A May 10, 2019 article by Laura Saunders in the Wall Street Journal revealed yet another one of the problems with the complicated and confused income/payroll tax system that the Swamp and their cronies in Congress wish were still hidden from view.
Ms. Saunders points out:
- Rebecca Headings’ husband, U.S. Navy Senior Chief Petty Officer Gary Headings, died of a heart attack at age 39 in 2017.
- After Mr. Headings’ death, his six-year-old son began getting a $29,300 annual survivor’s benefit paid to many families who have lost active-duty service members—often called Gold Star families.
- His son owed nearly $7,000 in federal taxes, a rate of 37%.
- His mother earned $55,000 and her income tax rate was 12%.
- James Conniff, an accountant in Boston, says he has a 16-year-old client whose mother died of cancer in her forties, leaving him real estate income of about $36,000 a year. With it he pays rent on an apartment for himself and his father, who earns about $41,000 annually as a retail worker.
- For 2018, the father’s top rate was 12% while the child’s rate was 37%, due to the new Kiddie Tax.
- A child receiving taxable aid for college could wind up in a much higher bracket.
Like many bizarre outcomes created by the present income/payroll tax system, there was a problem that the 1986 reform was supposed to correct. Many people earning higher incomes and paying between 40% and 50% income/payroll tax rates per year were looking at the real costs of providing education to their children.
According to a study done by Demos, average tuition in 1980 at public 4-year colleges was $2,100 and was $9,500 at private 4-year colleges. In 1980, the employee side of Social Security was 5.08% and 7.05% for self-employed workers. If a family had an income tax rate of 40% and were employees, then they had a combined income/payroll tax rate of 45.08% and 47.05% if they were self-employed.
This means that the employee would have to earn $3,047 to pay $2,100 and $13,782 to pay $9,500.
A self-employed person would have to earn $3,088 to pay $2,100 and $13,970 to pay $9,500.
However, if there was a way to let their son or daughter earn money and be taxed at 10%, then the children would have to earn $2,310 to pay $2,100 and $10,450 to pay $9,500. (To make it more relevant to 2019, $1000 in 1980 is now worth about $310.)
Of course, if the son or daughter was going to college, it was likely that the actual costs were much higher because of the costs of room and board.
Tax advisors developed techniques to have children receive income, pay less tax, and pay their own tuition and other college costs at a lesser cost to the parents. This advantage is even greater if the parents can find a way to deduct the money transferred to the children.
For example, if a doctor was able to form a lab that was owned by his children’s trust and pay for lab services from his business, this advantage increased even more. Instead of taking that income from his practice and paying income/payroll taxes and then using the net to pay for college expenses, the doctor could deduct the payments as a business expense.
This means that instead of having a dollar reduced to $.53 after personal income/payroll taxes, the doctor passed $1.00 to his children and they paid $.10, meaning that $.37 more was available to the doctor’s family for other consumption.
Of course, if you were not able to take advantage of these tax planning benefits, this was considered unfair.
THE “KIDDIE TAX”
In 1986, Congress decided to stop this obvious abuse and passed a provision that investment income earned by children under 14 was partially tax-free and then the balance was taxed at the parent’s income tax rate.
Because people were transferring investment income to children when they became 15, in 2006 the age was increased to 18. In 2008, this age threshold further increased to cover children through age 18 and full-time students through age 23. To be considered a full-time student, a child must be enrolled full time in school for at least five calendar months in the year.
Until 2017, the children receiving investment earnings up to the stated ages were taxed at their parent’s rate. In 2017, the geniuses who write the tax laws decided that the present law was just too complex and decided to make the law simpler.
The 2017 overhaul switched the Kiddie Tax rate from the parents’ income tax rate to trust tax rates. The trust rates reach 37% when the child’s income exceeds $12,751.
This is why you have children of moderate-income parents who may have inherited some income-producing assets or received them through a program like the one for children of deceased active duty service personnel, or getting taxable college aid, pay a tax rate of three times the rate of their parents.
