Perry’s Tax Reform Plans

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Republican presidential candidate, Rick Perry, is trying to set himself apart from the other candidates with his bold tax reform talk.  He wants to dramatically reduce taxes, and with that would come deep cuts in government funding and government programs.  Key points of Perry’s plan:

  1. eliminate taxes on Social Security benefits
  2. eliminate estate taxes
  3. eliminate taxes on dividends & capital gains
  4. popular deductions remain in tact
  5. $12,500 personal exemption plus $12,500 for each dependent

Under Perry’s plan, we would get to chose between paying a 20% flat tax or paying under the current system.  Those who oppose this proposal say that the wealthy taxpayers in our country would chose the flat tax and enjoy huge savings, everyone else would stick with the current tax system and pay what they are paying now, and there wouldn’t be near enough revenue for the government to continue operating.

Tax Reform Buzz

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Some great soundbites in the news today:

If you have a dramatic change in the tax structure at the federal level it’s going to upset the apple cart in every single state in one way or other, so it’s a tsunami.

~ Joan Wagnon, FedTax.net

GOP presidential hopefuls each have their own idea of what needs to be changed about the current tax system.  And each claims to know the effect their changes would have, whether it be tax relieffor the middle class or if there will be sufficient revenues to run the government.  But according to Wagnon, they’re just guessing (or hoping):

The trickiest question of any proposal is whether you are going to be able to replace all of the income tax and make up the same amount of revenue. It’s impossible to know.

Politicians also talk of abolishing the tax code and eliminating the IRS, but is this realistic?

You’re still going to have a white building with lawyers and accountants. They’re still going to do audits and there’s still going to be complexity to it.

~ Matt Schlapp, Cove Strategies

World Series of Tax Reform

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On October 22, 1986, President Ronald Reagan signed into law the most sweeping tax reform in United States history.  At the conclusion of his speech he said:

I feel like we’ve just played the World Series of tax reform, and the American people won.

Its been 25 years, so maybe we’re due for another win.  The consensus these days is that the tax code is a mess and we need to start over again.  But there are nearly as many opinions as there are pages to the code.  Here are just a few.

California’s New and Improved “Top 250 List”

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Normally “first place” is a position that many aspire to.  Unless you occupy the first spot on California’s Top 250 Delinquent Taxpayers list.

California tax collectors (employees of the Franchise Tax Board) have a reputation for being, how shall we say this, . . . very zealous in their duties.  The FTB stops at nothing to collect overdue taxes, even rivaling the efforts and tactics of the IRS.  One of the ways California encourages tax compliance is by publishing its annual “Top 250 Delinquent Taxpayers” list on its website as a type of public shaming exercise.  Right now the winners are Halsey & Shannon Minor of Los Angeles who owe exactly $14,247,341.09 in personal income taxes.  Apparently nobody in the entire state of California owes more state taxes than they do.

But even if you’re at the bottom of the list, the consequences are the same.  And now, with the passage of AB 1421, it’s more than just the tax bill and the shame. Consequences now include having your drivers license, and possibly professional license, suspended.  Also, the list will be doubled so that it includes the top 500 worst offenders.  The author of the bill, Henry Perea, has strong words for California’s top 500:

Everyone on this list has had a chance to work with the state to resolve their tax issues but have chosen instead to bury their heads in the sand and continue to spend lavishly.

But I wonder how accurate that statement is.  According to the FTB website, the only criteria for inclusion on the list is that the taxpayer owes over $100,000 and falls into the top 250 (now 500).  The oldest tax liens were filed in 1996, but many of them were just filed last year.  At any rate, California has sent a clear message to the wealthiest taxpayers in the elite neighborhoods of LA and San Francisco.  Now they should try to get that message to the masses to make it really effective.

First Social Security COL Adjustment Since 2009

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The US Social Security Administration announced today that Social Security recipients will be getting a pay increase in 2012. Here is a link to the press release.  A cost of living adjustment is based on the Consumer Price Index, which did not increase in 2010 or 2011, so this is the first increase of its kind since 2009.

The 3.6 percent cost of living adjustment will benefit some 60 million social security beneficiaries across the nation.  However, by SSA’s own admission, some of these people will see no increase at all due to an increase in Medicare premiums.  So, no change really.

