A Distinction Without A Difference

How can we hear so often that there will be no tax increases, but trillions of dollars in new entitlements and future obligations (aka debt) are being proposed? How will it all be paid for? Are politicians lying? Or is this simply a massively expensive word game, about to be played well into the future of every tax paying citizen of this country?

In the world of government taxation, there are multiple different categories of tax deductions, tax exemptions, tax preferences, tax benefits, tax credits and more. Quickly it can become overwhelming, even confusing for the average citizen. Enough so that distinctions can be made without actually honoring the original meaning.

Here is just a partial list of the ways that regular taxes can be stated as not increasing, but the total tax bill being paid does:

• Installing automatic increments based on Consumer Price Index (CPI)
  
• Failing to renew tax credits
  
• Repealing of tax breaks and incentives
  
• Allowing of automatic tax increases to occur
  
• Adjusting tax brackets (bracket creep)
  
• Calling the increase temporary
  
• Indexing to something other than inflation (indexing higher)
  
• Enacting surtaxes with special conditions
  
• Increasing the sources (of income) subject to taxation
  
• Decreasing Alternative Minimum Tax (AMT) exemptions (overrides regular tax rates and breaks)
  
• Doubling taxation of businesses and individuals (via dividends and interest)
  
• ...
  

So in politics it may be considered truthful to say one thing and then subvert that statement with indirect, conflicting actions. Possibly the politicians themselves have been duped by their subculture to believe in a different form of honesty (if it can be called that). Maybe what isn't said is just as, if not more important.

Determining what the words in a political speech mean can be difficult. Citizens must keep themselves informed and diligent concerning issues affecting the nation. If we don't, we risk electing politicians who are being honest in a dishonest way.

Now how our European allies will reconcile the US dropping support for the missile defense shield after pledging to support it "As long as the threat from Iran persists" given recent knowledge that Iran is "...on the way to developing a missile system able to carry an atomic warhead..." might require a different analysis.

Regardless, words have meaning. When they're coming from people who have the power to affect entire nations for generations to come, people everywhere need to listen and remember them.

For Hitchcock Fans

Fans of Alfred Hitchcock movies and cat lovers may appreciate this very short video of a "cat elevator":



True Hitchcock fans will have made the connection to the scenes in Rear Window when the dog is lowered down to the courtyard, where it ultimately meets its demise - but not due to the elevator basket!

This always seemed amazing that a dog could be trained to overcome their fear of heights in an unstable basket. But a cat?!!! That's beyond amazing. Maybe that's just what you do as a pet owner in a crowded urban environment.

Hmmm, maybe that herding cats video was real after all...

Retroactive Tax Increases

Those not concerned about paying income tax or whose sole interest is in getting an income tax "refund" (loaning the government part of their earnings interest free for a year) probably should skip this post. Others, particularly those that live in North Carolina, may be interested to learn that the state just approved a retroactive income tax increase last month. Yes, retroactive.

It is identified as a "surtax". The relevant section of Senate Bill 202 is 27A.1(a) and reads as follows (emphasis added):

PART XXVIIA. TAX CHANGES
CORPORATE AND INDIVIDUAL INCOME TAX SURTAX
SECTION 27A.1.(a) Part 1 of Article 4 of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105-130.3B. Income tax surtax.
(a) Surtax. – An income tax surtax is imposed on a taxpayer equal to three percent (3%) of the tax payable by the taxpayer under G.S. 105-130.3 for the taxable year. This tax is in addition to the tax imposed by G.S. 105-130.3 and is due at the time prescribed in
G.S. 105-130.17 for filing a corporate income tax return.
(b) Sunset. – This section expires for taxable years

Note that this bill was signed into law on August 7, 2009 (scroll to the bottom of the list of actions). Retroactive over seven prior months of tax planning, now invalidated. Governor Perdue was sworn into office on January 10, 2009 (scroll to the bottom of the media releases). Retroactive nine days earlier than even the Governor's taking of office.

The surtax affects corporations and what the press would term "high income" individuals. Regardless of if this particular action has immediate personal application or not, every taxpayer should consider what principle is being demonstrated by issuing retroactive tax increases. Here are just two.

1. Is tax planning is useless? Any scheduled planning, giving or investing based on the tax rates at the start of the year are certainly now reduced in effectiveness. Businesses planning investments in the state will surely take this into consideration in the future.


2. What guidelines exist, or should exist, regarding enactment of retroactive laws? The paying of taxes has a clean yearly boundary due to the payment cycle. If the discussion was over issuance of licenses or permits what would the boundaries be?

FWIW - this is not an indictment of Governor Perdue or any political party. It is however of politicians and politics in general. It is an amazing display of the politics of power and money, this time at the state level. Be careful of the change you vote for. It can change the future - and the past.