in annual labor costs without reducing services.
* * * * *
Another reason that I hate to pay taxes …
* * * * *
Follow on Twitter @KenHoma >> Latest Posts
One of the provisions of the Bush tax plan was to eliminate the so-called marriage penalty … the tax rules and rates that had a husband & wife pay more income taxes if they were married than if they stayed single.
I’ve been bemused that in all of the chatter about Obama’s obsession with jacking rates, I haven’t heard anything about the resurrection of the marriage penalty … at least for evil rich millionaire & billionaires who make more than $250,000..
Here’s the rub: Obama’s tax hikes apply to individuals earning more than $200,000 and families earning more than $250,000.
Let’s do a simple example:
Given Obama’s obsession with increasing tax rates on the “millionaires & billionaires” making more that $250,000 … and, given the GOP’s rhetoric that they want to protect small businesses … I can’t figure out why they don’t just treat business income reported on 1040s differently than ordinary income.
Specifically, in a prior post we said:
= = = = =
A loyal Homa Files reader – who is a part-owner of a relatively small business — that will have his company hammered by Obama’s proposed tax rate change.
Here’s a paraphrase of his real life perspective:
“Personal income” should be just that, the take-home pay and revenue received by the individual worker and should exclude income listed on the K-1 in the personal tax return.
- Note: Income from S-Corps, LPs, etc., is conveyed via K-1s. The “corporate income tax” is, in effect, paid by the equity-holders and partners as personal income.
Example: Say an individual “earns” $250,000 and owns 5% of an S-Corp that earns $5MM
The individual gets allocated $250,000 (5% times $5 million) of the S-Corp’s earnings via a K-! … that $250,000 is rolled into the individual’s 1040 return.
- Important: the individual didn’t get any cash from the S-Corp, just an allocation of earnings.
Having broken the magical $250,000 threshold, Obama’s tax scheme would certify the individual as a “millionaire or billionaire” and jack up his tax rates to 39.6% … plus 3.8% in ObamaCare taxes since the income is “unearned”.
Think about that.
The highest corporate tax rate is 35% … the average corporate tax rate is much lower. Think, GE’s zero-percent rate.
But, under Obama’s plan this small business owner gets slapped with a tax rate of over 44%.
Does that sound right to you?
To make matters worse, the individual didn’t get any cash … just an allocation of earnings.
To pay the tax bill, he has to reach into personal funds … which are probably limited since he’s thrown his dough into the company … or, the S-Corp will have to distribute dividends to partially cover the individual’s tax liability.
If the S-Corp pays out dividends to partially fund the owners’ tax liability, the company has less money to invest in the business.
Does that make any sense?
Thanks to ST for feeding the lead
* * * * *
Follow on Twitter @KenHoma >> Latest Posts
The NY Times ran an article titled “Complaints Aside, Most Face Lower Tax Burden Than in 1980”
The thesis of the article was predictable NYT: If you’re working, cough up more dough to the Feds and stop complaining … tax rates were higher in 1980.
Personally, I find that argument to be unmoving. I prefer to compare to 1860 when there was no Federal income tax.
The article also lobs the obligatory “57% think taxes should be raise on the rich”, i.e. anybody making a tad more than I am.
And the article references a Gallup survey that guarantees a chuckle: the nation is evenly divided between those who think their taxes are too high and those who think that their taxes are just about right.
Translation: Folks paying little or no Fed income tax think taxes are about right. Note: There’s that pesky 47% number again.
C’mon NYT, you can do better than this.
= = = = =
On the plus side …
… the article links to a great interactive infographic that slices tax data since 1980 along key measures.
It’s worth playing around with … both for the info and because it’s a cool analytical tool.
* * * * *
Follow on Twitter @KenHoma >> Latest Posts
First, what’s the biggest tax loophole?
Answer: The non-taxable payments that companies make towards employees health insurance premiums.
These days, the policy to cover a husband, wife and a couple of kids is about $15,000.
Employers typically pick up about 2/3s of the bill … call it $10,000.
The $10,000 is tax deductible for the company, and isn’t taxed as employee compensation – even though it’s clearly part of an employee’s compensation package.
In total, the health insurance loophole amounts to over $170 billion annually … about twice the mortgage interest deduction … and about twice the “Bush tax cuts for the wealthy”.
Source: Credit Suisse, Neal Soss
= = = = =
So, how might ObamaCare close this loophole?
(more…)
Warren Buffet was back at it yesterday, venting his conscience by repping in an NYT op-ed for higher taxes on wealthy folks.
As part of his treatise, he argues that investors aren’t swayed by after-tax returns … pre-tax is what moves them.
Say, what?
