Personal Finance QuickTake: Congress Sets the Stage for a $683MM Tax Increase

Congress set the stage for a massive $683 Million tax increase for next year. Basically this is a 100% roll back of all of the Bush Tax cuts that are set to expire as he leaves office.

Each Presidential candidate interrupted their campaigns in order to vote on this important declaration. The declaration is a non-binding document that does however declare intent in order to begin the planning of future budgets. Final vote on the actual budget will be for the new congress that is elected in November.

These cuts would be backed by large domestic increases in spending, while still returning government ledgers to black within five years. In other words...tax and spend.

In today's vote John McCain voted to keep the current tax structure in place while both Senators Obama and Clinton voted in favor of the repeal. This is sure to be a hot button issues with Democrats and Republicans alike as the country is already experiencing cost increases in most day-to-day items.

Also up for vote today was a one year moratorium on "pork barrel" spending. This is the practice of adding additional spending bills to another bill. This practice is a Congress favorite way to spend money as it means positive good bills have to be vetoed in their entirety as the President cannot line item veto portion of a bill. It is all or nothing. This practice has led to projects such as the infamous "Bridge to nowhere" in Alaska. This bill was unfortunately crushed, and realistically never had a chance.

Whether you are a Republican or a Democrat, you just cannot continue to spend more than you bring in. Ultimately it leads to two tough decisions; cut spending or raise taxes. McCain's tax cuts would require deep cut to spending, while the Democrats promise spending that would enlarge the deficit or require too-large tax increases.

As the country's economic issues worsen we need everyone rowing the same way. This will mean that we cannot do everything, and that we will need to live below our means to pay back the deficit. If we don't we are dooming our children to ever-lowering standards. of living.

The Agony of Defeat...

Do you know who Vinko Bogataj is? He was a moderately successful ski jumper for Slovenia in the 1970's. But what he is known for in American is the start of abc's Wide World of Sports. He IS the picture of "The Agony of Defeat."

That is how I am feeling right now...

Just got the ultimate Ninja Bill. We are doing so well, but as I have said before that wasn't always the case. When we moved here in December of 2006 we had a bit of a perfect storm. We were moving, had to cash out all of my options at my old employer, and had a huge medical bill hanging over our head. With no credit left or available and trying to move into a new house, we had only one choice...to tap my 401K. It wasn't much cash, but even with the penalties it was enough to get us moved, into the house and get the bill killed and pay off some really high interest debt. Desperate times Desperate measures... (He's At the gate)

Well today, two days after I filed my taxes, guess what I got...My 1099-R for the withdrawal. I thought it was in my 2006 taxes and didn't even think about it...(He is sliding)

So now I have to file an amended return. The worse part is that I went from having a $5013 Federal Refund to Owing $255! My state return went up $166! So I am still getting money back, about $2400 in total, but all of the Sugarplums dancing in my head just went rancid!- (The agony of defeat indeed!)

We did have taxes pull from the distribution, but the issue was the penalty...Well, now we have to print off a ream of papers worth of returns and get them out. Also given the extra income we will lose some of the Tax Rebate this summer...As Dave Ramsey says, Stupid Tax!

Let this be a cautionary tale for all of you to mind your finances! Or you could have as expensive of a morning that I have...off to cry :(

Economic Stimulus Plan

Given the continued shock of the US economy the government is working on passing quickly and economic stimulus package. They really want you to go out and buy something with it is quick, to stimulate the economy.

The plan runs from a GOP led effort to be $800/$1600 for singles and couples respectively or the current Dem thinking of $500 per tax paying person. There are also cuts to business taxes as well as increases in welfare, Medicaid and unemployment benefits. This is being fast-track to pass within the next three week, with checks to follow fairly soon afterward.

For us, it would be nice! Although we will disappoint the government in their effort to glue our credit cards back together. Ours is going right to debt, if it happens. It would get us close to paying off Snowball debt #6!

On top of that I can see the prime lending rate continue to fall for awhile. The housing issue is big with a ton of inventory on the market, and what buyers there are, looking for the bottom before buying.

What about you? Any plans for you potential rebate check? It would go a long way towards an Emergency Fund if you haven't established one yet!