CONCLUSION
Instead of this Kiddie Tax nonsense, look at the difference when the FAIRtax becomes law:
- The income received by children will be only taxed when actually spent on retail services and new goods.
- The money spent on education would not be subject to the FAIRtax.
- Families get all of their income, not reduced by income or payroll taxes, and then use those dollars to pay for their children’s education. A dollar of education costs a dollar—while under the income/payroll tax it costs a minimum of $1.20 to earn the $1.00.
Isn’t it time to stop looking at band-aids and start looking at curing the problem?
The author George Bernard Shaw said these words in a play he wrote, You see things; and you say “Why?” But I dream things that never were; and I say “Why not?”
Isn’t it time for us to ask, “Why not?”
Isn’t it time to take back control from D.C.?
President Trump, “Embrace the FAIRtax and real tax reform! Stand up to the Swamp. They will oppose you anyway because they see you as a threat. What have you got to lose?”
It is time to PASS THE FAIRTAX!
The truth is the truth. Remember, if we don't continue to tell the truth and demand a change, then this quote from George Orwell's 1984 may foretell our children's future:
“If you want a picture of the future, imagine a boot stamping on a human face—forever.”
WHAT CAN EACH OF US DO
- Call up the local or D.C. offices of your House Member and two Senators and you can use the following script:
- I am sure that Representative ____ or Senator ____ is in favor of everyone obeying the income tax laws.
- After they assure you that their boss is not in favor of anyone breaking the law, ask if they are aware of the Cebula study showing $9 trillion of evaded income/payroll taxes over the next ten years.
- Since most will say they don’t believe their boss has seen the study, either drop off a copy or get an email address and send a copy to them for their boss.
- Say you are going to call back in a week and ask what the Representative or Senator is going to do to stop this evasion.
- In a week, call back and ask specifically what the Representative or Senator is going to do to enforce the law.
- They probably will say their boss believes that simplifying the income tax will handle the problem.
- Explain that when people evade income taxes, they are also evading the 15.3% payroll/Medicare tax and state income tax. So it is unlikely that they are going to pay 30% or 40% when they were paying 0% because they have already decided it is okay to cheat.
- Say that the only way to reduce evasion is to increase by tens or hundreds of thousands the number of comprehensive IRS audits done each year.
- Point out that Evaders do not self-identify by putting an “E” on their income tax return.
- 80% of the people likely to be audited are trying to comply, but they will be forced to endure these IRS audits as well.
- Ask if the Member is in favor of this?
- If they say no, then ask again how the Member proposes to stop people breaking the income tax laws.
- Then explain that the way to handle evasion without unleashing the IRS audits is the FAIRtax.
- If you can see your Member or attend a town hall and ask these questions, you can be even more effective.
#161 The Income Tax - The Great Con Job
Imagine that the only tax plan you’ve ever known was the FAIRtax. Now imagine a politician tries to convince you to dump the FAIRtax for a “better” plan, the income tax. How would that discussion go?
In this very entertaining episode of FAIRtax Power Radio, The FAIRtax Guys role play the politician with the “new” tax plan and the American citizen who is somewhat skeptical and rightly so.
You might expect that Mr. Congressman would have to do some fast talking in order to convince Mr. American Citizen to replace the FAIRtax with the income tax. And Mr. Congressman does his best to sway his constituent to sign on to this new fangled income tax by promising it will be a much simpler and more fair taxing system.
Unfortunately for Mr. Congressman, our intrepid citizen recognizes a pile of horse manure when he sees it and takes the Congressman to task. You won’t believe what the Congressman promises in order to pull a fast one over on the American public.
This episode really drives home the important differences between the FAIRtax and the income tax which has plagued our country for over 100 years.
Listen to the podcast or watch the digital TV show and enjoy.
