Posted on 03/22/2004 12:15:04 PM PST by phil_will1
Because I need to know the economic implications of the tax code, I have been doing my own taxes for many years. I certainly use a computer, but last year’s efforts usually help this year’s outcomes. Not much this year.
In calculating my charitable deductions, I must first determine if I had a carryover of unused deductions because contributions may have exceeded the 30 percent contribution limit, unless, of course, I am eligible for the 50 percent limit relative to adjusted gross income.
If I contribute an appreciable asset, I must know if it is the 30 percent maximum variety or the 20 percent kind.
The tax status of my investment returns depends upon my income, when I made the transaction and how long I held the asset.
And all of this changes if I fall into the dreaded alternative minimum tax category.
Some of my dividends are ordinary while others are qualified. Whether I sold an asset soon after I received its dividend also matters.
For the first time in my life, I fell into the alternative minimum tax category. I had a natural gas investment that created a preference item.
However, I had a similar investment a few years ago that did not throw me into the alternative minimum class. By the way, this generates another carry-forward of deductions that were not effectively used, to be used if I ever fall out of the AMT class.
I probably will not make another natural gas investment this year, so I may actually get to use some of the tax breaks that were supposed to stimulate exploration. But I will lose the time cost.
Aside from grouping me with half the population in screaming about the tax code, how do these observations relate to the economy?
If you follow my above discussion, you will notice that I did not know the after-tax return from my investments until I completed my tax form. Not only did the returns depend upon the natural risk of the investment, but also upon my income, how long I held the investment, and whether other income and deductions pushed me into the alternative minimum tax category.
In other words, there was tax uncertainty in determining the true return on my investment.
Obviously, such tax distortions increase the difficulty of making prudent investment decisions. The very complexit y of the tax code may be stifling economic opportunities.
Also, the time I spent to prepare my tax returns was almost three times what I spent last year. I hope I did not overlook anything or make any errors. However, I am no longer sure I can spot any errors if they occurred. Americans can use their time more fruitfully than complying with these increasingly complex tax codes.
Furthermore, I used my computer program to determine what preference item pushed me into the AMT this year when a similar gas investment did not do so a few years ago. It was the state and property taxes that I paid.
In other words, I was not able to receive full benefit for all my deductions (a consequence of the AMT) because my other taxes rose. This fails the fairness test.
To be sure, this year, with a similar adjusted gross income, I was more likely to fall into the AMT group because of differences in the basic and AMT codes. As everyone knows, the basic code has reduced marginal rates and is indexed for inflation.
What many may not know is that the AMT marginal rates have not declined, and they are not inflation-adjusted. As a result, the gap between the regular and AMT rates is narrowing.
Two years ago, 1.6 million households paid the AMT. This year it will be 3 million. In 10 years, it might be 30 million.
For these people, there has not been a tax cut.
Anyone who wants to make the current tax code permanent must be crazy. When will we get relief from this complexity and its effect on investment decisions?
Donald Ratajczak is a regents professor of economics emeritus at Georgia State University.
I will make a bold prediction - if we don't enact Fundamental Tax Reform within the next 5 years, the Internal Revenue Code we have at the end of that 5 year period will make this one look sane and efficient. That is the nature of the taxable income beast.
If you would like to be added to this ping list let me know.
As if the tax code has anything to do with fairness.
No kidding! Ya think?
In other words, I was not able to receive full benefit for all my deductions (a consequence of the AMT) because my other taxes rose. This fails the fairness test.
This raises an equal protection issue. Why would two identical people, making the same exact incomes with the same exact deductions, be taxed under different tax rates, solely because one is living in a high tax state (he pays higher rate under AMT) versus a low tax state (he pays lower rate under regular tax tables. This is unconstitutional.
As if the tax code has anything to do with fairness.
Which is fair? to be enslaved or a free person.
"A capitation is more natural to slavery; a duty on merchandise is more natural to liberty, by reason it has not so direct a relation to the person."
--Thomas Jefferson: copied into his Commonplace Book.-- a free people that pays slave taxes to its government is willingly training itself for bondage.
Alan Keyes 199
Patrick Henry, Virginia Ratifying Convention June 12, 1788:
- "the oppression arising from taxation, is not from the amount but, from the mode -- a thorough acquaintance with the condition of the people, is necessary to a just distribution of taxes. The whole wisdom of the science of Government, with respect to taxation, consists in selecting the mode of collection which will best accommodate to the convenience of the people."
"Fuh - F'ing - Duh!!"
Becki
"Fuh - F'ing - Duh!!"
Becki
Sorry.
Becki
Some of us are already doing that. We're buying gold bullion coins and investing in gold and silver bullion funds.
The average savings account or money market fund at one-half percent return is a wealth-losing proposition, disguised as income for tax purposes.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.