Wednesday, December 11, 2013

When You Know a New Tax is Bad

It seems that every year, there is a new tax that I or someone that I know has to pay or a new tax credit or both. Oftentimes, it can be taken care of on Form 1040 or some form that I already file in one line item, even if it feels like a random number generator fills in the amount that I get to send to my good friends at the Treasury Department.

As all my readers know, the Affordable Care Act (ACA, PPACA, ObamaCare) wasn't just any old law. And, since even the most optimistic of all proponents of the law knew that it would cost a lot of money, new taxes were needed to pay for it. These aren't just any old taxes. I'm talking about two in particular -- the 3.8% Medicare surtax on investment income for those individuals earning over $200,000 and for couples filing jointly earning over $250,000, and the 0.9% additional Medicare tax on earned income in excess of those same thresholds. (By the way, just like perhaps the worst structured tax in history -- the Alternative Minimum Tax -- those thresholds are not indexed.)

I looked at many of the personal taxes in the Internal Revenue Code. Almost without exception, when taxes apply to individuals or to couples filing jointly, the dual threshold is either twice the individual threshold, or at least meaningfully (50% or more) higher.

But, these are not your ordinary taxes.

All you lucky people (maybe you are just hard-working and it's not just luck) who will be subject to these taxes get to fill out not just one new form, but two new forms. That's right, you have to fill out Form 8959 to determine if you (and your employer) paid enough Medicare tax for you [and your spouse]. And, you need to fill out Form 8960 to determine if you were both a lucky earner and a lucky investor for the year.

I'd link you to the forms, but they are only available as drafts right now. And, I'm sure you don't really want to see them anyway.

Suffice it to say that as of now, Form 8960 looks like an easy one, but Form 8959 must have been jointly produced by the makers of Tylenol, Advil, and Aleve. You will have to have your Form W-2(s) in front of you while you suffer through the calculations and the eventual answer. Then if you are really lucky, you get to attach these two forms to your Form 1040 and send more money.

My conclusion? A tax (I know, it's really two taxes, but it looks like one to me) that requires two new forms can't be a good tax. Let's just get rid of it. I want to go back to the original income tax provisions -- pay 1% of your income in excess of $3,000. I'll even accept that the $3,000 is not indexed.

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