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A Look at Taxes of the Past

04/05/12 7:52 pm | Comments (0) | Posted By:

 

This year could be the last year before the Bush tax cuts expire and the tax rates increase.   If these cuts expire, single people and married people alike will have higher taxes.   A single person with taxable income making $100,000 will have a tax bill of $23,805 and an average tax rate of 23.8% come 2013 when these changes go into effect.

Giving the federal government 23.8% of your income, or over 30% when combined with FICA may seem like a lot, so let’s go back in time to compare:

Take a look at a decade (the 1970′s) when Stairway to Heaven was blasting on the radio and Don Vito Corleone was the most popular Halloween costume.   Adjusting for inflation, $100,000 today equals about $41,800 in 1972.   In 1972, the tax bill for a single person making $41,800 would have been $8,261 or 20%.   We’ve all heard about the exorbitant tax rates of the past so this is a little surprising that the tax, adjusted for inflation, is actually lower.   In analyzing the tax rates, adjusted for inflation, tax rates for single people don’t top out at 40% until $118,095 in income.   Then rates start to skyrocket.   At $171,774 the tax rate jumps to 50%, at $236,189 to 60%, and above $536,793 to 70%!

High taxes of the past were brought to my attention by the television series  Mad Men, about an advertising agency company based in the 1960′s. There is an opening scene where the Head of Television is talking about getting a raise.   He ends up saying he never wants to make more than $36,000 because then your just working for “them”.   “Them”  is the IRS and back in 1961 if you made between $36,000-$40,000, you were paying 53% in taxes.   Adjusting for inflation that is equivalent to someone making a little over $270,000 in todays dollars.  If the Head of Television was talking about a raise today, that conversation never would have happened, as he would be paying 33% in taxes and max out at 35%.

In 2013 when the Bush cuts expire that maximum is still only 39.6%.  Can you imagine what the partners of the agency were paying in 1961?  The maximum tax bracket in 1961 was 91%.   For every dollar in income above $200,000 (in 1961 dollars) they would only be taking home 9 cents!   So if taxes go up in 2013,  just remember that taxes could be worse.

The Top 3 Big IT Trends CFOs and Controllers should know about for 2012

16/04/12 9:35 pm | Comments (0) | Posted By:

If you have a CIO or IT manager who is in the know, you may have already had discussions about the following items. If you manage the IT functions yourself, then read carefully so you don’t miss the boat!

  • The consumerization of IT. No surprise here, consumer technologies like the iPhone and the Droid, tablets, etc. are creeping into the workplace. If you haven’t dealt with this issue, the time has come to allocate a portion ofyour IT budget to secure and support these new technologies. These “cutting-edge” technologies (well, they were “cutting edge” at the writing of this blog-in a week they could already be dated) can allow employees to be more productive and most likely little training would need to be involved as employees are already using these technologies outside of the work environment.

Handling all that data. A push for developing business intelligence and analytical tools is on the rise to help businesses manage the massive amounts of data they have. Experts agree that utilizing analytical tools will be a key competitive advantage in 2012. Why just store all that data? Why not try and get something out of it? Before building a giant data integration and business intelligence strategy, CFOs need to ask themselves one main question: What kind of data does the business value most? How can your IT staff deliver information and reports that your company needs most if they don’t know the answer to question 1?

 
Cloud computing. The Cloud is not going away. If you don’t even know what the Cloud is, it’s an umbrella term for delivering hosted services over the Internet. Low-cost cloud services are expected to become increasingly available, as well as traditional vendors are offering or will be offering cloud services. The ability that business leaders will have to reach out and download a new cloud service without the assistance of an IT staff will only increase in 2012. One key thing to think about if you move to the Cloud is how to keep all those services integrated and secure.

 

Blog based on article at CFO.com “How 3 Big IT Trends Will Affect You and Your CIO in 2012”

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Credit Scores Are Changing, Beware:

16/04/12 9:33 pm | Comments (1) | Posted By:

According to the NY Times, credit scores are getting a facelift.

