The article below is almost verbatim of an IRS press release. In plain English, the 2% reduction is good for one-sixth of the 2012 FICA wage base (i.e., one-sixth of $110,100 or $18,350). Employers will withhold at the 4.2% rate through February on all wages paid to an employee, even if they are in excess of $18,350. The employee will “recapture” the excess tax break on his or her personal 2012 Form 1040 tax return filed in early 2013 (assuming that the 2% reduction is not extended past the first two months of 2012).
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http://www.accountingtoday.com/news/Payroll-Tax-Cut-Extension-Includes-Recapture-Provision-61259-1.html
The Internal Revenue Service plans to issue additional guidance on the temporary two-month extension of the payroll tax cut, including how a new “recapture” provision for high-income employees will be implemented.
The tax cut extension was passed by Congress on Friday and signed into law by President Obama later that day, with plans to return in January to find a way to agree on how to pay for extending the tax cut through the rest of the year (see Congress Passes 2-Month Payroll Tax Cut Extension). The IRS said Friday that nearly 160 million would benefit from the extension of the reduced payroll tax rate that has been in effect for 2011.
The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits, the IRS noted. The tax cut extension is paid for with an increase on the guarantee fee paid by lenders on all new mortgage loans whose principal and interest are backed by Fannie Mae and Freddie Mac.
Employers should implement the new payroll tax rate as soon as possible in 2012, but not later than Jan. 31, 2012, the IRS advised. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.
Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.
Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).
This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS said it would closely monitor the situation in case future legislation changes the recapture provision.
The IRS said it would also issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012 is due April 30, 2012.
The legislation passed by Congress on Friday includes some technical corrections to address the concerns of payroll processors and small businesses about how the two-month extension would work (see House Republicans to Offer 2-Month Payroll tax Cut Bill). It corrects a flaw in the Senate provision by allowing employers to withhold employee payroll taxes at the reduced rate (4.2 percent) on all wages paid during the two-month period, subject only to the full 2012 wage base ($110,100) and without regard to the new $18,350 cap on wages earned through the end of February.
If an employee’s wages during the first two months of 2012 exceed $18,350 (two-twelfths of the wage base of $110,100), an amount equal to 2 percent of those excess wages would ultimately be recaptured on the worker’s individual tax return for 2012. However, this rule would only apply if the payroll tax reduction is not extended for the remainder of 2012, and a conference committee is expected to convene soon in order to negotiate a full-year extension.
Tuesday, December 27, 2011
Friday, December 23, 2011
House, Senate Clear Payroll-Tax Accord
http://online.wsj.com/article/SB10001424052970204464404577116360775425238.html
By SIOBHAN HUGHES
WASHINGTON—The House and Senate on Friday approved a two-month extension of the payroll-tax cut, averting an increase that would have left workers with less take-home pay next year.
Passage came after a nearly weeklong impasse that ended when House Speaker John Boehner (R, Ohio) bowed to increasing pressure from within his own party and agreed to the short-term extension.
The $33 billion package also provides extended federal unemployment benefits for two months, avoids a cut in payments to doctors who treat Medicare patients and compels the Obama administration to act within 60 days on a permit for TransCanada Corp.'s proposed Keystone XL pipeline expansion.
The deal, which forestalls a Jan. 1 tax increase on 160 million workers, represents a retreat for the House GOP, which had been at odds with Senate Republicans and party elders who feared a backlash in the 2012 elections if the tax break was allowed to expire.
The agreement is essentially the same package negotiated by the Democratic-controlled Senate that Mr. Boehner's House rejected earlier this week.
One difference in the new agreement is the elimination of a Senate-crafted provision businesses believed would be burdensome. That provision would have changed the way payroll taxes would have been deducted for higher-paid workers, a move that would have meant changing payroll systems.
Mr. Boehner changed course a few hours after Senate Minority Leader Mitch McConnell (R., Ky.) stepped into the debate and urged House Republicans to pass the two-month extension approved by the Senate last Saturday in an 89-10 vote. As part of the new deal, all sides committed to negotiating early next year on a full-year extension of the tax break.
The impasse was a rare split between the two Republican leaders, who for most of this year have worked hand in glove to battle President Barack Obama. The split reflects, in part, the pressure Mr. Boehner faces from the GOP's tea-party faction, compared with Mr. McConnell, who is more willing to accept tactical victories.
Mr. Boehner's leadership within his own caucus may suffer new strains from the retreat, the latest in a string of tussles he has had with rank-and-file members this year on issues ranging from government funding to the debt ceiling. When he announced his decision to compromise in a 10-minute conference call with Republicans around the country Thursday evening, Mr. Boehner took no questions.
The House GOP, in appearing to risk allowing the tax break to lapse Jan. 1, did some damage to the party's reputation of holding the line on tax increases. The standoff also threatened what had been a major victory for Republicans: including a provision in the original tax agreement to force Mr. Obama to make a quicker decision on building the Keystone XL pipeline, which the president had previously punted until after the 2012 elections. That provision remains in the new agreement.
So topsy-turvy were the politics Thursday that it brought the spectacle of Mr. Obama endorsing the words of Mr. McConnell, the man who began 2011 pledging to do all he could to prevent the president's re-election.
"Democrats agree with the Republican leader of the Senate," said Mr. Obama. "This is an issue where an overwhelming number of people in both parties agree. Has this place gotten so dysfunctional that even when people agree to things, we can't do it?"
Announcing the pact on his Twitter feed, Mr. Boehner said the agreement was designed to "ensure taxes do not increase for working families on January 1 while ensuring that a complex new reporting burden is not unintentionally imposed on small business job creators."
At issue is extending the current 4.2% payroll tax levied to fund Social Security, rather than allowing it to return to 6.2% on Jan. 1, its rate before this year. House Republicans, in pushing for a full-year extension of the tax break, have cast their position as one of principle over politics. They conceded Thursday that they were losing the public-relations battle by their fighting.
"We're not doing this for the politics," Rep. Greg Walden (R., Ore.) told reporters. "You all have pointed this out pretty clearly."
Speaking to reporters Thursday evening, Mr. Boehner acknowledged that his party might suffer from picking this fight. "It might not have been politically the smartest thing in the world," he said. "Sometimes it's hard to do the right thing and sometimes it's politically difficult to do the right thing."
A growing number of Republicans urged the House this week to cut their political losses and pass the short-term extension. Those making that push, including GOP presidential candidate Newt Gingrich and former GOP presidential nominee John McCain, made their case even louder on Thursday.
