TAX PLANS OF THE DEMOCRATIC CANDIDATES

In light of the Democratic debates tonight and tomorrow night Kiplinger.com looks at the “Tax Plans for All 24 Democratic Presidential Candidates”.

Assuming Trump lasts until 2020, I will most definitely vote for whoever gets the nomination of the Democratic Party.  Not because I am a staunch Democrat or liberal but because I am an intelligent and patriotic American.  However, I reject the ongoing Democratic theories, included in the tax plans and discussions of these candidates, that the solution to all our ills is to “tax the rich” simply because they can afford it, and that the US Tax Code should be used for social engineering, to redistribute wealth, and to deliver federal welfare and other government benefits.

With one exception, nothing in any of the tax plans or proposals of the Democratic candidates that have tax plans or proposals is new or innovative.  Most if not all of them want to expand the Earned Income Tax Credit and to increase tax on higher income taxpayers, either by increasing the top rate of adding a special “wealth surtax”, capital gains, and corporations. 

The Earned Income Tax Credit does not belong in the Tax Code.  And I do not support punishing ambition, entrepreneurship and success.  The way to make corporations and the wealthy pay more tax is not to increase the tax rate, but eliminate all the truly special-interest tax breaks and loopholes.

The one new and innovative item, something I have not seen elsewhere or thought of myself, is from Rep Eric Swalwell, who proposes allowing employers to make tax-free payments toward their workers’ student loans.  A good idea.

Of all of the currently 24 whose hats are in the ring, my preference for the Democratic candidate in 2020 is Joe Biden.  However, I most strongly oppose his plan to eliminate the step-up in basis for inherited capital assets.  Tax policy and financial considerations aside, this would be a nightmare for taxpayers and tax preparers.   

FYI, I wrote about my thoughts on tax reform in “The Tax Code Must Be Destroyed”.

Normally, except for 2020, elections should not be decided on one issue alone.  The 2020 Presidential election is the rare exception, and it has nothing to do with taxes or any other area of policy.  The one and only issue of 2020 is removing Donald T Rump from the White House.

TTFN

VOTE FOR ME AND I'LL SET YOU FREE!

 

While this is a tax blog, this is technically not a post about taxes – although, as you will see, there is a tax component.  I just thought I would outline my positions on the current Presidential race.

It is appropriate that I post this on Halloween – as it is a holiday known for scary stuff and “trick or treat”.  Politics, and politicians, are often scary, at least to me, and it is a proven fact that politicians and political candidates provide us with more “tricks” than “treats”.

FYI – my family was politically unique.  They were admittedly registered Republicans in corrupt Democratic machine stronghold Hudson County NJ (think Frank Hague and John V Kenny).  Obviously nobody in my family worked for any component of city, county, or state government.

I moved from “blue” NJ (Garden State residents are often “blue” in several senses of the word) to “red” rural PA a few years ago.  My first time voting as a PA resident was the 2012 presidential election. 

As I introduced myself to the “panel” at my polling place and was signing in the Republican “challenger”, who had overheard that I was a new PA resident, came over to welcome me, publicly announcing (I assume jokingly) –

“Here in Pennsylvania the Republicans pay $20.00 per vote.”

My response –

“I just came from Hudson County, NJ where the Democrats paid $25.00 per vote.”

Democratic voters in Hudson County were also told to vote early and vote often, and to remind deceased relatives to do the same.

I was not upset or offended by the challenger’s greeting, and accepted it as a joke.  But I couldn’t help thinking that if he had said that to me at a Jersey City polling place he would have been promptly physically evicted, and possibly taken to jail.

So, anyway, here I go -

I sympathize with those who are disgusted with professional politicians, which has led to the popularity of and support for Ben Carson, Carly Fiorina, and, unfortunately for the Republican Party and the country, narcissistic buffoon Donald Trump.  I could support a “non-traditional”, “non-politician”, “political outsider” candidate, although I would obviously never, ever even consider supporting Trump for any elected office.  I have not studied Carson or Fiorina enough yet to be able to make any decisions about them.  

I acknowledge that Congress is full of incompetent idiots (I rarely discuss Congress without using the preface “idiots in”), and would very likely not support any member of Congress for President.  The idiots in Congress cannot get anything done because they are incapable of compromise and incapable of independent thought.  Each year we see many articles that have identified the current Congress (in office at the time of the article) as the worst and least productive in history.  If I were to support a “professional politician” I would much prefer a Governor over one of the idiots in Congress.

