Monday, January 30, 2012

The Rich Get Richer, and Obama Has Not Tightened His Belt

5 Tax Deductions That Help the Rich Get Richer
By Jay MacDonald | Bankrate.com – 1-30-2012
When it comes to tax deductions, it is good to be rich -- the richer, the better.
Middle-class America enjoys some of the same tax breaks as the wealthy on things like the mortgage interest on home loans, capital gains on retirement investments and donations made to charity.
However, the rich enjoy these deductions and others to a wildly disproportionate degree when compared to the rest of taxpayers. According to the National Priorities Project, America's top earners will get an average tax cut of $66,384 in 2011 while the bottom 20 percent will realize an average tax savings of about $107.
Seth Hanlon, director of fiscal reform for the Center for American Progress, says that while all tax breaks are well-intended, the "upside-down" nature of some miss their target.
"Most people don't see these as being government expenditures, but from an economic and budget point of view, they're really the same thing as programs that spend money directly," says Hanlon. "There are ways to reform them to make them work better."
Many agree, including President Barack Obama, Warren Buffett and Bill Gates.
Here are five tax deductions that help the rich get richer.
1-Mortgage interest: a homeownership incentive?
The mortgage interest deduction on your federal tax return is intended to encourage homeownership by giving you a tax break on the interest you pay on your house note.
There is little question it benefits millions of middle-class homeowners as well as the wealthy. But does it provide a compelling financial incentive to own rather than rent? Not so much.
According to a study by The Wharton School at the University of Pennsylvania, mortgage interest deductions for households with incomes between $40,000 and $75,000 average just $523, while households with incomes above $250,000 enjoy an average write-off of $5,459, or more than 10 times as much.
You must itemize on IRS Form 1040 Schedule A to claim the deduction. If you do, you can also deduct the interest paid on a second home. The rich do both, but most of the middle class does neither.
"For millions of taxpayers, therefore, the mortgage interest deduction provides no added incentive to buy a home," says Hanlon. "It makes no sense in terms of targeting the incentive at the people who need or could use it."
2-Capital gains: how the rich get richer
Why does billionaire Warren Buffett pay less income tax than his secretary?
Two words: capital gains.
Long-term capital gains, which derive from the sale of investments such as stocks and bonds held for more than a year, are taxed at 15 percent. That's well below the 35 percent maximum tax rate on ordinary income such as wages.
The preferential tax treatment of capital gains is widely viewed as regressive because the rich, who derive a disproportionate share of their income from capital gains, pay less than half of the tax rate on that income compared to middle-class wage earners.
"Capital gains are highly concentrated," says Rebecca Wilkins, senior counsel for Citizens for Tax Justice. "Most of the capital gains are earned by folks in the top 10 percent, and it's even concentrated more than that. So the capital gains tax break, which is a 20 percentage-point difference in the amount of tax that is paid on those, is going almost all to the top 5 percent."
In fact, Americans with an annual income of $1 million or more, or 0.3 percent of all taxpayers, enjoy 70 percent of the capital gains benefit, says Hanlon.
The favorable capital gains rate is expected to save the wealthy (and cost Uncle Sam) $38.5 billion for fiscal 2012, according to the Office of Management and Budget.
3-Step-up in basis: how the rich remain rich
If the wealthy enjoy roughly $40 billion in tax breaks each year thanks to the favorable 15 percent capital gains rate, their heirs save even more, courtesy of the step-up in basis rule in the U.S. tax code.
What's the step-up all about? Essentially, it allows the wealthy to pass along assets that have grown in value to their heirs without ever paying a dime of taxes on it.
Under special Internal Revenue Service inheritance rules, when you inherit assets such as stock, real estate or a closely held business, you are allowed to step up their basis -- what the deceased originally paid for them -- to their current fair market value. Therefore, when you sell the assets, you would only be taxed on their gain in value from the time you inherited them.
Step-up in basis is expected to save the wealthy (and cost Uncle Sam) $61.5 billion for fiscal 2012, according to the Office of Management and Budget.
"Not surprisingly, this tax expenditure overwhelmingly benefits those who inherit from large estates because it allows gains to escape capital gains taxes if held until death," says Hanlon.
4-Retirement savings: tax shelter for the rich
Tax-deferred retirement plans are designed to help all Americans save for retirement. In 2011, Americans will save (and Uncle Sam will lose) $142 billion in taxes by sheltering their personal income in 401(k) plans, pension plans and individual retirement accounts, according to the U.S. budget.
Since the wealthy have more to save, they tend to reap more of the tax benefits of saving for retirement.
According to the Tax Policy Center, the top 20 percent of income earners enjoy 80 percent of the tax write-offs for retirement saving while the bottom 60 percent take advantage of a whopping 7 percent of the tax savings.
Which is understandable considering that the higher your income, the more likely you are to own a 401(k) plan with generous employer contributions. Nearly half of all Americans do not have access to a retirement plan at work, and those who do can't afford to take full advantage of the tax incentive.
"It's, again, a question of targeting incentives," Hanlon says. "The tax benefits probably aren't as well-targeted as they should be. The wealthy probably would save regardless of the tax benefit."
