February 16, 2019

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Taxing the Wealthy Sounds Easy. It’s Not.

Taxing the Wealthy Sounds Easy. It’s Not.
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So as incomes rose, more and more affluent people were hit by the tax, which reduced deductions and set a minimum tax rate of 26 and 28 percent. Affluent professionals living in areas with high property and state taxes that could be deducted, like the Northeast, were often subject to it.

Timothy Speiss, partner in charge of the personal wealth advisers group at EisnerAmper, an accounting firm, said that by 2017, the alternative minimum tax had affected more affluent people than the truly wealthy.

The Tax Policy Center noted that 27 percent of people earning $200,000 to $500,000 and 62 percent of people earning $500,000 to $1 million paid more in taxes in 2017 because of the tax, while only 20 percent of people earning more than $1 million paid higher taxes.

A simpler example of unintended consequences is what’s called the loss carry-forward provision. It allows people to deduct up to $3,000 a year in investment losses against their ordinary income. Yet that $3,000 was set in 1978, when it was worth significantly more and fewer people were broadly invested in financial markets through their retirement plans. It hasn’t been adjusted in 40 years.

“Any parameter that is not indexed to inflation automatically creates unintended consequences as more people become subject to it,” said Gil Charney, director of the Tax Institute at H & R Block. “It’s also another example of the marriage penalty. It’s $3,000 per return, not per person.”

Late this past week, Senator Bernie Sanders of Vermont, a potential Democratic presidential candidate, took a different tack in taxing the rich. He proposed applying an estate tax with a top rate of 77 percent for estates exceeding $1 billion.

How Senator Warren’s or Representative Ocasio-Cortez’s proposal would work rests as much on proper execution as on the definition of wealthy.



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