TAX TWO-STEP

Ah, to be a member of the treasured middle class!  Everybody loves you.  Everybody wants your vote.  Nobody wants to raise your taxes.  They promise they will raise the taxes of the rich people, whoever they are.  As we say in New York, “I have this bridge for sale.”

But who are the “middle class,” and who are the “rich people?”  The answer is, it depends.  It can be complicated, but generally it depends on where you live and the sources of your income.  For example, an annual income of say $100,000 in a high tax, high expense area such as New York City does not go nearly as far as in say, Nebraska.  Also, if the $100,000 is derived from a small business that enables the proprietor to write off certain expenses the money goes a lot further than $100,000 earned in salary.  Most politicians use the upper range cut-off of $250,000, so I’ll go with that, but keep in mind that if you make that much and live in a high expense, high tax area you probably feel like you’re middle class, not rich.

Anyway, in my opinion all this rhetoric surrounding the candidates’ respective tax plans is a typical political smokescreen for the following reasons:

1.  Regardless of who wins, his tax plan will not sail through Congress intact.  It will have to be negotiated, refined and massaged.  Any politician who gets too specific with respect to a plan he will deliver is just blowing smoke.  So, if you want to criticize Messrs. Romney and Ryan for being too general about their plan at least recognize that they are being realistic about the process.

2.  Raising tax rates on just the rich will not stimulate the economy nor reduce the deficit and debt substantially.  Besides, whether you’re counting $250,00 + earners, millionaires or 1% ers, there aren’t enough of them!  Somehow, someway, the middle class always ends up paying more, even if it’s through deduction, IRA, credit and exemption phaseouts, state taxes, property taxes, school taxes, sin taxes, bridge and tunnel tolls, car registration fees, etc.

3.  Don’t focus on just the tax rates.  Far more insidious are things like the alternative minimum tax, the marriage penalty, and exemption and deduction phaseouts.  The AMT was passed in the 1960s as a “rich man’s tax,” but it was not indexed to inflation.  Consequently, at this time if you make over $80,000 you will likely have to pay an AMT.  Politicians have never granted relief from this because it brings in a lot of revenue, and it flies beneath the radar.  People are hung up on tax rates.  The marriage tax was eliminated by the Bush tax cuts.  It means that a married couple with the same income as 2 single people pays more tax.  The candidates are not talking about these items, but their potential impact on the middle class is huge.

In conclusion, don’t be fooled by the rhetoric on both sides.  Any tax plan proposed is only a guideline, an insight as to the candidate’s thinking.  It will still have to be refined in Congress.  Far more important to you is the extension of the Bush tax cuts, protection from the AMT and the marriage tax. Moreover, regardless of who wins, don’t think that tax increases will be limited to the rich.

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2 thoughts on “TAX TWO-STEP

  1. I find your blog interesting and informative. Of course I Agree with your opinions what about our friends who are closed minded and will not even read the blog!!these friends can’t even discuss the issues without yelling and getting riled up!! I like to hear both sides and discuss both sides even though I have a definite opinion

    • I hear you that you can’t reason with some people about politics. Can’t they see through the rhetoric, or are they just hard core liberals predisposed to vote democratic regardless?

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