"At this point, the House should pass the Senate's short-term extension to ensure 160 million hard-working Americans won't lose important tax relief at the end of this year,'' said Sen. Olympia Snowe (R., Maine).
No voice was more important than that of Mr. McConnell, who had been silent as the storm brewed. He had considered the Senate deal a big Republican victory because it included language on the Keystone pipeline.
Instead of seen as backtracking on the oil pipeline and his demand for a one-year extension, President Obama this week became the defender of a two-month tax cut. The White House mounted a daily public-relations effort to advocate extending the tax cut, but in the end, White House officials believed Mr. McConnell's statement Thursday was key to expediting the drama's conclusion.
Before agreeing to the new deal, Republicans insisted on language to address a problem businesses face in the two-month extension, aides said. The Senate bill imposed a cap on how much salary would be subject to the lower tax rate. That was dropped in an effort to be sure businesses can process payroll taxes under the accounting structure now in place, a House GOP aide said.
The bill's $33 billion cost is expected to be covered by an increase in fees charged to mortgage lenders by government housing agencies Fannie Mae and Freddie Mac. That has been criticized by the firms' regulator and industry analysts, who say it will complicate the task of revamping the mortgage giants.
The fee increase, expected to raise about $35.7 billion in revenue over 10 years, likely would be passed on to new-home buyers, raising their monthly mortgage payments by as much as $15 on mortgages of $210,000.
—Janet Hook, Laura Meckler and Kristina Peterson contributed to this article.
By SIOBHAN HUGHES
WASHINGTON—The House and Senate on Friday approved a two-month extension of the payroll-tax cut, averting an increase that would have left workers with less take-home pay next year.
Passage came after a nearly weeklong impasse that ended when House Speaker John Boehner (R, Ohio) bowed to increasing pressure from within his own party and agreed to the short-term extension.
The $33 billion package also provides extended federal unemployment benefits for two months, avoids a cut in payments to doctors who treat Medicare patients and compels the Obama administration to act within 60 days on a permit for TransCanada Corp.'s proposed Keystone XL pipeline expansion.
The deal, which forestalls a Jan. 1 tax increase on 160 million workers, represents a retreat for the House GOP, which had been at odds with Senate Republicans and party elders who feared a backlash in the 2012 elections if the tax break was allowed to expire.
The agreement is essentially the same package negotiated by the Democratic-controlled Senate that Mr. Boehner's House rejected earlier this week.
One difference in the new agreement is the elimination of a Senate-crafted provision businesses believed would be burdensome. That provision would have changed the way payroll taxes would have been deducted for higher-paid workers, a move that would have meant changing payroll systems.
Mr. Boehner changed course a few hours after Senate Minority Leader Mitch McConnell (R., Ky.) stepped into the debate and urged House Republicans to pass the two-month extension approved by the Senate last Saturday in an 89-10 vote. As part of the new deal, all sides committed to negotiating early next year on a full-year extension of the tax break.
The impasse was a rare split between the two Republican leaders, who for most of this year have worked hand in glove to battle President Barack Obama. The split reflects, in part, the pressure Mr. Boehner faces from the GOP's tea-party faction, compared with Mr. McConnell, who is more willing to accept tactical victories.
Mr. Boehner's leadership within his own caucus may suffer new strains from the retreat, the latest in a string of tussles he has had with rank-and-file members this year on issues ranging from government funding to the debt ceiling. When he announced his decision to compromise in a 10-minute conference call with Republicans around the country Thursday evening, Mr. Boehner took no questions.
The House GOP, in appearing to risk allowing the tax break to lapse Jan. 1, did some damage to the party's reputation of holding the line on tax increases. The standoff also threatened what had been a major victory for Republicans: including a provision in the original tax agreement to force Mr. Obama to make a quicker decision on building the Keystone XL pipeline, which the president had previously punted until after the 2012 elections. That provision remains in the new agreement.
So topsy-turvy were the politics Thursday that it brought the spectacle of Mr. Obama endorsing the words of Mr. McConnell, the man who began 2011 pledging to do all he could to prevent the president's re-election.
"Democrats agree with the Republican leader of the Senate," said Mr. Obama. "This is an issue where an overwhelming number of people in both parties agree. Has this place gotten so dysfunctional that even when people agree to things, we can't do it?"
Announcing the pact on his Twitter feed, Mr. Boehner said the agreement was designed to "ensure taxes do not increase for working families on January 1 while ensuring that a complex new reporting burden is not unintentionally imposed on small business job creators."
At issue is extending the current 4.2% payroll tax levied to fund Social Security, rather than allowing it to return to 6.2% on Jan. 1, its rate before this year. House Republicans, in pushing for a full-year extension of the tax break, have cast their position as one of principle over politics. They conceded Thursday that they were losing the public-relations battle by their fighting.
"We're not doing this for the politics," Rep. Greg Walden (R., Ore.) told reporters. "You all have pointed this out pretty clearly."
Speaking to reporters Thursday evening, Mr. Boehner acknowledged that his party might suffer from picking this fight. "It might not have been politically the smartest thing in the world," he said. "Sometimes it's hard to do the right thing and sometimes it's politically difficult to do the right thing."
A growing number of Republicans urged the House this week to cut their political losses and pass the short-term extension. Those making that push, including GOP presidential candidate Newt Gingrich and former GOP presidential nominee John McCain, made their case even louder on Thursday.
"At this point, the House should pass the Senate's short-term extension to ensure 160 million hard-working Americans won't lose important tax relief at the end of this year,'' said Sen. Olympia Snowe (R., Maine).
No voice was more important than that of Mr. McConnell, who had been silent as the storm brewed. He had considered the Senate deal a big Republican victory because it included language on the Keystone pipeline.
Instead of seen as backtracking on the oil pipeline and his demand for a one-year extension, President Obama this week became the defender of a two-month tax cut. The White House mounted a daily public-relations effort to advocate extending the tax cut, but in the end, White House officials believed Mr. McConnell's statement Thursday was key to expediting the drama's conclusion.
Before agreeing to the new deal, Republicans insisted on language to address a problem businesses face in the two-month extension, aides said. The Senate bill imposed a cap on how much salary would be subject to the lower tax rate. That was dropped in an effort to be sure businesses can process payroll taxes under the accounting structure now in place, a House GOP aide said.
The bill's $33 billion cost is expected to be covered by an increase in fees charged to mortgage lenders by government housing agencies Fannie Mae and Freddie Mac. That has been criticized by the firms' regulator and industry analysts, who say it will complicate the task of revamping the mortgage giants.
