Saturday, September 26, 2009

Tax hikes by any other name.. 

A New York Times feature writer sums up an all-too common attitude while trying to justify the latest extra-dictionary tax hike idea
Use that tax break before you lose it, because many of you probably don’t deserve to have it in the first place.

This article is about limiting Flexible Spending plans, which allow you to set aside pre-tax money to pay certain medical needs (OTC drugs, eyeglasses, deductibles and co-pays). I have a minor objection to the new tax, as it increases the effective tax penalty on earned income, and it surely is another example of breaking campaign promises. But "not deserving" one's own salary, that's rich.


By Anonymous SouthernRoots, at Sat Sep 26, 01:02:00 PM:

The 125B program didn’t lower medical costs, but it lessened the impact on the individual taxpayer by giving them a Federal tax break on their medical expenses. Even at that, if you didn’t budget correctly and didn’t spend all of it in the calendar year, you lost – to the government – what you didn’t spend. What a deal.

The government believes that it owns the full portion of your income as your tax bracket allows.

From this portion, the government will grant you several "good-citizen discounts" - the deductions and credits. Your problem is in qualifying for as many of these discounts as possible, and that depends on your affiliations, who you know, how vocal they are in Congress, and – perhaps - how large the donation was to the politician.

In some cases, you are such a good citizen that you qualify for a government subsidy - the EIC for example, all you need to qualify for this one is to keep your earnings down and vote for the appropriate politicians.

Now, whenever the tax bracket percentages are lowered, the government sees that as a reduction in revenue, which it is, but it could also be seen as an investment, an investment in you - the American People. But they just can’t see it that way.

If The People are allowed to keep more of their earnings, what happens to that money? It is saved, or it is invested, or it is just plain spent. Who benefits? Every business where that money ended up. They hire people and those additional workers end up paying their taxes. Those people spend their money in other businesses, etc., etc., etc.

Revenues to the government increase, and the government thinks it is prosperous and they spend even more than they bring in. This gives them even more ideas about how they can spend more, so they do. But then they actually notice that they are spending too much. The solution? Increase revenues. What they don’t do is reduce spending, for every spending increase is written in stone and has become a petrified mandate and can never be lowered.

So they do at least four ways: They increase the percentages of the tax brackets; they change the rules for qualifying for good-citizen discounts; they charge user fees for the use of the government; and, they cut “vital” services to force the public to vote for a special tax levy to reinstate the “vital” service, thus allowing the “non-vital” services to continue to be funded from the general fund.

After all, it’s the government’s money – they’re just letting you have some, as long as you spend it correctly. To spend correctly, you must fund “Pro-choice”, “for the children”, “save the [insert wildlife of choice]”, “save the [insert preferred environmental cause here], “save the [insert preferred incumbent or political group here]”.

You can be the unique historical, independent, individualistic, good American citizen - as long as you live in a city - in an apartment, condo, or townhouse; bike, walk, or ride transit to everywhere; eat according to government guidelines, read the correct books, magazines, newspapers, and blogs; watch anything but Fox; recycle everything including your toilet paper; always buy “green”, regardless of cost; shun capitalism and corporations – except for the ones that make enough money to donate to your preferred political cause, politician, or organization; hate the rich – unless they are lawyers, writers, movie and TV stars, athletes, or former Democratic politicians; and don’t use electricity generated by any form of CO2 or dams that block the flow of salmon.

There are more regulations to be certified as a unique, independent, individualistic, good American citizen, but time prohibits listing them all.

Suffice it to say, the politicians who were elected to represent you, to serve you in Congress, have garnered so much power that they no longer believe that they are the servant to The People, but rather, the other way around. They are no longer the stewards of our tax money and Constitution, but are instead, the privileged ruling class.

Enjoy your cake.  

By Blogger Escort81, at Sat Sep 26, 02:34:00 PM:

I had somewhat the sense that the concluding sentence of the article that you highlighted was written toungue-in-cheek, because, well, nobody would actually write that sentence literally. Or maybe I just read into it my own hope of a sense of humor on the part of the NYT writer.

I don't have any direct experience with FSAs, but I think the more power we put into the hands of individuals to make their own health care decisions with pre-tax dollars, the better. Sure, somebody might buy gum instead of aspirin at the drug store and try to run it through an FSA, but so what?

I thought Prof. Reinhardt's post linked in the article was quite funny -- he has always had a good sense of humor, even when I was in his accounting class 29 years ago -- but his money paragraphs are:

The intent of this provision is to reduce the employee’s after-tax cost of a medical service bought with this account by $(m x P), where P is what health-care providers charge for the service, and m is the employee’s marginal tax rate.

Because the marginal tax rate m rises with the employee’s income, the tax benefit $(m x P) thus bestowed on employees rises with the employee’s income. It would be a challenge to find the ethical foundation for such a regressive public subsidy.

So because marginal rates go up with income, the effect of an allowable deduction for people at those higher rates is "a regressive public subsidy," even though, of course, it is that individual's money to begin with. This comports with President Obama's claim that the charitable deduction should be capped for people at higher marginal rates because it is "not fair" that the effect of the gift is somewhat larger than the same gift made by someone at a lower marginal rate.  

By Blogger commoncents, at Sat Sep 26, 03:33:00 PM:

Great post! I really like your blog!!

ps. Link Exchange??  

By Blogger Sean Hackbarth, at Sat Sep 26, 03:56:00 PM:

Here's what caught my eye:

"Senator Max Baucus, Democrat of Montana and author of the Senate health care bill, would like to place a much lower $2,500 annual limit on what people can save, among other restrictions. The House-Senate Joint Committee on Taxation figures this will allow the government to take in $14.6 billion from 2011 and 2019. So far so good right? We have to pay for the health care bill somehow."

A new health care program has to be paid for through tax increases. That's your standard New York City liberal thinking.  

By Blogger Neil Sinhababu, at Sat Sep 26, 05:34:00 PM:

Dreck, do you think that there can't be such a thing as an undeserved tax break?

Say I lobbied Congress for a $100 tax deduction for each blog comment I left. I imagine you'd say that I don't deserve it.  

By Blogger Andrew Hofer, at Sun Sep 27, 10:49:00 AM:

You'll notice your question doesn't match my assertion, but actually the answer is still no. "Unfair subsidy"? Perhaps, but all subsidies are unfair - they are *intended* to discriminate. You might be interested in my post on marriage subsidies- http://www.janegalt.net/blog/archives/004239.html

But the case in point is avoiding being taxed on devices, medicines and therapies prescribed by a doctor. i.e. getting to use a full dollar of your own earnings on Taxation is something you do with regret, because you are taking others' property, which they "deserve" to keep.  

By Anonymous Anonymous, at Sun Sep 27, 11:00:00 AM:

Obama & Co want a VAT

read here:

Link, over  

By Blogger JPMcT, at Sun Sep 27, 12:00:00 PM:

We offer a Flex Plan to our employees. I must say that I am compelled to use it primarily because my effective tax rate is so high. My feeling has always been that somebody would, sooner or later, close this "loophole".

Since ubertaxation inherently destroys productivity and consequently reduces federal income in the long run, we will see many of these little safe harbors disappear until the middle class wakes up.

Rather than having wealth trickle down, we will see poverty trickle up!!  

By Blogger Georg Felis, at Sun Sep 27, 04:52:00 PM:

FYI: This will also slam many Federal Employees who participate in the FSAFEDS program. Plus this is a direct tax on people who have large predictable medical bills (say for example you have a child with a long-term medical condition which is only covered partially by your insurance), so here we have a Democratic Congress hiking taxes on the people who are least able to pay for it. Typical.  

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