Posted: September 12th, 2011 | Author: Joe | Filed under: Taxes | Tags: Taxes, Warren Buffet | 1 Comment »
America’s favorite billionaire has been getting a lot of press of late with his calls on congress to raise taxes on the rich. Of course, that’s the point of his PR stunt – generate positive press about himself. He likes to be characterized as “brave” and “caring”, rather than greedy. Who wouldn’t really, but where that car falls off the tracks however is that anyone can make a donation to the U.S. Treasury any time they want – and for any amount. So Mr. Buffett and his pals who would love to “share the sacrifice” if only those Republican lovers of the rich would hike the tax rate already can write a big, fat check to the government anytime they want, and stop hiding behind congress for not doing so. In fact, some suckers out there have already donated $3 million to the treasury! I doubt Buffett was one of them.
Here’s an interview with Buffett in which he compares his income tax rate to the average employee in his office. In this interview he states that
He is taxed at about 17% on his $46 million in income “without trying to avoid paying higher taxes” while his secretary was taxed at 32%.
The devil is in the details.
While Buffett states he has “no tax shelters” and just follows “what congress tells (him) to do.”
The details here are that While Buffett may not have “tax shelter” he certainly makes full use of the deductions available to him. One such deduction is the charitable donation deduction. This one alone is enough to offset his entire ordinary income!
After that, he is taxed at the long term capital gains rate (currently 15%).
Some say that’s unfair to the office worker making $60,000 who is paying taxes at a rate of 30%, but I have a feeling that those workers are more or less clueless about the tax code and are not taking advantage of the deductions available to them.
For evidence of this, watch the interview with Buffett again. At about 3 minutes in, Brokaw interviews his secretary who has “no idea what kind of rate they pay in taxes, until Buffett told them.”
This is insane!
Oh course they’re going to pay more if they have no idea how much they’re paying! They obviously haven’t looked into it and don’t know the rules of the game, so to speak. It’s like comparing 2 shoppers, 1 who’s an avid coupon user and sales junkie to someone who just meanders through the store with no regard to sales and no shopping list. Which do you think is going to spend more money?
Warren Buffett pays a lower tax rate because he knows the system. He knows the rules and how the game is played. He’s right about one thing though – you don’t need to cheat the system to lower your tax bill. You can do it legally, you just need to know how and plan for it.
For example:
The bottom line: Educate yourself on the basics of the tax code. Or hire an accountant if you can’t be bothered, but realize that no one – not even uncle Warren – is really watching out for you and your money. That is up to the individual.
Related Posts:
Posted: May 9th, 2011 | Author: Joe | Filed under: Taxes | Tags: Guilt Tax, Opinion, Taxes | 1 Comment »
I don’t know about you, but I’m getting tired of hearing “the rich” whine about not paying enough in taxes.
I’ve seen stories and heard interviews along these lines steadily increase year after year for the past few years now.
Warren Buffett, Bill Gates, and many Hollywood types often claim they just wish the tax rates were higher because it’s “not fair” that they don’t pay more in taxes. (Of course, at the same time they do everything they can to shield their income and assets from incurring any taxes..)
Here’s a recent example (about half way down the article):
“Eric Schoenberg says to sign him up for paying higher taxes. Schoenberg, who inherited money and has a healthy portfolio from his days as an investment banker, has joined a group of other wealthy Americans called Responsible Wealth, which is project of the group, United for a Fair Economy. Their goal: Raise taxes on rich people like themselves.”
It sounds nice, doesn’t it? “United for a Fair Economy”. After all, who wants anything that’s unfair, right?
Well, if we want to be picky about it, the fairest tax would be a simple flat tax – the same rate for the rich and poor alike. But people don’t really want a “fair” tax, they want the rich to pay more simply because they have more.