The fee increase, expected to raise about $35.7 billion in revenue over 10 years, likely would be passed on to new-home buyers, raising their monthly mortgage payments by as much as $15 on mortgages of $210,000.
—Janet Hook, Laura Meckler and Kristina Peterson contributed to this article.
Tuesday, December 20, 2011
10 Things Medicare Won't Tell You
http://www.smartmoney.com/retirement/planning/10-things-medicare-wont-tell-you-1324333528533/
Here are the 10 items. Click on the link above to read the entire article.
Here are the 10 items. Click on the link above to read the entire article.
- We fork over millions for unproven procedures.
- Think Social Security is broke? Just look at Medicare.
- We pay for dead people.
- Don't expect a five-star plan.
- We're not popular with many doctors.
- We get ripped off a lot.
- We don't cover a lot of the care seniors need most.
- Paws off that cash, grandpa: Your settlement is ours.
- Complain all you want ...
- Want Your Way? Just ask.
Monday, November 7, 2011
IRS Opens Phone Line for FBAR and Title 31 Help
http://www.accountingtoday.com/news/IRS-Opens-Phone-Line-FBAR-Title-31-Help-60710-1.html
The Internal Revenue Service has opened a new telephone help line for questions about foreign bank account reports.
The IRS FBAR and Title 31 Helpline will connect practitioners and filers, both in the U.S. and abroad, with a team of specially trained technicians, examiners and specialists to answer technical questions about Title 31, also known as the Bank Secrecy Act. They can help taxpayers and tax practitioners with questions related to filing reports on foreign bank accounts. The IRS has been encouraging taxpayers to come forward and report their foreign bank account holdings to avoid stiff penalties.
To reach the FBAR and Title 31 Helpline, dial (866) 270-0733 for toll-free calls within the U.S., or (313) 234-6146 for callers outside the U.S. The latter is not a toll-free phone number.
Hours of operation for the FBAR and Title 31 Helpline are Monday - Friday, 8 a.m. to 4:30 p.m., Eastern time. An IRS employee will respond to messages left after-hours.
The FBAR and Title 31 Helpline team answers questions related to reports required by the Bank Secrecy Act of 1970, such as the Report of Foreign Bank and Financial Accounts, commonly known as the FBAR, and reports filed by money services businesses. The Helpline team can also assist with other Title 31 technical issues and BSA correspondence.
Taxpayers and practitioners can also find answers on the IRS's FBAR frequently asked questions page or by sending an inquiry to FBARquestions@irs.gov. Here is another helpful IRS web site, http://www.irs.gov/businesses/small/article/0,,id=159757,00.html
The Internal Revenue Service has opened a new telephone help line for questions about foreign bank account reports.
The IRS FBAR and Title 31 Helpline will connect practitioners and filers, both in the U.S. and abroad, with a team of specially trained technicians, examiners and specialists to answer technical questions about Title 31, also known as the Bank Secrecy Act. They can help taxpayers and tax practitioners with questions related to filing reports on foreign bank accounts. The IRS has been encouraging taxpayers to come forward and report their foreign bank account holdings to avoid stiff penalties.
To reach the FBAR and Title 31 Helpline, dial (866) 270-0733 for toll-free calls within the U.S., or (313) 234-6146 for callers outside the U.S. The latter is not a toll-free phone number.
Hours of operation for the FBAR and Title 31 Helpline are Monday - Friday, 8 a.m. to 4:30 p.m., Eastern time. An IRS employee will respond to messages left after-hours.
The FBAR and Title 31 Helpline team answers questions related to reports required by the Bank Secrecy Act of 1970, such as the Report of Foreign Bank and Financial Accounts, commonly known as the FBAR, and reports filed by money services businesses. The Helpline team can also assist with other Title 31 technical issues and BSA correspondence.
Taxpayers and practitioners can also find answers on the IRS's FBAR frequently asked questions page or by sending an inquiry to FBARquestions@irs.gov. Here is another helpful IRS web site, http://www.irs.gov/businesses/small/article/0,,id=159757,00.html
Monday, October 31, 2011
The debt fallout: How Social Security went ‘cash negative’ earlier than expected
http://www.washingtonpost.com/business/economy/the-debt-fallout-how-social-security-went-cash-negative-earlier-than-expected/2011/10/27/gIQACm1QTM_story.html
By Lori Montgomery, Published: October 29
Last year, as a debate over the runaway national debt gathered steam in Washington, Social Security passed a treacherous milestone. It went “cash negative.”
For most of its 75-year history, the program had paid its own way through a dedicated stream of payroll taxes, even generating huge surpluses for the past two decades. But in 2010, under the strain of a recession that caused tax revenue to plummet, the cost of benefits outstripped tax collections for the first time since the early 1980s.
Now, Social Security is sucking money out of the Treasury. This year, it will add a projected $46 billion to the nation’s budget problems, according to projections by system trustees. Replacing cash lost to a one-year payroll tax holiday will require an additional $105 billion. If the payroll tax break is expanded next year, as President Obama has proposed, Social Security will need an extra $267 billion to pay promised benefits.
But while talk about fixing the nation’s finances has grown more urgent, fixing Social Security has largely vanished from the conversation.
Lawmakers in both parties are ducking the issue, wary of agitating older voters and their advocates in Washington, who have long targeted politicians who try to tamper with federal retirement benefits. Democrats lost control of the House last year in part because seniors abandoned them in protest over Medicare cuts in Obama’s much-contested health-care act, and no one in Washington has forgotten that lesson.
In his February budget request, Obama ignored the Social Security blueprint put forth by his own bipartisan panel on debt reduction. During this summer’s debt-limit showdown, he endorsed the panel’s proposal to tie future benefits to a less-generous inflation index. But Obama took that idea off the table in September when he submitted recommendations to a special debt-reduction “supercommittee” now at work on Capitol Hill. Until recently, members of the supercommittee said, Social Security had rarely come up in their closed deliberations.
Social Security is hardly the biggest drain on the budget. But unless Congress acts, its finances will continue to deteriorate as the rising tide of baby boomers begins claiming benefits. The $2.6 trillion Social Security trust fund will provide little relief. The government has borrowed every cent and now must raise taxes, cut spending or borrow more heavily from outside investors to keep benefit checks flowing.http://www.blogger.com/img/blank.gif
Many Democrats have largely chosen to ignore the shortfall, insisting the program is flush, citing the existence of the trust fund. They argue that fixing Social Security can wait, perhaps for years.