A company called CoreLogic has introduced a new type of credit report which contains additional consumer data than what the traditional credit bureaus (TransUnion, Experian, Equifax) show.
Have you missed a rental payment that is now in collections or are you behind on HOA dues? Have you been evicted or served child support judgments? Ever taken out a payday loan? All of this is included in the new credit report. There is also the possibility to show that your house is worth less than what you owe.

Since most of this information is already available to the public, it was only a matter of time before someone decided to compile this data to help lenders determine credit worthiness. An estimated 100 million American consumers will have a CoreScore credit report. The actual score will only be available to mortgage and home equity lenders at this time. Next year, CoreLogic will begin to evaluate whether the report should include even more data, like your payment history on utility and cellphone bills.

The positive: the added information can help illustrate positive behaviors otherwise not noted.

The obvious negative: consumers may now have additional dings in their credit history that previously went undetected. Consider yourself warned.

 

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The Carried Interest Rule Needs to be Abolished

16/04/12 9:31 pm | Comments (0) | Posted By:

There has been much debate recently over Mitt Romney and his paying only 14% of his gross income in taxes in 2010 and still only 17.5% after itemized deductions (see his tax return at http://www.washingtonpost.com/wp-srv/politics/documents/romney-2010-tax-return.html). This is the same percentage of taxes that a single person making only $60,000 would pay. Does this sound fair to you? Now how does a business man making over $21,000,000 pay less than this single person? He does this with one of the multitude of tax benefits that the rich enjoy, the carried interest rule.

The carried interest rule is a tax law that many hedge fund managers enjoy including Romney and hedge fund managers like John Paulson. These people organize a partnership, get many investors to give them money to be limited partners, and invest it how they see accordingly. They can invest in businesses, stocks, options or land and agree to give the managers a certain percentage of the profits. Since the underlying asset is capital in nature, they are taxed at the capital gains rate of 15%, even though this is usually their only source of income.

Now to John Paulson. This is a hedge fund manager who in two years during the economic crisis made the biggest profits ever by an individual, $9,000,000,000. This profit wasn’t made by doing some benefit to society, but exactly the opposite. It was made by simply making bets that the housing market would tank (which it inevitably did) and the next year by betting that gold would go up. It seems to me that there is a huge problem in the tax code when somebody who does no benefit to society gets taxed less than the average person with a college degree. In fact, some of the bail out money that was given to banks to keep them liquid was just given to them as a conduit to Paulson so he could collect on his bets. This taxation doesn’t seem fair to me, but at least Paulson’s Advantage Plus fund can’t beat karma like it can the system, it lost 51% in 2011 by investing in Bank of America and Citigroup, among others.

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The “Tax Gap”

16/04/12 9:29 pm | Comments (0) | Posted By:

Did you ever wonder how many people do not actually pay their taxes under our “voluntary compliance” system here in the United States? Well, it turns out that the latest IRS estimates show about 15% of the total tax liability owed for 2006 was actually collected.
This rate is virtually unchanged from the 2001 compliance rate and amounts to $450 billion for 2006. This represents a $105 billion increase over the2001 estimated tax gap of $345 billion. Enforcement efforts and late payments reduce the net tax gap to $385 billion for 2006 which is still $95 billion greater than the $290 billion net tax gap in 2001. While these numbers are staggering, the growth in the tax gap somewhat mirrors the growth in total tax liabilities. Furthermore, the increased estimate may well result from better data and improved estimation methods.

This “tax gap” results from three different types of non-compliance: failure to file, underreporting taxable income, and underpayment of amount of tax due. Underreporting of income continues to be the largest contributing factor to the 2006 gross tax gap accounting for $376 billion of the $450 billion total. Tax non-filing and underpayment of tax accounts for $28 billion and $46 billion, respectively.
As you might imagine, non-compliance is lowest where there is third-party information reporting and/or withholding, such as wages and salaries. Conversely, amounts not subject to information reporting had a 56% net misreporting rate in 2006.

Just think how much progress we could make towards reducing our horrendous deficit if this gap were closed!

 

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