I am skeptical about another Bush in the White House.  I do not recall having any complaints about the elder Bush, but Dubya was the worst President in my lifetime, despite the so-called "Bush" tax cuts.  When it comes to clan Bush I would rather be safe than sorry.

I most certainly would not support any candidate who supports the religious right, and its champions the Tea Party.  I truly believe the Tea Party is dangerous.  I oppose all efforts to legislate, or oppose legislation based solely on, the specific, individual religious beliefs of any one religion or religious group. 

Religious beliefs are a personal matter.  Religious freedom means that the government cannot dictate how a person should believe or worship.  But specific religious beliefs should never be legislated.  If a person’s religious beliefs tell him or her that homosexuality, same-sex marriage, or abortion is wrong, then that person should not engage in homosexual acts, not marry someone of the same sex, and not have an abortion.  But that person cannot force the application of his/her specific personal religious beliefs on a “non-believer” or someone with different religious beliefs.

Calling America a “Godless country” is not a criticism.  It is a statement of fact. 

I am a tax professional, so the tax proposals of the individual candidates interest me.  I believe the US Tax Code is a mucking fess and should be completely shredded and rewritten from scratch, with simplicity and fairness as the main ingredients. 

I believe the one and only purpose of the Tax Code is to raise the money necessary to run the government.  The Tax Code should most definitely not be used to “redistribute wealth” or to deliver government social welfare or other benefits.  I also do not believe that we should excessively tax the rich simply because they can afford it.  I oppose a tax system that punishes ambition, entrepreneurship, and just plain hard work, and support one that encourages saving and investment.  I would support a flat tax.  So therefore when it comes to taxes I prefer the Republican point of view over that of the Democrats.

Along those lines I also do not support most extreme left socialistic policies.

That said, I do not automatically dismiss Hillary Clinton, although she would certainly not be my first choice for President.  To be honest, my reason for not dismissing Hillary is more because of her husband then because of her beliefs or credentials.  While I did not necessarily agree with all his federal income tax policies, I will admit Slick Willy was a smart and relatively good President.  We had a budget surplus under Clinton.  His contributions and accomplishments were limited because of having to devote too much time to dealing with the persecution by Kenneth Starr and Newt Gingrich.  When it comes to infidelity and sexual misconduct, the only difference between Clinton and the majority of politicians, both past and present, is that he got caught (and his taste was a bit questionable).  I actually do believe that 9/11 might possibly have been avoided were it not for Kenneth Starr.  

So there is where I stand on the Presidential candidates, just in case you were interested.  Any comments?

TTFN

VOTE!

Be sure to vote today.

If tax policy were the only issue of importance the choice for President in this election would be clear.  A vote for Obama is unfortunately a vote for maintaining the complexity of the Tax Code and making it even more of a mucking fess.  Tax reform takes leadership from the top, and the only chance for any kind of substantive tax reform is if Romney is elected.   

However, it is not that easy.  You should not choose a Presidential candidate based solely on a single limited issue.

What is clear, and I don’t mean to sound obsessed on the subject, is that the current members of Congress are, for lack of a better word, idiots.  They are incompetent, ineffective, and unproductive.  They are incapable of compromise or of independent thought.

In the “real world” such an incompetent employee would be fired and replaced.

We, the American public, are the “employer” of the idiots in Congress.  We should “fire” them by voting out any current member who is running for re-election today.

But be sure not to vote in a “worse” idiot than the one you are voting out.  I strongly and sincerely believe that you should NOT vote for any candidate who is a member or supporter of the Tea Party movement!

TTFN

MY DILEMMA

I am faced with a real dilemma when it comes to the Presidential election.

Here is my problem.  I am a tax professional, and as a result the issue of taxation is very important to me – and I do not mean this selfishly.  I am a vocal supporter of true tax reform and simplification.  I believe the purpose of the federal income tax is to raise money to run the government – period.  It should not be used to distribute social welfare subsidies or to redistribute income.

It is clear from the individual proposals of the two candidates and Parties that only the Republicans support true tax reform – rewriting the Tax Code from scratch to make it much simpler.  I truly believe that under Obama and the Democrats the Tax Code will become more of a mucking fess, regardless of the “lip service” they may give to tax reform.

President Obama, like Dubya before him, established a panel to research and report on tax reform.  The panel came up with an excellent report, and some very good suggestions.  It basically suggested that we shred the current Tax Code and start over again by initially eliminating all “tax expenditures” and adding back only those that are absolutely appropriate.  However, like Dubya before him, Obama totally ignored the report and banished it to gather dust in the government archives.

