Happy Tax Day if you filed for an extension.
What’s different this year? Inflation means that ordinary schlubs can pay tax rates that were sold as applying only to the elite. The Obamacare “Net Investment Income Tax” of 3.8 percent on top of ordinary income and capital gains taxes, for example, wasn’t supposed to hit Joe Average. But what if Joe Average tried to escape the lockdowns and school closures in California by selling a house and moving to Texas? Adjusted for inflation in the real estate market, his house might not have gone up in value at all. In other words, his purchasing power from selling the house to buy a different house wouldn’t have changed (probably reduced, actually, in terms of how big a house in Austin can be purchased with the proceeds from selling a house in California). But almost surely he will have more than $250,000 in nominal gains. This is all an illusory inflation-driven “gain” and the tax code recognizes that to a small extent by excluding the first $250,000 of house price inflation. But on the rest of it, Joe will have to pay California capital gains tax, Federal capital gains tax, and an additional 3.8 percent for Obamacare. From the IRS:
The Net Investment Income Tax does not apply to any amount of gain that is excluded from gross income for regular income tax purposes. The pre-existing statutory exclusion in section 121 exempts the first $250,000 ($500,000 in the case of a married couple) of gain recognized on the sale of a principal residence from gross income for regular income tax purposes and, thus, from the NIIT.
How about a wage slave? If he/she/ze/they was earning $170,000 in 2019 and got bumped to $210,000 in 2021, his/her/zir/their spending power is actually lower due to raging inflation. Yet now he/she/ze/they is subject to the 0.9 percent Obamacare “Additional Medicare Tax” due to having income over a fixed threshold of $200,000 (soon to be the price of a Diet Coke?).
From Delray Beach, Levy and Associates:
What kind of people are paying the bill for all of the great work done by Congress and Joe Biden? From the haters at Heritage Foundation:
In 2018, due to the cruel policies of the dictator Donald Trump, the rich Americans who earned 21 percent of all income paid only 40 percent of income taxes. Separately, keep in mind that the above chart relates to cash income. A person could be in the “Bottom 50%” with $0 in W-2 income and still have a spending power and lifestyle better than someone earning $50,000 per year (in the “25%-50%” column) due to means-tested public housing, health care, SNAP/EBT, smartphone, and broadband. See “The Work versus Welfare Trade‐Off: 2013” (CATO) for the states where being on welfare leads to a larger spending power than working at the median wage. Maskachusetts is #3 in Table 4, with welfare being worth 118% of median salary.