Will Higher Taxes Reduce Deficits?
Not much:
Arch Brown has converted his traditional retirement accounts into plans with better tax advantages. Andrew Ahrens has been buying gold and silver and selling stocks. Archie Anderson might speed up the sale of two equities himself. Mike Henry is considering selling timber.
The four are among a growing group of high-income taxpayers who assume they will see higher taxes next year, no matter what Congress does to address the expiring tax cuts from the George W. Bush administration. More than four months before the expiration date, they are making plans to mitigate any impact.
Mr. Brown, a Tucson, Ariz., businessman, said he is working on the assumption that “the tax rates for people like me who have income over $250,000 will go up.”
The maneuvering ahead of Dec. 31 has confounded traditional tax preparations and spawned feverish activity among higher earners, a trend reported by tax planners and financial advisers across the country.
Michele Knight, of Knight Accounting and Technology in Colorado, said she is fielding numerous questions from people who want to know the tax implications of starting a small business. She is advising them to create limited-liability partnerships, one way to organize a new company that might have more favorable tax rates for some. Others are interested in learning about changing their retirement accounts.
Jim Kirby, a tax partner with PMB Helin Donovan LLP in Dallas, estimates that 70% of his clients are calling about the potential tax increases.
The tax avoidance described in this article is one reason we cannot tax our way out of fiscal disaster; the other is that higher taxes discourage economic activity, further limiting tax revenue.
The story also suggests one reason for the anemic recovery; the expectation of higher taxes means consumers are saving, not spending.
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Underwriterguy
Just sitting here today figuring out the estimated I will owe in 2010 on my Roth conversion and cap gains. Wonder how many more are like me and the ones in the article.
Oh, and gold is a hedge against debasement of the dollar not inflation; from another article I read today. Higher taxes and lower dollars, whoopee!
ElGreco
…And then when economic activity slows down to 1-2% annual growth and we start hurting even more what are we going to do in our despair? Vote for even more taxes, of course.
The decline will be swift.
Zack
When the federal rate of capital gains was lowered from 28 to 20 percent in 1997, it was assumed that revenues from the tax would fall bellow the $54 billion collected in 1996 and the $209 B projected to be collected over the next four years, before the tax rate was cut. Instead, tax revenues rose after the capital gains tax rate was cut: $372 B were collected in capital gains taxes over the next four years.