Senate Majority Leader Harry M. Reid (D-Nev.), who is fighting to maintain control of the Senate, has been particularly outspoken. In March, as a bipartisan group of six senators was gaining attention for a push to draft a debt-reduction plan that included a Social Security fix, Reid summoned hundreds of activists to a rally on Capitol Hill. Fresh off a tough reelection campaign that turned in his favor after he accused his tea party opponent of wanting to “wipe out” Social Security, Reid exhorted policymakers to “leave Social Security alone.”
For a discussion on this article, see http://www.theatlanticwire.com/politics/2011/10/social-security-story-s-driving-liberals-crazy/44324/
Wednesday, October 19, 2011
Social Security Announces 3.6 Percent Benefit Increase for 2012
http://www.ssa.gov/pressoffice/pr/2012cola-pr.html
Cost-of-Living Adjustment is First Since 2009
Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 60 million Americans will increase 3.6 percent in 2012, the Social Security Administration announced today.
The 3.6 percent cost-of-living adjustment (COLA) will begin with benefits that nearly 55 million Social Security beneficiaries receive in January 2012. Increased payments to more than 8 million SSI beneficiaries will begin on December 30, 2011.
Some other changes that take effect in January of each year are based on the http://www.blogger.com/img/blank.gifincrease in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $110,100 from $106,800. Of the estimated 161 million workers who will pay Social Security taxes in 2012, about 10 million will pay higher taxes as a result of the increase in the taxable maximum.
Information about Medicare changes for 2012, when announced, will be available at www.Medicare.gov. For some beneficiaries, their Social Security increase may be partially or completely offset by increases in Medicare premiums.
The Social Security Act provides for how the COLA is calculated. To read more, please visit www.socialsecurity.gov/cola.
Click here for fact sheet showing the effect of the various automatic adjustments.
Cost-of-Living Adjustment is First Since 2009
Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 60 million Americans will increase 3.6 percent in 2012, the Social Security Administration announced today.
The 3.6 percent cost-of-living adjustment (COLA) will begin with benefits that nearly 55 million Social Security beneficiaries receive in January 2012. Increased payments to more than 8 million SSI beneficiaries will begin on December 30, 2011.
Some other changes that take effect in January of each year are based on the http://www.blogger.com/img/blank.gifincrease in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $110,100 from $106,800. Of the estimated 161 million workers who will pay Social Security taxes in 2012, about 10 million will pay higher taxes as a result of the increase in the taxable maximum.
Information about Medicare changes for 2012, when announced, will be available at www.Medicare.gov. For some beneficiaries, their Social Security increase may be partially or completely offset by increases in Medicare premiums.
The Social Security Act provides for how the COLA is calculated. To read more, please visit www.socialsecurity.gov/cola.
Click here for fact sheet showing the effect of the various automatic adjustments.
Tuesday, October 18, 2011
Social Security to hand out first raises since '09
http://news.yahoo.com/social-security-hand-first-raises-since-09-164904352.html
WASHINGTON (AP) — Social Security recipients will get a raise in January — their first increase in benefits since 2009. It's expected to be about 3.5 percent.
Some 55 million beneficiaries will find out for sure Wednesday when a government inflation measure that determines the annual cost-of-living adjustment is released.
Congress adopted the measure in the 1970s, and since then it has resulted in annual benefit increases averaging 4.2 percent. But there was no COLA in 2010 or 2011 because inflation was too low. That was small comfort to the millions of retirees and disabled people who have seen retirement accounts dwindle and home values drop during the period of economic weakness, said David Certner, legislative policy director for the AARP.
"People certainly feel like they are falling behind, and these are modest income folks to begin with, so every dollar counts," Certner said. "I think sometimes people forget what seniors' incomes are."
Some of the increase in January will be lost to higher Medicare premiums, which are deducted from Social Security payments. Medicare Part B premiums for 2012 are expected to be announced next week, and the trustees who oversee the program are projecting an increase.
Monthly Social Security payments average $1,082, or about $13,000 a year. A 3.5 percent increase would amount to an additional $38 a month, or about $455 a year.
Most retirees rely on Social Security for a majority of their income, according to the Social Security Administration. Many rely on it for more than 90 percent of their income.
Federal law requires the program to base annual payment increases on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Officials compare inflation in the third quarter of each year — the months of July, August and September — with the same months in the previous year.
If consumer prices increases from year to year, Social Security recipients automatically get higher payments, starting the next January. If price changes are negative, the payments stay unchanged.
Only twice since 1975 — the past two years — has there been no COLA.
Wednesday's COLA announcement will come as a special joint committee of Congress weighs options to reduce the federal government's $1.3 trillion budget deficit. In talks this summer, President Barack Obama floated the idea of adopting a new measure of inflation to calculate the COLA, one that would reduce the annual increases.
Advocates for seniors mounted an aggressive campaign against the proposal, and it was scrapped. But it could resurface in the ongoing talks.
"We're very concerned about that," said Web Phillips of the National Committee to Preserve Social Security and Medicare. "I think that what this illustrates is the dangers of trying to make Social Security policy in the context of deficit reduction."
Social Security payments increased by 5.8 percent in 2009, the largest increase in 27 years, after energy prices spiked in 2008. But energy prices quickly dropped and home prices became soft in markets across the country, contributing to lower inflation the past two years.
For example, average gasoline prices topped $4 a gallon in the summer of 2008. But by January 2009, they had fallen below $2. Today, the national average is about $3.46 a gallon.
"A lot of that increase had to do with energy," Polina Vlasenko, an economist at the American Institute for Economic Research, based in Great Barrington, Mass., said of the 2009 change.
As a result, Social Security recipients got an increase that was far larger than actual overall inflation. However, they weren't to get anhttp://www.blogger.com/img/blank.gifother increase until consumer prices exceeded the levels measured in 2008.
So far this year, prices have been higher than that, Vlasenko said. Based on consumer prices in July and August, the COLA for 2012 would be about 3.5 percent. Vlasenko estimates the COLA will be from 3.5 percent to 3.7 percent.
Advocates for seniors say it's about time.
"If you've been at the grocery store lately and remember what you used to pay for things, see what you're paying for things today," Phillips said. "The cost-of-living adjustment makes sure that the Social Security benefit that you qualify for when you retire or you become disabled continues to stay current with prices so that the buying power of your benefit does not decline over time."
