Baffled By Potential Tax Changes? Us Too. So Bring Your Questions for a Tax Expert

It’s shaping up to be a most interesting year on the tax front. A recent Freakonomics quorum focused on potential tax-policy mistakes that might be made this year, with so many issues up in the air. It brought up concerns about everything from expiring tax cuts to the federal deficit to the lack of clarity surrounding even this year’s tax code.

So here’s your chance to get a little bit of clarity: Michael F. Mundaca, the Assistant Secretary of the Treasury for Tax Policy, has agreed to field questions from Freakonomics readers. Mundaca’s primary duty is to “advise[s] the Secretary on all aspects of Federal tax policies and programs, including their development and implementation.” Mundaca also served in the Treasury Department during the Clinton and Bush administrations, and was a partner at Ernst & Young in Washington, D.C.

Post your questions in the comments section below and, as always, we’ll post his answers in short course.


Laura

any new changes as it pertains to required mandatory distributions? or qualified retirement plan pre-mature distributions? lots of clients have had to take more out of roll-over IRAs to survive their unemployment...thank you

jedshivers

Two items: (1) I think the Bush tax cuts should be extended for those couples making < $800K. Characterizing couples who make > $250K as wealthy is out of touch even though the percentage may be small compared the the U.S. What would the effect on lost taxes be if the government raised the Bush taxes up this segment of the population. (2) What do the data show on to what extent estate taxes have diminished the inherited wealth of mega-wealthy people (e.g. net value > $100M). What would the effect be on income to raise the exemption on estate tax to $10M and then increase the tax rate for estates > $10M by 10 points?

Daniel

How are the the taxes on mono/oligopolistic industries (specifically the recording music, automobile and software industries) levied?

Has the Treasury considered adjustable lump-sum taxing on these markets, in order to minimize dead-weight loss generated by imperfect competition?

Tyler

This is very hypothetical question, but what would you perceive to be the benefits/costs of removing S-Corporations from personal income taxes? I realize that taxing them like C-Corps would be prejudicial against small businesses, but what about taxing them as different entities? Might that better allow government to tax high earning individuals without hitting successful small businesses? Just from a clarity standpoint (reflecting what entities/persons are actually being taxed), would this be better than lumping Schedule E businesses in with personal tax returns?

Peter

"Us" are too?

Rene Vera

Why always the solution to economic problems is cut or increase taxes?
Isn't there another way to solve this, or politicians need go to college to learn something new?
Can someone advice them on new policies?

Joel

Is it true that over the counter medication can't be paid for with Health Care Savings Accounts (HCSA) or Health Saving Accounts (HSA) dollars starting in 2011? If it's true what's the motivation behind the change?

Marty Stern

Google cuts its tax bill by over $1 billion per year by clearing most of its foreign profits through Ireland and the Netherlands to Bermuda. Is this a good loophole for American corporations by lowering already high corporate tax rates relative to the rest of the world? Would shutting this technique down increase tax revenue or drive business away?

bmz

Why is it fair for retirees earning $60,000 per year to pay the highest marginal federal income tax rate? My total annual income is about $25,000 Social Security, $10,000 401(k) distributions, and $25,000 self-employment income. My marginal federal income tax rate is: 25% +21.25% (Social Security recapture) +12.4%(self-employment tax) = 58.65%

keith

Having paid a minor differential due to the AMT in two separate years, two things have stuck in my mind regarding AMT: first, it seems to be in implementation, more or less the "flat tax" Grover Norquist and the like are always gasbagging on about; and second, it doesn't seem like it would have been difficult to tie the cutoff limit to some other federal definition of inflation such as the CPI-U or COLA.

I gather that in olden times, "the law" as an entity didn't have a good understanding of inflation, but it seems that in the last 50 years, the federal government now has a good institutional understanding of inflation. The question remains, why can't the AMT limits (and the annual process of adjusting other income limits for marginal rates, IRA contributions, and so on) just become automatically tied to some federal measure of inflation? Why does every Congress need to twiddle the dials on these amounts? Is "always having cutoff amounts in political play" some kind of degree of freedom that tax policy horse trading needs?

Read more...

Ray

With all due respect to Mr. Mundaca, shouldn't the real tax expert Timothy Geithner be answering questions? I'd be particularly interested in how I could avoid paying my taxes for several years and still have my cushy government job.

Ray

@bmz,

Good question. I also have a retirement income and a second job and I'm getting screwed on the marginal tax rate as well.

Charles

Do you think the FairTax will have a chance to be passed in the near future? What is it going to take to get more public support for the FairTax? I think if more politicians started to speak out about it and educated the public it would gain more support, but the politicians don't want to show support for it because most people will hear a 23% sales tax and automatically be against it without understanding how it really works.

Ian Callum

If we want to create jobs in the US, wouldn't it be a good idea to substitute a VAT tax for payroll taxes? For example, suppose the first $20,000 of income had no payroll taxes levied against it while revenue losses were recovered by imposing a 5% VAT tax.

Drill-Baby-Drill Drill Team

Is this really a good year to die--Tax Wise?
And do you expect an uptick in deaths as the calendar year ends? Have we ever seen a similar incentive to die and did it spur deaths?

Paul

Has anyone figured out exactly how it is going to work for same-sex married couples in community property states like California? My accountant still has no clue...

Jimbino

Please comment on this strategy for avoiding real-estate and automobile transfer tax that is due on a sale:

Form an LLC and buy the Ferrari in the name of the LLC and another LLC for the vacation home. Then you never sell the Ferrari or the home, just the LLC. There would be no RE or auto transfer tax, right?

frankenduf

does Warren Buffett really pay a lower tax rate than his secretary?- also, why isn't there a financial transaction tax?- wouldn't this serve to rein in speculation, which led to the great recession, as well as improving our federal balance sheet affording for more stimulus jobs?

Will

"Characterizing couples who make > $250K as wealthy is out of touch" - jedshivers

The median household income in the United States is about $46,000.

You're seriously going to argue that an income over five times that shouldn't be considered wealthy, and call others out of touch?

frippery

Why are unearned income (capital gains) taxed at a lower rate than earned income (salary)?

The naive answer is that we need to "encourage" people to commit to long-term investments. But where else would people invest their money? People make long-term investments because that is where the best returns are located.

The "encouragement" of a lower capital gains tax rate would only be needed if the returns from long-term investment were worse.