The 861 Tax Argument Brought to you by Wesley Snipes

If all goes well in the US Governments plan this is pretty much the next picture you'll see Starring Wesley Snipes in. According to the IRS Mr. Snipes owes Income Taxes on $38 Million in income generated between 1999 and 2004. First, who knew being "Blade" paid that much, and two how do you have $38 MILLION in income and think that you can not pay taxes. That wasn't far enough for Mr. Snipes, actually he went a step farther and said the government owed HIM $14 Million.

Actually there are many arguments that citizens have filed saying that Federal Income Taxes are unconstitutional, or illegal, or not binding due to the way the statuette is written. Mr. Snipes is basing his argument on something called the 861 Argument.

This refers to Internal Revenue Code Section 861 titled "Income from sources withing the United States." This section deals with what income can be called income from within the United States. The tax protesters say that the statute excludes some portion of the income of US citizen and Resident Aliens.

The argument is that since the domestic activities of residents of the United States (Americans and resident aliens) are not shown to be taxable, the domestic income derived from such activities does not become taxable "gross income" according to Wikipedia. The argument goes on that even this small amount is still eligible for your deductions. This is how he believes that the Government owes him $14 Million as that is what was already withheld.

Wesley believes in this so strongly even after the IRS told that wasn't going to hold water, he continued to withhold payment for two more years. The potential fine? Up to 16 years in prison. Under that same Wikipedia article it goes on to tell of 10+ more of these type protests like 861 that is out there.

Just a quick moment of clarity...say he is right. not just right, but the sort of right where the US government goes, "Oops, he is right! We never even thought of that. We are going to have to refund 100% of all monies collected from US citizens since 1861." "Gosh we're sorry!" It would be mayhem and the government would default. So if the government couldn't let it happen, even if you were right (which courts have said over and over that you are not) what is the best possible outcome? That you won't get audited? To recap, he not only didn't pay, He asked for $14 Million back!

You may be able to fight vampires Mr Snipes, but you'll never kill the biggest bloodsucker of them all, the IRS...

AMT, it isn't just for Breakfast anymore...

Congress passed the Tax Reform Act of 1969 and introduced the Alternative Minimum Tax targeted at 155 high wealth families that basically were using every tax loophole to, although legal, avoid paying any real Income Taxes. Basically it isn't really even a tax, it is a way for the government at a certain income level and tax liability quotient to dis-allow exemptions.

Brilliant!...Except for one, teeny , tiny little issue...They didn't index it for inflation. Meaning that if the threshold was $150,000 in 1969, it is $150,000 in 2007! Never mind that $150K in 1969 dollars equals nearly $500,000 (actually $461,217.50 based on 3% inflation over 38 years)!

So what happened is every year it snagged more and more families. Well not much political will when it gets the top 155 families or the top 300, top 500 even, but top 2 million...oops!

"Over the coming decade, a growing number of taxpayers will become liable for the
AMT. In 2010, if nothing is changed, one in five taxpayers will have AMT
liability and nearly every married taxpayer with income between $100,000 and
$500,000 will owe the alternative tax. Rather than affecting only high-income
taxpayers who would otherwise pay no tax, the AMT has extended its reach to many upper-middle-income households. As an increasing number of taxpayers incur the AMT, pressures to reduce or eliminate the tax are likely to grow."

That was a quote from the Congressional Budget Office in 2004...sound familiar. It should, it literally comes up every year and nothing is really being done.

Problemo #2 is that it now pulls in a ton of tax dollars now. In case you had not heard Congress prefers to keep the coffers filled, this would be a major hit to scrap and go back to the original purpose.

How much moola are we talking about? Over the next 10 years between $850 million and $1.5 Billion! Enough to buy every man, women and child in the country a not-so-Happy Meal.

This will continue to be a hot button until it gets solved, Congress barely got this year's patch on AMT this year passing it a few days ago. Given the last minute nature of this, tax refund this year could be delayed up to four weeks according to the IRS.

This is really a great question for everyone to press on to their Congressional Representatives.

"What are you doing about the AMT?" Cause it isn't just for the Rockefellers anymore...