Pardon the baseball analogy.  The season is almost over and I just couldn’t help myself. There is statistical evidence that taxpayers in high tax states are leaving those states and setting up residence elsewhere at the rate of 1100 per day.  By increasing taxes to cover shortfall, states and the federal government to an extent are actually creating a situation of obtaining less tax revenue.

Today’s post comes from some statistics I read in a CNN.com article.  47% of U.S. households pay no income tax.  That is a staggering figure when you think about it.  I see four different classes of U.S. households when thinking about that statistic

  1. Households that have no income tax liability and still get a refund
  2. Households that truly have no tax liability
  3. Households that pay income tax
  4. Households that pay income tax and are targeted by current tax policy

Case number one contains individuals that have the lowest earnings.  Government policy provides refundable credits for many things including the Child Tax Credit and the Earned Income Credit.  They actually get money back from the system without paying anything in.

In case number two, taxpayers have income that is taxable but through a combination of itemized deductions, student loan interest, small business/passive losses and refundable credits, actually end up with no or little liability.  This year has likely seen an increase in the number of individuals who fall into this category.

The number of households who fall into the third category has likely decreased this year with the number of job losses the economy has produced.  These individuals have tax liability that goes beyond their eligible itemized deductions.  Some of the deductions allowed in lower income levels of this class and in the second class are actually phased out as income increases thus increasing the tax liability of this class.

Class four is the group that politicians and folks in class 1 and 2 love to hate.  These are the successful folks who either have a successful job or have started a successful company and are now reaping the benefits or even those who have received an inheritance from a friend or family member.  Many singers, actors and sports figures fall into this category as well.  It is very difficult to reach this category.  Therefore, I find it strange that tax policy targets this group.  We hear statistics such as “incomes over $250,000″ per year to describe the level at which this group sits.  If federal tax rates (and many states for that matter) continue to climb, those in this category could see total tax rates in the range of 75%!!  It is important to keep in mind though that this class of people also own the majority of the assets in this country.  Many of them actually create the jobs our economy so desperately needs.

Good tax and financial planning requires that pay attention to what is going on the the arena of tax.  The environment in today’s government is very desperate.  It is important that you get involved in the political process and let your representatives know how you feel regarding legislation that is before them.  If Americans voted based on how well their representatives actually represent them, I think there would be a large number of changes in those holding political office.  The tax and spend policies of both parties would suddenly come under such scrutiny that something would undoubtedly change.

I welcome your feedback.