If you think there is no Santa Claus, you are not running for office in 2020. Yes, the political Santa Clauses of the world are running for office with a sleigh full of free goodies. They have made their list and it includes:
• Rent Control
• Student Loan Forgiveness
• Social Security Increases
• and Free:
• Health Care
• College Tuition
• Child Care
• Legal Advice
The free goodies are free to everybody except the rich who are expected to pay as never before.
Health Care – “Medicare for All”
No choice, no private insurance and it is being negatively received by 50-60% of the electorate in the key states of Pennsylvania, Michigan, Wisconsin and Minnesota.
A wide variety of proposals are being made for free tuition, or partial tuition, for all four years of college, or alternatively for community colleges or technical schools. Assistance is also being suggested to reduce the amount of debt accrued by graduating seniors.
Child Care – more affordable
One proposed plan calls for federally subsidized care providers with fees scaled to family income. Many of the candidates favor nearly universal access to child care or universal preschool or tax credits for care.
As noted in my previous articles, Governor Newsom would like to allocate the $331 million received from a settlement with mortgage lenders to legal aid for homeowners facing foreclosure and renters facing eviction.
The LA City Council is also considering a right-to-counsel program, with an estimated budget of $3 million, to begin by the end of the year. Councilmembers estimated the budget would serve about 195 tenants who have received eviction notices, making the average funds per tenant approximately $15,385 each.
And not only is the program under discussion in LA, but in West Hollywood an evaluation of their program already in place has been requested by the City Council. Note, West Hollywood evictions are also subject to just cause criteria.
AND, the LA County’s Board of Supervisors is weighing in on the issue. On its May 21 agenda was an item requesting the County’s CEO and Director of Consumer and Business Affairs to analyze right-to-counsel programs in other jurisdictions, then recommend eligibility criteria and funding levels
How will all this be funded? Taxes on the rich. Proposals advanced include:
• Wealth tax; thresholds and amounts are fluid
• Reverse President Trump’s tax cuts
• Tax wages, business income and capital gains at the same rate
• Tax income earned by US corporations world-wide
• Tax capital gains annually, not just upon sale of the capital asset
• Raise estate taxes and lower the exemption threshold
It is easy to say that only the richest of the rich will be responsible, but once the government gets their hands into the cookie jar, they will be tempted to lower the thresholds and raise the rates.
The Tax Cuts and Jobs Act of 2017 has a shelf life. The tax cuts have a shelf life as short as snowfall in a Santa Monica summer.
The rich know how to avoid taxes; they incorporate.
So the rich doctor or lawyer earning $1,000,000 per year, incorporates and draws a salary, say of $400,000 on which he will pay personal income taxes.
The remaining gross, say $600,000 remains in the corporation and thus is subject to the lower corporate tax rate and therefore this differential in salary and gross accumulates over time. Along the same lines, taxing US corporations’ worldwide income is gaining favor. Currently, 60% of corporate income avoids US taxes. A movement is afoot to tax these corporate earnings based on the US individual tax rates, which are far higher than corporate tax rates. For the first time in history, US individual tax rates were higher than corporate tax rates. Thus raising the corporate tax rates is proposed. The maximum rate is now 21% whereas the top individual rate is 37%.
How will the taxing agencies identify the rich? Create a wealth registry. Then we’ll know who you are and where to send the bill.
Another opportunity would be to strengthen and increase tax enforcement; give the IRS a larger budget; audit the rich more frequently and more intensely; and lower exemption levels.
How do they (the politicians) sell these big tax increases? The same way as they sell rent control; buy votes with other people’s money.
So, in summary, what are the takeaways; what should you consider? Realize that no one approach fits all cases but do realize that your biggest expense is not insurance nor maintenance and repairs but it is TAXES.
Income tax rates and capital gains taxes are likely to increase. Depreciable assets’ lives are likely to be lengthened and annual depreciation reduced
Be proactive. Discuss defensive measures with your tax and/or investment advisors. You worked hard to accumulate your wealth. Work equally as hard to protect it.
Sources: Los Angeles Times; Vox.com; wbur.org; Saez and Zucman, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay
Wesley V. Wellman | Wellman Realty Company
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