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Hank Adler on The President’s Proposed Tax Hit On Florida And Other Swing States

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My co-author of The FairTax Fantasy, Hank Adler, is always kicking the tires of proposed tax law changes, which one expects from a retired Big 4 tax partner and Professor of Accounting at Chapman University. Hank has now put the president’s proposed changes to the current, “Bush” rates, under the microscope, and writes about the nasty surprise this means for some taxpayers in places like Florida and Nevada:

Hugh, it looks like the president has adopted the Nancy Pelosi doctrine (“We have to pass the (health care) bill so you can find out what is in it”.) with respect to tax related proposals that keep coming out of the U.S. Senate and the White House. Put aside the fact that Section 7 of Article 1 of the Constitution requires that all bills for raising revenue (tax bills) must originate in the House of Representatives, not the U.S. Senate, and just focus on what he and Harry Reid have proposed for the country.

In April, the President and the Democratic Senate attempted to pass the Buffett Rule Act. This piece of tax legislation –introduced contra the Constitution in the U.S. Senate– provided for a 30% minimum tax on every high income taxpayer’s adjusted gross income, allowing federal income tax deductions for charitable contributions only. With a stroke of the pen, the Buffett Rule would have eliminated any casualty losses or disaster losses for any and all high income taxpayers. What would this have meant if the Republicans had not objected? The next Katrina, Midwest flooding or massive earthquake would not have been accompanied by Federal casualty loss deductions for small business owners and would have resulted in small business bankruptcies and job losses. It would have meant that the next Madoff type theft would not have been accompanied by Federal casualty loss deductions and taxpayers would have been asked to pay federal income taxes with money that had already been stolen. This all in the name of “fairness“. Ok. Strike one.

In July the President and the Senate took another swing and attempted to pass the Temporary Extension of 2001 Tax Relief Act ostensibly providing for the “Bush Tax Cuts” to remain available for all married taxpayers earning less than $250,000 and eliminating the “Bush Tax Cuts” for taxpayers earning over $250,000.

Most of the rhetoric accompanying the proposal again comes with the words “fairness” and “paying their fair share”.

What is terribly interesting about the President’s and the Senate’s proposal to increase taxes on taxpayers earning over $250,000 is that the proposal will not fall evenly on small business owners and high wage earners living in different states. This becomes exceptionally complicated –it is the tax code, right, and this president has no desire for simplification– but the interaction of the alternative minimum tax and the proposed increase in tax rates results in small business owners and high wage earners in states with very low or no state income taxes facing much greater tax increases than small business owners and high wage earners living in high state income tax states.

I repeat: The president and Harry Reid’s plan would much more severely impact small business owners in the key swing states like Florida and Nevada while not hitting favored small businesses (and movie producers) in our beloved not-so-Golden State.

This would impact small business owners and high wage earners making between about $300,000 and $800,000 a year.

With other reasonable assumptions about his tax return, a small business owner in Florida making about $500,000 could face an increase in his annual check to the Internal Revenue Service of about $13,000 greater than an identical small business owner in California. Similarly, Nevada small business owners could have greater tax increases than identical small business owners in California. Strike two.

No one would believe that senators from such disfavored states –all states with no or low income taxes– would vote for a tax bill that would increase taxes more for their constituents than taxpayers in other states, but this is what happened.

No one would believe the President would propose tax increases that were greater in Florida than California with Florida being a swing state in the fall. But, apparently this has happened and if it had not been stopped in the House of Representatives, small business owners in states with no or low state income taxes would likely have seen greater tax increases and created fewer jobs.

So, the great circle is complete. Have the Senate Democrats adopted the Nancy Pelosi doctrine with respect to tax law? Or do they just not care that they are backing a proposal that will force their constituents to pay more of a “fair share” than California and New York taxpayers?

Strike three will be if anyone in any state so burdened votes for a president (or a Democratic senator like Florida’s Bill Nelson) who is willing to make one state carry the burden of the profligate spenders in Sacramento.


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