5-Charitable deduction: good cause, policy flaws
The charitable-giving deduction effectively operates as a federal matching program: make a charitable donation and receive a tax break. In fiscal 2011, the charitable deduction saved Americans (and cost Uncle Sam) $53.7 billion, according to the U.S. budget.
The problem with the charitable deduction is similar to the mortgage income tax break: The value of the deduction increases with income.
"If I give $1,000 to charity and I'm in a 10 percent tax bracket, I get $100 back on my taxes," says Wilkins. "But if I'm in a 35 percent tax bracket, I get $350 back from the federal government."
Plus, you have to itemize on IRS Form 1040 Schedule A to claim the charitable deduction.
"If we're trying to encourage charitable giving, we should be encouraging people with less money than people with more money to make those gifts," Wilkins says.
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Michael T. Wayne-
First of all, I must apologize to the Republicans I am about to piss off, but I agree with this one single article, for the most part. However, since Obama has had three years to do something about this, it is very timely for his campaign. I cannot say why this information has been thrown out at us now, save for BO’s people are on it, for he is a complete failure and a moron of a president, wishing to be re-elected to continue the pilfering of our money.
Secondly, is Ms. Wilkins a moron as well? While I agree the rich should not be getting richer, as we are crammed deeper into the poor house, it thus divides us into two classes, as we have two political parties. Ms. Wilkins, do you really believe that people with LESS money making charitable donations is at all logical? You are with Citizens for Tax Justice? Seriously? We can barely afford to feed and clothe ourselves, idiot. Mr. Seth Hanlon has some great insight for us. Do I seem a bit angry to you? To put such an ignorant statement at the end of a great article, with such important information to the “us” that is now the “other” class, makes you a worse person than this disgrace of a President, Obama, if possible. The real citizens, the middle class, do not seem to have a voice in this entire administration, nor a choice but to remove this mistake from office, and we must have faith that the Republican Party gets the chance to help us, or we simply keep deteriorating until we ourselves are relegated to a life of hand to mouth living. We are already on the verge. Some are already at that point. There is no hope in re-electing Obama. We must really have a CHANGE. I am in full support of Mitt Romney. He is a good man, and he does not just pretend to have our best interest at heart, like our current leader does. Please read the following information, as it shows how much Obama by himself has cost us. Sorry for the tenor of my statements, for I do not like to write angrily. It is VERY difficult when you are doing political research.
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It's hard to believe that CBS actually said something that wasn't
flattering to this so-called President!
This is from Mark Knoller of CBS.
The pilots and crew of Air Force One are flying more hours than a
rookie on a beer run. They are tired of it too, and are adding more crew
to Air Force-1, I know this for a fact because I'm one of the instructors
that trains the crews. Our company (Atlas Air) has had the Air Force-1 and
E-4 contract for over two years and I've been doing it for about 8 months now.
Last year (2010) Obama flew in Air Force One 172 times, almost every other day.
White House officials have been telling reporters in recent days that the
Democrat doesn't intend to hang around the White House quite so much in 2011.
They explain he wants to get out more around the country because, as
everyone knows, that midterm election shellacking on Nov. 2 had nothing to do with
his health care bill, overspending or other policies, and everything to do with
Obama's not adequately explaining himself to his countrymen and women.
And with less than a year remaining in Obama's never ending presidential
campaign, the incumbent's travel pace will not likely slacken. At an Air
Force-estimated cost of $181,757 per flight HOUR (not to mention the additional
travel costs of Marine One, Secret Service, logistics and local police overtime),
that's a lot of frequent flier dollars going into Obama's carbon footprint.
$80 Million every time it lands & takes off.
We are privy to some of these numbers thanks to CBS' Mark Knoller, a
bearded national treasure trove of presidential stats. According to Knoller's
copious notes, during the last year, Obama made 65 domestic trips over 104 days,
and six trips to eight countries over 22 days. Not counting six vacation trips over
32 days. He took 196 helicopter trips, signed 203 pieces of legislation and squeezed
in 29 rounds of left-handed golf.
Obama last year gave 491 speeches, remarks or statements. That's more
talking than goes on in some entire families, at least from fatherly mouths.
In fact, even including the 24 days of 2010 that we never saw Obama in public, his
speaking works out to about one official utterance every 11 waking hours.
Aides indicate the "Real Good Talker" believes we need more.
Related: Obama spends nearly half his presidency outside Washington,
plans to travel more.
Related: Vacationer-in-Chief Spends $175 Million to Visit Hawaiian Chums.
Obama has spent over $100 million taxpayer dollars flying around in Air
Force One, and probably another $100 million on his entourage.
Obama is just another tin-pot dictator living lavishly at the expense of his subjects.
And we seniors have to "tighten our belts".
THANKS TO ALL WHO HELPED PUT THIS GREEDY WINDBAG IN OFFICE!!
PLEASE BE MORE CAREFUL NEXT TIME!!
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Very green of you Mr. President, you know “global warming”?
How tight is this guy’s belt?

God Bless the United States of America and our Armed Forces!
Post and comments by Michael T. Wayne- A Little Crazy

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