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13 Tax Increases in 2013

By JLP | January 10, 2013

From 13 Tax Increases in 2013:

(Click on the link above for explanations for each of these)

1. Payroll tax

2. Top marginal tax rate

3. Phase out of personal exemptions for adjusted gross income (AGI) over $300,000 ($250,000 for single filers)

4. Phase down of itemized deductions for AGI over $300,000 ($250,000 for single filers)

5. Tax rates on investment

6. Death tax

7. Taxes on business investment

Obamacare tax increases that took effect:

8. Another investment tax increase

9. Another payroll tax hike

10. Medical device tax

11. Reducing the income tax deduction for individuals’ medical expenses.

12. Elimination of the corporate income tax deduction for expenses related to the Medicare Part D subsidy.

13. Limitation of the corporate income tax deduction

Isn’t it fun?

I wish we could move beyond this silliness and just set up a flat tax. Consider this:

“I made $75,000 this year. I contributed 10% to my 401(k). I owe $6,750 in federal income tax.”

Or…

“I made $1,500,000 this year. I put 10% away for retirement. I owe $135,000 in federal income tax.”

Topics: Flat Tax, Taxes | 51 Comments »


51 Responses to “13 Tax Increases in 2013”

  1. Stacey Says:
    January 10th, 2013 at 11:58 am

    Funny thing is, a lot of people don’t care about any of it…until it finally affects them…

  2. mercyn Says:
    January 10th, 2013 at 11:59 am

    Way too easy, simple and sensible. You would be adding to the unemployment rate as a lot of accountants, tax return assistance companies and their employees lose their jobs.

  3. Jack Says:
    January 10th, 2013 at 2:15 pm

    They contribute nothing to the economy, mercyn.

  4. JLP Says:
    January 10th, 2013 at 2:23 pm

    I’m pretty sure mercyn was joking.

    Think of all the money and resources that are wasted on tax preparation. All that money and resources could be used elsewhere.

  5. Walter Says:
    January 10th, 2013 at 2:41 pm

    Need to add a zero to the “$75,00″.

    Americans voted for this when they voted for our current President. So now we suffer…

  6. JLP Says:
    January 10th, 2013 at 2:46 pm

    Thanks for the catch, Walter. It’s fixed.

    Yes, you are correct. We will have to live with the consequences, unfortunately.

  7. DMC Says:
    January 11th, 2013 at 10:58 am

    Here’s a loaded question on the flat tax idea. Presumably, instituting a flat tax requires two big changes. First, we eliminate (or drastically reduce) deductions. Second, we no longer index tax obligations. Everybody pays a single flat rate regardless of the type of income.

    IMO, only the first step simplifies the tax code. When I do my taxes, I spend 99.9% of my time figuring out my taxable income. Once I know my taxable income, I spend 60 seconds with the table in the back of 1040 instruction booklet figuing out how much I owe.

    If you could choose to implement only one of the two steps necessary to institute the flat tax, which would it be? Which step would help to create a better tax code?

  8. Retiredat40 Says:
    January 11th, 2013 at 11:21 am

    “I wish we could move beyond this silliness and just set up a flat tax.”

    Ha, ha. Yeah right. You pay no taxes on your first $60,000 and you are going to volunteer to pay a minimum of an extra $10,000. Stop kidding yourself.

    And of course, you want 401(k) contributions plus your flat tax.

  9. JLP Says:
    January 11th, 2013 at 11:28 am

    Retired wrote:

    “And of course, you want 401(k) contributions plus your flat tax.”

    Yeah, because I will be paying tax on it when I take it out during retirement. It shouldn’t be taxed twice.

  10. JLP Says:
    January 11th, 2013 at 11:29 am

    Retired,

    I tithe too but I didn’t include charitable contributions as a deduction.

  11. Retiredat40 Says:
    January 11th, 2013 at 11:30 am

    Good for you. That doesn’t change the fact that you will be whining when your tax bill goes up 10K+ with a flat tax. I have yet to see you look at a flat tax proposal and complain that it wasn’t going to cost you money,

  12. Retiredat40 Says:
    January 11th, 2013 at 11:34 am

    With a flat tax, you don’t need 401(k) contributions. That’s the whole point. You get a lower tax and you do away with all the things you get a deduction for. That’s the reason that there will never be a flat tax. People like you want all the goodies plus the flat tax rate which blows it sky high.