Personally, I don’t have a problem with rich people. I think the vast majority of them are hard working entrepreneurs who made a choice to focus on business and career instead of family. I myself have made the opposite choice. I focused more on family than career, and have no regrets passing up an opportunity to be making a six figure income in place of dining at home with my wife and 3 kids every night as a family.
But I know, not everyone feels the same way. And apparently, there are a number of “rich” people who feel quite guilty about their success (or in the case of Eric Schoenberg, there ancestor’s success and his own dumb luck).
Let the rich pay more in taxes, don’t force them.
That’s why I propose a new feature to the tax form, akin to this $3 donation question found on the 1040 tax form which asks the tax filer:
Do you want $3 of your federal tax to go to the Presidential Election Campaign Fund?
Call it the “I’m rich and feel guilty” checkbox. It could simply state:
Do you feel that the federal government would do a better job of spending your money than you would?
The tax payer would then check “yes” or “no”. And there could be a new line item under the yes box where the tax payer could enter in the amount they would like to donate to the government in the form of extra taxes.
See, the fact is that while the federal government spends money prodigiously, it does not do so wisely. As Milton Friedman pointed out, when your money is spent by someone else on someone else (as it is in any government program), there is no incentive to get the best value for the price paid.
One of the things that has contributed to America’s success in its remarkable history is its system of limited government. The historic norm has been that wealthy Americans are free to keep their wealth and spend it as they see fit.
Sure, there are some who will be greedy and spend it on yachts and then try to “ evade paying tax on it. But for every self serving, societal leach you will have many other Buffetts and Gates’s that will choose to spend their fortunes on foundations for the betterment of mankind.
After all, who believes that raising the taxes on the rich is going to do anything to help feed the poor or fix the spending problem in Washington D.C.? Besides, there is apparently a fund at the Treasury Department for people to donate money, but few do.
Related Posts:
Posted: April 13th, 2011 | Author: Joe | Filed under: Taxes | Tags: debit card, tax refund, Taxes | No Comments »
How does this sound for convenience: The U. S. Treasury is offering the option for filers to get their refund on a prepaid debt card instead of traditional check or EFT (electronic funds transfer).
The option is only available to taxpayers who earn $35,000 a year or less, and it will be offered by a MyAccountCard Visa Prepaid Debit Card. Of course the government is talking about the cost savings associated with issuing the refund this way, though I’m not sure why. Does it really cost less to create a prepaid debit account and issuer a card than it does to transfer funds electronically?
To be fair, there is definitely a cost savings over mailing paper checks – 10 cents for prepaid debit card vs. $1 for paper check. But I’m far too cynical to think that’s their only reasoning.
They are only offering this option to taxpayers on the lower end of the economic scale. Is it just a coincidence that these are also the taxpayers who tend to have large refunds (and think it’s a good thing!) and who also view those refunds as “found money” to be spent of retail therapy by purchasing a large screen television or other such big-ticket items? Isn’t this just another form of stimulus – delivering fast, easy money to people who will likely spend it all (and probably increase their debt load in the process)?
And of course, there are fees associated with the card:
“The prepaid card is free for all customers, and the monthly service fee will range from being free to $4.95. All cards will offer unlimited free ATM withdrawals at 15,000 in-network ATMs, while a $2.50 service fee and a 50-cent balance inquiry charge will be incurred for using out-of-network ATMs.”
A much better use of a tax refund is paying down credit card debt, student loans, car loans – even an extra payment on your mortgage would be better. Also, contributing to or starting up a retirement savings plan or an emergency savings plan. I know, saving isn’t sexy. But you can do both.
My advice – treat this year’s refund as a windfall, and adjust your withholding to minimize your refund next year.
Related Posts:
Posted: April 12th, 2011 | Author: Joe | Filed under: Taxes | Tags: 16th Amendment, Income Tax, Taxes | 3 Comments »
All those people dutifully paying their income taxes are fools! In case you didn’t know it, the federal income tax is unconstitutional and you don’t have to pay a dime! At least that’s what some people claim every year at this time.
