The LIBRARY

Tax Breaks For The Rich (or Poor)
About the time 2006 tax returns were being filed, in 2007, I had a perplexing call from a friend who was preparing an older relative’s 1040, using TurboTax. It seems most of the information had been entered. That nifty counter in the corner indicated that the taxes were essentially already paid through withholding and estimated payments. Maybe there was a small refund due. He paused to wait for the last 1099 from a bank. When it arrived, it indicated about $200 taxable interest, which he entered into the appropriate box. The software now calculated $2,000 in additional tax this lady should pay. It seems $200 more income caused her total income to cross a threshold that changed the calculation of tax on social security income.

The bottom line of this apparent tax inequity is that she has been caught by one of the many tax provisions that are intended to add tax to people our culture considers better off than the masses. Those provisions, like the Alternative Minimum Tax, have been enacted through the years, with little notice. After all, they were taxes on the rich, who are outnumbered by the masses. Now, larger numbers of people are seeing the impact of these rules. In time, these events are likely to bring cries for change. Everyone wants the higher taxes to start just a little higher than their income or estate level. It will be interesting to see how it all plays out.

I hope this is not seen as a political statement. I like to think of it as an observation from someone who sees a reasonably broad cross section of tax returns. Within those, there are some with total income tax of only a few thousand dollars and maybe 10% of adjusted gross income, if that. At the other extreme, people are paying as much as $400,000 per year, which approaches 30% of adjusted gross income almost every year.

I do not like the current tax system very much. It is not because I believe the rich or the poor are taxed too much. It is because the system is so complex few people can understand it. Virtually everyone is left feeling that someone else is getting a better deal than they are. Therefore, the rich can believe they are mistreated and the poor can believe they are mistreated. The tax system fosters class warfare which politicians of all types can exploit. That is not good. Unfortunately, I do not believe I am anywhere close to having any answers. In that respect, I am no different from almost all those who complain about the systems that define our society and culture.

The year 2008 is again our chance to pick political leaders who may or may not improve the situation. We will see. The candidates will be locked in a struggle that looks a lot like that bull and bear. We will all have our chance to support one or the other. I wish us all good luck with the outcome, no matter who we vote for. Good luck does not mean getting the people we vote for. Any of us can be as wrong as the bull or the bear. It means somehow getting leaders who can do a good job for all of us.
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