Source: marchandmeffre.com

Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.

The time to increase the debt level is fast approaching. What everyone should know as the battle begins is where we are starting from. Basically the country brings in $2.1 trillion dollars a year in revenues, and spends $3.5 trillion. The U.S. is spending $1.4 trillion a year more than it earns and the accumulated debt is $14 trillion in the past 10 years.

Basically if the country was a taxpayer, they would earn say $50,000 and spend $83,333 a year – they would have to borrow $33,333 a year and after 10 years they would owe $333,333 – scary stuff.

Income comes from individual income taxes (42 percent), corporate taxes (9 percent), Social Security taxes (40 percent) and 10 percent all others. Remember that 1 percent of tax payers pay 33 percent of the individual income taxes and 5 percent pay half of all income taxes. Over time, the top portion of U.S. taxpayers are paying more of their fair share. It is hard to argue that a “soak the rich policy” isn’t already happening.

Interest accounts for 6 percent of the national budget, defense is 20 percent, social security payments the same 20 percent, Medicare 23 percent, other mandatory programs 12 percent, and all other discretionary spending amounts to 19 percent of the budget. So even if all other government departments were closed down, the country still could not balance its accounts.

It seems that before things totally go off the rails, the time is now to make tough choices to get the country back on an even financial footing. It has to come from a combination of tax increases and reduced spending.

The 2012 elections are the perfect time to see which politician is ready to step up and say that the country cannot keep borrowing and running the country into debt and that it has to balance its books in a reasonable time frame.

Entitlement programs will have to be modified to reflect higher longevity, reduced returns on investments and an aging population.

In the same way that many American families have had to change their lifestyle and spending, so will the federal government. Before we run out of runway.

Coming Tax changes

There is, in no particular order, a list of tax deductions that are particularly at risk as the budget battle heats up.

  • Mortgage interest deduction is almost certainly on the table. Look to see a maximum, say $500,000, deductible limit, or a 12 percent tax credit. It costs $100 billion a year and even with a strong real estate lobby the tax deduction is too big to overlook. Look for elimination of Home Equity loans (which are limited already) and second homes as well.
  • Charitable contributions. Again another credit limit could be proposed. Charitable contributions have been tightened up over the past couple of years. Generally, unless the charity sells your car within 30 days, your contribution is limited to $500, not the book value. In addition, you have to now list each item you donate (not bags of clothing, etc.) with a fair market value.
  • Tax deductible retirement plans. With SIMPLE, IRA, ROTH, SEP, 401(k) and the alphabet soup of complex retirement plans there is a call for a single retirement plan with much less generous deduction limits.
  • Employer provided health insurance. There are proposals to cap the amount of company paid health insurance and what would be able to be deductible. Twenty-five years ago (1986) was the last major rewrite of the tax code. Lightning can strike twice in a life time.

Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.

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  • Anonymous

    According to the Library of Economics and Liberty (http://www.econlib.org/)The distribution of pretax income in the United States today is highly unequal. The most careful studies suggest that the top 10 percent of households, with average income of about $200,000, received 42 percent of all pretax money income in the late 1990s. The top 1 percent of households, averaging $800,000 of income, received 15 percent of all pretax money income.

    I say the rich should pay a hell of a lot more taxes. And find me a person who doesn’t pay taxes. My children paid income tax on their part-time jobs.

    • Eminem

      I’m sure you can find a zillion links that show that 40% of the country doesn’t pay any taxes at all. Hardly fair either. I’ve seen statistics disputing your assertions, something like the top 5% in wealth pay like 60% of the country’s taxes. My numbers are samples of what I’ve read from memory, i’ll let others find the actual links, Eminem’s got better things to do.

  • Whwsailboat

    How is it that we started two wars, lowered taxes mostly for the wealthy and now hear that the government spends too much on social security and other middle class benifits? The fat cats and CEO’s who sent jobs off shore still have their wallets full and tell us workers we have to compete with cheap Chinese labor while they don’t compete with cheap Chinese CEOs! Let face it. There was a class war and we lost. Sorry, I don’t buy the BS that the counrty is bankrupt.

  • Eminem

    you can tax the rich till the cows come home. It will not reduce the budget deficit significantly. Even the NY Times among others has acknowledged this .We simply spend way too much. Spending must be cut in defense, social security and medicare ,period. Taxes will have to go up. Any other conversation adds nothing to the solution I’ll leave the details of cuts to other discussions.

    Going on and on against the rich will not close the 14 trillion dollar gap. How about a REAL suggestion from you guys. I just hear the same tired old stuff, no real solution.

    And I’ll say more. I don’t even trust your idea of raising taxes on the rich. I know that the govt will just spend the money. They will not use it to pay their debts, and this will have your full support.

    Furthermore, it’s a very SPOILED attitude. I think y’all KNOW that future generations will have to pay for this. The seniors and baby boomers (of which I’m one) continue to vote all sorts of benefits for ourselves that future generations will not only not have, but will have to pay for for our greed.

    • Whwsailboat

      Taxes must go back to historic level for all. Something the Repiblicans reject outright. 

      • Whwsailboat

        Also – Defense spending must be cut substantially, and the country must head to single payer medical care with private insurance available if you want additional gold plated coverage. 

      • Whwsailboat

        Also – Defense spending must be cut substantially, and the country must head to single payer medical care with private insurance available if you want additional gold plated coverage. 

    • levp

      Speaking of newspaper articles on the subject, please see this review of a recent Wall Street Journal article:
      “America’s Largest Newspaper Launches a Nasty Attack on Grandma and Grandpa”
      http://www.alternet.org/economy/150930/america's_largest_newspaper_launches_a_nasty_attack_on_grandma_and_grandpa?page=entire 

    • levp

      Meanwhile,
      “Over the past two years, ExxonMobil reported $9,910 million in pretax U.S. profits. But it enjoyed so many tax subsidies that its federal income tax bill was only$39 million — a tax rate of only 0.4 percent.” 
      http://www.ctj.org/pdf/energy20110429.pdf

  • Brightonresident

    I think a flat tax of about 17%, with no deductions would do it.  Everyone pays 17% of all income, period! 

    • levp

      Including for corporations (which, according to the Supreme Court, are equal to people)?

    • Whwsailboat

      Maybe, but it should also include investment income, capital gains, inheritance, and off- shore income and “in kind” type of income and if a VAT is also implemented.   

      • levp

        That’s why it will never happen.