That’s right, tax day is rapidly approaching and that means it’s time for all the crackpots to hit the Internet, airwaves and cable channels selling books and classes on how the federal government cannot really collect income tax. Some may even be offering their legal services to help you fight the IRS in your valiant struggle to uphold the constitution. Often times, these people have been in and out of prison themselves for not paying income tax, but that’s beside the point…
Mine being an inquiring sort of mind, I did a little digging on this subject, and here’s what I found…
Income Tax Unconstitutional - The premise.
The premise of the “income tax is unconstitutional” crowd is that:
“The authority of the federal government to collect its income tax depends upon the 16th Amendment to the U.S. Constitution, the federal income tax amendment, which was allegedly ratified in 1913.”
What the constitution says about taxes.
Before we can discuss the 16th amendment, we need to consider the relevant clauses of the base constitution and then see what the 16th amendment was meant to amend.
Article I. Section 8, Clause 1:
Article I. Section 8, paragraph (clause) 1:
“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;”
This essentially grants ability of Congress to collect taxes – including income tax.
Article I. Section 9, Clause 4:
Article I. Section 9, paragraph (clause) 4:
“No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.”
This clause limits how Congress can collect direct taxes.
What it all means
It’s when Article I, Section 9, clause 4 is considered that things seem to support the “income tax is unconstitutional” crowd. Basically, Section 9 says that while Congress can impose a federal income tax, it must be uniform in its application. Anyone who has ever done his own taxes can see that our tax code is far from uniform. I would wager that even those who have not done their own taxes are at least familiar with the concept of “tax brackets”. The U.S. Federal tax bracket systems ensures that those who earn more, pay more. This by it’s very definition is not uniform. I’m sure there are those who would argue that as long as the non-uniformity is applied uniformly, then it’s consistent and supported by Sections 8 and 9 of Article I. In other words, as long as all millionaires are taxed a uniform amount greater than non-millionaires, then it’s OK. In actuality, it’s not necessary to twist the argument like this.
In 1913, Congress ratified the 16th amendment to grant the power to collect income tax to the federal government. Or did it?
(Note: you can read the U. S. Constitution for yourself here.)
The law that never was
According to the proponents of the unconstitutional income tax view, the 16th amendment was never truly ratified.
Article V of the constitution states that in order to ratify an amendment, 3/4 of the states in the union must ratify the amendment. At the time of the 16th amendment (1913), there were only 48 states in the union, so 36 would have to ratify it. Philander Knox, the Secretary of State at the time, claimed to have 38 states who had ratified the amendment.
But according to William J. Benson , there were 4 states (Kentucky, Oklahoma, California, and Minnesota) who had either not ratified the amendment, or had done so in a manner that violated their own state constitutions.
He goes on to state that upon rigorous investigation, including traveling to each and every state capital, he discovered that in fact only 2 states had every truly ratified the 16th amendment!
Why the 16th amendment doesn’t matter
While this may be fascinating and appear to grant the tax payer the right if not the inherent duty to not pay income tax, it’s all a moot point because the 16th amendment does not, in fact, alter the federal government’s taxing powers. That’s right, all the work to pass the amendment, and all the bickering after the fact is a waste of time. At least according to Robert Greenslade (and others).
In the end, it seems that Congress does indeed have the power to collect income tax because it is not taxing the money, but the transaction which results in the transfer of wealth. You see, Section 9 dealt with direct tax, not indirect. If income tax was a direct tax, then the 16th amendment would be needed. It would also mean that you would be taxed for any and all wealth owned by you as of tax day. Instead, you are taxed on the transaction of receiving that wealth – not on its possession.
Maybe that’s just a lot of legal twisting, parsing and massaging of the language and it’s meaning. I’m not a lawyer. But one thing is certain: failure to pay your taxes will get you in big trouble with the IRS, and the “income tax is unconstitutional” argument is an argument you won’t win.
Related Posts:
What others are saying