For more reading, go to http://www.marketwatch.com/story/social-security-benefits-to-increase-in-2012-2011-10-18
WASHINGTON (AP) — Social Security recipients will get a raise in January — their first increase in benefits since 2009. It's expected to be about 3.5 percent.
Some 55 million beneficiaries will find out for sure Wednesday when a government inflation measure that determines the annual cost-of-living adjustment is released.
Congress adopted the measure in the 1970s, and since then it has resulted in annual benefit increases averaging 4.2 percent. But there was no COLA in 2010 or 2011 because inflation was too low. That was small comfort to the millions of retirees and disabled people who have seen retirement accounts dwindle and home values drop during the period of economic weakness, said David Certner, legislative policy director for the AARP.
"People certainly feel like they are falling behind, and these are modest income folks to begin with, so every dollar counts," Certner said. "I think sometimes people forget what seniors' incomes are."
Some of the increase in January will be lost to higher Medicare premiums, which are deducted from Social Security payments. Medicare Part B premiums for 2012 are expected to be announced next week, and the trustees who oversee the program are projecting an increase.
Monthly Social Security payments average $1,082, or about $13,000 a year. A 3.5 percent increase would amount to an additional $38 a month, or about $455 a year.
Most retirees rely on Social Security for a majority of their income, according to the Social Security Administration. Many rely on it for more than 90 percent of their income.
Federal law requires the program to base annual payment increases on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Officials compare inflation in the third quarter of each year — the months of July, August and September — with the same months in the previous year.
If consumer prices increases from year to year, Social Security recipients automatically get higher payments, starting the next January. If price changes are negative, the payments stay unchanged.
Only twice since 1975 — the past two years — has there been no COLA.
Wednesday's COLA announcement will come as a special joint committee of Congress weighs options to reduce the federal government's $1.3 trillion budget deficit. In talks this summer, President Barack Obama floated the idea of adopting a new measure of inflation to calculate the COLA, one that would reduce the annual increases.
Advocates for seniors mounted an aggressive campaign against the proposal, and it was scrapped. But it could resurface in the ongoing talks.
"We're very concerned about that," said Web Phillips of the National Committee to Preserve Social Security and Medicare. "I think that what this illustrates is the dangers of trying to make Social Security policy in the context of deficit reduction."
Social Security payments increased by 5.8 percent in 2009, the largest increase in 27 years, after energy prices spiked in 2008. But energy prices quickly dropped and home prices became soft in markets across the country, contributing to lower inflation the past two years.
For example, average gasoline prices topped $4 a gallon in the summer of 2008. But by January 2009, they had fallen below $2. Today, the national average is about $3.46 a gallon.
"A lot of that increase had to do with energy," Polina Vlasenko, an economist at the American Institute for Economic Research, based in Great Barrington, Mass., said of the 2009 change.
As a result, Social Security recipients got an increase that was far larger than actual overall inflation. However, they weren't to get anhttp://www.blogger.com/img/blank.gifother increase until consumer prices exceeded the levels measured in 2008.
So far this year, prices have been higher than that, Vlasenko said. Based on consumer prices in July and August, the COLA for 2012 would be about 3.5 percent. Vlasenko estimates the COLA will be from 3.5 percent to 3.7 percent.
Advocates for seniors say it's about time.
"If you've been at the grocery store lately and remember what you used to pay for things, see what you're paying for things today," Phillips said. "The cost-of-living adjustment makes sure that the Social Security benefit that you qualify for when you retire or you become disabled continues to stay current with prices so that the buying power of your benefit does not decline over time."
For more reading, go to http://www.marketwatch.com/story/social-security-benefits-to-increase-in-2012-2011-10-18
Wednesday, September 21, 2011
Canada tells IRS to back off
I am happy Canada speaks up. This one size fits all approach making criminals out of the anyone with assets overseas is ridiculous. FATCA is adding another unnecessary layer of paperwork, i.e. Form 8938, for those who live and work overseas. See http://www.irs.gov/businesses/corporations/article/0,,id=236664,00.html
__________
December 7, 2011 addendum: The IRS backed off after Canada complained, see http://www.accountingtoday.com/news/IRS-Ease-FBAR-Penalties-Americans-Canada-60977-1.html
Here is an article, entitled, "Is FATCA anti-American?"
http://www.abbl.lu/news-publications/news-archive/abbl-news/fatca-anti-american
__________
Original article:
http://money.msn.com/taxes/canada-tells-irs-to-back-off-marketwatch.aspx?GT1=33009
By Bill Mann, MarketWatch.com
Tax crackdown could ensnare tens of thousands of innocent US citizens, and our neighbor to the north is having none of it.
Does anyone really need to state the painfully obvious -- that "Canada is not a tax haven"? Apparently so, and to his credit, Canadian Finance Minister Jim Flaherty did just that the other day. And I'm glad he did.
"Back off our taxpapers, Flaherty tells U.S.," read the recent headline in Canada's Financial Post after Flaherty fired off an angry letter to the Washington Post, The New York Times, and The Wall Street Journal blasting a new Internal Revenue Service tax crackdown that could ensnare tens of thousands of innocent Americans living in Canada. Stop targeting "innocent and law-abiding people" who owe no U.S. taxes, added the angry Conservative Cabinet minister.
'Stress and fear'
The simmering cross-border battle over new rules applying to dual-citizen Canadian residents is spreading "unnecessary stress and fear," wrote Flaherty, referring to a little-known IRS proviso that requires all U.S. citizens to file annual returns with the IRS, regardless of where they live and work. Many transplanted Yanks had no idea of this requirement. The Toronto Globe and Mail reports there are roughly a million Canadian-American citizens living in Canada. (That figure seems a bit high to me, coming from a country of 34 million, but it's possible.)
"Most of these Canadian citizens, many of which have only distant links to the United States, have a very limited knowledge of their reporting obligations to the U.S.," Flaherty added.
Flaherty also addressed pending U.S. legislation that would compel Canadian banks to turn over their information on American clients to the IRS, a giant headache Canadian banks have resisted. Because of their objections in July, the IRS agreed to delay enforcement of that new rule until 2014. It was originally scheduled to kick in a year earlier. Canada banking authorities say this battle is not over.
Flaherty noted that many of the transplanted Yanks are not the real targets of a crackdown on tax evasion -- "high rollers with offshore bank accounts."
Maybe not, but they're still feeling the revenue heat from a country desperate to vacuum up money wherever it can -- anything to avoid raising taxes on the wealthy and upset the dismal House Speaker John Boehner bunch.
