Tags: tax | reform | fiscal | cliff

How to Plan on Taxes for the Coming Year

By Denis Kleinfeld   |   Tuesday, 27 Nov 2012 07:41 AM

Neither Democrats nor Republicans are doing anything to prevent the coming tax disaster.

With all the billions of dollars spent electing the Congress and the president, tax reform is still just a campaign slogan.

It is an election ritual.

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The president and his side of the Congress insist on higher marginal rates on the “rich.” The claim is that this will raise tax revenue and the budget deficit can be eliminated.

The Republicans say that the marginal tax rates should stay the same, but that reducing allowable tax deductions will generate additional revenue to pay for the deficits.

Both sides claim they want to curb spending while raising each of our tax bills.

Except for spending, that means reducing any funding of Social Security, Medicare and defense.

When interest is adding in, these four categories equal all the possible amount of money that can be collected by the government by way of taxation.

From where I stand, either way it goes, a taxpayer is going to pay more money in tax to the government.

What will Washington, D.C., do about dealing with the tax and spending fiscal cliff and the uncertainty it generates?

Actually, this uncertainty is misplaced or misunderstood. Congress and the president will do what they have always done.

Those who actually pay taxes should plan accordingly.

If rates go up or deductions go down, or both, then taxpayers who can will shift their income stream into non-taxable or growth-only investments.

The much-publicized talk is that Congress will reach a compromise in tax legislation. With that, a deal will be reached with the president.

Reaching “across the aisle” is considered a necessary part of the process. Negotiating a deal shows that both sides will reach a political solution that show how the politicians are working together for the American people.

We have heard this same mantra for all of our lives. How well has it worked out for us?

The tax industry (lawyers, accountants, wealth advisors, insurance providers, estate planners, conference organizers, publishers and all the others) supports this litany of empty words. How else would they make a living if not being parasites on the economy of the United States?

The politicians support maintaining the tax system as it is, since tax is the fuel that generates power and money that supports their exalted lives.

The “poverty industry” (all those who make their money and fortune supposedly serving the needs of the poor), the defense industry and all the others that drain the productive economy are fiercely protecting their source of sustenance.

The burden on the taxpayers and the economy are not significant factors in the tax-and-spending equation. What counts in this equation are voters who depend on the government’s largesse, and campaign contributors who buy access.

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There has never been a Congress or president who faced the mounting problems created by a tax system that was doomed to failure right from the beginning.

The certainty faced today by taxpayers is that the current Congress and president will compromise and come to a deal, which will, like all political compromises before, be meaningless in the final analysis.

In a world of growing uncertainty, the only constant will be taxpayers and administrators trapped in a failing tax system.

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