Government

Fair taxes? Who says?

In response to a previous post on tax facts, a regular reader made some very insightful comments. Here is some of what he says; makes sense doesn’t it?

What matters with income taxes is not how much income you make but how much you get to keep. Everybody focuses on the top marginal rate but it’s your effective rate that counts.

How much marginal rates are, and how many of them there are, is only half the story. The other half is at what levels do these rates kick in.

One person gets his health insurance from his employer and pays no tax on the benefit. The employer writes it off as an expense. Another person has to pay for his own health insurance with his after tax dollars because he doesn’t get health insurance from an employer.

WHAT’S FAIR ABOUT THAT?

One person borrows money to buy a home or (homes) and gets to write off the interest, (a subsidy provided by the tax code). Another person rents his home and is not subsidized.

WHAT’S FAIR ABOUT THAT?

The mortgage interest deduction is also responsible for distorting prices in the housing market making it harder for first time home buyers to afford a home.

 WHAT’S FAIR ABOUT THAT?

One person saves for his retirement by investing in stocks. When he cashes them in, he pays capital gains tax on the entire amount. Another person saves for retirement by buying a house. (1) When he cashes it in he gets the first 250K or 500K if married tax-free.

WHAT’S FAIR ABOUT THAT?

(1) Or if he saves in a qualified retirement plan, when he cashes it out the entire amount is taxed as ordinary income even though he has taken the same risk as an investor.😳

Here is another example:

The elective deferral (contribution) limit for employees who participate in 401k, 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $18,000.

The catch-up contribution limit for employees aged 50 and over who participate in 401k, 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $6,000.

The limit on annual contributions to an Individual Retirement Arrangement (IRA) is $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living is $1,000.

So, if you work for an employer who sponsors a defined contribution retirement plan, you have a greater tax and savings advantage than the poor guy on his own.

DOES THAT SEEM FAIR TO THOSE SAVING FOR RETIREMENT?

All this and yet in the last seven years and more nothing has been done except talk about tax reform. 

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3 replies »

  1. You miss the two most important points about taxation:
    Taxes, income taxes in particular, are not designed to create fairness, but equity, horizontal equity, treating similarly situated people the same, and vertical equity, treating differently situated people differently (progressive), and
    EVERYTHIBG in the tax code is completely arbitrary.

    Fairness is not, never a consideration. Fairness means treating me how I think I should be treated. No one cares about what you, or I think.

    Like

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