"These are people who have made innocent errors of omission," said Flaherty of the dual citizens affected.
Bridges, roads still being maintained
If most of the people the IRS is targeting wanted to dodge taxes, this one-time Canada resident can testify, they certainly wouldn't have come to Canada, which has a tax rate -- federal and provincial -- considerably higher than does the U.S. Then again, Canadian residents expect to have to pay for things like schoolteachers, firefighters, and keeping parks open and roads and bridges maintained, and so they pay higher taxes than Americans.
The concept of "there is no free lunch" hasn't really sunk in down here in the U.S. yet.
What's especially ludicrous and galling about this new IRS directive, say Canadian tax experts, is its "one-size-fits-all" provisions that lump Canada with countries like Panama and the Bahamas.
Canada not only -- let's say it once more -- is NOT a tax haven , it's also not a banana-belt country, climatologically or politically. Just the opposite. And, it has a stronger banking system than the U.S. does.
Flaherty added that "to impose FACTA (the Foreign Account Tax Compliance Act) on our citizens and financial institutions would not accomplish anything but to waste resources on both sides." That pretty much sums it up. Flaherty also points out that there's already a bilateral tax treaty to deal with tax evasion.
The deadline passed two weeks ago for Americans who hadn't filed income-tax forms in the past to throw themselves on the mercy of the court -- i.e., the IRS. I can't find any reports -- yet -- about the IRS prosecuting any malefactors in Canada, but I'll be watching this carefully.
The last word on this ridiculous policy today goes to Jamie Golombek, the director of tax and estate planning for CIBC Private Wealth Management.
After noting in the Financial Post that Canadians affected by the tax crackdown would take comfort in the Canadian government finally stepping up with objections to the misguided tax-enforcement cross-border battle, he added that this all comes down to the fact that the U.S. -- having come close to defaulting on its debt this summer -- "is in dire need of revenue."
The IRS needs to send its enforcement bloodhounds in directions other than north.
__________
December 7, 2011 addendum: The IRS backed off after Canada complained, see http://www.accountingtoday.com/news/IRS-Ease-FBAR-Penalties-Americans-Canada-60977-1.html
Here is an article, entitled, "Is FATCA anti-American?"
http://www.abbl.lu/news-publications/news-archive/abbl-news/fatca-anti-american
__________
Original article:
http://money.msn.com/taxes/canada-tells-irs-to-back-off-marketwatch.aspx?GT1=33009
By Bill Mann, MarketWatch.com
Tax crackdown could ensnare tens of thousands of innocent US citizens, and our neighbor to the north is having none of it.
Does anyone really need to state the painfully obvious -- that "Canada is not a tax haven"? Apparently so, and to his credit, Canadian Finance Minister Jim Flaherty did just that the other day. And I'm glad he did.
"Back off our taxpapers, Flaherty tells U.S.," read the recent headline in Canada's Financial Post after Flaherty fired off an angry letter to the Washington Post, The New York Times, and The Wall Street Journal blasting a new Internal Revenue Service tax crackdown that could ensnare tens of thousands of innocent Americans living in Canada. Stop targeting "innocent and law-abiding people" who owe no U.S. taxes, added the angry Conservative Cabinet minister.
'Stress and fear'
The simmering cross-border battle over new rules applying to dual-citizen Canadian residents is spreading "unnecessary stress and fear," wrote Flaherty, referring to a little-known IRS proviso that requires all U.S. citizens to file annual returns with the IRS, regardless of where they live and work. Many transplanted Yanks had no idea of this requirement. The Toronto Globe and Mail reports there are roughly a million Canadian-American citizens living in Canada. (That figure seems a bit high to me, coming from a country of 34 million, but it's possible.)
"Most of these Canadian citizens, many of which have only distant links to the United States, have a very limited knowledge of their reporting obligations to the U.S.," Flaherty added.
Flaherty also addressed pending U.S. legislation that would compel Canadian banks to turn over their information on American clients to the IRS, a giant headache Canadian banks have resisted. Because of their objections in July, the IRS agreed to delay enforcement of that new rule until 2014. It was originally scheduled to kick in a year earlier. Canada banking authorities say this battle is not over.
Flaherty noted that many of the transplanted Yanks are not the real targets of a crackdown on tax evasion -- "high rollers with offshore bank accounts."
Maybe not, but they're still feeling the revenue heat from a country desperate to vacuum up money wherever it can -- anything to avoid raising taxes on the wealthy and upset the dismal House Speaker John Boehner bunch.
"These are people who have made innocent errors of omission," said Flaherty of the dual citizens affected.
Bridges, roads still being maintained
If most of the people the IRS is targeting wanted to dodge taxes, this one-time Canada resident can testify, they certainly wouldn't have come to Canada, which has a tax rate -- federal and provincial -- considerably higher than does the U.S. Then again, Canadian residents expect to have to pay for things like schoolteachers, firefighters, and keeping parks open and roads and bridges maintained, and so they pay higher taxes than Americans.
The concept of "there is no free lunch" hasn't really sunk in down here in the U.S. yet.
What's especially ludicrous and galling about this new IRS directive, say Canadian tax experts, is its "one-size-fits-all" provisions that lump Canada with countries like Panama and the Bahamas.
Canada not only -- let's say it once more -- is NOT a tax haven , it's also not a banana-belt country, climatologically or politically. Just the opposite. And, it has a stronger banking system than the U.S. does.
Flaherty added that "to impose FACTA (the Foreign Account Tax Compliance Act) on our citizens and financial institutions would not accomplish anything but to waste resources on both sides." That pretty much sums it up. Flaherty also points out that there's already a bilateral tax treaty to deal with tax evasion.
The deadline passed two weeks ago for Americans who hadn't filed income-tax forms in the past to throw themselves on the mercy of the court -- i.e., the IRS. I can't find any reports -- yet -- about the IRS prosecuting any malefactors in Canada, but I'll be watching this carefully.
The last word on this ridiculous policy today goes to Jamie Golombek, the director of tax and estate planning for CIBC Private Wealth Management.
After noting in the Financial Post that Canadians affected by the tax crackdown would take comfort in the Canadian government finally stepping up with objections to the misguided tax-enforcement cross-border battle, he added that this all comes down to the fact that the U.S. -- having come close to defaulting on its debt this summer -- "is in dire need of revenue."
The IRS needs to send its enforcement bloodhounds in directions other than north.
