Tax breaks for rich?
Just hold on there a second …
The dam is breaking! The dam is breaking! Only a fool shouts this warning when there is no dam. Likewise, how many times in recent years have you heard and read from the elite and uninformed that we must get rid of “tax breaks for the rich”? My experience with those who shout the mantra “tax breaks for the rich” could be typical. When I asked one such shouter to name just one example of such tax breaks, he hesitated and replied, “Well, I hear this comment a lot, so there must be some.”
It is time to talk about the opposite in today’s federal tax code that actually penalizes the wealthy. By rich I’m not talking about the super-rich like Warren Buffet, Nancy Pelosi, John
Kerry or even our own Walton family. Instead, these penalties apply to Bill Clinton’s definition of around $250,000 or more in income.
By definition, our progressive tax system taxes individuals from a rate of zero to almost 40 percent. That progressive rate itself should dispel the argument that the rich are favored. Consider the protests that would result if we had a flat tax where everyone was taxed at the rate of, say, 17 percent on all income. That proposal is advanced by some.
Listed below are a few of the current tax provisions that not only do not favor those with more income but actually penalize them.
(A) The alternative minimum income tax: Originally put in the code to apply to just a few taxpayers with large incomes and maybe large deductions. Today that provision has morphed into affecting millions of taxpayers in the middle-income category. This particularly hits taxpayers that sell their farms or businesses, or have a large capital gain.
(B) Obamacare’s 3.8 percent tax: It adds an additional tax on such items as dividends, capital gains, interest, royalties, and rental income, applying again to taxpayers over $250,000 or so on taxable income.
(C) Dividends and capital gains tax: If a family has taxable income of $60,000 or so, the rate on this revenue is probably zero. As your income increases, the rate rises to 20 percent.
(D) The deduction for medical expenses: This includes the tremendous cost of insurance premiums. Your total medical expenses must be reduced by 10 percent or your total income. That 10 percent affects you little if your income is modest, but for many with a higher income that deduction could be entirely eliminated.
(E) Itemized expenses such as medical expenses (adjusted as in D above), property and real estate taxes, mortgage interest, contributions and a few others are deductible in full unless your adjusted gross income exceeds $259,400. In the latter case, these deductions will be decreased more as your income increases.
(F) Deduction for exemptions: For 2017, taxable income is decreased by $4,050 for each exemption. If your total income is more than $259,400, the exemption deduction, which would be $20,250 for a family of five, will be reduced and could disappear completely.
These are a few of the penalties assessed as income increases. Probably the taxpayer that suffers the most is a small-business man or woman who has a profitable business that faces not only these federal income taxes but a 15.3 percent payroll tax on his or her own earnings and state income taxes ranging from 7 percent in Arkansas to 10 or 11 percent in some of the blue states.
Is it any wonder the new administration is concentrating on reducing business regulations which can be done quickly and not wait for the snailpace action of Congress in changing some of the tax penalties that affect so many small businesses?