TAX LAW SPECIAL REPORT: Why not expand the opportunities for tax-advantaged savings?
Americans are constantly being told that they don’t save enough. So why not create more widely usable, and less complicated, opportunities for savings that will produce income without being subject to income tax? I discussed the possibilities in my Tax Law Special Report for March, 2020. The report is posted for your examination at my firm’s web site, deconcinimcdonald.com.
First, the title of the SECURE Act is a ridiculously contrived acronym: the full title is the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.
What’s more, just about all of the commentary that I have seen about it focuses on the shortening of the time that people who inherit IRAs have to withdraw the funds. Sure, that may be important in some situations, but I’ll bet that, given the freedom to do whatever they want, most people who inherit IRAs are going to withdraw all the money in ten years (the new, shorter time period for most situations) or less anyway.
The more impactful change made by the SECURE Act, in my opinion, is the extension of the required beginning date for withdrawals by the account owner (the dreaded required minimum distributions, or RMDs) from age 70½ to age 72.
For a fuller, but by no means comprehensive, discussion of this complex measure that has implications for retirement planning, estate planning, and tax planning, please check out my Tax Law Special Report for February, now available for your reading pleasure in the News & Events section of my firm’s web site, deconcinimcdonald.com.
IRS: We’ll get your income tax liability figured correctly with no help from you. Trust us.
Me: Really? Thanks for the offer, but I think I have some information you don’t, and I’m just as likely to get it right as you are.
MORE GENIUS FROM THE GENIUS WHO WANTS TO TAX EVERYTHING, WHETHER IT MOVES OR NOT
When I wrote yesterday about the senator who won’t give up on taxation of unrealized gains, I gave him a little too much credit when I said that he apparently figured out that it wouldn’t work on some types of assets (he calls them "nontradeable" assets). No, he’s come up with a Rube Goldberg type contrivance to penalize you for deferring the realization of gains on your "nontradeable" assets. By deferring the gains, what he means is, you didn’t sell the assets. He’s going to fix that (you) by going back and treating the gain as if it was realized in each year that you held the asset, apparently. He still doesn’t really explain how this is going to work.
Here’s the senator’s description of this latest brilliant idea:
Tax due on gain realized from non-tradeable property such as real estate, business interests or collectibles will be calculated at sale or transfer through a lookback charge. The lookback charge would tax accrued gain and minimize the benefit of deferring tax. Senator ***** is evaluating several possible methods of calculating a lookback charge, including an interest charge on deferred tax, a yield-based tax to eliminate the benefits of deferral or a surtax based on an asset’s holding period.
No, I’m not going to link to it. if you really want to read the whole thing, it’s not hard to find.
I have written about this before, and predicted that a U.S. Senator’s proposal for taxing unrealized gains (that’s what “mark-to-market” means) would never be adequately explained. After reading about his latest pronouncement on the subject, I still think that’s the case.
I’m not sure how his new proposal is all that different from the last one. The new proposal does at least concede that taxing unrealized gains on certain kinds of assets is just not going to work, hence the limitation of the proposed tax to “tradeable assets” (whatever that means).
MAKING TAX RETURN FILING SIMPLE AND FREE FOR MOST TAXPAYERS IS A WORTHY OBJECTIVE, THE QUESTION IS HOW TO GET THERE
A public interest group thinks that it’s the fault of Intuit that tax filing isn’t simple and free for most taxpayers. You know who Intuit is: they make Turbo Tax, the most popular tax preparation software. The public interest group says that Intuit has lobbied vigorously against measures that would have by now made it unnecessary for taxpayers to pay for Turbo Tax, or any other tax preparation software.
I don’t doubt that a company with as big a stake in tax preparation as Intuit apparently has would lobby against the government replacing their product with its own. But, as I have said before, tax return preparation isn’t complex and expensive because of Intuit. Tax preparation is complex and expensive because the tax code is complex.
Another factor here that makes me less inclined to blame Intuit is that I get advertising all the time about Turbo Tax and competing products offering free filing for simple tax returns, and the government does have its own Free File service.
And one more thing (I’m not defending Intuit, really I’m not): when was the last time that the government made anything having to do with taxes, or anything else, simple?
I’M NOT INTERESTED IN INVESTING IN AN ENTERPRISE THAT DOESN’T CONSIDER THE RETURN ON MY CAPITAL TO BE ITS FIRST PRIORITY
If I invest in a company, I’m an owner. Why would I, or any other owner, countenance that company being managed in any way other than placing a return on my capital at the top of its priority list?
What I’m talking about is simply the fiduciary duty that company managers have to company owners (stockholders). This quote neatly summarizes the problem with CEOs pledging to prioritize the interests of “stakeholders” other than stockholders:
Capitalism is not named after the managers; it is named after the providers of capital, the shareholders. Its foundation is the strict and scrupulous fiduciary obligation (“the punctilio of an honor the most sensitive,” as Justice Benjamin Cardozo said in Meinhard v. Salmon), that gives credibility to capitalism by addressing the agency cost risk of entrusting money to others. Why should investors entrust their money to people who want to turn the fiduciary duty of strict loyalty into some version of “just trust me?”
EMPLOYEE/USER-OWNED BUSINESSES ALREADY EXIST, THERE’S NO GOOD REASON TO FORCE EXISTING COMPANIES TO ADOPT THOSE STRUCTURES
Cooperative associations and mutual companies are business organizations that are owned by their own employees or customers (users). There’s a good chance that you already participate in a mutual company through your insurance, as many insurance companies are mutual companies.
Since these types of business organizations already exist and are free to compete in the marketplace with investor-owned corporations, there is no compelling reason to force existing investor-owned corporations to give stock to their employees, or to force them to put employees on their boards of directors. I’m not sure what the proponents of such measures think they would accomplish, but I am sure that one of the results would be to make companies that are forced to take those measures less profitable and less able to provide good compensation to their employees.
ANOTHER ILLUSTRATION OF THE FREE SPEECH PRINCIPLE THAT THE GOVERNMENT CANNOT DISCRIMINATE BASED ON VIEWPOINT
Tax exemptions are another example of an area where the government can’t discriminate because viewpoints expressed by some exemption recipients may be disfavored. To put it another way, if the government grants a tax exemption to a particular category of entity, the government cannot then deny that exemption to entities that are within the category but that express views that are objectionable. Even if those views are, for example, racist.
For an excellent discourse on the application of free speech jurisprudence to the granting of tax exemptions, I encourage you to read the recent testimony on the subject by Eugene Volokh before the Oversight Committee of the House Ways & Means Committee. He does a great job of explaining why it’s so important that free speech principles be applied correctly in tax administration.
A member of the U.S. House of Representatives thinks that unemployment is a result of greed, and that the solution to unemployment is for the government to guarantee a job to everyone. The assumption is, apparently, that a tax on greedy people will produce the revenue to pay the people to whom the government will provide jobs.
The contents of this blog, this web site, and any writings by me that are linked here, are all my personal commentary. None of it is intended to be legal advice for your situation.