One of the best tax articles I've seen this year.

[kcjenkins]

http://www.smartmoney.com/taxes/income/the-5-best-tax-changes-we-won-t-see/

[GeneInAlabama]

If the IRS does decide to simplify the code - watch out! When they simplified the form 941, it went from one page to two pages.

[Catherine]

Every time they have "simplified" the tax code, my phone starts ringing off the hook.

[joanmcq]

I wanted to comment on this below the article, but couldn't figure out how to get registered on the site.

"For example, an individual who owes no tax for 2011 can collect a $13,360 refundable tax credit by fraudulently claiming he adopted a child and including Form 8839 (Qualified Adoption Expenses) with his Form 1040, along with some easily-manufactured bogus paperwork. He won't get caught for stealing the $13,360 unless he gets audited, which is pretty unlikely. I hate to be the one to publicize this low-risk fraud opportunity, but there you go."

This is soooo inflamatory. Whatever you might think about the adoption credit and/or the refundable portion, it wasn't easy to obtain. Every single return with this credit was audited. Not exactly a low-risk opportunity for fraud. Most preparers complained how long it took for the returns to be processed, and the extreme amount of paperwork that had to be submitted. One of my new clients claimed the credit last year (I didn't prepare it), but I did see the audit report, where for a requested credit of $909, they could not find a reciept for $59. The credit was reduced by that amount.

For all those who want a flat tax; AMT is it. Unfortunately it doesn't target whom it should any more. I'm all for finally indexing the exemption to a level that doesn't reflect 'weathy' circa 1969. And to stop playing politics with the tax code. Don't buy votes with tax credits, deductions, exemptions, etc. Stop with the Grover Norquist pledges, and determine what level of taxation is necessary to run the country, and tax that. The yearly uncertainty is worst for businesses than a slight increase in taxes would be.

Do you all realize that 2011 was the first year in over 10 in which last minute crap wasn't pulled at the end of the year? I was amazed when my tax software showed up by Thanksgiving.

[Kea]

I had another problem with that refunable tax credit complaint. His only complaint is that it is "refundable" and mentions that people who owe no tax can get this check. So, is he really saying it's OK for high income people to fraudulently take this credit since it will simply reduce their taxes? Or, perhaps he is saying that only low income people would make a fraudulent claim?

In my opinion, fraudulently claiming a credit is wrong regardless of if it is refundable or not no matter how much income you have. But that's just me.

[MN dhawk]

Many get more back in Social Security than they pay in. That part is not double taxed. I would find out this amount and adjust the 85% accordingly.

I agree with the elimination of refundable credits and the AMT but am fine with phase-out rules. I like progressive rates. My clients in higher brackets don't seem to have any lifestyle problems. I would bring back the estate tax so that Bill Gates really helps us out with the public debt.

All medical should be deductable. Where did this 7.5% come from?

[JohnH]

I like progressive rates too.

I should pay the same rate as anyone who makes as much as or less than I do.

Anyone who makes more than I do should pay a higher rate.

I think that's fair.

[Catherine]

Not so much on the "progressive" rates.

If you live in an area with a high cost of living (NYC, LA, San Francisco - you can rattle them off as well as I can), an income that would be extremely comfortable in Dubuque is barely subsistence level. One could make a good case for higher tax rates for income brackets in lower-cost zones.

The whole basis of taxing income instead of consumption is nuts. Consumption is easier to define, easier to track, much harder to escape - even career criminals eat out, buy cars, blue jeans - even black pull-over hoods, LOL. As soon as you say "income" -- well, define income. With deductions. Exemptions. Depreciation. Depreciation recapture. Exclusions. With that one word, an entire can of worms is opened up. Plus it penalizes people for doing well - when they could be investing that income (and that includes putting it in a savings account; that is one source of where capital to borrow comes from) and thereby help others to do better (or at least make the attempt).

[OldJack]

I like progressive rates too.

I should pay the same rate as anyone who makes as much as or less than I do.

Anyone who makes more than I do should pay a higher rate.

I think that's fair.

Its not fair that some do not pay any tax. Its not fair to charge anyone more than anyone else.

[taxxcpa]

One version of the consumption tax I've seen involves a rebate (or pre-bate) of a certain amount to everyone, rich or poor.

