IRS’s income averaging provisions are a superior tax policy.

Discussion in 'Economy' started by Supposn, Dec 8, 2012.

  1. Supposn
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    Supposn Senior Member

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    IRS’s income averaging provisions are a superior tax policy.

    Reduced tax rates for long term capital gains, (i.e. LTCG) are unjustified.
    I’m a proponent for not limiting the income sources eligible for income averaging tax treatment and eliminating the LTCGs’ extreme tax rate reductions. Commercial LTCGs in particular should be treated as regular incomes.

    IRS’s income tax averaging provisions were an intelligent mitigation of progressive tax rates’ excesses. Income averaging is a transparent and equitable mitigation of progressive tax rates’ most excessive wrongs, rather than a boon to the wealthier pretending to promote investing.
    I wasn’t aware that ranchers, farmers and fishers can still elect to file income averaging tax returns.

    [As I recall the taxpayer’s current taxable income required qualifying proportional increase over their prior year’s taxable incomes to be eligible for income averaging. Taxpayers’ choosing to file a tax averaging return are in effect amending their annual taxable incomes for each of a current and the prior 2 years. Electing to income average does not modify the income brackets’ tax rates or any other regulations that were in effect during any particular year but each of the current and prior 2 year’s taxable incomes are equal to their average income within the entire 3 years].

    LTCG reduced tax rates are applied upon net profits due to sales of assets (not stock in trade), that was owned by the seller for 12 months or more.

    Income averaging was not limited to the net profits due to the sale of qualified assets. It could benefit investors and ex-homeowners but it also benefitted lottery or quiz program winners, sport or entertainment figures, inventors or anyone else that hit any financial jackpot within the taxable year they filed an income averaging tax return.


    Within the referred Wall Street Journal of July 3, 20212, Tom Herman quotes a Professor Schmalbeck,
    “..“a Duke University law professor”…” The income-averaging law was repealed as part of the 1986 tax act, which greatly reduced the number of income-tax rates and made many other changes …
    …lawmakers concluded income averaging wasn't necessary since the 1986 tax act contained a much flatter tax-rate structure, including a much lower top rate. Also, elimination of income averaging "added several billions of dollars of revenue [to the Treasury's coffers] that would otherwise have been lost."

    The professor’s quote indicated no concern for tax revenue losses due to long term capital gains excessive tax rate discounts. By eliminated tax averaging and retained the long term capital gains’ tax reductions, we threw out the baby and kept the dirty water.

    If it’s politically unfeasible to eliminate the LTCG tax reductions due to the sale of unreplaced primary residences, then the extent of such severely reduced tax revenues should at least be capped. That cap should be annually indexed to the U.S. dollar’s purchasing power. Our federal budget should not subsidize mansions.

    The net consequences of this policy would be to shield ALL U.S. resident taxpayers from progressive tax rates’ excesses applied to their proportionally unusual increase of annual taxable incomes; regardless of the incomes’ sources. It would replace our current policy that deems profits due to the sale or trade of assets held for 12 months or more are of economically superior benefit to our nation and should not be held to any common tax standard.

    I’m opposed to special strokes for special folks. I approve of equitable treatment for all, increased tax revenues and reduced federal budget deficits.

    Refer to:
    The Tax Rules for Income Averaging - WSJ.com

    Respectfully, Supposn
     
  2. Quantum Windbag
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    Quantum Windbag Gold Member

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    What income averaging? They trashed that years ago.
     
  3. Supposn
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    Supposn Senior Member

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    Quantum Windbag, I also was under that impression. Income averaging is still available to farmers, ranchers and fishers.

    I advocate permitting general restoration of income averaging option; it should not continue to be limited to farmers, ranchers and fishers.

    I also advocate treating all commercial long term capital gains as regular income and if LTCG of residences are not now capped, they should be. The cap should be annually updated and indexed to the U.S. dollar or the prices of U.S. home sales.

    Respectfully, Supposn
     
  4. EdwardBaiamonte
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    EdwardBaiamonte Gold Member

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    so you mean everyone pays the same amount just like they do in the supermarket??
     
  5. Supposn
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    Supposn Senior Member

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    Edward Baiamonte, be more explicit.

    Are you advocating the same amount of tax per capita or the same rate of income tax for all or something else?

    There may be more or less equitable methods but there’s no absolute fair tax.

    Respectfully, Supposn
     
  6. EdwardBaiamonte
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    EdwardBaiamonte Gold Member

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    you said no special people, equal treatment under the law. etc. This would mean all people pay the same tax and the same price in the supermarket!! Poor people don't get less national defense so why should they pay less than rich people??
     
  7. Supposn
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    Supposn Senior Member

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    Edward Baiamonte, on D day, when we selected those who would be among the first wave of troops hitting the Normandy beaches, we did not consider the wealth of a soldier's family.

    We did not ask or order those who had the greater vested interest in USA’s economy to make greater sacrifices and be more likely than others to die or be crippled for the benefit of OUR NATION.

    Each serviceman was expected to strive to the extent of their capabilities for the best interests of OUR NATION. The children of the poor were expected to accept the same risks and sacrifice as much blood as those from wealthier families.

    Do you believe that the poor should equally be bled but those who are wealthier and can better afford the additional financial sacrifice inherent within progressive income tax rates be spared that additional price?

    I am not in principle opposed to progressive tax rates.

    I’m opposed to them because each real or apparent inequity evokes additional legal exceptions. The aggregate consequences of these additional exceptions are special strokes for special folks.

    Many of these exceptions that are generally not available to those with incomes derived from employment and/or those that cannot afford to keep accountants on salaries and lawyers always on retainers. Each perceived actual or imagined tax inequity induces the proponents of some tax payers to lobby for additional new laws and regulations which if their efforts are successful will in turn be perceived by proponents of still more others as additional inequities.

    The lobbyists’ achievements are well worth their high fees; their political campaign contributions are gratefully received and the consequences of those contributions are additional layers of laws and regulations that grow layers upon layers of tax inequities.

    They grow like the skins of onions; unseen in the dark underground. These inequities are often passed by congress and other federal agencies late at night (when the children are asleep), by voice vote with no record of who enabled it to pass, and each of those enablers can and often will deny that they are among the enablers.

    I’m generally opposed to progressive income tax rates because in effect they are not all that progressive. To the extent that they may continue to exist, it would be because we fail to eliminate the tax loop holes that better serve the wealthiest segments of our taxpayers at the expense of all others.

    Respectfully, Supposn
     

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