9 Things The Rich Don't Want You To Know About Taxes

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Interesting to me that fear is instilled that we will lose jobs from small business and overseas because of tax bracket increases, but the loss of loopholes is not seen as a bigger concern for Big Business and a choice of whether or not they continue to do business here and/or generate new jobs.

It doesn't seem likely to me that small increases in taxes are of much concern to those that use loopholes to avoid paying tax.

I think most people in the general public, Republican and Democrat, agree that those loopholes should be closed. For the most part, politicians seem to agree.

I've used this example before and I like the simplicity of it. I'm not sure why Democrats don't use it, for an understanding of what a tax increase really means, other than the understanding of how small the public attention span is for details or tax info.

For those families that have an adjusted gross income (AGI) of $250,000 the average total income for these people is $315,000. For those people an adjustment to the tax bracket means they keep the same average $6500 tax savings they had from the 2001 tax cut. They see no increase in taxes from the adjustment of the top two tax brackets.

A 3% tax increase only affects money above the AGI of $250,000 up to an AGI of $379,150.
So for a family with a total income of $400,000 and an average AGI of $315,000 they pay an additional tax of $2550 a year. This is not even a tenth of one percent of their total income. If they run a small business it is not likely to have a significant impact.

They keep the average $6500 tax bracket savings on their earnings up to $250,000. So, they keep 72% of the tax savings from 2001.

A majority of the trillion dollars in tax revenue is generated by those that earn much more and are more likely to use loopholes to avoid paying tax. An agreement to close those loopholes by politicians and the general public, is going to affect those that use loopholes more than a small tax increase.

Actually, there is a twist here the conversation has somewhat ignored to date.

In California, as far as I can tell, very few wealthy individuals pay regular income tax. Instead, they pay tax under the alternative minimum tax system. An alternate tax calculation intended to bite people who were getting too many goodies out of the tax laws. The reason it bites virtually every single one of my clients? State taxes. Deductible under the regular system, but not under AMT.

Why doesn't congress fix AMT? Because the average, middle class taxpayer doesn't see it and, thus, it isn't a hot enough political issue. You can argue about the regular income tax rates right and left, but until you change AMT, you haven't changed what most of my clients pay at all. In other words, a lot of talk that does absolutely nothing for them. Completely academic exercise. A way of earning political points. Congress then makes it up through the back door by tweaking the AMT rate up and very few notice. They've been doing it for years.

We really need to get real about the tax system in this country. I am so tired of the focus on the maximum income tax rate. As if that is the single biggest driving force on a tax return. That is so far from reality it would be funny if it wasn't so inclined to drive poor policy decisions.

Remember what I posted about too many taxes and too many agencies? Win on the rate and lose somewhere else? AMT is a good example.

You aren't going to balance the budget by cutting taxes. It's this strange dream that if you reduce revenue you will force a way to reduce expenses. You know what that translates to? A family that signed a long term lease for a $1,000 a month apartment, and now is told their income is only going to be $800. They can't reduce their expenses because they have already made a committment. THAT is the situation with our government: the committments are made. We very much need to talk about weaning ourselves out of some, because the costs are accumulating more than we can afford, but that isn't going to happen tomorrow or the next day. The only way to pay the rent on the apartment is to increase the revenue. When the political climent causes the politicians to play "reduce tax" games, someone somewhere will get creative to make up the difference. It's the only way to pay the rent.

In the old days, only the very wealthy paid income tax. Later, the higher brackets started kicking in at a very high level. Then came tax bracket creep, a perfect way to make people who make less money pay more of the burden.

Thought this was a good article on how much money could be raised if taxes are increased on the wealth. It is less than I would have thought.

Soak Rich, Bust The Budget
http://www.investors.com/NewsAndAnalysi ... Budget.htm

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