Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for July 23rd, 2003


Posted by taxguru on July 23, 2003

One of my long time pet peeves has been the use of the oxymoron “progressive” to describe the graduated income tax rate structure that charges much higher percentages for those people who earn more than others. In this country, it is considered progressive to stick the upper income folks with an overly high share of the total tax burden. I’m not the only one who considers this a penalty on success and achievement.

People don’t like my mentioning the connection between the concept of progressive taxes and the Communist Manifesto, but check out item two in Marx’s platform and tell me why such a comparison isn’t relevant. Perhaps our rulers didn’t use the actual manifesto as their blueprint, but sick minds think alike.

On the flip side, it is considered to be “regressive” when lower income people pay a higher percentage of their income for certain taxes, most often sales taxes, than do the evil rich.

What is completely missing from the dialog on taxes is the concept of fairness or uniformity, such as each citizen paying the same dollar amount of taxes to support the government, or even the same percentage of their income.

Measuring the degree of progressivity can be done in a couple of ways. One way would be to just compare the lowest tax rate with the highest. For example, on a nominal level, the 2003 rates range from 10% to 35%, for a progressivity index of 3.5 to 1. For 2002, the rates ranged from 10% to 38.6%, giving a progressivity index of 3.86 to 1. Due to the phase-outs of tax deductions and credits at upper income levels, the actual effective tax rates can be much higher than the top scheduled rate.

The more commonly use measure of progressivity looks at the actual dollars paid by the various income levels. As in this 2000 chart, the top one percent of taxpayers paid 37.42% of all income taxes, for a progressivity index of 37.42 to 1.

I was recently asked if the newly passed tax rate cuts will increase or decrease the overall progressivity of the income tax system. As shown above, the progressivity of the nominal rates has dropped from 3.86 to 3.5. However, while we won’t know for sure until after the fact, I am confident in predicting that the shift of actual income tax dollars to the higher earners will be even more lopsided. As can be seen in the debates over the increased child tax credits, more people will be paying zero income tax. By definition, this will put more of the overall tax load on the remaining taxpayers, who are in the higher income ranges.

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Posted by taxguru on July 23, 2003

Curing Tax Code Could Cure Health Insurance Woes, Citizen Group’s Study Concludes

Dealing with the President’s right flank – Bush’s big spending agenda is not sitting well with those of us who want smaller government.

Wall Street and the States – There is quite a jurisdictional battle going on over who is going to regulate publicly traded corporations and how best to protect investors. You can be sure that scammers will exploit whatever discrepancies develop between the various jurisdictions, much as Delaware has long been used as token corporate headquarters in order to take advantage of the shareholder unfriendly rules in that state.

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Posted by taxguru on July 23, 2003

One of the biggest fears many people have is outliving their wealth. Knowing how much money a retiree needs is difficult to quantify, unless you are like one man at one of my seminars in Hot Springs, Arkansas a few years ago. He claimed to have already set the date for the end of his life and was basing all plans accordingly.

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What’s In A Name?

Posted by taxguru on July 23, 2003

The most common feedback to my FoxNews article seems to be regarding the nickname I often use for the political party with a JackAss as its mascot. Many people are lobbying for other variations of the name, rather than the DemonRat term I have been using for the past several months.

Popular alternatives offered include: Dems, Dims, and Dumbocrats. I’m not sure about that last one, considering the association with Dumbo the elephant and the GOP’s mascot. The most impassioned case sent to me was the following, which I hope the sender doesn’t mind my quoting verbatim.

I must respectfully disagree with your use of DemonRat in your recent blog posted on I believe the term you are looking for in this case, referring to Wesley Clark, is DemonCrap. This is important! DemonCrap is incapable of effecting change in and of itself. It only serves as fertilizer for the seeds of bad ideas. DemonCrap is generally understood in academic circles to be the intestinal by-product left behind by the larger DemonRats like Terry McAuliffe or Hill and Billary Clinton. However, DemonCrap may also be used to refer to the stool of the lesser known, better disguised GreenRat, or even the once-thought extinct RedRat. I must ask that in the future you be more careful to make this distinction.

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Posted by taxguru on July 23, 2003

Financial probe into Harrison company hits Carroll County Realtor – The ripple effect of the Harrison Abstract collapse goes well beyond Boone County. In fact, I was speaking with Larry Montgomery last week and assumed that his deals were safe from the Harrison Abstract fiasco, when he told me that he did have clients who were caught up in that mess.

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Residence Sales

Posted by taxguru on July 23, 2003

I know that it takes a while for new tax laws to filter out into the public consciousness, especially when they represent a huge change from a long standing practice. Over six years ago (in May 1997), the tax laws regarding home sales were changed dramatically. Still, to this day, I am constantly seeing and hearing people, including some tax professionals (extra scary), working under the impression that nothing has changed and that a home seller has to buy a new more expensive home in order to avoid capital gains taxes.

I can see why some Realtors would love for this misconception to persist. The old rule requiring people to buy more expensive homes was a great stimulus for the market; especially in areas like here in the Ozarks, where home prices were driven up by transplants like us from more expensive parts of the country. Under the “new” six-year old law, a seller has no requirement to buy any new home of any price.

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