“New Tax Info”

I received a note from a coworker today, soliciting my opinion on an email he had received, titled “New Tax Info.” It’s one of those emails that floats around the internet, containing what appears to be a mixture of fact and fiction. I don’t think the author(s) intend to deceive on the “fictional” points, but there are certainly some gray areas. The author lists the source of the content as Joan Pride in an article in Kiplinger, “Lots of Tax Hikes Coming in 2011“. That article contains a handful of the items presented in the email, but not all.

Here’s the outline of points in the email, which makes the case that the tax code changes will occur in three waves to commence on January 1, 2011.

Phase One:
a) Expiration of 2001 and 2003 tax relief
b) Personal income tax rates will rise (10 to 15% at the bottom level, 35 to 39.6% at the top level)
c) Itemized deductions and personal exemptions will again phase out (effectively raising the marginal tax rate)
d) Higher taxes on marriage and family
e) Return of the Death Tax (my personal favorite)
f) Higher tax rates on savers and investors (increase in tax rate on capital gains and dividends)

Phase Two: (Obamacare)
a) “Medicine Cabinet Tax” (concerning health savings, flexible spending, and health reimbursement accounts))
b) “Special Needs Kids Tax” (placing a cap on FSAs, which harms families with special needs kids)
c) HSA withdrawal tax hike

Phase Three:
a) Alternative Minimum Tax and employer tax hikes (includes expansion of families to be ensnared by AMT, changes to how small businesses can expense capital equipment)
b) Reduction of tax benefits for education and teaching
c) Elimination of charitable contributions from IRAs
d) Taxation of employer insurance benefits as income (specifying language in Title IX of the health care bill, section 9002)

My opinion is that most of this is true, but not all of it. I didn’t research most of the points here, but I did do a quick search on the item that was most specific (and, therefore, “easily searchable”)—that of the taxation of insurance as income (Phase Three, point “d”). It turns out that insurance benefits will NOT be treated as income, and taxed, but it will start to be “tracked”. That begs the question…why will it be tracked? Most likely, it will be tracked because there is some interest in taxing it in the future.
More info: http://www.factcheck.org/2010/05/health-care-law-and-w-2-forms/

There are a ton of other gems for me to research later in here, but I’ll focus my rage on the estate/inheritance tax, or “death tax.” This is a tax applied only to those that value savings. No other individual or family needs to pay it. If no one had any savings, would there be any money available for investment and growth? No. Bad, bad saving-types. You need to be punished, says the government.  I might also go so far as to say that the Death Tax penalizes performance and ambition.  If you are going to work harder and smarter than the next person, you are going to pay the price for it.  Whatever happened to the honorable notion that we are entitled to equal opportunities…not equal results?  Oops, I digress.

Further…consider this. These evil “savers” paid taxes already on their money when they earned it (STRIKE ONE). In fact, they paid a lot of taxes. Federal income taxes, state income taxes, city income taxes, social security, etc. If they didn’t want the value of those remaining dollars completely eroded by inflation (don’t even get me started on the inflationary policy of the Federal Reserve!) by sticking them under a mattress, those evil-doers presumably then invested that money. They stuck it in an interest-earning savings account, bought a municipal bond (supporting works projects for a municipality…gasp!), bought a T-Bill, invested in real estate, bought public shares of a corporation, or the like. Any interest earned, dividends received, or profits realized (capital gains) by the sale of real estate or shares by these mini-Beezelbubs is then taxed AGAIN by the government (STRIKE TWO). Despite these repeated kicks to the crotch by the government, the dirty “saver” manages to save up a modest nest egg that he’d like to pass on to his children and grandchildren…freeing them up to do more productive works (investment & charity) with the money that they later earn. Alas, it’s time to tax that money yet AGAIN when those savages die on and pass their earnings on to their kids (STRIKE THREE).

TAXED THREE TIMES!!! Check out the specific rates (“tentative tax rates”, and “exemptions and tax rates” sections) here: http://en.wikipedia.org/wiki/Estate_tax_in_the_United_States. For an estate between $10K – $20K, the tax is $1800 (18%) PLUS 20% of any amount over $10k (but under $20k). Depending on the amount of the estate, that rate can increase up to 55%!!! Oh…and for good measure…” estates of decedents that die after December 31, 2010, will be subject to a 5% surcharge on the excess of their estate over $10,000,000.” All of us complain when we withdraw $100 from an ATM, or buy a concert ticket, and see a several-dollar surcharge tacked on. That fee helps cover the costs of that business to provide that convenience. Fine. What value does the government provide for that additional 5%? Does it cost them $500,000 more to process paperwork?

So…we’re all being taxed twice already, and the “spitting on our grave tax” will be applied when we die. With all of this taxation, the government should be swimming in our money, right? Nope. They are urinating on it, and we are in debt…mountains and mountains of debt. Even if we can find some sort of way to swallow the bitter pill that is this taxation, maybe we can encourage our governments (local, state, and federal) to spend much, much, less. Although it may sound contrary, I’m not entirely opposed to taxation…AS LONG AS it comes with an equal amount of spending reduction. If the goal is to balance a budget, a better effort needs to be made to increase revenue (usually via taxation) and reduce spending. Ideally, that effort would be followed by a reduced need for higher taxation.  Is it a pipe dream for me to think that those dollars would then be returned to the constituents, rather than spending them in an effort to buy more votes?  Oops…I digress again.

I digress. A lot. The email I received was sent to illustrate a point, that a lot of tax increases are coming. That much is true. I refuse to think that it is futile to argue against higher taxation, by illustrating that government revenues increase when taxation decreases. I also refuse to think that it is futile to argue against statism (including high taxation, centralization of government power, massive entitlements and spending, and Constitutional vandalism), by illustrating that systems like this have never worked in any other civilization. Again, I digress.

Washington, keep your hands out of my wallet.