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Financial Literacy - Taxes
SPOTLIGHT
No new taxes? Why not?
Politicians who pledge no new taxes are either neglecting the facts or making promises they can't or shouldn't keep.
Taxes made easy

Interview: Adam Hughes

Last month we ran a series of articles on estate planning and our experts suggested that only those who don't seek legal counsel pay taxes. Would changes to estate tax law make any difference?

Talking points
What is the OMB?
AMT delay
Capital gains tax
Estate tax problem
Rich vs. poor
Starve the beast theory
Recession threat
Progressive tax
Activists' role

I suppose your experts may be right. If you're motivated and have enough money, you'll probably find a way around it. The lobbying effort that has been going on for the last ten to 20 years has been financed by multimillionaires, yet they're trying to play this as something that affects farms or small businesses.

The IRS needs to step up and play a larger role, but that organization is drastically underfunded. It backs away from pursuing harsher reforms for well-to-do individuals. That's a fact that has been well documented in other articles, but you can also look at audit rates. Low-income filers who claim the Earned Income Tax Credit get audited twice as often as high-income tax filers.

While it may be true that the rich will find a way around it, arguments about enforcement shouldn't dictate the policies that are mandated by Congress. Let's not repeal the estate tax because there is an enforcement problem. Let's let the enforcers worry about how to enforce the law.

How does the current tax system play into the gap between the rich and the poor?

That is a very complicated question. Well, the tax cuts and the tax changes that have been made during the Bush administration have exacerbated the gap because they were done in a regressive manner. People at the top of the tax spectrum had their taxes cut by a higher percentage than people at the bottom.

As to the cuts in capital gains and dividends, some of those gains are not automatically reported to the IRS. So if a large portion of your income comes from that money -- usually wealthier people -- it's easier to evade those taxes. Things like payroll and income taxes are automatically reported, so lower income people can't do anything to evade taxes.

What will be the consequences if we don't make changes?

Rich people will get richer and poor people will get poorer.

So no revolt, French style?

I think the people who are working are so busy trying to keep their heads above water that they don't consider those things anymore. I think that's unfortunate.

-- Updated: Dec. 26, 2007
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