So solely from the point of view of federal tax policy, and perhaps economic policy in general, I support the Republican Party.

However, I oppose the policies of the Republicans in just about every other area.  

I was pleased when Mitt Romney was selected as the Republican candidate for President.  Of all the potential candidates he was, based on his past history, the most “centralist”.  Actually, none of the other potential Republican candidates were even marginally acceptable to me.

However, in my opinion, Romney has, like his predecessor of 4 years ago, “shot himself in the foot” by selecting Tea Party sympathizer Paul Ryan as his running mate.

Winston Churchill Is credited with having said – “If you are not a liberal at 20, you have no heart. If you are not Conservative by 40, you have no brain.”

While, at age 58, I consider myself to have both heart and brain, I do tend to be more “true” conservative than “true” liberal.   

But I do not support what passes for conservatism today – especially when it comes to incorporating religious beliefs into public policy.  I am an enemy of the “religious right”.  And therefore, as well as because of their inability to cooperate or compromise, I am an enemy of the Tea Party movement, and oppose any candidate who belongs to or courts this “movement”.

I have posted in the past –

Religious belief is personal and individual.  It should not be legislated, or used as the basis for legislature.

If your religious beliefs instruct you that abortion is bad – then do not have an abortion.  You can certainly bring to the attention of those who might consider such an act the various other options available.  But you cannot force your religious belief on your inconveniently pregnant neighbor, regardless of any sincere desire to save her from the “fires of hell”.

A good example of “best practice” in this area is the Amish.  They have very distinct and unique religious beliefs that govern every aspect of their daily life – but they do not require that all others accept their beliefs, nor do they condemn those who do not believe as they do.  It is a personal choice.  I do believe (and correct me if I am wrong) that they allow their matured children the opportunity to choose for themselves.

Murder is not illegal because God says “Thou shalt not kill”.  It is illegal because it denies one of the right to life, liberty and the pursuit of happiness.  Is not the charge of murder on a federal level considered “violating civil rights”?

It is very easy for many individuals to accept a strictly doctrinized organized religion – because the extreme protocol allows them to avoid the discomfort of individual thought and reasoning.  “If the Bible says this is what we must do then this is what we must do.”   

One’s religious beliefs may cause a person to become involved in political activity as a way of helping society and one’s “fellow man”, but one’s religious beliefs should NOT be made into law.

While I like Obama, and his actions as President, on several levels, I am certainly not his biggest fan.  Yet, because of the danger of giving any credibility or potential power to the Tea Party movement and similar ilk, while I may like Mitt Romney I cannot wholeheartedly support his run for the Presidency.

I must decide if the benefit of the potential for true tax and economic reform is more important than the danger of the religious right – and I think I know the answer.

TTFN

WHOOP-DE-DOO! ROMNEY RELEASED HIS 2011 RETURN!

I hear that Mitt has finally filed, and released, his extended 2011 Form 1040.  I trust everyone is happy now.

So what insights did this return provide?

He made a lot of money from his investments.  His gross income for 2011 was $13.7 Million.  Hey, I should be so lucky!  (If I was I certainly would not be running for office, and the only 1040 I would ever do again would be my own).  He paid $1,935,708 in total federal taxes, which included $23,179 in self employment tax.  His effective tax rate is about 13.9%.  He was a victim of the dreaded AMT to the tune of $675,500+.

It appears Mitt and Ann gave about $4+ Million to charity in 2011, but only deducted $2,250,772.  $4 Million – God bless him!  That is almost 29% of his gross income.  In my 40 years of preparing 1040s I have come across only a handful of clients who have donated such a high percentage of income to charity – and it is not even a full hand!  I might not have supported the same charities as Mitt and Ann, but they did give the money, and property, to legitimate charitable organizations.

Why did they deduct only $2.25 Million if he really gave over $4 Million.  There is really no good reason.  He is legally entitled to claim a tax deduction for the full $4 Million – if I gave $4 Million to church and charity I would have deducted every penny.

The reason he did not claim all of his legitimate charitable deductions is because if he did a lot of vocal idiots would have been up in arms because his effective tax rate was so low.

Hey, if it is ok for the 47% to take advantage of the Tax Code to either pay no federal income tax or make a profit by filing a 1040, and it is, why is it not equally ok for Mitt and Ann to take advantage of the Tax Code to legally pay the least amount of tax possible?

