Wednesday, January 29, 2014


I did not watch the State of the Union address last night.  Instead I watched the wonderful film GAMBIT with Michael Caine and Shirley MacLaine on TCM.  This morning I “wandered” the web for blogs and articles on the address.

As you might expect, I was interested in BO’s statements on 1040 issues.

In addressing tax reform BO said -

Both Democrats and Republicans have argued that our tax code is riddled with wasteful, complicated loopholes that punish businesses investing here and reward companies that keep profits abroad.  Let’s flip that equation.  Let’s work together to close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs right here at home.”

This is about business tax reform.  The only reference to 1040 tax issues in the address was a call to expand the Earned Income Tax Credit –

So let’s work together to strengthen the credit. . .”

He referenced Senator Mark Rubio’s concerns with the EITC.  Rubio wants to take the EITC out of the Tax Code and replace it with perhaps a direct wage subsidy.  The President clearly wants to keep the credit as part of the 1040 – where it clearly does not belong.

Rubio had pointed up two of the biggest problems with the EITC –

One weakness of the EITC compared to the minimum wage, however, is the fact that low-wage workers only see the refundable tax credit once a year in a lump sum, rather than a small increase in their paycheck over a full year.”

And –

Currently the Earned Income Tax Credit has one of the highest payment error rates of all federal programs that cost between $11.6 and $13.6 billion in 2012. Whether these payment errors are due to intentional fraud and abuse or the program’s staggering complexity is up for debate (it is likely a mixture of the two).

Apparently the President is not concerned with these serious issues.

It is clear that President Obama does not want serious, substantive tax reform.  He wants to continue to complicate the already mucking fess that is the US Tax Code by expanding refundable credits – which are magnets for tax fraud.  Do not look for any real tax reform in 2014, or probably anytime soon.

The other item of interest in the address was his call for a “myRA” payroll withholding starter retirement account for employees without access to a 401(k) plan. 

It appears the “myRA” would be a kind of US Savings Bond.  Many employees already have the option of purchasing US Savings Bonds via payroll deduction. 

There were no specific details on the “myRA”.  BO spoke of a bond that “guarantees a decent return” – but what is a “decent return”.  Current savings bonds certainly do pay more interest than basic savings accounts – but do not provide what I would call a “decent return”.  Would employers, with or without 401(k) plans, be required to offer this savings opportunity to all employees?  Would employee contributions be tax deductible?  Would there be a ROTH-like option?

I have read that this account would possibly have a maximum lifetime contribution limitation.  When the maximum is reached the account could be rolled-over into an IRA account.

I support anything that encourages and assists Americans to save for retirement, but would obviously need to see more details before giving the “myIRA” a thumbs up.


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