Taxes in Retirement
Tax Policy

As our quarter’s focus on taxes comes to a close, we will step back from the details and examine our overall system of taxation. Some Americans believe the only sound tax policy is the policy that minimizes taxes. However, most of these same people would be appalled at the devastation that such tax policy would wreak on our schools, roads, parks and military. So, dismissing this extreme position leads us to accept the fact that taxes must be levied and a more relevant question might be the consideration of the factors that make for a sound tax policy.

Tax Planning

Many people believe that the goal of tax planning is to arrange one’s financial affairs in order to minimize federal income taxes in that particular year. While such activities can be productive, they may create a case of “winning the battle, but losing the war.” Trying to minimize one’s lifetime tax bill is usually a better objective, even though it may raise income taxes in the short term. Consider the early years of retirement as an example.  

state property laws

Our federal income tax code is uniform for every state in the union, so one might conclude that the answer to this question would be “No”. However, the fact that property law is not uniform across the nation can actually create a circumstance where this can become a reality.

migration to lower state taxes

Conservative politicians often claim that migration patterns within the United States are influenced by the taxing policies of the various states. If this claim were true, people would be expected to be leaving higher tax states and they would be losing population. Conversely, lower tax states would be gaining population as the number of people moving in would exceed the number moving out. Is this true?

State Tax Rates

Federal income tax rates attract a great deal of attention. This is to be expected because our federal income taxes are the largest tax bill most of us will pay. However, state taxes are also significant and they come in multiple forms. How much will the average American pay in state levies? Which state extracts the most from its residents?

Corporate Tax

One of the tax increases proposed by the Biden Administration would restore corporate tax rates in the U.S. to 28%. This was the level they were at prior to the Tax Cut and Jobs Act of 2017, which lowered rates to their current 21%. Regardless of one’s beliefs on the merits of the spending proposals, it is clearly worthwhile to be aware of how our corporate rates stack up against the rest of the world. Our corporations must compete with others based outside the United States and many would argue that there should be a “level playing field”.

US Tax Revenues

Many people live their lives without wondering if things are different elsewhere. Still others realize that the “world is a big place” and that circumstances and living standards can be very different in other countries. This second group will be interested in a recent analysis completed by economist Christina Enache. Ms. Enache compared government revenue sources in the United States to the typical country within the Organization for Economic Cooperation and Development (OECD). The OECD, founded in 1961, consists of 37 primarily European countries plus the United States. Included as members are Germany, France, the UK, Israel, Norway, Italy, Chile, Japan, South Korea, Canada and Australia among others. Some countries such as China are non-members but maintain working relationships with the OECD.

inflation adjustments are not uniformly incorporated throughout federal income tax policy

It has been occasionally said that the political class in Washington resides in an alternative universe. This statement is often true as it relates to the Internal Revenue Code, which of course, is the byproduct of the legislation passed in Congress. Inflation is an economic phenomenon by which the purchasing power of a currency erodes over time. It affects all of us, yet Washington sometimes acts as if it does not exist.

Net Investment Income Tax

The net investment income tax came into being on January 1, 2013 to defray some of the costs associated with the Affordable Care Act. It is assessed at a rate of 3.8% in addition to normal income taxes (capital gains and ordinary income taxes) that might apply to income generated by investments held in taxable investment accounts. Net investment income includes interest, dividends, capital gains, rents, royalties and non-qualified annuities. It does not include wages, unemployment compensation, Social Security benefits, alimony, municipal bond interest and most self-employment income.