And remember, the Romneys paid over $1.9 Million in federal taxes.  I expect that is more than the combined tax liability of all the residents of my new home town!  Mitt’s $1.9 Million funded an awful lot of government waste – and paid for some worthwhile and effective government programs as well.

So Romney’s 2011 return has been filed and released.  Big whoop!  Let’s move on to more important issues.

TTFN

RYAN'S TAX RETURNS

Republican Vice Presidential candidate Paul Ryan released copies of is joint 2010 and 2011 federal income tax returns this past Friday.

Nothing particularly questionable or controversial that I could find. 

The biggest item of income in each year was wages of $153,000+ as a Congressperson (certainly more than Congresspersons are actually worth, but not very much when compared to the private sector).  There was also a nice amount of interest, dividends, royalties and capital gains from investments (much from what looked like family limited partnerships), and in 2011 substantial income from a trust resulting from the passing of his mother-in-law.  The trust income was not reported on his original return, but on an amended one – I expect due to late receipt of the K-1.  

The couple paid an effective tax rate (net federal income tax liability divided by Adjusted Gross Income) of approximately 16% for 2010 and 20% for 2011, and was a victim of the dreaded Alternative Minimum Tax (AMT) in both years.

In 2010 he paid payroll taxes on a household employee, but not in 2011.   

In 2010 he deducted mortgage interest, but did not deduct any real estate tax – although there would have been no additional tax benefit to such a deduction due to the dreaded AMT.  He did deduct real estate tax on his 2011 Schedule A.

They were not particularly charitable in 2010, donating only 1.2% of his AGI.  He was more so in 2011, donating 4%.

They claimed a residential energy Credit for insulation for 2010.

And their tax preparer for 2009 and 2010, a CPA for 2010 (and a different one for 2011) was not cheap.

Again – nothing questionable or controversial that I could find. 

The released returns did show that the couple is not particularly wealthy, with the least income of the 4 candidates – although BO would certainly consider them wealthy in 2011 since the trust pushed their gross income over the magic $250,000 mark.

So much for Ryan’s tax returns.  Let's see what the political pundents make of them.

TTFN

MITT'S 1040

So now we have seen Mitt Romney’s tax return. 

We already knew he was rich – now we know just how rich.

What did Mitt do?  Certainly nothing illegal.  He invested his money for the best return, as you or I would do.  It is just that he has a lot more to invest than we do.

Did he participate in any shady tax dodges or shelters?  Not that I can see.  He invested in stocks and earned a ton of dividends, most of which were taxed at a special rate of 15%.  And he his investments did well – resulting in humungous long-term capital gains.  Did he do anything sneaky to get the special 15% rate?  No. The Tax Code allows for a 15% tax rate for “qualified” dividends and long-term capital gains.  If you or I invested in the same, or similar, stocks we, too, would pay 15% on qualified dividends and long-term gains.  Actually some of us would pay 0% tax on all or part of the and capital gain income.   

Romney also gave close to $3 Million to church and charity, about 1/7 of his AGI, which, being deductible, reduced his taxable income.  Would he have given the same $3 Million away if he did not get a tax deduction?  I think probably so, or at least almost as much.  But the Tax Code allows for a deduction, under both regular tax and the dreaded AMT, for contributions to church and charity.  You and I would get the same tax deduction.

Because he was a victim of the dreaded AMT he got no tax benefit for his substantial state and local income tax and real estate tax payments and his also very high investment expenses. 

He paid $3 Million in income taxes!  More than you or I did.  More than anyone I have ever known did (I believe the most a client of mine has ever paid is a little over $1 Million).  Again about 1/7^th of his AGI.  Almost half of Americans either paid absolutely nothing or actually made a profit from filing a tax return.  Should he have paid more tax so a higher percentage could pay 0?  Why?

His return was indeed voluminous – over 200 pages and attachments.  And he filed forms and schedules that I have never even heard of in 40 years in the business, let alone ever prepared.  But they were due to the nature of his investments.

Here is some more info on presidential candidate tax returns -

•  The TAX HISTORY PROJECT provides links to the tax returns of Obama and Biden and Romney and Gingrich, as well as those of former Presidents and candidates.

•  The WASHINGTON POST compares the basics of the tax returns of BO, Newt and Mitt in “Tales of the 1040s”.