Keep reading for his other thoughts and Ken’s proposed Buffett Rule …
(more…)
Can’t be sure, but here’s a contender.
The NY Times reports:
Congressional negotiators, trying to avert a fiscal crisis and raise “revenue” from the wealthy.
One idea is to tax the entire salary earned by those making more than a certain level — $400,000 or so — at the top rate of 35 percent rather than allowing them to pay lower rates before they reach the target, as is the standard formula.
Under the existing tax code:
- The first $17,400 of adjusted gross income for a couple filing jointly is taxed at 10 percent.
- Above $17,400, up to $70,700, income is taxed at 15 percent.
- Income between $70,701 and $142,700 is taxed at 25 percent.
- Gross incomes up to $217,450 are taxed at 28 percent. The next bracket, 33 percent, ends at $388,350 for couples.
- The top bracket hits adjusted gross incomes only above $388,350.
Currently, all taxpayers get the advantage of the lower tax rates below the top threshold, whether they earn $40,000 or $40 million.
Let’s think about this bonehead scheme for a moment.
Say a couple that files jointly earns $399,999.
Their income tax liability would calculated:
Grand total $116,050 … for an effective tax rate of 29%.
But, under the rumored scheme, this couple would have an easier tax calculation … their tax liability would be 35% tomes $400,000 … for a grand total of $140,000
Again, think about it ….
By earning $1 more – going from $399,999 to $400,000 – the couple would have their tax liability increase by by 21% …$23,950.
Now, that’s some marginal tax rate.
Am I missing something?
* * * * *
Follow on Twitter @KenHoma
Last week we posted Which states have the lowest (and highest) incomes taxes?
A couple of readers asked “Yeah, but what about when you consider sales taxes and property taxes?”
Good question.
Here’s a recap for 2010 – latest analysis I could find.
= = = = =
Dirty Dozen – Highest Combined State & Local Tax Rates
= = = = =
12 Lowest Combined State & Local Tax Rates
= = = = =
All States – Alphabetical
= = = = =
Data Sources & Recaps
Best data source I found for state-by-state tax rates – income, sales, property, estate – is at BankRate.com
Some other useful links:
Bloomberg recap of all S&L taxes by state
USA Today recap of S&L taxes by state
Tax Fed sales tax rates by state & locality
* * * * *
Follow on Twitter @KenHoma
I’m hearing increasing chatter about relocations to low tax tax states to offset the burst of Fed tax increases.
So, I checked out current state income tax rates.
Best data source I found for state-by-state tax rates – income, sales, property, estate – is at BankRate.com
Full list of state income tax rates is below …
= = = = =
Zero income tax in 6 states
Alaska benefits from their oil industry; Florida & Nevada rake in sales taxes from tourists.
= = = = =
2 states tax interest & dividends, but not wages
Say, what ?
= = = = =
10 highest state tax rates
All are blue states. Coincidence?
= = = = =
Here’s the full list, showing the highest income tax rate in each state
… and the income level that puts a taxpayer in the top bracket.
•Alabama: 5% on income over $3,000
•Alaska: No income tax
•Arizona: 4.54% on income over $150,000
•Arkansas: 7% on income over $32,600
•California:10.55% on income over $1 million
•Colorado: flat 4.63% of federal taxable income
•Connecticut: 6.5% on income over $500,000
•District of Columbia: 8.5% on income over $40,000
•Delaware: 6.95% on income over $60,000
•Florida: No income tax
•Georgia: 6% on income over $7,000
•Hawaii: 11% on income over $200,000
•Idaho: 7.8% on income over $26,418
•Illinois: flat 3% of federal AGI with modifications
•Indiana: flat 3.4% of federal AGI with modifications
•Iowa: 8.98% on income over $63,315
•Kansas: 6.45% on income over $30,000
•Kentucky: 6% on income over $75,000
•Louisiana: 6% on income over $50,000
•Maine: 8.5% on income over $20,150
•Maryland: 6.25% on income over $1 millio
•Massachusetts: flat 5.3% on all income
•Michigan: flat 4.35% of federal AGI with modifications
•Minnesota: 7.85% on income over $74,780
•Mississippi: 5% on income over $10,000
•Missouri: 6% on income over $9,000
•Montana: 6.9% on income over $15,400
•Nebraska: 6.84% on income over $27,000
•Nevada: no income tax
•New Hampshire: 5% on interest and dividend income. Wages are not taxed.
•New Jersey: 8.97% on income over $500,000
•New Mexico: 4.9% on income over $16,000
•New York: 8.97% on income over $500,000
•North Carolina: 7.75% on income over $60,000
•North Dakota: 4.86% on income over $373,650
•Ohio: 5.925% on income over $200,000
•Oklahoma: 5.5% on income over $8,700
•Oregon: 11% on income over $250,000
•Pennsylvania: flat 3.07% on all income
•Rhode Island: 9.9% on income over $373,650
•South Carolina: 7% on income over $13,700
•South Dakota: no income tax
•Tennessee: 6% on interest and dividend income. Wages are not taxed.