The SSA also announced that the maximum amount of earnings subject to the Social Security tax will increase from $106,800 to $110,100, affecting about 10 million taxpayers.  However, some of these people may be able to offset the tax increase by finding additional credits and deductions.  So, no change there either.

Even if you’re not one of the 10 million, you’re not out of the woods.  You’re not getting tax relief anytime soon either.  The temporary 2011 Social Security tax rate reduction (from 6.2% to 4.2%) — which affects all workers — will expire if nothing more is done to either revive it or further reduce it.

NJ No Longer “Film Friendly”

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Movie and television producers are going to realize, if they don’t know already, that they won’t find maximum tax relief by setting up shop in New Jersey.

You probably heard about New Jersey’s governor, Chris Christie’s denial of a $420,000 tax credit for MTV’s Jersey Shore earlier this year. Christie doesn’t approve of the show because it “perpetuates misconceptions about the state and its citizens.” It’s probably safe to say that most people from NJ would prefer out-of-staters soon forget the association with Jersey Shore.

However, democrats continue to push for passage of legislation that would grant tax credits for production companies that shoot films and TV shows in the Garden State. The democrats point to a 2008 study showing that movie maker tax credits are good for jobs and good for the local economy in general. The republicans point to a 2010 study showing that movie production incentives have no such effect.

The irony in all this is that New Jersey, specifically Fort Lee NJ, is known as the birthplace of the motion picture industry. The state suffered its first hit 100 years ago when most filmmakers moved their operations to California where they could film year-round with little threat of inclement weather. Could these tax issues be the second major setback for New Jersey’s film industry?

Fee Increase for California Installment Agreements

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Starting October 26, the Franchise Tax Board will be raising the fees for installment agreements as follows:

Personal Income Tax Installment Agreements: $34 (previously $20)

Business Entity Installment Agreements: $50 (previously $35)

See the Installment Agreement information page for more information, but note that it has not been updated with the new amounts yet.

Fees are still subject to change (again) without notice.

One Perspective on Cain’s 9-9-9 Tax Plan

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At a minimum, the Cain plan is a distributional monstrosity. The poor would pay more while the rich would have their taxes cut, with no guarantee that economic growth will increase and good reason to believe that the budget deficit will increase. . . . Mr. Cain’s tax plan stands out as exceptionally ill conceived.

~ Bruce Bartlett, former George W. Bush economic policy adviser

TAS No Longer Taking Simple “Delay” Cases

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The Taxpayer Advocate Service (TAS) — that independent organization within the IRS whose mission it is to assist taxpayers — announced that it no longer has the manpower to assist taxpayers where the only complaint is IRS delay. Taxpayers must go elsewhere for real tax relief.

TAS groups its cases into two broad categories: (1) Economic Burden and (2) Systemic Burden. They will continue to handle all Economic Burden cases, but the following “systemic burden” issues will be remanded to the IRS:

  1. Processing of Original Returns
  2. Unpostable/Rejected Returns
  3. Processing of Amended Returns
  4. Injured Spouse Claims
According to the TAS, delays associated with these 4 issues are typically due to the IRS being overloaded with work. And the way they see it, it makes no sense to push the problem off on them, who are also overloaded with work. So, the TAS will temporarily not be helping taxpayers with these specific issues. Of course, a systemic issue could be causing (or about to cause) an economic burden, and in that case, the TAS will hear it. Full details here.

Extension on CA State Taxes Ends October 17th

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The California Franchise Tax Board (FTB) issued a news release on Friday reminding Californians of the extended tax return deadline and also siting some interesting statistics.

Like the IRS, the California tax authority does cut some slack for procrastinators. And like the IRS automatic extension, the California version also comes to an end on October 17th. Sometimes the tax relief most needed is just some more time. The FTB tries to make it as convenient as possible to both file and pay your state taxes.

Filing CA Taxes

  • ReadyReturns (partially completed returns just waiting for the taxpayer to complete online)
  • CalFile free e-file program
  • other free or fee-based e-file services listed on FTB’s website
  • view wage & income information online with MyFTB Account

Paying CA Taxes

And now for the statistics. This year over 1.5 million Californians requested an automatic extension and will have to file by the October 17th deadline. This actually eases the burden on the state in April by spreading out the work a little more evenly throughout the year. By now California taxpayers have filed more than 14.7 million personal income tax returns of which 11.7 million were e-filed. Also, the state has issued 9.5 million refunds totaling $8.1 billion.