story by Aric Mitchell
“The Internal Revenue Code is a huge mess that needs to be thrown into the dung pile and started over,” accountant John Taylor told attendees at Wednesday’s (Mar. 9) seminar “Tax Planning under Congress’s New ‘Band-Aid’ Legislation,” presented by the University of Arkansas at Fort Smith Foundation.
The seminar was one of two sessions at the Worship Center of Central Christian Church on 400 North Waldron Road. The second seminar will be held Thursday (March 10) from 6:30-8 p.m.
Taylor serves as treasurer of the UAFS Foundation Board. He is also an adjunct faculty member at UAFS, where he teaches a for-credit class in personal finance. Wednesday’s assembly was a combination of students and retirees from across the River Valley Region interested in the recent legislation signed in to law by President Barack Obama on Dec. 17, 2010. As a self-proclaimed “tax nerd” Taylor set out to reveal the new law as “much more than an extension of the so-called ‘Bush Tax Cuts.’”
Taylor continued: “I must warn you that what you are about to hear is a bi-partisan beating. I am going to be very uncomplimentary towards Congress. ‘The Code’ that we CPAs refer to was handed down in 1976, and it’s been amended about a gazillion times.”
Taylor referred to the new law as “a 30-pound mess” that does nothing to fix the problems that are present in the tax code.
“It took years to screw things up this badly, and both parties are responsible,” he said.
Normally a certified public accountant, personal finance specialist, certified financial planner, and senior vice president at Sterne Agee, Taylor stepped comfortably into the role of Congressional critic.
“Congress has known the Bush Tax Cuts were going to expire for 10 years, and it took until December of 2010 for them to do anything about it. But what you’re going to see in the next hour and a half is that they really haven’t done anything at all. They’ve just put a band-aid on it,” he explained.
Taylor said many provisions made by Congress’ extension of the Bush Tax Cuts will expire at the end of 2012.
“And with that being an election year, call me a cynic, but how much clear thinking can we expect out of Congress when these provisions sunset?” he quizzed.
In Taylor’s position, he tries to help individuals and families with tax planning, particularly as it relates to estates.
“My role is not to help you figure out tax planning for a year, but for several. But how can you do that when you don’t know what the tax law is going to look like two years from now?” Taylor said.
In spite of the frustrated tone, Taylor’s seminar highlights several ways in which individuals and families can reduce tax liabilities over the short term. One recommendation for retirees is through charitable giving from an Individual Retirement Account (IRA).
Until the end of 2011, those who make qualified charitable distributions from their IRAs can subtract the amount donated from their 2011 gross income, up to $200,000 total for married people filing jointly ($100,000 per individual). Also, for 2011 and 2012, individuals in the 10-15% tax brackets may take long-term capital gains earnings with 0% tax liability. (Long-term capital gains refer to investments held more than 12 months.)
Taylor also discussed a number of “hidden taxes” that Congress “slipped in” to the Health Care Reform Act: “Example: the new Medicare contribution tax is on unearned income for the first time ever. It’s always been on earned income, or what I like to call ‘sweat of the brow’ income, but now you’ll be paying an additional 3.9% on top of everything else — your dividends, investments, capital gains. What does this income have to do with Medicare? Nothing. And since the income standard for this contribution tax is not indexed, it means Congress could easily monkey with some of these income thresholds in the years to come.”
Taylor advocates the Fair Tax, which according to FairTax.org, “abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax administered primarily by existing state sales tax authorities.”
“Many of my colleagues think I’m crazy, and say, ‘You’re going to put us all out of business,’ but I disagree,” Taylor said. “If we had a tax system that was more equitable, that was easier to understand, and that was easier for people to comply with, tax revenues would go up. GDP (gross domestic product) would grow exponentially, and we’d all be better off. One of the biggest problems with our current system is that even people, who want to do the right thing, don’t know what to do.”