I don’t know of anyone who hasn’t taken advantage of our poorly structured tax laws, except perhaps those who don’t pay any taxes at all. If loopholes exist, taxpayers will take advantage of them, whether they are rich, poor or anything in between. We have tax accountants paid specifically to identify those loopholes, but instead of revising the tax regulations eliminating those loopholes we decide that increasing the tax rates for the very rich is the better solution, instead of designing a tax structure that satisfies all who pay taxes. Until such time that we design a FAIR tax structure we will continue to isolate those who have realized the American dream from those who never even made an attempt at it. So, under the guise of taxing only those whose incomes are more than $250,000 a year we, in effect, inadvertently are taxing the middle class significantly more by increasing all other taxes. The government cannot continue to sustain their elegant spending habits without additional revenue, and since income taxes are a huge political issue, they increase sales taxes, gasoline taxes, import taxes on goods, etc., etc. And, who is the beneficiary of those increased taxes? The very people Obama proposes to protect: the middle class!
For example: Households with incomes between $50,000 to $75,000 pay, on average, a 15% income tax, $40,000 to $50,000 pay an average 12.5% and those between $20,000 and $30,000 pay approximately 5.7%.
When Obama took office, an individual making $50,000 a year spent, on average, $30 a week for gasoline to commute to work ($1,500/year). Today it’s $3,200/year. He was paying $2.50 for home heating oil and spending about $1,250 for 500 gallons/year. Today it’s $4.00/gallon or $2,000/years. $100 a week for food in 2008 has increased to $140/week, due solely to the increases in fuel prices. That’s an increase of $2,080 for food and a total increase of $4,530/year, caused by increased fuel prices alone.(Obama claims it would be useless for the US to drill because we only have 2% of the world’s oil and we use 20%, see footnote at the end of this paragraph below) This $50,000 wage earner’s after-tax income of $42,500 means the $4,530 in increased costs represents an equivalent tax increase of 10.7%. Further, reduce his salary by sales taxes; state income taxes, city property taxes etc. and this increase in expenses to the middle class increases dramatically. So, whom are we kidding? It doesn’t matter if these numbers are absolute. Are we better off today? By allowing oil prices to escalate, and not taking advantage of our own supplies, we are taxing the middle class at a greater rate than proposed for the wealthy. Think about the increases to your own bills.
Note: Obama Administration Report Reveals that the United States Has 26% of World's Technically Recoverable Conventional Oil Resources. Washington, D.C. - Senator James M. Inhofe (R-Okla.), Ranking Member of the Senate Committee on Environment and Public Works, and Senator Lisa Murkowski (R-Alaska), Ranking Member of the Senate Energy and Natural Resources Committee, today commented on a newly released government assessment from the U.S. Geological Survey (USGS), which illustrates the truth about America's vast energy reserves. Despite the President's intentionally misleading claim that the United States only has two percent of the world's oil reserves, this assessment confirms that America's technically recoverable conventional oil resources are 26 percent of the world's supply, and this doesn't begin to include our enormous oil shale, tight oil and heavy oil resources. Moreover, it shows that the United States holds almost 30 percent of the world's technically recoverable conventional natural gas resources, without including our massive supply of shale gas.
If the tax structure is unfair change it, but don’t criticize those who follow the law. How many of us add funds to our tax bills each year because we feel we are paying too little? Not even Warren Buffet, the stimulator of the “Buffet Rule” is contributing more than is required when filing his tax returns. See the article published in the Danbury NewsTimes:.”Do Democrats Even Know What Tax Fairness Is?”.
Romney’s income comes from investments that he and his company have earned and paid taxes on, before he made any long-term capital investments. To criticize him for paying only 13.9% is ludicrous, because the money that was invested had already been taxed. Further, his investments are handled in a “Blind Trust” for which, he has no control. The hypocrisy is that no one takes into consideration the fact that he has paid taxes on the money earned before any further investments. In addition, there isn’t one of us who would want our long term capital gains to be taxed any higher than 15% let alone 50%. So, why is it then, that we are willing to allow the rich to be taxed at higher rates as long as it doesn’t affect us?