For the poor, it offsets or more than offsets the consumption tax they will pay. For the Rich it is something like a standard deduction.

Of course, if you are rich enough, you don't spend all your money on consumption.

A fair tax that goes easy on the poor without punishing someone for success is probably not possible even in theory.

[kcjenkins]

"This is soooo inflamatory. Whatever you might think about the adoption credit and/or the refundable portion, it wasn't easy to obtain. Every single return with this credit was audited. Not exactly a low-risk opportunity for fraud. Most preparers complained how long it took for the returns to be processed, and the extreme amount of paperwork that had to be submitted. One of my new clients claimed the credit last year (I didn't prepare it), but I did see the audit report, where for a requested credit of $909, they could not find a reciept for $59. The credit was reduced by that amount."

Well, as to the adoption credit, I do agree it's hard to get. Just had a call TODAY from a client who just finally got their refund from their 2010 return with the adoption credit! Maybe, tho, it's easier for the bogus filers to fake the papers than I found it to be for legit filers to get them from the state agencies. I know we had to send the IRS the same darn forms three times before they finally accepted that they had the forms they asked for. And of course, they waited months each time before asking for them again. Thank goodness the client has been with me for years, and continued to trust me when I kept telling her that 'yes, you are entitled to this credit, and yes, we have sent them what their own forms and letters tell us we needed to send, and yes, you will eventually get your refund'. It's hard to imagine that a new client would have been nearly as trusting, even tho I showed them clearly the rules in the IRS pub, stating what documentation is needed.

[kcjenkins]

One version of the consumption tax I've seen involves a rebate (or pre-bate) of a certain amount to everyone, rich or poor.

For the poor, it offsets or more than offsets the consumption tax they will pay. For the Rich it is something like a standard deduction.

Of course, if you are rich enough, you don't spend all your money on consumption.

A fair tax that goes easy on the poor without punishing someone for success is probably not possible even in theory.

Atticus, I do think that the consumption tax would be the fairest, just as the Founding Fathers did. While it is true that the rich do not spend all their money on consumption, what they do with the rest of it is really the important part, as that is what they INVEST, creating jobs and new products for the rest of us. From the very beginning of 'civilization', when mankind figured out how to become farmers, and thus produce more than just what was needed to feed them for a day or a week, it's been the ability to have some 'extra' to save and invest that has allowed us to afford to spend time on education, art, invention, scientific experimentation, etc. It's so sad that today, our children are being taught that 'profit' is somehow bad, or at least 'uncouth' or 'vulgar'.

[mcb39]

Well, as to the adoption credit, I do agree it's hard to get. Just had a call TODAY from a client who just finally got their refund from their 2010 return with the adoption credit! Maybe, tho, it's easier for the bogus filers to fake the papers than I found it to be for legit filers to get them from the state agencies. I know we had to send the IRS the same darn forms three times before they finally accepted that they had the forms they asked for. And of course, they waited months each time before asking for them again. Thank goodness the client has been with me for years, and continued to trust me when I kept telling her that 'yes, you are entitled to this credit, and yes, we have sent them what their own forms and letters tell us we needed to send, and yes, you will eventually get your refund'. It's hard to imagine that a new client would have been nearly as trusting, even tho I showed them clearly the rules in the IRS pub, stating what documentation is needed.

I had one of these last year, but get this: This was their fifth and last carry forward year under the old rules. The IRS never challenged their claim for five years and last year because of the change in the rules (?) they had to jump through all the hoops and never got their refund until October. These people had adopted three special needs children in 2005. I guess I wonder why the IRS would not just leave this credit alone instead of doling out in excess of $30,000 in one clip to some filers last year. Was this another case of not thinking ahead?

[joanmcq]

It's not the IRS, its Congress. The IRS only administers.