Tuesday, September 20, 2011
Obama's stimulus plan: a flop for many small businesses
http://money.cnn.com/2011/09/20/smallbusiness/stimulus_plan_hiring/index.htm
By Catherine Clifford
NEW YORK (CNNMoney) -- The $447 billion stimulus plan that President Obama unveiled earlier this month won't change hiring plans for many small businesses, according to a survey released Tuesday.
Almost 70% of small businesses polled said that the plan, should it pass, would not spur them to add jobs, said Manta, a small business website.
Of the 1,648 businesses polled, only 11% of those businesses said they would hire if the jobs package becomes law. Another 13% said it depends on what version of the proposal is passed. Another 7% said they just weren't sure.
The American Jobs Act promises to cut the payroll tax businesses pay in half -- to 3.1% -- on the first $5 million in wages. Also, if a business hires a new worker or gives an existing worker a raise, all payroll taxes will be waived. The act would also extend a tax benefit allowing businesses to write off their expenses more quickly.
The president said it would also reduce regulatory burdens for small businesses looking to obtain capital. But it gave few details.
Dear Mr. President...
'Crisis of Confidence': "I have a crisis of confidence problem," said Chris Shirer, the CEO of Madison & Fifth, a 10-year-old digital marketing firm in Columbus, Ohio.
Shirer is giving raises and bonuses with any extra money she makes to her staff of four people. She would be eligible for some tax relief for the raises. "That is great, "she said. "But I was going to give those raises anyway."
The most pressing issue is access to capital. "I am not somebody who makes widgets," said Shirer. Manufacturing businesses have machines and equipment that they use to back loans. Shirer doesn't have heavy machinery or equipment for collateral. Still, she needs capital for hiring and marketing.
But her experience getting it from a bank has not been good. During the recession, her bank slashed her credit line and raised her interest rate. She attempted to apply for a loan through the Small Business Administration, but filling out the paperwork was so complicated that she gave up in frustration.
Two-thirds of small businesses "highly unsatisfied" with the government: "There is this weird dance going on between the government and the banks that is hogtying businesspeople," said Shirer.
She doesn't have much more confidence in the nation's political leaders. She gives the president's stimulus plan a 50% chance of being passed. "They are in a seemingly intractable battle with each other," said Shirer about the president and Congress. "I don't think these folks can talk to each other."
Shirer is not alone in her frustration with the government. Two-thirds (67%) of the 2,324 businesses that Manta polled at the end of August said they are "highly unsatisfied" with the government's effectiveness. By contrast, only 2% of the respondents were "highly satisfied."
Hiring: Yes. No. Maybe so.
When asked which political party best supports small business, more than one-third of respondents (35%) answered "none."
A boon for some: Despite widespread dissatisfaction with the proposed legislation, the tax credit would encourage some small businesses to hire.
"We would add probably one to two extra employees with the tax incentives," said Jim Janosik, the owner of GoGreenPrinting.Biz, an environmentally friendly printing company, in Columbus, Ohio.
He has been thinking off adding to his staff of three. If the jobs bill were passed, "it would drive us to do it sooner, rather than later," he said.
Janosik was mostly pleased with the president's proposal and expects it to pass. "There is more good than bad in this proposal," he said. "I do have faith that it will pass, but it won't be his exact plan."
__________
Watch this CBS interview with Dave Ramsey on Obama's job act and small businesses, http://www.cbsnews.com/video/watch/?id=7381703n
By Catherine Clifford
NEW YORK (CNNMoney) -- The $447 billion stimulus plan that President Obama unveiled earlier this month won't change hiring plans for many small businesses, according to a survey released Tuesday.
Almost 70% of small businesses polled said that the plan, should it pass, would not spur them to add jobs, said Manta, a small business website.
Of the 1,648 businesses polled, only 11% of those businesses said they would hire if the jobs package becomes law. Another 13% said it depends on what version of the proposal is passed. Another 7% said they just weren't sure.
The American Jobs Act promises to cut the payroll tax businesses pay in half -- to 3.1% -- on the first $5 million in wages. Also, if a business hires a new worker or gives an existing worker a raise, all payroll taxes will be waived. The act would also extend a tax benefit allowing businesses to write off their expenses more quickly.
The president said it would also reduce regulatory burdens for small businesses looking to obtain capital. But it gave few details.
Dear Mr. President...
'Crisis of Confidence': "I have a crisis of confidence problem," said Chris Shirer, the CEO of Madison & Fifth, a 10-year-old digital marketing firm in Columbus, Ohio.
Shirer is giving raises and bonuses with any extra money she makes to her staff of four people. She would be eligible for some tax relief for the raises. "That is great, "she said. "But I was going to give those raises anyway."
The most pressing issue is access to capital. "I am not somebody who makes widgets," said Shirer. Manufacturing businesses have machines and equipment that they use to back loans. Shirer doesn't have heavy machinery or equipment for collateral. Still, she needs capital for hiring and marketing.
But her experience getting it from a bank has not been good. During the recession, her bank slashed her credit line and raised her interest rate. She attempted to apply for a loan through the Small Business Administration, but filling out the paperwork was so complicated that she gave up in frustration.
Two-thirds of small businesses "highly unsatisfied" with the government: "There is this weird dance going on between the government and the banks that is hogtying businesspeople," said Shirer.
She doesn't have much more confidence in the nation's political leaders. She gives the president's stimulus plan a 50% chance of being passed. "They are in a seemingly intractable battle with each other," said Shirer about the president and Congress. "I don't think these folks can talk to each other."
Shirer is not alone in her frustration with the government. Two-thirds (67%) of the 2,324 businesses that Manta polled at the end of August said they are "highly unsatisfied" with the government's effectiveness. By contrast, only 2% of the respondents were "highly satisfied."
Hiring: Yes. No. Maybe so.
When asked which political party best supports small business, more than one-third of respondents (35%) answered "none."
A boon for some: Despite widespread dissatisfaction with the proposed legislation, the tax credit would encourage some small businesses to hire.
"We would add probably one to two extra employees with the tax incentives," said Jim Janosik, the owner of GoGreenPrinting.Biz, an environmentally friendly printing company, in Columbus, Ohio.
He has been thinking off adding to his staff of three. If the jobs bill were passed, "it would drive us to do it sooner, rather than later," he said.
Janosik was mostly pleased with the president's proposal and expects it to pass. "There is more good than bad in this proposal," he said. "I do have faith that it will pass, but it won't be his exact plan."