•  TAXGIRL Kelly Phillips Erb has reviewed Mitt’s return and tells us “Romney's Tax Returns are Remarkably... Unremarkable”.  I agree with Kelly’s bottom line -

“The returns are – as predicted – remarkably unremarkable. Are we okay with moving on now?”

TTFN

A POLITICAL LESSON NOT LEARNED

 

It is important to learn from the past.

When Jon Corzine was running against Republican Doug Forrester for Governor of New Jersey the race was tight.  But Corzine won after a Republican ad quoting a negative interview by his ex-wife backfired.

Newt Gingrich turned the tables again and used the negative interview by an ex-wife to his advantage in the most recent debate, winning the South Carolina primary.

For some reason using the accusations of an ex-wife in a political campaign does nothing but bring sympathy to the cheating candidate.

It is also important to remember some things about Newt Gingrich.

Twice he left his wife, who had each been diagnosed with a serious illness (according to Esquire, Gingrich served his first wife with divorce papers while she was in the hospital recovering from uterine cancer), for a mistress, while espousing his support of “family values”.

Gingrich led the charge against Bill Clinton on the Monica Lewinsky issue while he was conducting his own affair with a congressional aide, who is now his wife.  Coincidently I read that a woman named Anne Manning admitted to having a relationship with Gingrich during his 1976 campaign. "We had oral sex," she said. "He prefers that modus operandi because then he can say, 'I never slept with her.'"  I guess that is where Clinton got the idea.

FYI, while he was Speaker of the House Gingrich was penalized $300,000 by a 395–28 House vote after extensive investigation and negotiation by the House Ethics Committee.  This was the first time in history a Speaker was disciplined for ethical wrongdoing.

I realize that I have said I would prefer a snake to a faithful spouse in the White House– but Gingrich is too much of a hypocrite and sleaze even for me.

TTFN

POLITICAL RAMBLINGS

My contention that the members of Congress are idiots has become popular opinion. 

Recent polls by CBS and CBS/NY Times have indicated that only 9% of Americans approve of the actions of the current Congress, giving it a 83-84% disapproval rating.  The latest Rasmussen Reports national telephone survey finds that just 9% of “Likely U.S. Voters” rate the job Congress is doing as good or excellent, while 63% view Congress’ job performance as poor. 

Rasmussen also reports that “51% Say Democratic Agenda In Congress Is Extreme, 47% Say Same of GOP's”, and “71% Favor Term Limits for Congress”.   

At no other point in my lifetime have we had a Congress that is more “polarized and vituperative”, as another writer has put it.

I am a bit concerned about the growing popularity of Newt Gingrich as the potential Republican presidential nominee.  He started the campaign out pretty much of a joke, but, as recently reported by the Wall Street Journal –

“In a race defined by unexpected shifts, Mr. Gingrich has rebounded from a widely panned start to place third in four of the past five publicly available polls of GOP voters, though well behind front-runners Messrs. Cain and Romney.”

I do believe that the excessive partisanship and polarization we see in Congress first began, and grew, when Gingrich was the Speaker of the House.  I do not want this man to be the Republican candidate.

Cain’s alleged sexual harassment may eventually hurt his campaign as more and more women come forward.  To be honest I do agree that it is easy for someone to wrongly accuse a person of alleged “sexual harassment” for political purposes, but there seems to be a growing amount of “smoke” to suggest that there truly is “fire”.  I would never want as Republican candidate anyone who openly supports or actively courts the Tea Party, as Cain does.

Perry’s recent debate FUs will certainly cause damage, even though his response makes him appear more “human”.  I do not want another Texas governor in the White House – the last one was a disaster, and, in my opinion, the worst President in my lifetime.

The rest of the pack is either crazy, like Bachmann, or do not have a real chance.

Hopefully Mitt Romney will emerge as BO’s opponent in the 2012 election.  Although he now tries to present himself to Republican voters as more conservative than his record and previous opinions would suggest, he is still the most moderate, and the best of a bad lot.

TTFN

QUESTIONS

A flat tax, like the 20% one proposed by Republican Presidential candidate Rick Perry, is not as simple as it may sound – despite how simplistic his one-page (not quite a postcard) “Sample Tax Return” appears.

Under Perry’s flat option, one begins with “everything is table” and adds “except Social Security and Railroad Retirement benefits, qualified dividends, and long-term capital gains”.

Or does it begin with “everything that is currently taxable continues to be taxable” except Social Security and Railroad Retirement benefits, etc?  I expect that is where it would begin.

