Our Congress is broken. It’s dysfunctional. It’s confused. It’s Illogical. I know. “Its all the other Senators and Congressmen and women’s fault, not mine.” WRONG! Well folks, all I can say is check their voting record, not what they say in speeches. It doesn’t matter if Congress is dominated by Democrats or Republicans. Here are some examples of their stupidity.
Phase-outs. Sounds simple. Well it is one of the most unfair parts of our tax law and Congress uses it a lot. It’s all about “making the rich pay their fair share.” Who are the rich you ask? According to Congressional Tax Law, you will be surprised to discover it’s … YOU!
Child Tax Credit Phase-outs start reducing the credit when a married couple hits only $110,000 in Adjusted Gross Income (AGI). $75,000 for singles. During the Phase-out period, it adds an extra 5% to the effective marginal tax rate. In fact, their marginal effective tax rate can even surpass 100% if just a few dollars of additional income causes the loss of another $50 of credit.
Tax Free Capital Gains and Qualified Dividends Phase-outs start at only $74,900 AGI for married and $37,450 for singles. If extra other income puts them over these caps, part or all of their previously tax-free gains and dividends are taxed at 15% if older than 65, or 20% if younger. Until all the gains and dividends are taxed, the over 65 marginal rate on that income is actually 30%.
Social Security recipients Tax Free Phase-outs start at $32,000 for married and $25,000 for singles (all other income plus one-half their social security benefits). It basically becomes a dollar for dollar matching increase in taxable income over those amounts until it reaches 85% of the total Social Security Benefits. Some seniors in the 15% tax bracket have a marginal tax rate of 27.75%. For those taxpayers in the 25% tax bracket, their marginal rate ends up being 46.25%. Can I just take a moment and comment on this particular item? THAT STINKS! Of all the BAD Phase-outs, this one just keeps rising to the top as one of the worse in my opinion.
Here comes my new all time favorite for the dumbest Phase-out. Obamacare. The premium tax credit for health insurance obtained through an exchange kicks in for incomes between 100% and 400% of the federal poverty level. The rub is that when somebody falls between those ranges and then gets the credit, as their income rises, the credit decreases at the same time that they pay more tax on that income. The Phase-out is so steep that if you earn just $1 above the 400% threshold, you could end up paying anywhere from a few thousand dollars to $20,000 more just for health insurance. What does that marginal rate work out to? 20000%! YUCK!
I could go on for pages and pages with all the Phase-outs built into tax law by Congress. If you aren’t mad as H**L about this, then I don’t know what will get you upset. What we need is fair tax law that is computed the same way no matter what a person’s income level is. No Phase-outs! Every law should be applied the same for everybody. Start demanding this from your Senators and Congresswoman or man.
Did you hear? “Dishonest scales are an abomination to the LORD, But a just weight is His delight.” Prov 11:1
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.