I’ve yet to file my taxes for 2012, but reading this piece in Pro Publica is making me shake my head. The United States could have free filing, but Intuit, the maker of TurboTax, has been lobbying the government to oppose the measure:
Intuit has spent about $11.5 million on federal lobbying in the past five years — more than Apple or Amazon. Although the lobbying spans a range of issues, Intuit’sdisclosures pointedly note that the company “opposes IRS government tax preparation.”
The disclosures show that Intuit as recently as 2011 lobbied on two bills, both of which died, that would have allowed many taxpayers to file pre-filled returns for free. The company also lobbied on bills in 2007 and 2011 that would have barred the Treasury Department, which includes the IRS, from initiating return-free filing.
Bottom line is that the way we file taxes now, we are more likely to make clerical errors on our returns. Why is the “return free” filing available in other countries and working well?
Warren Buffett is in the news again, this time stirring up some controversy with his op-ed in The New York Times, where he argues the ultra-rich need to pay a minimum tax:
Additionally, we need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that. A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy.
Above all, we should not postpone these changes in the name of “reforming” the tax code. True, changes are badly needed. We need to get rid of arrangements like “carried interest” that enable income from labor to be magically converted into capital gains. And it’s sickening that a Cayman Islands mail drop can be central to tax maneuvering by wealthy individuals and corporations.
He cites some hard numbers:
A huge tail wind from tax cuts has pushed us along. In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4 percent of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9 percent. It’s nice to have friends in high places.
The group’s average income in 2009 was $202 million — which works out to a “wage” of $97,000 per hour, based on a 40-hour workweek. (I’m assuming they’re paid during lunch hours.) Yet more than a quarter of these ultrawealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And — brace yourself — a few actually paid nothing.
For the rest of you: how to reduce your taxes in 2012.
I was reading an article on reducing your 2012 taxes at Fidelity this morning. A lot of it was already familiar to me, such as this bit about investing in municipals:
If generating income is one of your investment goals, you may want to consider using a taxable account to invest in tax-free municipal bond and money market funds—especially if you’re in a high tax bracket. These funds typically invest in bonds issued by municipalities and their earnings are generally not subject to federal tax. You may also be able to avoid or reduce state income tax on your earnings if you invest in a municipal bond or money market fund that holds bonds issued by entities within your state. Interest income generated by most state and local municipal bonds is generally exempt from federal income and/or alternative minimum taxes.
But I would venture to say not a lot of investors may be familiar with tax-loss harvesting:
Use ongoing tax-loss harvesting. Tax-loss harvesting is the practice of selling investments that have lost value to offset current- and future-year capital gains. Unlike one-time or occasional loss sales, however, a systematic tax-loss harvesting strategy requires diligent investment tracking and detailed tax accounting. That means continuous analysis of every tax lot (shares purchased at a given price and time) to determine when the tax-loss benefit warrants selling appreciated positions. Trading a specific tax lot with a specific cost basis is different than selling all of your shares in a particular fund or stock, which may have been purchased at different times over many years and could have significantly different tax implications as a whole than they would individually.
I also found the below table very useful. Especially notable, if nothing changes before end of the year, is that all dividends will be taxed at your income level in 2013:
Your tax rate schedule in 2012 and 2013.
Read the full post on Fidelity here.
In an expletive-filled post, Stephen King says he wants to pay more taxes. King also explains:
Most rich folks paying 28 percent taxes do not give out another 28 percent of their income to charity. Most rich folks like to keep their dough. They don’t strip their bank accounts and investment portfolios. They keep them and then pass them on to their children, their children’s children. And what they do give away is—like the monies my wife and I donate—totally at their own discretion. That’s the rich-guy philosophy in a nutshell: don’t tell us how to use our money; we’ll tell you.
And here is Stephen King’s message to Mitt Romney:
I don’t want you to apologize for being rich; I want you to acknowledge that in America, we all should have to pay our fair share. That our civics classes never taught us that being American means that—sorry, kiddies—you’re on your own. That those who have received much must be obligated to pay—not to give, not to “cut a check and shut up,” in Governor Christie’s words, but to pay—in the same proportion. That’s called stepping up and not whining about it. That’s called patriotism, a word the Tea Partiers love to throw around as long as it doesn’t cost their beloved rich folks any money.
Fun read, even if you disagree with King’s arguments.
Tax Day is coming April 15… This news should be unsettling for more than the obvious reason of the yearly deadline. According to a new study, deaths from traffic accidents around April 15, traditionally the last day to file individual income taxes in the U.S., rose 6 percent on average on each of the last 30 years of tax filing days compared with a day during the week prior and a week later. The research was published in the Journal of the American Medical Association.
What’s more curious is that even allowing Americans to file their taxes electronically hasn’t negated the crash trend, lead researcher Donald Redelmeier said. The findings suggest stress, lack of sleep, alcohol use, and less tolerance to other drivers on tax deadline day may contribute to an increase in deaths on the road.
They say death and taxes are two certain things in life. Seems like they also go hand in hand.
Megan McCardle, over at The Atlantic, answers the question “With so many unemployed, and income increasing faster among the affluent, why aren’t people hiring more servants?” It’s an interesting thought experiment. The answers:
1. Various forms of public assistance, and wealthier families, have increased the reservation wage. A servant in 1900 worked at least 10 hours a day, at least 5.5 days a week, and according to our archives, cost at least $25 a month for a “passable” one. Many middle class people could probably afford to pay about $500 a month, plus a room and some food, for someone who would take care of all the housework, all the time. But how many Americans would work for such a sum? Our house was built in that era, and either they didn’t have live-in servants, or the help was sleeping in a pretty gnarly unfinished basement. You’d have to be fairly desperate to take the equivalent job today, and almost no one is that desperate.
2. There’s a tax wedge. If servants were more common, the IRS would be more assiduous about auditing for payroll taxes, etc. (Already a problem for working women with nannies who end up in public service). My mother actually paid taxes for her cleaning lady, and it was not only expensive, but an administrative nightmare–somehow, the numbers never added up right, the paperwork got lost, etc. Taxes reduce the differential between the value of your labor and someone else’s, because you don’t have to tax you.
3. Regulatory overhead See above. The modern labor regulatory system is set up to deal with corporations, not individuals contracting for informal labor. Either the work ends up in the gray economy (illegals), or it’s contracted out to companies that can amortize the regulatory overhead over a lot of workers (Merry Maids)
4. Management. Workers have to be managed. They leave. (Hance Saki’s memorable epigram: “She was a good cook, as cooks go. And as cooks go, she went.”) They need to be replaced. Sometimes the replacement doesn’t work out. All of this takes time. For the mistress of a house in the era before labor-saving appliances, managing servants was undoubtedly more pleasant than scrubbing the coal scuttles. But it was a job. And many high-paid women in the sub-Gates class have full-time jobs; they don’t have the time to take on full time employees. A large servant class may have presupposed the existence of a large class of women at home.