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Tax Guru-Ker$tetter Letter
Thursday, June 07, 2001
Social Security Going Broke

As I learned in my very first college accounting class in 1973, the entire financial foundation for the Social Security System is too flawed to be able to last for long.�

Here's an article from the Wall Street Journal explaining that the system has about 15 years to go. You can continue to pour your money into this rat-hole or take steps to avoid it and prepare for your own retirement.

With The Big Cats

Some pictures of me with a young African lion, a young tiger and a full grown mountain lion at Turpentine Creek Wildlife Refuge.

Tuesday, June 05, 2001
IRS Gives Out Free Money

When there is an accurate way to do something and a haphazard way, you can be sure that the government geniuses will pick the sloppy way. Their track record is almost perfect in this regard.

The upcoming tax rebate could be handled in the proper way, which is to allow the appropriate taxpayers to apply the credit against their tax when they prepare their 2001 1040s. That way, only the people who are entitled to the credit will receive it.

The other way, with much better PR value, is to just send out checks to everyone who could conceivably be entitled to the credit. If it turns out they shouldn't have received it, consider it a gift. As this article describes, they are already expecting, before sending out the first check, as much as $1.5 billion of erroneous rebates to be sent out. Again, historically, when they are predicting a lot of mistakes before even starting a project, you can be sure that the final result will be much worse.

I realize that IRS has been working hard to project its new kinder & gentler image to replace the old Gestapo one we are all so familiar with. Maybe I'm old fashioned; but just tossing away $1.5 billion dollars willy-nilly seems wrong to me. There used to be a time when a billion dollars was considered to be a lot of money. However, with the ever increasing size of the central government, that is now considered a drop in the bucket and we shouldn't be concerned about it.

I realize it's a bad character trait I have, but I can't stop thinking about the people who paid in the $1.5 billion that IRS will be throwing way. Am I off-base here? Just remember these IRS gifts whenever you have to send them a check. Maybe your blood pressure will go as high as mine is right now.

Monday, June 04, 2001
Dying To Save Taxes

The numbers used in discussions of tax laws by governments are all pure SWAGs, including the alleged $1.35 trillion total of the recently passed tax cut. The bean counters in Washington use static analysis to determine their numbers. They assume that people do not modify their behavior when the tax laws change. That is so wrong and has been proven wrong over & over in light of past tax laws. However, that never stops the politicians & their assistants in the media from spreading lies.

My entire career has been based on the fact that people do alter their behavior, often very drastically, due to the tax laws. Marriages & divorces are often influenced by the tax effects. I can give dozens of other examples. However, this story from last Friday's Wall Street Journal shows just how infuential tax laws are in affecting people's lives. When the tax law was changed a few years ago to increase the exemptions from estate tax over several years, I mentioned how it would be a good idea to live as long as possible to save on estate taxes. The study described in this article shows that there is in fact a correlation between when people die and the estate taxes in effect.

This is all the more ghoulish because of the just passed tax law that increases the exemptions from estate tax and then repeals it entirely for just one year, 2010. It's scheduled to go back into place in 2011 if Congress doesn't extend the repeal before then. Does this mean that a lot of wealthy people will be dying in 2010 to save the estate tax? Would you?

Sunday, June 03, 2001
New Tax Law

As always, when our rulers in Washington attempt to simplify the tax code, they end up making it even more complicated, guaranteeing a lifetime of employment for those of us in the tax practitioner community. Over the next several weeks, I will be discussing various aspects of the new law now that it's real and not just a figment of political imagination. I will also be updating the tax rate schedules on my website to coincide with the new changes.

In the meantime, there are some good summaries that can be downloaded for free in PDF format:
From CCH - 8 pages
From Congress Joint Committee on Taxation - 15 pages

Thanks go to Tom Herman of the Wall Street Journal for these links. His Wednesday Tax Report column in the Journal has always been a favorite of mine. Amazingly, it's become even more of a favorite since I subscribed to the online edition of the Journal about a month ago and discovered that his column includes a large assortment of hyperlinks to tax reference materials, many of which I had been unable to locate myself or had to spend a lot of time tracking down. I'm kicking myself for being such a tight-wad and not shelling out the $29 for the online subscription a year ago. I've already saved much more than that in time in the past few weeks.

Friday, June 01, 2001
Well Put

Since starting in the tax business in the early 1970s, one of my biggest hot button issues has been to educate as many people as possible as to the scam that is called Social Security.

In today's Wall Street Journal, appeared the following letter to the editor that puts it quite well.

UO Yourself

In your excellent May 22 editorial "A Real Tax Cut," you, like most commentators on the "lockboxes," refer to the pieces of paper that go into the lockboxes as "IOUs."

I believe it would be more accurate to call them "IOMes," since there is no U there. One branch of the government gives a promise to another branch. No different from my writing a post-dated check to myself.

Milton Friedman
Senior Research Fellow
Hoover Institution
Stanford, Calif.
Give Back Your Refund

The news media have been filled with stories about the IRS plans to send everyone a check for about $300 in the next several months. Unlike the implication in the news stories, this isn't really free money. It's merely an advance on the refund that would be received next April when people file their 2001 tax returns. My guess is that those people who bank on large refunds every tax season will be screaming next April when they receive $300 to $600 less. Memories are very short in this country. It will also screw up the penalty calculations for people who pay estimated taxes.

The big government loving liberals are still screaming that the recently passed tax cut is the end of the world. When you encounter one of those folks, give them one of these forms to return their refund to the IRS, provided by Libertarian talk show host Neal Boortz. I'm sure you'll find that when it comes to their own money, they are no-where near as generous as they are with the money that IRS snatches from other people.


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