  13. JLP Says:
    January 11th, 2013 at 11:45 am

    Well, in my opinion, the other deductions are different from retirement saving because I’m putting back money for future use, which will come out as income and will be taxed at that time.

  14. Retiredat40 Says:
    January 11th, 2013 at 11:48 am

    That’s right. You like it because it favors you. And other people like deductions too. And almost everyone would pay higher taxes with a flat tax. Not even flat tax proponents like a true flat tax. They just like tax cuts that favor themselves.

  15. JLP Says:
    January 11th, 2013 at 11:57 am

    Geez. You’re quite argumentative today, aren’t you?

    Yes, it would favor me along with EVERY OTHER PERSON WHO SAVED FOR RETIREMENT. And yes, there should be a cap on how much a person could save to prevent someone from trying to shield too much from taxation.

    I really don’t see why you have a problem with this. All the distributions will be taxed at retirement. They shouldn’t be taxed twice.

  16. Retiredat40 Says:
    January 11th, 2013 at 12:00 pm

    I don’t have a problem with 401(k) contributions. YOU DON’T NEED RETIREMENT ACCOUNTS WITH A FLAT TAX.

    What I have a problem with is a person that says they favor a flat tax who is in favor of all of his own deductions and wants to keep them along with this “flat tax.”

    There is no way in hell you would support a flat tax when you found out what it would cost you.

  17. JLP Says:
    January 11th, 2013 at 12:06 pm

    You still need to plan for retirement whether you have a flat tax or not.

  18. JLP Says:
    January 11th, 2013 at 12:08 pm

    If something is tax-deferred, it’s really not a benefit. It just means taxes will be collected on it at a later date. So, it’s really not a deduction like charitable contributions or mortgage interest or other deduction.

  19. Retiredat40 Says:
    January 11th, 2013 at 12:09 pm

    Maybe. But that’s not a flat tax. With flat taxes, you eliminate deductions. That includes retirement accounts. There is no need for them because of the tax reform.

    Now, yes, you would have retirement accounts with a “flat tax” along with all the favorite deductions. Because nobody is stupid enough to fall for a flat tax proposal.

    And that’s why you will never see a flat tax proposal in the US. It’s biggest proponents are against it. And if that’s the case, you will never get anyone else to sign on.

  20. JLP Says:
    January 11th, 2013 at 12:15 pm

    By “flat tax” I mean one low rate across the board.

  21. Retiredat40 Says:
    January 11th, 2013 at 12:19 pm

    That’s right. One low rate that includes your deductions. Not a true flat tax. You aren’t going for that.

    For your information, you have to exclude all those deductions or the flat tax blows up. Now you can understand why people aren’t in favor of a flat tax. They are just like yourself.

  22. JLP Says:
    January 11th, 2013 at 12:21 pm

    NOT deductionS, deduction! One deduction, or deferral. That’s it.

  23. Retiredat40 Says:
    January 11th, 2013 at 12:24 pm

    You are willing to get rid of both your and your wife’s personal exemption, mortgage deduction, child tax credits? Just not 401(k) contributions and retirement accounts?

  24. JLP Says:
    January 11th, 2013 at 12:25 pm

    Yep. Charitable contributions, too.

  25. JLP Says:
    January 11th, 2013 at 12:26 pm

    But, I would want the rate no higher than 10%.

  26. Retiredat40 Says:
    January 11th, 2013 at 12:29 pm

    So you want to pay 5K extra in taxes? Hmmm. I don’t see you and other Rs getting on board with a massive tax increase.

  27. Retiredat40 Says:
    January 11th, 2013 at 12:30 pm

    Oh, 10%!!!! Republicans have proposed 15% but admit it would have to be at least 17%.

  28. JLP Says:
    January 11th, 2013 at 12:36 pm

    I like round numbers. And, since this is a flat tax that everyone pays, I can’t see burdening the lower income groups with a 17% tax rate.

    But yes, 10% flat tax is totally self-serving on my part. I’m of the mind that the government should be able to operate on 10% of the total production/income of the country. Keep in mind, this tax would be for corporations too and they wouldn’t have all the loopholes and tax-avoidance schemes that they have now.

  29. Retiredat40 Says:
    January 11th, 2013 at 12:37 pm

    I think the key words here is “I want.” That’s the most important two words to remember when discussing flat taxes. At least, you have thrown yourself in the same pot as the masses.

