A realistic picture of taxes and the economy

October 15, 2010

I just ran across some blog posts from tax professor David Cay Johnston. He has a couple posts in particular that I find interesting because they highlight the disparity between perception and reality when it comes to taxes and the economy.

I find it odd that so many people believe that taxes are unusually high in this country.* From a global perspective, the US government takes in less revenue, as a percentage of total income, than nearly any other developed nation. From an historical perspective, the US government collected a smaller share of total income in 2009 than it has in 60 years. In fact, for 30 years now tax rates have been in fairly steady decline. As a tax professional who looks at tax numbers all the time, this isn’t at all surprising. But it’s amazing that people who aren’t informed about the reality have a very strong perception that things are exactly the opposite of the way they really are.

Anyway, here are a couple of articles I found very interesting…although I’ll warn you that if you’re dead set on believing the government has us on a steady path to socialism then you’ll probably just be really angered:

United in Our Delusion

US Tax Rates: A Bargain Hunter’s Dream?

*In the case of upper-middle income earners making about $80k-106k, I’ll concede they’re probably right to believe taxes are unusually high in this country. If you fall in this income category, you’d probably pay lower taxes overall moving to Canada or Western Europe (plus you’d get free health care thrown into the deal as well). The income tax, when combined with employment taxes that are very regressive, result in a tax code that hits these upper-middle-class earners harder than anybody, and then rates get dramatically lower for higher earners.


New tax provisions will help many small businesses

October 3, 2010

The recently passed Small Business Jobs Act offers a number of helpful changes to the tax law that will benefit small business owners. As with most bills, there are many provisions, and some of them are very complex. But I just wanted to point out two basic provisions that will be welcomed by many small business owners I work with:

1) Cell phones have been removed as “listed property.” OK, so if you’re not a tax professional, what on earth does that mean and why is it such great news? This means that deducting cell phone usage as a business expense will no longer be an enormous pain. When cell phones were listed property, the tax code required records to be kept of all calls that were made and their business purpose. This means that if you followed the letter of the law you’d have to get a detail bill and go through the bill call by call to determine how much of your bill was a deductible business expense.  No more. Now cell phone expenses can generally be deducted as simply as any other business expense. (Of course, this is bad news for those cell phone companies which annoyingly charged an extra monthly fee for detail billing. Sorry Verizon, etc…)

2) Health insurance for Self-Employed individuals can be deducted as a business expense. The self-employed have long been able to take a deduction for their health insurance. However, the deduction was only allowed against income tax, but not against the Self-Employment Tax, which is generally about 15% of net business income. In 2010 (and only 2010, unless this provision is extended later), the self-employed will be able to deduct their health insurance against income tax and the Self-Employment Tax, generally resulting in a tax savings of about 15% of your health insurance costs.

There are many, many more provisions to this bill. For more information, you can view this page at whitehouse.gov that provides a broader overview: http://www.whitehouse.gov/blog/2010/09/27/president-obama-signs-small-business-jobs-act-learn-whats-it

Of course, this is general information and it’s always good to consult with a qualified tax advisor to determine how these provisions apply to your specific situation.