Thursday, November 18, 2004


Tax Reform

I don't trust any of 'em

While I've been on the road the last few weeks, I've spoiken a bit on the idea of tax reform and it's potential upside and downside. Today, tid-bits of Bush's broad policy goals are trickling out. The national sales tax concept seems to be DOA and more likely is a shift to eliminate double taxation on income and investments. Great! But the proposal to pay for it scares me.

To pay for them, the administration is considering eliminating the deduction of state and local taxes on federal income tax returns and scrapping the business tax deduction for employer-provided health insurance, the advisers said.

Here's what it means for me. Last year I paid approximately $9,000 or so dollars in state and local income taxes. Because this is deductible from my total income (none of that $9,000 goes to me, so why should I pay federal taxes on it?) it lowers my tax liability to the federal government by roughly $3,000 per year.

So eliminating that deduction will increase my taxes by roughly the same amount. Will that increase be offset by tax reductions in other areas? Maybe, maybe not. My investments are for the long term so I have no capitol gains liability at the moment, and the way the stock market has been going I have actually a negative return since 2000. I'm hard pressed to come up with a scenario where my taxes go up by $3,000 a year and I'm somehow getting back more than $3,000 in some sort of benefit. I'll have to schedule a lunch with my old boss, a former federal reserve economist, to discuss.

But, as I've said in many of my speeches the last few weeks, beware of any politician, dem. or rep., who promises tax reform while the government is running 1/2 trillion dollar annual deficits.

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