  30. JLP Says:
    January 11th, 2013 at 12:44 pm

    Yeah, I know it’s a dream.

    I’m just tired of the politics tied to taxation and “freebies.”

    I’m tired of politicians promising stuff to certain groups and I’m tired of companies buying influence. The only way I see to stop this is through the tax structure.

  31. Retiredat40 Says:
    January 11th, 2013 at 12:47 pm

    I’m glad you are willing to stand on principle as long as it doesn’t cost you anything. And now we know, you are opposed to every single flat tax proposal that has ever been proposed but still claim to be an advocate for a “flat tax.” As long as it is your own and on your own terms. I think everybody could agree on that sort of thing.

  32. JLP Says:
    January 11th, 2013 at 1:14 pm

    Wow.

    “…you are opposed to every single flat tax proposal that has ever been proposed but still claim to be an advocate for a ‘flat tax.'”

    “Every single flat tax proposal” implies that there are different kinds of flat tax proposals. Mine is just a different flavor. You want to call 401(k) or retirement plan contributions a deduction when really they are a deferral since the tax will be paid later.

    I’m against double taxation.

  33. Retiredat40 Says:
    January 11th, 2013 at 2:03 pm

    There are different kinds and none of them have been for 10%. The flat tax proposals have been a flat rate of at least 15%. You oppose that because it costs you more money.

    Also, the key part of flat tax, is “flat.” Everyone pays the same rate. When you include 401(k) contributions, it is no longer a flat rate. You have some people playing less than others.

    I disclude 401(k) contributions because that is what the flat rate purists propose. It is only those that oppose true flat rates that want to include other ways of avoiding the flat rate. Again, the tax rate is lowered which makes the need for pre-tax contributions unnecessary just as all deductions are unnecessary. That is a special carve out to make it more attractive.

  34. JLP Says:
    January 11th, 2013 at 2:16 pm

    Weird. From the FreedomWorks Flat Tax calculator is this note:

    “Notes: The tax rate is 17%, with personal deductions (Married Filing Jointly= $26,400; Single = $13,200; Single head of household = $17,160). “Married (filing jointly)” is when either one or both spouses work, and are reporting their combined income. “Single head of household” is for unmarried individuals supporting dependents.

    Notice the word “deductions.” How can this be a flat tax if there are deductions? Not only that, there’s a $935 per dependent deduction.

  35. Retiredat40 Says:
    January 11th, 2013 at 2:21 pm

    Yes, I do. That’s not a flat tax though. That’s the modified version that has to be proposed to attract people like yourself that oppose flat rates. You either have a flat rate or you don’t.

    You can’t bitch about deductions and say we need a flat tax and then put in the same deductions.

    And the problem that faux conservative groups like FreedomWorks have is that the math on their plans blows up the debt because of all of their deductions. They propose a “flat tax” and then do away with the flat part.

  36. JLP Says:
    January 11th, 2013 at 2:32 pm

    Steve Forbes wants a flat tax but excludes dividends from taxation. Haha. Gee! I wonder why? If the “wealthy” already aren’t paying their fair share at a 15% tax rate on dividends, imagine them paying ZERO taxes on dividends.

    His point was that they are already taxed at the corporate level so taxing them at the individual level would be double taxation. So, why not make them tax free at the corporate level?

    I still like my idea. I’ll just call it “The JLP Tax Plan (but don’t you dare call it a flat tax).”

  37. Retiredat40 Says:
    January 11th, 2013 at 2:40 pm

    There you go. No point saying you are for flat tax rates when you aren’t and are opposed to every single Republican proposal for a flat tax that has ever been considered because they cost you too much in taxes. You are for a flat tax rate SO LONG AS IT IS ONLY 10% AND DOESN’T COST ME ANY MONEY.

    But since that’s not on the table and isn’t going to be in this lifetime, there is no point saying you support flat taxes when you are against all such realistic proposals.

  38. JLP Says:
    January 11th, 2013 at 2:43 pm

    A 10% flat tax with no deductions but a retirement planning deferral would cost me money.

  39. Retiredat40 Says:
    January 11th, 2013 at 2:46 pm

    OK. It would cost you a little. But there is no 10% flat tax rate proposal nor is there ever going to be one in the offering. You are against ALL flat tax rate proposals except your own which does not exist.

