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NewAlchemist (71.91)

Our tax code is seriously messed up.



April 30, 2013 – Comments (3) | RELATED TICKERS: AAPL , COST

Our tax code is insane.

Unemployment benefits are taxable while you get a tax break for buying a $30,000 eco car.  So in effect you have struggling unemployed people subsidizing the Prius purchases of the politically well connected.   Nearly 50% of people pay no Federal taxes.  The tax code is complicated and difficult to understand.  A flat tax may not be the ultimate solution but it is certainly better (and more fair) than the madness we have today.  After all, governments spend DOLLARS not PERCENTAGES.

So why rant about taxes?  Well all day CNBC was talking about Apple issuing debt.  Apple has $145 billion dollars but most of their cash is overseas.  Rather than bringing that cash home and passing profits on to owners they decided to borrow dollars in the debt markets... to avoid paying tax.

Economics postulates that people respond to incentives.   Apple wants to pay stock owners as much money as possible so you see these weird games being played to avoid tax.  Look at what Costco did at the end of last year.   Costco paid a special $7 dividend to shareholders at last year's 15% rate instead of this year's rate which could be as high as 43.4%.  Not only did they pay that special dividend but they borrowed money to do so.

Costco's former CEO, a big Obama supporter, personally saved 4 million dollars by manipulating the tax game.  He might be a "pay your fair share" Obama supporter in words but he sure loved those Bush tax rates in action.

One of the biggest dividend winners will be none other than Mr. Sinegal, who owns about two million shares, while his wife owns another 84,669. At $7 a share, the former CEO will take home roughly $14 million. At a 15% tax rate he'll get to keep nearly $12 million of that windfall, while at next year's rate of 43.4% he'd take home only about $8 million. That's a lot of extra cannoli. 

I'd be remiss if I didn't mention Warren Buffet.  Warren goes through great lengths to avoid paying taxes yet he complains that he doesn't pay enough.  Face palm!

Apple is just a great example of how messed up our tax code is and how bad we need reform.  There is an entire industry of smart accountants trying to minimize taxes for people.  These are smart people that should be out doing stuff instead of white collar digging holes and filling them back up in the tax game.  The tax song and dance is a waste of time and is less "fair" to everyone.  Shouldn't we have tax equality?  Everybody pay the same?  How can two people make the same amount of money, be in the same situation but one person pays X and the other person pays Y?  I read an experiment where 30 tax preparers were given information for the "average family".  When they had to report calculations for how much was tax due, the 30 preparers came up with 30 different answers.  We need a transparent system where your tax bill isn't a guessing game, this reduces legitimacy of our system.  A flat tax might not be the best solution but it is simple and better than the monstrosity we have today.

3 Comments – Post Your Own

#1) On April 30, 2013 at 10:19 PM, Foolingyou1 (77.63) wrote:

I agree 100 percent.  Otherwise how  about a sales tax only ..that way the rich who buy more stuff, pay more of the total tax burden.  Either way is better...

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#2) On April 30, 2013 at 10:33 PM, HarryCaraysGhost (77.10) wrote:

Actually, the rich pay less in sales tax, based on percentage of income. Sales tax is mostly paid by the poor.

I'm for a %15 flat tax across the board, and it should work out where everyone is paying their fair share.

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#3) On May 01, 2013 at 4:09 PM, edwjm (99.89) wrote:

Yes, our tax code is seriously messed up, but those who complain the loudest would, if they got what they wanted, only make things worse in most cases.  What we have now is better than such nonsense as the suggestions called "the fair tax", "value added tax", "national sales tax", "the flat tax", "9-9-9", etc..  What would make the present system more efficient would be the elimination of the deductions for "charitable gifts", most of which don't actually go to charity, and other loopholes, and the elimination of the Alternative Minimum Tax.


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