The “Sample Tax Return” that Perry has suggested would need more than just one line for “Your 2014 Income”.  What makes up this income?  W-2 wages, interest (currently taxable and exempt, or just currently taxable), net income from self-employment, rental income, income from partnerships, S-corporations, and estates, short-term capital gains, alimony, etc, etc, etc?  And would these categories of income continue to be taxed as they currently are?

There would need to be a page 2 to identify the sources of “Your 2014 Income”.  And we would still need Schedules C, D, E and F to report the income.  Or does Perry mean gross income from all sources is taxed, with no Schedule C, E, or F deductions?  And a Schedule SE would be needed to report the self-employment tax.  Unlike Cain, Perry does not mention abolishing the FICA payroll tax, so I expect he also means to continue the self-employment tax.

He then goes on to say “nothing is deductible” and adds “except mortgage interest, charitable contributions, and state and local tax”.  Is that mortgage interest on your primary principal residence only, or also on a second personal residence?  Is there a cap on the principal amount on which mortgage interest can be deducted?  Is mortgage interest limited to interest on “acquisition indebtedness”?  And does “state and local tax” also include real estate tax, which is a local tax?

Presumably there would be no deductions for alimony paid, retirement plan contributions, self-employed health insurance premiums, ½ of self-employment tax.  Or are these deductions, currently allowed “above the line” to be included in the determination of “Your 2014 Income”?  Is Perry’s “Your 2014 Income” the same as the current Adjusted Gross Income (AGI)?

These are all questions that need to be answered.

So you see – a flat tax, while certainly infinitely simpler, and “more better”, than our current mucking fess, is not necessarily simple. 

Perry’s flat tax system, even if it is the only system and not an “option” as he stupidly suggests, would not put tax professionals like me out of work.  We would still be needed for the supplemental schedules C, D, E, F, and SE. 

As I have always said –

(1)  Regardless of how simple the tax return is taxpayers will still seek out a tax preparer to avoid the inconvenience of preparing it themselves, and

(2)  I would make more money, experience substantially less agita, and have limited GD extensions if I did nothing all day during the tax season but complete a Form 1040A or 1040EZ type form.

Once I have completed the remaining 2010 GD extensions I will, as previously promised, compile my proposed new Tax Code into an outline and make it available.

TTFN

PERRY'S TAX PLAN

Republican Presidential candidate Rick Perry has announced “My Tax and Spending Reform Plan” in an op-ed piece in the Wall Street Journal.

Perry begins his piece with a statement of fact -

“The folks in Washington might not like to hear it, but the plain truth is the U.S. government spends too much. Taxes are too high, too complex, and too riddled with special interest loopholes. And our expensive entitlement system is unsustainable in the long run.”

And goes on to propose a “’Cut, Balance and Grow’ plan to scrap the current tax code, lower and simplify tax rates, cut spending and balance the federal budget, reform entitlements, and grow jobs and economic opportunity”.

The portion of Perry’s plan that concerns 1040 filers includes the following provisions -

·   Give Americans “a choice between a new, flat tax rate of 20% or their current income tax rate. The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents.  This simple 20% flat tax will allow Americans to file their taxes on a postcard.”

·   “Eliminate the tax on Social Security benefits, boosting the incomes of 17 million current beneficiaries who see their benefits taxed if they continue to work and earn income in addition to Social Security earnings.”

·   “Eliminate the tax on qualified dividends and long-term capital gains to free up the billions of dollars Americans are sitting on to avoid taxes on the gain.”

·   Abolish “the death tax once and for all, providing needed certainty to American family farms and small businesses”.

·   Repeal ObamaCare.

·   Give “younger workers the option to own their Social Security contributions through personal retirement accounts that Washington politicians can never raid. Because young workers will own their contributions, they will be free to seek a market rate of return if they choose, and to leave their retirement savings to their dependents when they die.”

My reactions –

1)   I support his flat tax proposal, keeping only the deductions Perry suggests.  But I would not limit the deductions based on AGI.  I do not see why we should offer taxpayers a choice between a flat tax and the current tax – shred the current tax system completely and establish the flat tax.  This is not the first time a choice has been suggested, and I opposed it the first time around.  And, as I have said when this idea was first proposed (I think by Obama), I doubt a “postcard” tax return would be sufficient to properly report income.  At best there would be a one-page 1040-EZ.