__________
Watch this CBS interview with Dave Ramsey on Obama's job act and small businesses, http://www.cbsnews.com/video/watch/?id=7381703n
Are rich taxed less than secretaries?
http://news.yahoo.com/fact-check-rich-taxed-less-secretaries-070642868.html
By STEPHEN OHLEMACHER - Associated Press
WASHINGTON (AP) — President Barack Obama makes it sound as if there are millionaires all over America paying taxes at lower rates than their secretaries.
"Middle-class families shouldn't pay higher taxes than millionaires and billionaires," Obama said Monday. "That's pretty straightforward. It's hard to argue against that."
The data tell a different story. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.
There may be individual millionaires who pay taxes at rates lower than middle-income workers. In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the Internal Revenue Service. That, however, was less than 1 percent of the nearly 237,000 returns with incomes above $1 million.
In his White House address Monday, Obama called on Congress to increase taxes by $1.5 trillion as part of a 10-year deficit reduction package totaling more than $3 trillion. He proposed that Congress overhaul the tax code and impose what he called the "Buffett rule," named for billionaire investor Warren Buffett.
The rule says, "People making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay."
"Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett. There is no justification for it," Obama said. "It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million."
Buffett wrote in a recent piece for The New York Times that the tax rate he paid last year was lower than that paid by any of the other 20 people in his office.
This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes and payroll taxes, according to the Tax Policy Center, a Washington think tank.
Households making between $50,000 and $75,000 will pay 15 percent of their income in federal taxes.
Lower-income households will pay less. For example, households making between $40,000 and $50,000 will pay an average of 12.5 percent of their income in federal taxes. Households making between $20,000 and $30,000 will pay 5.7 percent.
The latest IRS figures are a few years older — and limited to federal income taxes — but show much the same thing. In 2009, taxpayers who made $1 million or more paid on average 24.4 percent of their income in federal income taxes, according to the IRS.
Those making $100,000 to $125,000 paid on average 9.9 percent in federal income taxes. Those making $50,000 to $60,000 paid an average of 6.3 percent.
Obama's claim hinges on the fact that, for high-income families and individuals, investment income is often taxed at a lower rate than wages. The top tax rate for dividends and capital gains is 15 percent. The top marginal tax rate for wages is 35 percent, though that is reserved for taxable income above $379,150.
With tax rates that high, why do so many people pay at lower rates? Because the tax code is riddled with more than $1 trillion in deductions, exemptions and credits, and they benefit people at every income level, according to data from the nonpartisan Joint Committee on Taxation, Congress' official scorekeeper on revenue issues.
The Tax Policy Center estimates that 46 percent of households, mostly low- and medium-income households, will pay no federal income taxes this year. Most, however, will pay other taxes, including Social Security payroll taxes.
"People who are doing quite well and worry about low-income people not paying any taxes bemoan the fact that they get so many tax breaks that they are zeroed out," said Roberton Williams, a senior fellow at the Tax Policy Center. "People at the bottom of the distribution say, but all of those rich guys are getting bigger tax breaks than we're getting, which is also the case."
Treasury Secretary Timothy Geithner was pressed at a White House briefing on the number of millionaires who pay taxes at a lower rate than middle-income families. He demurred, saying that people who make most of their money in wages pay taxes at a higher rate, while those who get most of their income from investments pay at lower rates.
"So it really depends on what is your profession, where's the source of your income, what's the specific circumstances you face, and the averages won't really capture that," Geithner said.
By STEPHEN OHLEMACHER - Associated Press
WASHINGTON (AP) — President Barack Obama makes it sound as if there are millionaires all over America paying taxes at lower rates than their secretaries.
"Middle-class families shouldn't pay higher taxes than millionaires and billionaires," Obama said Monday. "That's pretty straightforward. It's hard to argue against that."
The data tell a different story. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.
There may be individual millionaires who pay taxes at rates lower than middle-income workers. In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the Internal Revenue Service. That, however, was less than 1 percent of the nearly 237,000 returns with incomes above $1 million.
In his White House address Monday, Obama called on Congress to increase taxes by $1.5 trillion as part of a 10-year deficit reduction package totaling more than $3 trillion. He proposed that Congress overhaul the tax code and impose what he called the "Buffett rule," named for billionaire investor Warren Buffett.
The rule says, "People making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay."
"Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett. There is no justification for it," Obama said. "It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million."
Buffett wrote in a recent piece for The New York Times that the tax rate he paid last year was lower than that paid by any of the other 20 people in his office.
This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes and payroll taxes, according to the Tax Policy Center, a Washington think tank.
Households making between $50,000 and $75,000 will pay 15 percent of their income in federal taxes.
Lower-income households will pay less. For example, households making between $40,000 and $50,000 will pay an average of 12.5 percent of their income in federal taxes. Households making between $20,000 and $30,000 will pay 5.7 percent.
The latest IRS figures are a few years older — and limited to federal income taxes — but show much the same thing. In 2009, taxpayers who made $1 million or more paid on average 24.4 percent of their income in federal income taxes, according to the IRS.
Those making $100,000 to $125,000 paid on average 9.9 percent in federal income taxes. Those making $50,000 to $60,000 paid an average of 6.3 percent.
Obama's claim hinges on the fact that, for high-income families and individuals, investment income is often taxed at a lower rate than wages. The top tax rate for dividends and capital gains is 15 percent. The top marginal tax rate for wages is 35 percent, though that is reserved for taxable income above $379,150.
With tax rates that high, why do so many people pay at lower rates? Because the tax code is riddled with more than $1 trillion in deductions, exemptions and credits, and they benefit people at every income level, according to data from the nonpartisan Joint Committee on Taxation, Congress' official scorekeeper on revenue issues.
The Tax Policy Center estimates that 46 percent of households, mostly low- and medium-income households, will pay no federal income taxes this year. Most, however, will pay other taxes, including Social Security payroll taxes.
"People who are doing quite well and worry about low-income people not paying any taxes bemoan the fact that they get so many tax breaks that they are zeroed out," said Roberton Williams, a senior fellow at the Tax Policy Center. "People at the bottom of the distribution say, but all of those rich guys are getting bigger tax breaks than we're getting, which is also the case."
Treasury Secretary Timothy Geithner was pressed at a White House briefing on the number of millionaires who pay taxes at a lower rate than middle-income families. He demurred, saying that people who make most of their money in wages pay taxes at a higher rate, while those who get most of their income from investments pay at lower rates.
"So it really depends on what is your profession, where's the source of your income, what's the specific circumstances you face, and the averages won't really capture that," Geithner said.
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