This issue includes a seasonal cornucopia of tax-related news: a new tax guide, good news from Social Security, and thoughts on tax revenues and the “tax gap.”
Our sister company Woodstock Services Company is providing an electronic version of a 2021-2022 Tax Planning Guide on our website. There are good tax rule explanations and good tax planning tips throughout its 26 pages, particularly on executive compensation (pages 6-7) and on estate planning (pages 22-23). If you have any specific questions about the annual guide’s contents, don’t hesitate to contact us.
There is a piece of good news for “the nation’s 60 million Social Security recipients.” The Cost-of-Living Adjustment (COLA) for next year’s social security payments is 5.9%, as announced in October. This would be the largest COLA since 1982. The average COLA for the last 14 years has been 1.4 percent.
Any discussion of tax rules changes should keep in mind the sources of tax revenue that the federal government relies on. From 2015 to 2019, estate and trust income taxes, estate and gift taxes, and excise taxes together provided approximately 4% of total US tax collections. Business income taxes provided between 12% and 8%, declining over the period. All other tax collection came from individual income taxes and employment taxes, 84% to 88%, increasing over the period. The grand total collected was a little over $3 trillion per year.
The best explanation of what the proposed federal government push to “close the tax gap” would actually look like came in a recent letter to the editor in The Wall Street Journal: “Let me tell you how enhanced audits would go down. Returns of rich folks are complex and they hire accountants and lawyers to defend them. So the local director will insist his agents lean on grandpa and grandma and extract a little from each audit through intimidation.” On top of that, the Congressional Budget Office estimates that the tax gap is not $700 billion, but closer to $200 billion because of the law of diminishing returns. Informed tax collection tries to move from forced extraction to an art. As the Frenchman Jean-Baptiste Colbert once said: “The art of taxation consists of plucking the goose so as to obtain the most feathers with the least hissing.”
If you or any of your other advisors have questions about the issues raised here, please contact your investment manager or one of us.
William H. Darling, CPA – Chairman & President
Jeanne M. FitzGerald, CPA – Tax Manager