2)   While I am not against exempting Social Security and Railroad Retirement benefits from taxation if it fits into the plan, I have in the past suggested that we instead tax these benefits the same as any other retirement plan distribution under the current Simplified Method.

3)   I do not support completely eliminating tax on “qualified” dividends and long-term capital gains.  As I have said in the past, I would allow corporations a “dividends paid deduction”, tax all dividends received by individuals as ordinary income, and allow a 50% “capital gain deduction”.

4)   I would support abolishing the so-called “death tax” as long as we maintain the stepped-up basis of inherited property.  Keeping the stepped-up basis is more important to me than repealing the estate tax altogether.

5)   I do believe that the current “Obamacare” system is too convoluted and would support its repeal, as long as Congress looked at other ways to provide relief for high health insurance costs.

6)   I am all for allowing new workers entering the Social Security system to “own” their accounts.  I would support employee and employer contributions to Social Security being deposited into an actual account, untouchable until age 62, which allows workers to select either a money market, US Treasuries, or an index fund, or a combination thereof, and allows balances to be transferred to the separate Social Security accounts of beneficiaries upon death.    

So what do you think?

MITT'S TAX PLAN

Last week all the BUZZ was about Herman Cain’s gimmicky 9-9-9 tax plan, allegedly based either on a video game or the fact that the price of a Godfather’s Pizza is $9.99.  But what do the other Republican candidates have to say about taxes?

Mitt Romney’s “plan” is outlined in “Believe in America: Mitt Romney’s Plan for Jobs and Economic Growth”, a 150+ page campaign tome that I expect boils down to maybe 10 pages of substantive content, if that much.

According to the “plan” –

“Mitt Romney will push for a fundamental redesign of our tax system.  He recognizes that we need to simplify the system.  He also recognizes that we need both to lower rates and to broaden the tax base so that taxation becomes an instrument for promoting economic growth.  We also need to find a way to keep the tax structure stable so that investors and entrepreneurs are not confronted with a constantly shifting set of rules that makes it impossible for them to plan ahead.”

For individual federal income taxes Romney wants to

·         “Maintain Low Marginal Rates” by not letting the “Bush tax cuts” expire;

·         “Further Reduce Taxes on Savings and Investment” by maintaining the lower capital gain tax rates and “eliminat(ing) taxation on capital gains, dividends, and interest for any taxpayer with an adjusted gross income of under $200,000”;
 
·         “Eliminate the Death Tax”; and
 
·         As a long-term goal “Pursue a Fairer, Flatter, Simpler Tax Structure”, using the Bowles-Simpson Commission as a starting point.

The Bowles-Simpson Commission was BO’s National Commission on Fiscal Responsibility and Reform’s which issued a report titled “The Moment of Truth” last December.  This report was basically ignored, and has joined the earlier one from a tax reform panel established by Dubya gathering dust on a shelf in some government library – despite some good serious work by its writers.

As I described when writing about the report last December (see “The Moment of Truth”) –

“As discussed in the initial draft report, the Commission recommends we use ‘zero-base budgeting’ by ‘eliminating all income tax expenditures’. Basically we would begin with no exemptions, deductions or credits. Congress and the President would then ‘decide which tax expenditures to include in the tax code in smaller and more targeted form than under current law, recognizing that any add-backs will raise rates’.”

See my post for more details on the report’s “illustrative proposal”.

Why must a “fairer, flatter, simpler tax structure” be a “long-term goal”?  What about a major goal for 2013?  Romney’s plan does say, “the entire tax code is in dire need of a fundamental overhaul” – so why wait?

While I support a lower tax on capital gains, but not on dividends and interest (as for dividends I would do away with “double taxation” by allowing a “dividends paid deduction” for corporations), I do not support a “0” tax rate.  Romney wants the “0” tax rate on capital gains, dividends and interest for the “Middle Class” to help “Americans to prepare for retirement and enjoy the freedom that accompanies financial security”.  A better way to do this is to encourage retirement savings by providing more incentives for investing in a ROTH IRA or ROTH employer plan or creating some kind of Universal Savings Account.

And, although I am not a fan of the federal estate tax, I do not want to ever lose (or at leastfor the next 10 years while I am still preparing returns) the “stepped-up basis” for inherited property.

While Romney’s immediate tax plan for individuals is basically extend the “Bush tax cuts”, exclude tax capital gains, dividends and interest from taxation for those with AGIs of under $200,000, and eliminate the “death tax”, which is not much, I will give him credit for calling for a “fairer, flatter, simpler tax structure”.

