No one likes to pay tax, even IRS auditors. But you cannot run a country without some sort of tax revenue. So the debate is all about who pays what. Recently there has been an argument against allowing tax cuts to expire for higher income folks. The massive federal budget deficit has Washington looking for tax revenue and allowing Bush tax cuts to expire would raise a lot of cash, about $800 billion in 10 years.
I am not arguing for a tax increase for anyone. I am just saying that if Washington is serious about balancing the books they (Congress and the President) need to reconsider taxes and spending. It is impossible to cut $1.5 trillion from spending so taxes must go up for someone. Taxes on the middle and lower levels of income will hurt the economy as they spend every dollar they make and higher taxes will lower their spending. Higher income folks do not spend every dollar they make so a tax increase will raise funds for Washington and slow the economy less.
Unfair as it is, folks with income over $200,000 must plan for higher taxes. They are coming, no way around it. Tax planning can lessen the burden. But tax planning takes time and money as well.
I wish the news were better. Most of my tax prep career taxes were falling. Now I need to shift gears and help clients deal with increasing tax rates. More than ever it is important for high-incomers to have a serious talk with their tax professional.
As a conclusion to this depressing post I leave you with some IRS data that will only encourage a tax increase for the $200K+ crowd:
- Tax returns with $200,000 and higher adjusted gross income (AGI) paid 52% of total income taxes in 2008, the most recent year available. This is down from 54.6% in 2007.
- AGI's of $100,000 and higher paid 74.5 % of federal income taxes, also down from 75.1%
- AGI's of $50,000 and higher paid 92.4% of federal income taxes, up from 92.2%
Taxes are never fun and they are about to get a lot less fun. Start planning today and never stop. We are going back to the 1970's where tax rates were well over 50% for upper-middle class earners. The only way to keep a piece of your pie is to plan. Use the tax code to your advantage.