The problem with the 'rich investing' arguement is that over the last 12 years, they haven't been investing in America for the most part. Some have, like Space X, and Tesla Motors, but others have destroyed companies in leveraged buyouts that enrich only the 'investors'. Small businesses (an I mean really small businesses) are the true way to wealth in this country, and the odds are increasingly stacked against us. My local paper has been running articles lately about people who are starting businesses-a shaved ice stand run out of an Airstream trailor, a Chinese immigrant who became wealthy through McDonald's franchises, chain restaurant manager who opened his own. Most of these have one thread in common-the people in question lost their jobs (the chain guy was the only one who didn't) and couldn't find work, but they had an idea for a business. Most were middle class, and so had a bit of capital to invest. Some will just have a good life (being SE gives you an amazing sense of freedom), and some will end up like the Chinese immigrant who kept re-investing to true monetary wealth. And his story was of the first one being extremely cheap as it was in an extremely low income area, and involving sleeping in the restaurant for the first year.

The point is, more wealth is created by those starting small on a shoestring than by the CEOs making a bazillion dollars a year. And this has always been true in the US.

[kcjenkins]

I do not disagree with you that the small startup businesses are crucial to our growth. Indeed, most new products, even those sold by big companies, started out with some one person who had an idea, worked out how to make it into a salable product, and then sold that idea, either to the general public himself, or sold it to the big company that then manufactured and marketed it. McDonald's started out as a single hamburger joint, Dell computers started out with a single geek building computers for his friends, etc. My point was that it takes 'profit' to be able to expand a business, hire people, etc, and yet our kids are being told in most schools that profit is somehow 'unfair', 'greedy', or even 'dishonest'. If you listened to interviews with the YOUNG people in the Occupy group, most of them seemed very clear that in their minds, businesses should sell their products 'at cost', because 'corporate profits' are evil. They seemed to have no understanding at all that those evil 'shareholders' are taking money that they could use to have a higher lifestyle, and instead risking those dollars by investing, in the hope of growing them, usually for the goal of having something to live on when they get too old to work any more. If you tell those kids that much of the money invested in the stock market is from pension funds and IRAs and 401Ks, they have no idea what that even means. Explain it, and they still do not grasp the idea that old folks know that they will have high medical bills in the years when they have no earning power except from their savings, and that is why they want their investments to make a profit.

By the way, the number of 'leveraged buyouts' that wipe out companies to profit the investors is much smaller than the number of equity firms who actually rescue businesses that were going under unless someone came in and changed things to make them profitable again. Sure, it looks hard when the buyers come in and fire a bunch of non-productive people, but if those people had been producing a profit, the company would not have been in trouble in the first place. And no, I don't mean all the people fired are bad workers. Some of them are great workers, trying hard, but at a job that is itself not a worthwhile job. That's one reason that a lot of fired workers become successful in their own businesses, or at their new jobs. But if a company if focused on, for example, just doing things the same way they always did them, while things have changed so much in what we do and how we do it, they are going to end up failing. Sometimes, tho, it takes new management to see what should be kept, and what should be changed or eliminated. Remember, successful equity firms are the ones who turn most of their purchases around and make them profitable, not just sell off parts.

[joanmcq]

I do not disagree with you that the small startup businesses are crucial to our growth. Indeed, most new products, even those sold by big companies, started out with some one person who had an idea, worked out how to make it into a salable product, and then sold that idea, either to the general public himself, or sold it to the big company that then manufactured and marketed it. McDonald's started out as a single hamburger joint, Dell computers started out with a single geek building computers for his friends, etc. My point was that it takes 'profit' to be able to expand a business, hire people, etc, and yet our kids are being told in most schools that profit is somehow 'unfair', 'greedy', or even 'dishonest'. If you listened to interviews with the YOUNG people in the Occupy group, most of them seemed very clear that in their minds, businesses should sell their products 'at cost', because 'corporate profits' are evil. They seemed to have no understanding at all that those evil 'shareholders' are taking money that they could use to have a higher lifestyle, and instead risking those dollars by investing, in the hope of growing them, usually for the goal of having something to live on when they get too old to work any more. If you tell those kids that much of the money invested in the stock market is from pension funds and IRAs and 401Ks, they have no idea what that even means. Explain it, and they still do not grasp the idea that old folks know that they will have high medical bills in the years when they have no earning power except from their savings, and that is why they want their investments to make a profit.