  40. Roland Young Says:
    January 11th, 2013 at 3:07 pm

    Just thought I would throw in my 10% worth. The simple plan is to follow God’s plan in the Bible… the tithing principle. In tithing, if you own your own business, you are allowed business deductions, which are the costs of doing business. This must take place. Otherwise, a business that grosses 100,000 with business expenses of 80,000 would be paying a 10% tithe and let us say for argument a 10% flat tax. That would leave $00000.00 to live on. No matter what system is used you will always have to have legitimate cost of doing business deductions. There should always be a deduction for tithing and charity, which encourages giving. What is unfair right now is there are no deductions for charity if you do not have deductions more than the personal exemptions. Charity is part of your personal exemptions under 10,500 or whatever it is this year. So the low income low information voter is penalized for his low income and low information. The rich get richer because they have the wherewithal to take advantage of all the loopholes placed there for them. With 50% of congress and senate being millionaires, they make sure the loopholes are there for them and their buddies that give money to keep them in office. It is a corrupt system that will never be changed until it completely crashes or is destroyed by a foreign invasion. The will is not there to do what is right, only what serves those in power. That is why they seek power. The best we can do is make as much money as fast as you can and be content with what you have.

  41. BG Says:
    January 11th, 2013 at 11:15 pm

    Roland) why should a business be able to deduct all of their operating costs, and only pay taxes on what is left over? I, as an individual, sure can’t deduct every single one of my expenses and only pay taxes on what is left over (my savings for the year that weren’t spent).

    Anyhow, for the JLP / Retired conversation: I am 100% for a flat-tax on all forms of income with absolutely NO allowances for any deductions/exemptions/credits/loopholes of any kind.

    As Retired said, it is the only thing that is truly fair, eliminates the needs for 401ks/IRAs/HSA and all the other esoteric forms of tax avoidance, and with no deductions: would keep the flat-tax rate lower than any alternative.

    Remember, any tax break given to one group, is a tax INCREASE on everyone else. JLP wants his 401k deduction/loophole means everyone not using 401k accounts are subsidizing (paying higher taxes) to the people that do. Who is best equipped to max out the 401k tax-loophole: The rich guy or the poor guy?

    Total Federal Government spending is roughly $3.8t for the year. Total US Personal Income is roughly $13t. We’d need a 30% flat-tax on all (personal) income to cover current government spending. Tax the corps, and the flat-tax rate comes down ~20%. Once you have the flat-tax and everyone is good and pissed at the high rates necessary to not have deficits, then we cut government spending to lower the rate further.

    That is fiscal responsibility.

  42. BG Says:
    January 12th, 2013 at 1:00 am

    As an example how tax loopholes are bad, I’ll use JLP’s example:

    “I made $75,000 this year. I contributed 10% to my 401(k). I owe $6,750 in federal income tax.”

    If there are two taxpayers, both making $75k, and paying a straight up 10% flat-tax with no deductions — the government is bringing in $15k to pay the bills (assume government spending is fixed at $15k). Both taxpayers are paying the exact same effective tax rate: 10% — nice and fair.

    Now, assume you allow a 401k deduction (up to 10% of income). If BOTH taxpayers take full advantage of the deduction, the flat-tax rate has to rise to 11.11% to cover the constant $15k government spending. Each deduction increases the “marginal” flat-tax rate, yet in this example, each taxpayer (after deductions) is still paying the exact same effective 10% tax rate just like they were when the 401k deduction didn’t exist at all.

    Therefore: if EVERYONE uses the loophole, then NOBODY gains a thing — so best (most efficient) to just eliminate the loophole and set the flat-tax rate to a lower level.

    But, watch what happens if only one of the two taxpayers can take advantage of that loophole. The “marginal” flat tax rate must go up to 10.53%, yet one lucky taxpayer has an “effective” tax rate of 9.47% (thanks to his deduction) and the other taxpayer has an effective tax rate of 10.53% (no deductions, so he pays the full marginal rate). The government is still getting their exact same $15k, but they are taking more from the person who isn’t able to effectively use the loophole.

    Therefore: The person not using the loophole is subsidizing (aka: wealth distribution) the person who does. Loopholes are only valuable if some portion of the population _can’t_ take advantage of them.

