[Swiftwater Gazette] Taxes - Things That Make You Go Duuuuuh!

[Brad Haslett]

Upper-Income Taxpayers Look for Ways to Sidestep Obama Tax-Hike Plan
President Would Slap More Taxes on Those Who Make Over $250K to Fund Health Care
By EMILY FRIEDMAN

March 2, 2009 —

President Barack Obama's tax proposal  which promises to increase
taxes for those families with incomes of $250,000 or more -- has some
Americans brainstorming ways to decrease their pay, even if it's just
by a dollar.

A 63-year-old attorney based in Lafayette, La., who asked not to be
named, told ABCNews.com that she plans to cut back on her business to
get her annual income under the quarter million mark should the Obama
tax plan be passed by Congress and become law.

So far, Obama's tax plan is being looked at skeptically by both
Democrats and Republicans and therefore may not pass at all.

"We are going to try to figure out how to make our income
$249,999.00," she said.

"We have to find a way out where we can make just what we need to just
under the line so we can benefit from Obama's tax plan," she added.
"Why kill yourself working if you're going to give it all away to
people who aren't working as hard?"

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The attorney says that in order to decrease her income she'll have to
let go of clients, some of whom she's been counseling for more than a
decade.

"This means I'll have to tell some of my clients we can't help them
and being more selective in general about who we help," she said. "I
hate to do it."

Obama's budget proposal calls for $989 billion in new taxes over the
next 10 years, most of which will be earned from increased taxes on
individuals who make more than $200,000 and from families who make
more than $250,000.

The expiration of the Bush administration's tax cuts at the end of
2010 would garner an estimated $338 billion, $179 billion would come
from the elimination of some itemized deductions for higher-income
taxpayers and $118 billion would be brought in from a hike in the
capital gains tax. The remaining $353 billion would come from taxes on
businesses.


Dr. Sharon Poczatek, who runs her own dental practice in Boulder,
Colo., said that she too is trying to figure out ways to get out of
paying the taxes proposed in Obama's plan.

"I've put thought into how to get under $250,000," said Poczatek. "It
would mean working fewer days which means having fewer employees,
seeing fewer patients and taking time off."

"Generally it means being less productive," she said.

"The motivation for a lot of people like me  dentists, entrepreneurs,
lawyers  is that the more you work the more money you make," said
Poczatek. "But if I'm going to be working just to give it back to the
government -- it's de-motivating and demoralizing."

Can Obama's Tax Plan Be Gamed?

Gary Schatsky, a financial adviser and the president of N.Y.-based
Objectiveadvice.com, said that it is possible to successfully remove
yourself from the bracket Obama plans to target in his new plan.

"It's very possible that there are plenty of things you can do with
general tax planning techniques  attempting to recognizes loses,
pushing gains to years when your income is lower and increasing
retirement plan contributions  to come below $250,000," said
Schatsky.

"But Obama's proposal has yet to be hammered out and the devil is in
the details," he added.

Because we have a marginal tax system, said Schatsky, what Obama's
plan means is that the amount of tax you pay on each incremental
dollar is higher only when your income is pushed into a higher tax
bracket.

"But to focus keeping your income below a quarter million dollars is
not going to have any spectacular magic for individual tax payers,"
said Schatsky. "The difference between $249,999 and $251,000 will
probably have zero tax impact."

Schatsky said that the incentive to get under $250,000 may be more so
if the tax plan outlines that an individual who goes over a prescribed
limit would face a reduced value of their itemized deductions.

"If the value of all your itemized deductions goes from a 33 percent
level to a 28 percent level than there would be a reason for people to
do dramatic things to reduce their incomes," said Schatsky.

Peter Morici, a professor of business at The Robert H. Smith School of
Business at the University of Maryland, agrees that while it may be
possible to sneak around the taxes, it won't be as simple as some may
think.

"You have to be pretty close to $250,000 in terms of your income to
get underneath it," said Morici.

Does Obama Tax Plan Promote Class Warfare?

Morici says that he believes Obama's tax proposal could spark a kind
of class war.

"What Obama is doing is pitting the poor against the upper middle
class," said Morici. "He'll tax the rich for the health benefits
everyone else wants."

Obama has said the new taxes on those making over $250,000 would go
toward a fund that would support a gradual move to universal health
care coverage.

Supporters of Obama's budget plans say that those who are at the top
and complaining need to look at the bigger picture.

"Those who are going to be taxed more are obviously going to complain
but I think they may miss the point," said Lisa Rotenstein, the chair
of the Harvard Healthcare Policy Group at the Institute of Politics.

"This could have broader implications for the American economy as a
whole  improved health care means a healthier workforce that is more
productive," said Rotenstein.

But Colorado dentist Poczatek says those who support the increase in
taxes misunderstand what it means for those who will end up paying
more.

"I'd like these people to know that we pay a lot of taxes, and have
been paying a lot of taxes through the past administration," said
Pcozatek.

"We make a lot of money, it's true, but we also already pay a lot of
taxes," she said.

"So maybe we got a little bit successful but we worked very hard," she
said. "It's taken us over 30 years and it didn't happen overnight.
Every day is a lot of work.

"We're working for it and we're still overtaxed."