But it seems that everyone agrees “the entire tax code is in dire need of a fundamental overhaul” – yet nobody is in a hurry to really do anything about it.

TTFN     

HERMAN CAIN'S 9-9-9 PLAN

Have you heard about the tax plan proposed by Republican Presidential candidate Herman Cain (aka “The Black Walnut”)?  He calls it the “9-9-9 Plan”.

According to Cain his 9-9-9 system would raise as much revenue as the existing federal income, corporate, and payroll taxes and could bring in additional revenue by boosting economic growth.

Here, from Cain’s campaign website, are the basics of the plan -

• Business Flat Tax – 9%

1. Gross income less all investments, all purchases from other businesses and all dividends paid to shareholders.

2. Empowerment Zones will offer additional deductions for payroll employed in the zone.

·         Individual Flat Tax – 9%.

1. Gross income less charitable deductions.

2. Empowerment Zones will offer additional deductions for those living and/or working in the zone.

• National Sales Tax – 9%.

Under 9-9-9The “Fair Tax” would ultimately replace the 9% individual and corporate income taxes.  I assume he means the FairTax proposal for a national sales tax that has been around for a while.  According to its website -   

“The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue neutrality, and, through companion legislation, the repeal of the 16th Amendment.”

Cain summarizes the results of his plan -

• It ends the Payroll Tax completely – a permanent holiday!
• Zero capital gains tax
• Ends the Death Tax.
• Eliminates double taxation of dividends
• Ends nearly all deductions and special interest favors

Let me begin by stating that I would not vote for Herman Cain for President.  I will never vote for anyone who openly supports the “Tea Party” movement.

While the 9-9-9 Plan is obviously a gimmick, it does deserve careful consideration.

I doubt the flat 9% tax rates for federal income, corporate, and sales tax would actually work, especially if it must also replace the current Social Security and Medicare payroll taxes, although I, as Cain is fond of saying, “don’t have facts to back this up”.  But “The 9-9-9 Plan” sounds better than “The 10-15-6 Plan”.  At least he didn’t call it “The 6-6-6 Plan”.

I do like the “flat tax” aspect of the plan.  And I like the fact that he does away with all loopholes and “tax expenditures”.  However, he does not mention whether some of these expenditures currently affecting the 1040, such as the tax benefits for college, the energy credits, and perhaps even a form of the Earned Income Credit, would continue as direct grant programs.

 

On the corporate level I also support a “dividends paid deduction”.  However I would apply any flat corporate tax to net book income (without a deduction for depreciation of real property).  I do not support a “gross income” tax for corporations.  Currently a NJ corporation, with high gross income but no actual taxable income, can pay as much as $2,000 in state corporate tax (again on actual income of “0”) – and this is not fair. 

I do not know what he means by “gross proceeds less all investment”.  Does he mean investment in equipment, such as a 100% Section 179 deduction?  I am not sure if I support this aspect.

On the individual level, if you do away with all tax expenditures why keep the deduction for charity?  The charitable deduction is most effective at higher levels of tax.  I do not think that taking away the deduction for charitable giving under a low flat rate would substantially reduce contributions.

It is assumed from the plan outline that there would be a “0” tax rate on capital gains (I assume long term).  While I do favor a lower tax on capital gains (or “more better”, in my opinion, a return to the capital gains deduction, at one time 50%) I do not support a “0” tax on capital gains.  Warren Buffet would pay practically no federal income tax!

I would want to consider keeping the deduction for contributions to retirement plans, or some kind of “universal savings plan” that would cover medical costs, education, and retirement, but would be willing to do away with all other deductions under a 10% or similarly low flat tax.  And I would do away with the deduction for depreciation of real property on Schedules C, E, and F.    

I especially like the fact that under a flat tax we would no longer have a situation where nearly 50% of Americans pay absolutely no federal income tax.

A national sales tax, as long as it is low enough, is not a bad thing.  One of its major benefits is that it would collect tax from the current “underground economy”.  A drug dealer who does not pay income tax on his earnings, or a self-employed businessperson who under reports his income, would still be required to pay sales tax when he buys an expensive car.  And, as most states already collect state sales tax, it would be easy to administer.  A side benefit of a national sales tax could be standardized national rules for what is subject to state, and federal, sales tax.

If there was something similar to the 9-9-9 plan in place I definitely would not eventually replace it with the Fair Tax as currently proposed.

So – what do you think?

TTFN