  43. JLP Says:
    January 12th, 2013 at 3:59 pm

    IT’S NOT A LOOPHOLE! IT’S A DEFERRAL! The taxes will be paid during retirement.

    But, fair enough. Let’s say we do it BG’s way. At retirement, then the amount put away should come out tax-free. Only the growth should be taxed since the contributions were taxed.

  44. BG Says:
    January 13th, 2013 at 7:43 pm

    JLP) You are not “double taxed” on regular taxable savings accounts. You seem to think that everything not a 401k is double taxation.

    “Let’s say we do it BG’s way. At retirement, then the amount put away should come out tax-free. Only the growth should be taxed since the contributions were taxed.”

    That is how it is done today in regular “taxable” accounts… It is the IRAs/401ks that are the loopholes and why everybody with the means use them.

  45. JLP Says:
    January 13th, 2013 at 8:33 pm

    Only people with “the means” do anything, BG.

  46. Jack Says:
    January 14th, 2013 at 8:43 am

    JLP,

    Let us consider, for the sake of argument, a 20% flat tax on everything; and, if there were a deferral for an IRA, you put in 10k at 10%.

    At the end of 10 years, you would have $25,973. Taking your 20% tax off of that, you would get $20,750.

    Now, if instead, one did NOT get the deferral, one would have only $8000 to invest, and would get only an 8% return (with the government’s taking the other 2%). The net then is only $17,271.

    Over just ten years (nevermind thirty or forty), one gets a 20% boost in retirement with the deferral.

  47. Jack Says:
    January 14th, 2013 at 9:38 am

    Just to clarify our terminology, a DEDUCTION or DEFERRAL is something that Congress intended when it wrote the law, while a LOOPHOLE is something that Congress did NOT intend.

  48. BG Says:
    January 14th, 2013 at 10:20 am

    “Over just ten years (nevermind thirty or forty), one gets a 20% boost in retirement with the deferral.”

    At who’s expense? Answer: at the expense of the other taxpayers not using the loophole because Fed-Gov must raise the tax rates to cover the fixed spending.

    “Only people with “the means” do anything, BG.”

    Only people with the “means” use the IRAs/401ks, otherwise they are fools for passing up the tax loophole.

    “…while a LOOPHOLE is something that Congress did NOT intend.”

    Pertaining to this discussion on flat-taxes: A loophole is anything that lowers your “effective” tax rate when compared to the flat-tax “marginal” rate.

  49. kitty Says:
    January 14th, 2013 at 5:47 pm

    “Only people with the “means” use the IRAs/401ks, otherwise they are fools for passing up the tax loophole.”

    Exactly. Not only that, only a small percentage of employers – larger companies – offer a 401K, and then some corporations have smaller limit of how much one can put there than the government. Then in some cases 401K choices are so bad that putting money there is too risky. Mine is actually quite good, but we all know there are those which aren’t. The limits on IRAs for people who don’t have 401K is much smaller.

    JLP – saying that deferral is different from other deductions because one would still pay taxes later doesn’t consider that the government needs certain amount of money now, so if you or I stash the money into 401K, someone else has to cover the shortfall which violates the principle of the flat tax where everyone should pay the same percentage from the total income.

    I agree with BG: we are all for the flat tax as long as we think we’ll be paying less, but nobody is willing to give up their favorite deduction. Just like you or I love our 401K (hey, I am stashing 22K a year there nowadays), someone else might love their mortgage interest deduction.

    I am with BG on that – there is no way flat tax will ever pass. Ultimately, most people would be against it once they realize they’d lose their pet deduction.

  50. jack Says:
    January 14th, 2013 at 9:56 pm

    Businesses should not pay taxes at all. Despite the rhetoric, businesses are made up of people — owners, bond-holders, and employees. When the money gets to those people, then it should ALL be taxed at the same flat rate.

  51. TheHeadHunter Says:
    January 15th, 2013 at 3:43 pm

    The flat tax will never happen because Politicians use the complexity of the tax code to their advantage. People believe that it can be gamed and that else someone has figured out how to game it. Politicians use that belief(and the scarcity complex it generates) to manipulate their respective base. People, there are NO loopholes, everything in the tax code was DELIBERATELY put in there or DELIBERATELY omitted.

    I wish there was a flat tax because the biggest problem this country has are people that make money but don’t pay tax. Everyone should have some skin in the game.

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