The purpose of taxation is to raise money for our government. When designing our tax system Adam Smith resolved certain principles as guidance: Smith required our tax system to be equal (in proportion to each person’s share of the tax base), certain (so people knew exactly how much they owe), convenient (so the tax assessments arose as the taxpayer’s received the income), and efficient (a low cost of collection leaving the largest portion possible for government spending needs).
Similarly, the 1995 Joint Committee on Taxation refined these elements by asking:
1) Does the tax system hinder or promote economic efficiency?
2) Is the tax system fair?
3) Does the tax system treat similarly situated people equally?
4) Can people compute their taxable incomes and file their tax returns?
5) Can the tax system be easily administered at a low cost?
6) Does the tax system afford due process to all taxpayers so taxpayers have the ability to object to arbitrary and capricious application of tax laws?
Today, the public and tax experts alike cry for tax reformation because the current system stifles economic growth preventing the economy from prospering. The Heritage Foundation claims the current tax system, with double taxation on business income, savings, and investment, is biased, reduces incentive, discourages entrepreneurial risk taking, and is full of politically motivated credits, deductions, and exemptions. As an example, the Heritage Foundation points to the myriad of tax breaks for production and consumption of politically favored energy products, and the fact that the United States imposes the highest corporate tax rate of any country among the OECD (the 34 most industrialized countries in the world). Further, the US tax system is the only system taxing companies on their earnings world-wide (as opposed to only taxing their domestic income) creating incentive for US businesses to merge with foreign companies and move investment and production offshore. Such mergers shrink the US economy and exports jobs and capital abroad.
Tax experts Curtis Dubay and David Burton adds economic theory to the elements of tax policy with the following principles: 1) raise the least revenue required to fund constitutionally appropriate government activities, 2) apply lower rates to a broader base, 3) do not impose unreasonable burdens to anyone, 4) apply the tax system consistently without special privileges, and 5) minimize interference with free market and free enterprise. Dubay and Burton also argue that the complexity of our current system burdens taxpayers with a high cost of compliance.
The foregoing elements of our tax system are helpful when considering the respective tax policies advanced by Hillary Clinton and Donald Trump together with criticisms of their opponent’s proposals.
Are the fact checkers telling us the truth about the Presidential candidates’ statements regarding proposed tax policies? Examining the details of the so-called fact checking sites making True or Pinocchio claims reveal the “True” and “Pinocchio” designations are themselves cloaked in rhetoric and word play. This layman’s term easy to read article reveals the truth behind our candidates’ tax policies and the fact checking scores reported by the media.
Tax policy is a hot 2016 election topic because of the economic strife plaguing American families for almost 20 years. Liberals typically propose higher taxes blaming the wealthy for the struggles of the poor. The liberal tax mantra claims higher taxes on the “billionaire class” will fund bigger government spending packages to help the poorer families gain education, health care, and other benefits that ultimately serve to bridge the income inequality gap. Conservatives typically propose lower taxes arguing that allowing people to keep more of their own hard earned money promotes market efficiency, shrinks the government influence over American citizens resulting in greater freedoms, and promotes individual savings and business investment that generates jobs, increases our nation’s gross domestic product, and strengthens the American economy.
Of course the liberals claim lower taxes are a tool for increasing the income inequality because the wealthy, keeping more if its hard earned money, become more wealthy and ultimately increases the inequality of wealth in America. Instead, making the billionaire class pay more leaves them with plenty while funding government programs making sure poorer families have food, housing, and opportunity for advancement through education. It is hard to argue the merit of such a plan if this were the case. However, conservatives argue that the liberal spending packages irresponsibly waste money by helping big business with side deals, giving billions to countries that hate America, and funding social programs that are abused resulting in the perpetuation of inner city problems instead of curing them. Can these views be reconciled?
Hi, I’m Whitney Sorrell with the Sorrell Law Firm in Scottsdale, Arizona, and you’re watching Whitney’s Tax Files. Today’s question comes from a client who’s asking whether they can avoid probate with the use of small estate affidavits.
Now small estate affidavits come in two varieties. The first is a personal property affidavit. A personal property affidavit would be effective if the total value of all the personal property in the estate does not exceed $75,000.00 USD. There’s also a real property affidavit. A real property affidavit is effective if the value of all the real property in the estate does not exceed $100,000.00 USD.
Now when we’re looking at the value of the property, we’re looking at the net value, the net equity. So you’re going to look at the fair market value minus any mortgages or leans filed and recorded against that property, and that’s going to give your net equity. For a real property affidavit to be effective you have to bring it to court and have the court approve it.
Once approved, you’re going to record that real property affidavit together with a certified death certificate, and that would be effective to transfer the property. The personal property affidavit does not need court approval. You can just execute the personal property affidavit and deliver it to the person holding the property, and they give you the property.
So those are the methods of avoiding a probate for a small estate. If you have any questions or if you need any help with this type of a matter, please give us a call at 480-776-6055. When you call mention that you saw us on Whitney’s Tax Files..
What are the different methods, and what’s the difference between the different methods of taking title to real property?” “Should we take title as tenants in common, as joint tenants, or as community property with rights of survivorship?”
Tenants in common is where two people own a undivided interest in their property. If two people come together, they each own a 50 percent undivided interest as tenants in common. Joint tenants is similar to tenants in common, but if one person were to die, the joint tenants has what’s called rights of survivorship. The joint tenant would then own the entire piece of property, whereas in tenants in common, if one person dies, that person’s will or trust would say where that person’s half of interest goes.
Now community property with rights of survivorship is similar to joint tenants, except this would be between husband and wife only, and in the community property estate. Now the reason why you’d want to own something as community property with rights of survivorship instead of as joint tenants is because there are tax advantages. It’s called a double step up in basis. We can talk about that another time, but there are tax advantages afforded only to married couples for having property title in this way. Thanks for tuning in to Whitney’s Tax Files.
Whitney’s Tax Files is a video segment in which Whitney L. Sorrell, JD, CPA, MBA of Sorrell Law Firm, PLC answers commonly asked questions regarding Estate Planning, Asset Protection, Tax, and Business Law. In this edition, Whitney explains the purpose of a Living Will.
“What is a living will?” A lot of confusion between a living will and a living trust. A living trust is a testamentary document that says, “Here’s who gets my assets when I’m dead, and here are the terms of them getting these assets.” A living will is very different.
A living will deals with the issue, you have a terminal health condition, you might be on life support, can we withdraw life support and let you die a natural death? The answer is any person has the right to refuse medical treatment. That right is a personal right. Someone else cannot exercise that right for you; you have to do it. The living will is the document where you exercise your right and say, “If I’m on life support, my condition is terminal and irreversible and the doctors agree, then I want my healthcare power of attorney to exercise my right to withdraw life support and let me die.” That’s what a living will does. Contact our office at 480-776-6055 to learn more!