Quiet Changes in Taxation, or the Underhanded Destruction of the Middle Class


During the election, pollsters consistently showed that for the majority of voters “the economy” was a primary concern.  Unfortunately, nobody asks the test contingent what exactly they mean when they blacken a little circle next to “The Economy” and why they believe in new elects having any impact on it. 

In reality, for most people, the economic worries amount to “I don’t have enough money to survive and I hope the President will make sure that I do.”  I can hear the audience laughing.  I’m laughing too – through tears.   

“Economy” is a very broad term.  It includes creation of the new jobs (the best hope for it are the small businesses, which don’t get government subsidies and bailouts); reduction of the national debt (it would result in less of the tax money going into paying interest to the foreign lenders, but the counter keeps ticking upward); the trade deficit (well, that’s an ongoing joke); domestic treasury (the interest rates have been at the record lows for years now, nevertheless the equity and debt markets jump up and down like a rabbit and a frog); foreign monetary policy (the only time the dollar gets stronger is because other currencies tumble), etc.   Oh, politicians of all ranks talk a lot about these issues, but they are like birds: a lot of chirping and wing-flapping, but there is no way they can do anything useful with those feathered extremities.

I’d say that the only part of “the economy,” on which the government has a direct, visible, and tangible impact is TAXATION.  Three months ago I offered my opinion on the pre-election debates around the tax cuts and ridiculous $250K “middle-class” ceiling.  Well, at least those topics were brought into public view, brightly spot-lighted by all respectable publications, both in print and on the web.

But there are IRS changes that quietly undercut the fiscal well-being of millions of middle-class taxpayers, while remaining largely misunderstood and unnoticed.  From time to time they are briefly mentioned in the secondary business media, such as the WSJ blog, or discussed on specific accounting and taxation sites, but I believe everybody should be urgently educated on these financial assault weapons.  We should be screaming about them.

Among these painful tax issues, the Alternative Minimum Tax (AMT) is a biggie.  The general public is very intimidated by the AMT concept because the tax preparers are not willing to divulge their “trade secrets.”  But the majority of financial professionals who don’t make their living in personal taxation, including me, have no problem clarifying that it’s exactly what it sounds like: the other method of calculating your tax liability, different from the conventional method.  Both methods must be applied and the one resulting in the higher taxes must be elected.   

The AMT approach seemingly follows the familiar chain of Gross Income, less adjustments, less exemptions, less deductions, less credits.  However, the structure of the reductions used to arrive at the taxable income and the way the flat AMT rate is applied make a big difference.

First of all, AMT disallows a large portion of the itemized deductions, including 100% of state and local taxes, plus a big chunk of medical expenses as well as of mortgage interest.  Moreover, while maxed at a seemingly lower flat rate (28%) than the top tax bracket (35%), AMT frequently yields higher results, because it’s applied evenly to every dollar, starting with the very first one.  To contrast: regular method uses a progressive scale, wherein the first dollar is taxed at 10%,$8,701-st (for singles) at 15%, etc.; the 28% rate kicks in only after you reach $85,650 and 35% is applied to incomes over $388,850. 

Still, for many years this alternate methodology was kept at bay by the legislature, impacting only the big earners (2.7% of US taxpayers, or 3.8 million households).  The instrument of taming the AMT was the level of exemptions (non-taxable income).  In 2011 they were: $74,450 for married taxpayers filing jointly, $48,450 for singles and the heads of households, $37,225 for married couples filing separately. 

But everything changes now.  33 million will end up paying significantly more money to the federal government, because (unless a sensible decision is passed before the end of the year) the exemptions will drop to, respectively, $45,000, $33,750, and $22,500, bringing the AMT to new heights.

As I said, this is a big one and it’s shocking that people are not talking about it every day at the water fountains.  However, there are even quieter changes in the Internal Revenue Code that lick the butter away from your bread.  For example, I have not seen any articles in newspapers or magazines addressing the fact that all of a sudden over-the-counter (OTC) medications were disallowed from the medical portion of itemized deductions.  And the $2,400 cap on pre-tax contributions into medical flexible spending accounts (FSA) went absolutely unspoken.  It just happened.  