Let’s take a look at some the current tax structure
For the two lowest tax brackets, the tax rate in 2008 through 2010 is 0% for qualified dividends and long-term capital gains. This compares to the 15% top rate others will pay on those types of income. Single taxpayers with taxable income up to around $33,000 and married couples filing jointly with taxable incomes up to about $65,100 qualify for the 0% rate. The 0% rate applies to any long-term capital gains that qualify for the 15% rate for other taxpayers, not to just the gains on publicly-traded stock. But there is a lot of confusion and misunderstanding about the 0% tax rate. It is not an all-or-nothing situation. Because the tax rates are graduated, even some taxpayers with incomes above the threshold could have some income taxed at the 0% rate.
Many retired couples have taxable income below $65,100. Suppose a couple normally has taxable income of $30,000. In 2009 they realize a long-term capital gain of $70,000, bringing their total income to $100,000. The first $35,100 or so of that capital gain is taxed at the 0% rate. The rest of the gain is taxed at the 15% rate. Keep in mind that interest from tax-exempt bonds is not counted in determining the threshold; so well off taxpayers can apply some or all of their qualified income for the 0% rate.
This situation provides opportunities for low-bracket retirees to realize some long-term capital gains on asset they otherwise might not have held and pay a 0% rate on at least part of the gains. There, also, is an incentive to switch some investments to dividend-paying stocks that qualify for the 15% rate for other taxpayers.
Another opportunity presents itself for taxpayers who are supporting parents in a low tax bracket. The taxpayers could give some appreciated securities to the parents, who sell them and pay 0% tax. The amount given should stay within the annual gift tax exclusion amount of $13,000 to avoid owing gift taxes or using part of the lifetime gift tax exemption.
Gifts of appreciated securities also could be made to children in low tax brackets, but the gifts would have to be made to adult children. Congress changed the law on the Kiddie Tax to prevent high income parents from giving securities to their minor children to sell and pay 0% capital gains taxes. To avoid the restrictions, the children must be over 21, or over 23 if they are full-time students. The restrictions also can be avoided if the children do not qualify as dependents on their parents’ tax return by providing more than 50% of their own support and earning income. Youngsters who do not meet those exceptions must have incomes less than $1,800 to qualify for the 0% rate.
Couples receiving Social Security benefits will have to be careful when executing these strategies. Increasing taxable income through the recognition of long-term capital gains also could make more Social Security benefits subject to income taxes. In most cases, the additional tax on the Social Security benefits will be quite low and will make the effective tax rate on taking the capital gains just a few percentage points. Even so, one should run the numbers to determine the effect such a transaction would have on the full tax picture.
A taxpayer needs to consider the non-tax picture before plunging ahead to take advantage of the 0% tax rate. There must a reason for selling the asset other than to cash in the gains at a low rate. The difference between the 0% rate and 15% rate is going to be small in actual dollars, especially considering that only the gains below the taxable income thresholds for the lowest brackets qualify for the 0% rate. Yet, if someone planned to sell the asset in the next few years, needs to reposition a portfolio, or has a new opportunity, taking a look at how to qualify at least part of the gain for the 0% rate is worth doing. When deciding which assets to sell, one strategy is to sell stocks or other assets with the least amount of capital gains. Normally, with a tax-advantaged strategy one wants to maximize the gains taxed at the low rate. But there is a ceiling on the amount of gain that qualifies for the 0% rate each year. The goal should be to generate the maximum amount of cash at the lowest tax cost. By selling assets with the least appreciation, it is possible to free up more after-tax cash than if assets with higher appreciation were sold. This is a good strategy for retirees who are deciding which assets to sell to pay for their expenses the next few years. The main problem now for most people will be to find assets that have capital gains in them. But those who have held assets for a long time likely have gains they have not recognized.
Do We Need Tax Revision ? Are we Tax Hypocrites - You Tell Me?
If I have done nothing more than highlight that our tax laws need revising then I have accomplished what I set out to do. Criticizing Romney for taking advantage of our current tax laws is hypocritical. Let me repeat, that Romney and others who take advantage of the Capital Gains Tax rates have already paid taxes on the income they earned before they invested in long-term Capital stocks.
As long as the tax laws benefit us, we will be in agreement with them, but should a wealthy man take advantage of the tax laws we become hypocritical. I wonder where these Marxists thoughts are coming from?