Tax breaks for rich?

Just hold on there a sec­ond …

Northwest Arkansas Democrat-Gazette - - VOICES - JERRY JACK­SON Be­fore re­tire­ment, Jerry Jack­son of He­ber Springs was a part­ner-in-charge in Kansas City af­fil­i­ated with Deloitte & Touche, and later be­came re­gional part­ner for 11 of­fices in the Mid­west. He has writ­ten ar­ti­cles for the Jour­nal of Ac­count

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?

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