I estimate that between changes in OTC, FSA, and AMT, my tax bill for 2012 will be $10,000 higher than it would be without these alternations.  I cannot help myself feeling violated.  Don’t you?                 

Quote of the Week: Relativity of Existence


Images-2"I have an existential map.  It has 'You are here' written all over it."

                                Steven Wright

 

 

 

 

 

 

 

 

MTA vs. Sandy, or The Frustrated CFO Now Predicts the Future



Slide_260456_1705977_freeEver since the "tempest" of August 2007, the MTA has been trying to assure the City that never sleeps that their bosses are not snoozing either, that they are awake and active, doing everything they can to protect NYC's transit from water disasters: they reported on elevation of ventilation grates and "building of other defenses."  (Isn't it amazing how vague and unspecific the reports of supposed efforts are?)  Anyway, they've spent nearly $100 million "making sure" that they can say to the water, "No Pasaran!" 

How much of that money was used for actual work and how much was appropriated to service MTA's $31 billion debt (i.e. to pay interest) or cover $900 million gap of its annual operating budget (including executive salaries) - that we will never know.  Yet, the City, even though fed up with MTA's bullshit, had no choice but to stick to "positive thinking" and hope that "everything will be Ok" (there is a reason the subway riders still clutch The Secret to their embattled chests, keeping it at a #1 spot on Mental and Spiritual Healing bestsellers list).  

And then, Sandy, the wild child of the thoroughly raped Mother Nature, rowed in on a high tide.  Her rage wasn't even that hard core.  She wasn't planning on avenging all human sins against the poor planet.  At no point she's raised her fists above 42 mph.  But the relatively moderate amount of liquid she spat out choked the MTA to a total standstill.  New York's ancient and pretty much dysfunctional drainage system couldn't absorb the incoming water and it went in straight through those elevated ventilation grates and whatever other openings it could find.     

Newspapers and bloggers write that MTA's workers heroically battled the consequences of Sandy's anger.  And that is absolutely right.  Individual employees on and under the ground toiled around the clock in harsh conditions.  As one comedian said many years ago, "We need to create disasters, so that we can have heroes."  However, I imagine that while they were struggling,  their bosses were singing hosanna to the storm for giving them stronger justifications to ask the public for more money, for much-much more money.

Liberals laud governor Cuomo for declaring in his post-Sandy speeches that we now live in a new climate reality, that people should get used to storms and hurricanes.  (Big Fucking News! Some people have been screaming about it for years, for decades, and nobody wanted to listen!).  The gratitude for stating the obvious makes the confused people hot for Andrew to the point that their urine boils inside.  They overlook a simple truth that no politician does anything without a politically-motivated reason. 

Yes, environmental policy, including eco-friendly transportation and energy efficiency, have always been a part of Andrew Cuomo's platform, but I don't remember him ever saying before that New York has become a target of continuous hurricanes.  It's not that he is wrong – we have pushed the climate conditions into the dangerous territory.  It's the timing of these "revelations" that bother me.  Call me a cynic, but I hear an already familiar pattern here: the dark clouds are gathering over us, so the sacrifices for the sake of protection must be made.      

And now, I will try to foretell the future events that will materialize out of this predicament.  First – the rise of the transportation costs.  The MTA already announced the impending hike (yet another one) of the tolls and fares to go into effect in March 2013.  I predict that the Authority will use Sandy to justify much higher increases than usual.  Originally they said that new city transit rates may go up to anywhere between 5% and 25%.  I am sure that it will be at least 25%, most likely even more. 

Then, the NYC government will be called into action to pitch in and, as a result, some sort of an additional levy will be imposed on NYC residents, both individual and commercial.   Eventually, the State will do the same.

And you know what, we will not even complain.  We will accept it as inevitable necessity.  It's like with all "security" issues.  Do you want another 09/11?  Of course, not.  So, submit yourself to surveillance cameras and telecommunications monitoring; take off your shoes and get a shot of X-rays in the airport.  Do you want to be paralyzed by the absence of transportation and electricity next time the City is hit by the storm (and remember – it's going to happen soon)?  No?  Then, pay up and shut up.