By the way, the number of 'leveraged buyouts' that wipe out companies to profit the investors is much smaller than the number of equity firms who actually rescue businesses that were going under unless someone came in and changed things to make them profitable again. Sure, it looks hard when the buyers come in and fire a bunch of non-productive people, but if those people had been producing a profit, the company would not have been in trouble in the first place. And no, I don't mean all the people fired are bad workers. Some of them are great workers, trying hard, but at a job that is itself not a worthwhile job. That's one reason that a lot of fired workers become successful in their own businesses, or at their new jobs. But if a company if focused on, for example, just doing things the same way they always did them, while things have changed so much in what we do and how we do it, they are going to end up failing. Sometimes, tho, it takes new management to see what should be kept, and what should be changed or eliminated. Remember, successful equity firms are the ones who turn most of their purchases around and make them profitable, not just sell off parts.

I'd like to see your back up for the opinion that kids are taught in school that profit is bad.

On LBO's: This is the definition of leveraged buyout from Investopedia-not exactly a bastion of radical left-wing thought:

Definition of 'Leveraged Buyout - LBO'

The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.

Investopedia explains 'Leveraged Buyout - LBO'

In an LBO, there is usually a ratio of 90% debt to 10% equity. Because of this high debt/equity ratio, the bonds usually are not investment grade and are referred to as junk bonds. Leveraged buyouts have had a notorious history, especially in the 1980s when several prominent buyouts led to the eventual bankruptcy of the acquired companies. This was mainly due to the fact that the leverage ratio was nearly 100% and the interest payments were so large that the company's operating cash flows were unable to meet the obligation.

One of the largest LBOs on record was the acquisition of HCA Inc. in 2006 by Kohlberg Kravis Roberts & Co. (KKR), Bain & Co., and Merrill Lynch. The three companies paid around $33 billion for the acquisition.

It can be considered ironic that a company's success (in the form of assets on the balance sheet) can be used against it as collateral by a hostile company that acquires it. For this reason, some regard LBOs as an especially ruthless, predatory tactic.

Read more: http://www.investopedia.com/terms/l/leveragedbuyout.asp#ixzz20Fxl7esG

[Randall]

joanmcq, you're my hero. I don't have time to comment a lot. Not that it would do any good. Thanks for your posts.

[kcjenkins]

I'd like to see your back up for the opinion that kids are taught in school that profit is bad.

Joan, I don't have actual cites, I based that comment on some of the school books some of my grandkids have used in school, and on their reports of what they were told by teachers. I know that's a small sample, but these books are ones used in schools across the country. And I wish I'd made a note of the titles and authors, but did not do that. But I can give you a few links

http://www.thirdworldtraveler.com/Democracy_America/American_Schooling_TDF.html

http://www.frugal-cafe.com/public_html/frugal-blog/frugal-cafe-blogzone/2010/12/14/anti-capitalism-school-book-in-nh-causing-uproar-jesus-christ-bashed-called-wine-guzzling-vagrant-precocious-socialist-video/

This one has some direct quotes that you might find shocking in a school book given to your kids

http://ironicsurrealism.com/2011/05/12/video-shocking-excerpts-read-at-tucson-school-board-meeting-from-a-book-in-the-ethic-studies-curriculum/

I know that all teachers do not teach anti capitalism, but I also know that a lot do.

[joanmcq]

Actually, I found the first to be a thoughtful analysis on education and critical thinking. As an anthropology/archaeology undergrad major and enthusiast for all things historical since I was a kid-(and I do mean kid, I was reading history & archaeology in grade school) I particularly agree with the 'things left out' of history as taught over the years. I do agree on age appropriate learning: do third graders need to know that US soldiers crushed indian infant's heads at the Sand Creek massacre with their rifle butts to save bullets, an act which led to Custer's defeat? No. Do high school kids? Yes, I think so. The list of banned books makes me sick--To Kill A Mockingbird? Really?

The second refers to 'Nickle and Dimed', a journalist's attempt to survive on minimum wage jobs and her struggles thereof. I haven't read it, although I mean to. Since I haven't read it, I don't know the context of the quotes. But I also don't know how 'anti-capitalist' the book is....and might inspire some high school students to stay in school, since the jobs the writer takes are the ones they'll get without a decent education.

