DON’T TAX ME—TAX THE MAN BEHIND THE TREE
Russell Long served as a U.S. Senator from 1948 until 1987 and was chairman of the Senate Finance Committee for fifteen years from 1966 to 1981. During a meeting at his Washington, D.C. office in the early 1990’s, the Senator related that during his time on the Senate Finance Committee, there was always a constant stream of lobbyists explaining why they were in favor of tax reform as long as it did not affect their client’s particular tax benefit.
It was Senator Long who remarked, “Most people have the same philosophy about taxes:
Don’t tax you,
Don’t tax me,
Tax that fellow behind the tree.”
The simple truth is that no one likes paying taxes. We are familiar with the projected $9 Trillion of evasion of the income/payroll tax system. However, since the first time that governments tried to collect taxes there has been people who tried to escape taxation. One is reminded of what happened in 1987 when the IRS began requiring names and Social Security numbers on tax forms. Over 7,000,000 dependents just vanished from tax returns that year.
STATE AND LOCAL TAXES
The income/payroll tax system collects far less than it could, not just because of evasion, but also because there are many “deductions” that taxpayers are allowed to use that reduce their amount of income for income tax purposes.
For example, the recent tax law provides that all married people may reduce their income subject to income taxes, not Social Security/Medicare taxes, by $24,000. Practically, this means that the government is not collecting any income tax on that $24,000.
For many years, people were allowed to deduct state and local taxes (“SALT”) and this allowed them to reduce their amount of taxable income. For example, if someone was earning $200,000 per year and was paying $30,000 of state and local income and property taxes, they could deduct the $30,000 and reduce their taxable income to $170,000. Under current federal law, the $30,000 reduction saved the taxpayer almost $10,000 of federal income taxes ($30,000 X 33%).
This meant that the taxpayer still paid $30,000 in SALT but because they saved almost $10,000 in federal income taxes, the net effect was only to reduce their remaining amount after all SALT and federal taxes by only $20,000—and not $30,000. The rest of us paid more in taxes to subsidize this but that is ignored by our betters.
Under the new tax plan, the SALT deductions are limited to $10,000. This means that the same taxpayer would only reduce their federal income subject to tax by $10,000. At the 33% rate this means that they only receive $3,300 of federal income tax savings and not $10,000 when the SALT deduction was unlimited.
WHO IS EFFECTED BY THE SALT CHANGES
Here are some facts:
According to the Tax Foundation
- The state and local tax deduction disproportionately benefits high-income taxpayers, with more than 88 percent of the benefit flowing to those with incomes in excess of $100,000.
- The deduction favors high-income, high-tax states like California and New York, which together receive nearly one-third of the deduction’s total value nationwide.
- Six states—California, New York, New Jersey, Illinois, Texas, and Pennsylvania—claim more than half of the value of the deduction.
Money Magazine found the following:
- 4.1 million Americans pay more than $10,000 in property taxes alone, according to ATTOM Data Solutions.
- In some counties, more than half of residents pay at least that much. In Westchester County, a suburb of New York City, 73% of homeowners pay at least $10,000 in property tax, according to ATTOM. Almost 70% of homeowners in Luna, New Mexico, pay more than $10,000.
- Once high-earning filers start adding in their income taxes, they could easily reach tens of thousands of dollars.
- All but seven states have an individual income tax. California leads the pack with a top marginal income tax of 13.3%. Oregon, Minnesota, Iowa, New Jersey, Washington, D.C., and New York were all also in the top 10, according to Turbo Tax.
According to the Center For Economic and Policy Research:
|
|
Percent Taking SALT Deduction |
Average Value of Deduction |
|
Democratic States |
|
|
|
California |
34.4% |
$18,439 |
|
New York |
34.5% |
$22,168 |
|
Illinois |
31.3% |
$12,521 |
|
New Jersey |
41.2% |
$17,852 |
|
Massachusetts |
36.9% |
$15,573 |
|
Republican States |
|
|
|
Texas |
22.8% |
$7,824 |
|
Georgia |
32.8% |
$9,160 |
|
Arizona |
28.4% |
$7,404 |
|
Tennessee |
19.3% |
$5,611 |
|
Indiana |
22.7% |
$8,755 |
|
|
||
CERTAIN STATES TAKE ACTION TO AVOID SALT LIMITATIONS
New York, Maryland and the other most effected states have either already or are contemplating legislation that will allow their high earning residents to avoid the effects of the reduction in the SALT deduction. These states recognize that when their citizens begin paying a third more in SALT taxes to the states, they may very well either leave the high SALT state or complain about the amount of SALT taxes.
Politicians, particularly in an election year, do not want to hear complaints from people who can fund their opponents’ campaigns. Therefore, they have promised their residents that they will provide means to obtain the same SALT deduction amounts that they had in 2017.
REACTION OF THE IRS AND TREASURY DEPARTMENT
in Notice 2018-54, the IRS and the Treasury made clear Wednesday that federal law controls the characterization of the payments for federal income tax purposes regardless of the characterization of the payments under state law. In part, the Notice states:
“The Treasury Department and the IRS intend to propose regulations addressing the federal income tax treatment of transfers to funds controlled by state and local governments (or other state-specified transferees) that the transferor can treat in whole or in part as satisfying state and local tax obligations. The proposed regulations will make clear that the requirements of the Internal Revenue Code, informed by substance-over-form principles, govern the federal income tax treatment of such transfers. The proposed regulations will assist taxpayers in understanding the relationship between the federal charitable contribution deduction and the new statutory limitation on the deduction for state and local tax payments.”