We have been Live streaming FTPR to Facebook every week for almost a year now. But now, FAIRtax Power Radio will be Live streamed to YouTube also. Watch for announcements and then go to our YouTube Channel at: http://bit.ly/1PZUFVU This is a great alternative if you’re not a Facebook user.
At this time, we are experimenting with different times of the day and days of the week for our Live streams. And remember, Live streams are accompanied by Live comments in which you can get involved.
However, if you can’t catch the Live show, just go to fairtaxguys.com to see our latest effort in getting the FAIRtax news spread far and wide. This new website is open to everyone; no subscription or “joining” is necessary. Just dive right in!
FTPR podcasts for each show are posted on Spreaker (http://bit.ly/2oesbk7), iTunes & iHeart Radio every Friday morning. Since it’s a podcast, you can download it and play it whenever it’s convenient for you. A free FAIRtax Power Radio app is available for iOS and Android.
If you believe the FAIRtax is good for America, PLEASE let others know by turning them onto FAIRtax Power Radio - the ONLY weekly FAIRtax digital TV show in the country! Watch every Wednesday at 11:30am (ET) on Facebook LIVE (www.facebook.com/fairtax). And look for us on our YouTube Channel at: http://bit.ly/1PZUFVU. If you can’t watch live or you don’t use Facebook, go to fairtaxguys.com to watch the show and keep up with the latest events.
Please help us educate as many Americans about the FAIRtax as possible. Be sure to tell everyone you know about this great format for FAIRtax Power Radio. Whether you watch the weekly TV show or listen to the weekly podcast, this is a great way for more Americans to learn about the best tax reform plan in Congress at this time.
Remember, FTPR digital TV every Wednesday on Facebook and YouTube followed by the podcast on Friday morning and the new website (fairtaxguys.com) anytime. Please watch, listen and tell everyone you know about FAIRtax Power Radio. The FAIRtax: Once You Understand It, You’ll Demand It!
LINKS TO MORE INFORMATION
These links will help you promote and support the FAIRtax, make yourself familiar with the links below. We always do our best to keep our AFFT community up to date, and you can stay ahead of the curve using these convenient sites.
- The website of Americans for Fair Taxation (www.fairtax.org)
- Welcome to the Online FAIRtax Community (member.fairtax.org)
- The website at which you can help make it happen. (www.bigsolution.org)
- The free website of The FAIRtax Guys. (fairtaxguys.com)
- The Facebook page for Americans for Fair Taxation
- The Facebook page for The FAIRtax Guys
- The Twitter page for Americans for Fair Taxation
- PopVox - The People’s Voice on all things legislative.
- YouTube channel for AFFT
- YouTube channel for The FAIRtax Guys
- The Official FAIRtax Logo Store (www.fairtaxlogostore.org)
- Read the Summary of the Evasion Study.
Hard to believe but there still are people who have not heard of the FAIRtax.
For those people, America’s Big Solution provides a starting point in their study the FAIRtax and is meant for people of any age. And you can download it to your tablet or smartphone right now. It’s also available in print form. See below.
Do you know someone who would like an introduction to the FAIRtax and would prefer to read about it in a booklet rather than search online for Tweets, Posts and Shares? If so, America’s Big Solution is their best choice.
America’s Big Solution is an introduction to the FAIRtax written by Terry Tibbetts, author of A Spartan Game: The Life and Loss of Don Holleder, with help from Ron Maiellaro, President of the Florida FAIRtax Educational Association.
You can buy an electronic version of ABS as follows: AMERICA’S BIG SOLUTION is available for only $2.99 for the Amazon Kindle (http://amzn.to/1WIRHry), the Barnes & Noble Nook (http://bit.ly/1XeG8bH) and Apple iOS (http://apple.co/1tnqK0P).
You can purchase a print copy at the same Amazon link above for $9.25. Regardless of whether you choose the electronic format or the print format, you’ll find AMERICA’S BIG SOLUTION will give someone the boost they need to begin their study of the FAIRtax and the suggested resources to learn more. Buy AMERICA’S BIG SOLUTION now!
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