The last one....well I don't again know the context of the quotes, and the site was such a mish-mash of indignation, it's hard to see what point was being made except that they didn't like the quotes. Things taken out of context can often make any point you want to. But from the writing level of the quotes, I'd say it was at least a high school class.

That said, I am all for teaching critical thinking and analysis. And right now, a bit of deep analysis of the Gilded Age (aka Robber Baron era), the economy of the 1920's, and subsequent Great Depression would come in handy around now.

I also believe you cannot understand a person or culture until you see the world through their eyes. That does not mean that I like what I may see, or agree with it, but this country could use a bit of 'global perspective' as the first article put it. Might help us to stay out of a few wars, or at least conduct them a bit more efficently if we understood the area we were fighting in (think Viet Nam, Afganistan, Iraq) to name a few....

[kcjenkins]

I do not disagree with a thing you said in the last post, Joan. If we had more teaching of critical thinking, our kids would not be so able to be tricked into believing the lies and half-truths they are fed every day. Not just in political ads, but in all kinds of ads. Plus at least half of all the 'news' reports we are dished up every day. And we'd all be better off for that.

Indeed, often I post something a bit provocative here just to get people thinking about what they are being told. Whether I agree with the goal or not, I try to keep an open mind to the arguments, but also to look for the errors in either the conclusions, or the 'facts' presented by both sides. And often I find distortions in both sides. Plus, my father told me, and I told my boys, "never totally trust any politician, they are always trying to get an advantage for themselves." I've found that to be good advice. Even when they are trying to do good, they are still going to present only the side they want you to see. And often the good goal they show hides the bad means they want to use to attain it.

[kcjenkins]

Just one year ago, throngs of college students took to the streets, “occupying” Wall Street and bashing capitalism. What was it that lured so many? And at those demonstrations, why did we see so many strange bedfellows finding common cause – socialists, environmentalists, pro-Palestinian activists and others? Turns out those allies are not so mismatched after all, but are rather unified by the common perception – real or not – that they are victims of three evil isms: imperialism, colonialism, and capitalism. For many, that worldview was born and nurtured on our nation’s campuses.

In his latest book, “The Victims’ Revolution: The Rise of Identity Studies and the Closing of the Liberal Mind,” author Bruce Bawer takes to task American universities for their emphasis on Identity Studies – that is, Black Studies, “Queer Studies,” Chicano Studies, Women’s Studies – which he believes inculcate into impressionable college students the idea that those minority groups are victims of the oppressive white man. This is the ethos rampant not only in those aforementioned departments but also in the study of literature, philosophy and history. In the past, humanities instruction focused on the great works, aspired to objective truths and emphasized the importance of logical analysis. Apparently, this is no longer the case. To Bawer, the higher education system is today predicated on moral relativity. No more focus on great works, or great men. Our youth are being taught to hate capitalism and to hate America and thus so many have bought into the tenets behind Occupy Wall Street.

The Wall Street Journal in its review of Bawer’s book wrote, “The most traditional branches of Western learning have been replaced by disciplines designed to serve radical political ends.”

Bawer describes the American college campus today as a dystopia, a world in which student and teacher alike present an air of being profound when really they say little that is new and even less that veers from the beliefs of their peers. It’s an exclusive — and wildly expensive — club with its own jargon and belief system, its own saints and sinners. If so many of them didn’t deride faith, one might call it a religion.

Besides examining numerous texts in the various “identity” fields from which he generously quotes, Bawer also attended academic conferences, including one cultural studies conference, where he observed the speakers:

They’ve been trained to reduce the rich complexities and ambiguities of human life to simple formulas about oppressors and oppressed, capitalists and workers, Western imperialists and their Western victims. And when they encounter a reality that doesn’t fit into this paradigm, they don’t know how to deal with it, other than to make statements that are demonstrably untrue.

Go here for the rest of this review.

http://www.theblaze.com/stories/why-do-so-many-students-hate-capitalism-and-america-theblaze-speaks-to-author-of-new-book-that-criticizes-colleges-for-teaching-victimhood/

[kcjenkins]

A good example of how statistics can be manipulated to mislead can be found at

http://watchdog.org/56722/blumer-blade-falsely-equalizes-dem-gop-claims-about-ohs-growth/