CONCLUSION
Dictionary.com explains. “… the adverbial phrase sub rosa comes directly from the Latin phrase sub rosā ‘under the rose,’ from the use of a rose suspended from the ceiling of the council chamber during meetings to symbolize the sworn confidence of the participants. This use of the rose is based on the Greek myth that Aphrodite (Latin Venus) gave a rose to her son Eros (Latin Cupid); Eros then gave the rose to Harpocrates, the god of silence and secrets, to ensure that Aphrodite’s dalliances remained hidden. Sub rosa entered English in the 17th century.”
Normally the Swamp is able to use money and influence to ensure that attempts to benefit one group are “sub rosa.” That is why the impending fight between the highest tax states and the IRS and Treasury is very disturbing to the Swamp.
However, the politicians leading these most affected states have decided that because they have higher taxes, the rest of the country should subsidize their taxpayers. There is projected to be over 155 million individual federal income tax returns filed in 2018. The number of returns adversely affected by the SALT limitations is estimated to be 4.1 million—2.6% of the total.
These attacks on the SALT limitations are being led by the governors and legislative leaders of these states. The message that this sends? It is ok to evade taxes if you are wealthy and live in certain states!
We know that the evasion of federal income/payroll taxes for the period of 2017-2026 is estimated to be $9 trillion. What are these same governors going to say when their lower income residents choose to reduce their federal and state taxes by not reporting income or over-stating deductions? Are they not doing the same things contemplated by the governors—making up deductions or just not reporting income?
This challenge by these states exposes the corruption of a system that has been rigged to benefit people with money and influence and cause the rest of us to pay more in taxes.
The FAIRtax is better for everyone except the Swamp and their friends in Congress. This doesn’t mean that, after the passage of the FAIRtax, the Swamp will drain. It does mean that instead of trying to “hide” special benefits in the Internal Revenue Code, they will have to get bills enacted that provide benefits to their clients. This means they will be under much more scrutiny and all of us will more easily see when Congress is rewarding its friends with our money.
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:
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.
FAIRTAX POWER RADIO #110
THE NEW AND IMPROVED FAIRTAX POWER RADIO
So what do you call a radio show that you can listen to as a live audio or live video and call in to talk to the hosts? Fantastic! That is what is happening to FAIRtax Power Radio as of June 6, 2018 at 11:30 AM. We will be live on Spreaker.com, Facebook (https://www.facebook.com/FairTax/) and Xcluded.com.
The shows will be saved as podcasts, as they are now, on Spreaker which distributes them to iTunes, iHeart Radio & YouTube. In this episode, we interview Christian Fabiani who is the producer at Big Daddy Studios in Gainesville, FL. Tune in and learn about the big changes and then tell all your friends and family to watch FAIRtax Power Radio LIVE at 11:30 AM on Wednesday, June 6 on Facebook or Xcluded.com or listen live on Spreaker.com. Join us and be part of the solution.
LAST WEEK’S EPISODE Congressional leaders told the American people that their new tax plan, HR 1, would simplify taxes for everyone. So why does it require NINE pages just to give a summary of all the changes? And why is HR 1 causing problems for some states? In last week’s episode, The FAIRtax Guys described some of the problems inherent with maintaining an income tax and used this analysis to make the case for the FAIRtax. If you missed this episode, listen now to get more ammunition from The FAIRtax Guys so you can discuss true tax reform with others. Another chapter in REAL tax reform is waiting for you.
Telling your friends and relatives about our free weekly podcasts is a great way to help us garner more support. It is the American people who must demand REAL tax reform in Congress. We must inform America about the FAIRtax! Please help us.
Telling your friends and relatives about our free weekly podcasts is a great way to help us garner more support. It is the American people who must demand REAL tax reform in Congress. We must inform America about the FAIRtax! Please help us.
You can listen to FTPR on any platform - Mac or PC, iPhone or Android. And it’s 100% free.
Listen on Spreaker.com (http://bit.ly/2oesbk7), iTunes (http://apple.co/1Te8VdF) or iHeart Radio (http://bit.ly/2eqEG7y) on your computer or smartphone. The easiest way to listen to FTPR on your smartphone is by downloading the free FTPR app. Just search for “FAIRtax Power Radio” in your app store, download the app and start listening.
We post a new episode every Friday morning. Please listen and tell everyone you know about the FAIRtax Power Radio.
The FAIRtax: Once You Understand It, You’ll Demand It!
THE ELECTRONIC INTRODUCTION TO THE FAIRTAX - AMERICA’S BIG SOLUTION
America’s Big Solution is a basic introduction to the FAIRtax and is meant for people of any age. And you can download it to your tablet or smartphone right now.
Do you know someone who would like an introduction to the FAIRtax and would prefer to read about it 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!
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)
- Read the Summary of the Evasion Study.
- Welcome to the Online FAIRtax Community (member.fairtax.org)
- The website at which you can help make it happen. (www.bigsolution.org)
- The Facebook page for Americans for Fair Taxation
- The Facebook page for The FAIRtax Guys
- The Twitter page for Americans for Fair Taxation
- PopVox - Connecting people and lawmakers for more effective participation and better governing
- YouTube channel for AFFT
- The Official FAIRtax Logo Store (www.fairtaxlogostore.org)
- Xcluded.tv - The new home of FAIRtax Power Radio Video
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