•Texas: no income tax
•Utah: flat 5% on all income
•Vermont: 8.95% on income over $373,650
•Virginia: 5.75% on income over $17,000
•Washington: no income tax
•West Virginia: 6.5% on income over $60,000
•Wisconsin: 7.75% on income over $225,000
* * * * *
* * * * *
Follow on Twitter @KenHoma
Except for eccentric billionaires, I haven’t heard about people renouncing their US citizenship and relocating to foreign tax havens.
But, in the past week, I’ve heard 4 stories of sober-minded friends starting to implement plans to move to states with no or low income taxes and no estate taxes.
That’s not a new thing, but the breadth of interest and urgency is something I haven’t seen before.
Some is induced by aging … 3 of the 4 are nearing retirement age.
The flashpoint, though, is ignited by Obama’s re-election and his rants and threats to jack up taxes.
Savvy folks understand that (a) more than folks making $250K will be impacted, and (b) many of the tax increases are already baked in courtesy of ObamaCare.
So, the thinking goes: “I can’t control the Fed taxes I pay but I can control the local taxes I pay … so, I’m moving to a low tax locale to offset the hit Obama’s putting on me.”
The interesting irony: the destination states are red ones … or purple ones (think Florida).
The bulk of the migration will be wealthier folks bolting from high tax & spend blue states (think CA, MD, NY, NJ) … giving the blue states a declining tax base and forcing them to jack up state taxes on everybody else to feed their tax and spend monsters.
An unintended consequence of the caviler Fed tax policy Obama is pushing … watch it develop.
* * * * *
Follow on Twitter @KenHoma
The stock market usually does well in December: gaining ground in 75% of Decembers since 1928 while earning a 1.5% average monthly return … second best of the 12 months .
But , as we’ve harped before …
Capital gains taxes are scheduled to rise at the start of 2013 from a 15% rate to 23.8% (20% plus a 3.8% tax associated with ObamaCare.
According to Goldman Sachs:
The nearly 9 pp hike in capital gains taxes is similar in magnitude to the 9 pp rise in 1970 and the 8 pp rise in 1987.
In both prior cases S&P 500 posted negative returns in December as investors locked-in the lower tax rate.
The S&P 500 fell by 1.9% in December 1969 and 2.8% in December 1986.
Merry Christmas!
* * * * *
Everybody knows that Warren Buffett feels awful because his marginal tax rate is less than his secretary’s …. and so, he wants fellow millionaires & billionaires (i.e. those folks making more than $250,000) to throw more money into the Federal coffers.
Well, the current fiscal cliff mess has rekindled my thinking re: tax changes required to advance Buffett’s obsession with his “paying his fair share”.
Glad to report that I got it !
A tax change that will totally free Warren of guilt.
Simply stated:
Ken’s “Buffet Rule”
For purposes of estate taxation, estates shall be limited to a maximum deduction of $1 million for charitable donations.
Now that Buffett has leveraged the tax laws to amass his $62 billion fortune, he advocates higher taxes for high-earners.
He’s suddenly amped about everybody paying their fair share.
Give me a break.
Let’s walk through Saint Warren’s personal “fair share” plan.
First, to the extent that any of Buffett’s wealth is in stocks with “unrealized capital gains” … the the dough gets bequeathed at a “stepped-up basis”.
English translation: no capital gains get paid on his “unrealized gains” … ever !
Nice dodge, right?
Ken’s Buffett Rule doesn’t fix that.
But, the big daddy tax dodge is that Buffett is bequeathing his estate to his buddy Bill Gates’ tax exempt foundation … part, I guess, to “give back to society” … but in large part to dodge estate taxes.
If his buddy Barack gets his way, estates will be taxed a minimum of 45%.
That means that Buffett dodges over $25 Billion in Federal estate taxes by channeling the estate to his buddy Gates.
Note: According to the Wash Post, Obama’s Buffett Rule is only projected (by Obama) to raise $46 billion over 10 years … $4.6 billion annually … and most analysts think that number is a pipe dream.
So, Ken’s Buffett Rule would cop over half of Obama’s 10 year Buffet Rule tax haul, while isolating the tax to the man who won’t shut up about wanting pay his fair share … put YOUR money where your mouth is Warren.
Great idea, right?
P.S. For folks who worry about the collateral damage done to charities, the deduction limit can be raised to $1 billion per estate …. that would exclude practically every estate … except Buffett’s.
The Homa Files 