Quote of the Week: No Pain, No Gain


   
Michelangelo Sistene Chapel "In Italy, for thirty years under the Borgias, they had warfare, terror, murder, and bloodshed, but they produced Michelangelo, Leonardo da Vinci, and the Renaissance.  In Switzerland, they had brotherly love, they had five hundred years of democracy and peace – and what did they produce? The cuckoo clock."

 

                            From the movie "The Third Man" (1949)

        Written by Graham Greene, directed by Carol Reed                               

Boardwalk Empire’s Gyp Rosetti – the Scariest Boss Ever


Gyp RosettiAnd not because he is a mafioso toting interchangeably a Smith & Wesson, a tommy gun, a wrench, or a shovel.  Gangsters can be good bosses too.   I mean, a boss like Vito Corleone is a chief executive of mythological proportions: someone with his own strict moral and professional code; he'd destroy his enemies, yet he treats his loyal employees like family, and, in return, they are ready to take a bullet for him.   

No, Gyp Rosetti is the worst boss ever, because he is so fucking impulsively unpredictable.  With Gyp, you just never know what the fuck is going to short-circuit his neuro-system, how he is going to react to a word, a jest, a facial expression.  One moment he seems to be okay and a second later he explodes into a bloody violent feat on account of somebody's hat or stance.

Of course, the compulsive violence is a typical response in men who are surrounded by domineering, dismissive women at home.  The notorious Red Ripper Andrei Chikatilo, convicted of 52 murders of women and children, was famously abused and treated like dirt by his wife.  Gyp Rosetti, when at his home in Brooklyn, is vilified not by one, but four pesky women: his wife, mother-in-law, and two daughters.   Not that his household circumstances absolve him, but at least it makes the craziness explainable. 

It's a miracle that members of Gyp's crew talk and do anything around him at all; that they are not completely paralyzed by fear.  Somebody says something, Gyp does a double take, and everyone just fucking freezes, trying very hard not to look him in the eyes.  That stare that Bobby Cannavale mastered – the one of a cobra doing her hypnotizing trick on its pray before the attack, I've seen that look before, frozen on the face of one very cruel CEO. 

It would be easier if Gyp Rosetti was simply an authoritarian ruler, giving strict orders and expecting absolute obedience without any talkback. But he is tricky, sadistic.  He actually puts his employees on the spot, asking them questions, wrenching their opinions out of them, looking for a reason to explode.

You cannot possibly find a sensible way of acting around people like that.  Unquestioning compliance, dutifulness, and composure can rile them up just as quickly as independent opinion, defiance, and anxiety.  Gillian Darmody (Gretchen Mol) tries her darnedest: "You are always welcome here, Mr. Rosetti.  Make yourself at home, Mr. Rosetti."  And still it's uncertain that she is safe.  I keep thinking that Gyp's sexuality is a better guarantee for her than her sly ways.  The Sicilian boy has a soft spot for the white meat with porcelain skin and red hair (don't we all?), so he cuts her a bit of slack.  But how long will that last?

If you think that the Gyp Rosetti-type exists only on your TV screen, you are wrong.  There are plenty of them out there, exercising their unpredictable despotism in the boardrooms, corner offices, production floors, living rooms.  While most of them don't shoot people in the face or beat them to death, they do plenty of damage by inflicting destruction on people's self-esteem, psychological balance, emotional well-being.    

What kind of advice can one give to people who work for Gyp Rosetti's clones?  "Run away as fast as you can" comes to mind first.  But what if you can't?  Many of Gyp's "subordinates" were recent immigrants who at the time couldn't find any work at all, had no means to feed their families.  By the same token, if you live in a town, where everything is owned by the same family with a brutal patriarch (sounds like an early last century novel, but still as valid today as ever), you are stuck with him as your boss.  It's not like the national job market offers too many opportunities nowadays.  If that's your predicament,  you'd better rely on your survival instintcts and intuition: you are under constant pressure to make split-second decisions on how to act and what to say.  And you'd better pray that you make the right ones…