It’s shaping up to be a most interesting year on the tax front. A recent Freakonomics quorum focused on potential tax-policy mistakes that might be made this year, with so many issues up in the air. It brought up concerns about everything from expiring tax cuts to the federal deficit to the lack of clarity surrounding even this year’s tax code.
So here’s your chance to get a little bit of clarity: Michael F. Mundaca, the Assistant Secretary of the Treasury for Tax Policy, has agreed to field questions from Freakonomics readers. Mundaca’s primary duty is to “advise[s] the Secretary on all aspects of Federal tax policies and programs, including their development and implementation.” Mundaca also served in the Treasury Department during the Clinton and Bush administrations, and was a partner at Ernst & Young in Washington, D.C.
Post your questions in the comments section below and, as always, we’ll post his answers in short course.
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Why is it fair for retirees earning $60,000 per year to pay the highest marginal federal income tax rate? My total annual income is about $25,000 Social Security, $10,000 401(k) distributions, and $25,000 self-employment income. My marginal federal income tax rate is: 25% +21.25% (Social Security recapture) +12.4%(self-employment tax) = 58.65%
Having paid a minor differential due to the AMT in two separate years, two things have stuck in my mind regarding AMT: first, it seems to be in implementation, more or less the “flat tax” Grover Norquist and the like are always gasbagging on about; and second, it doesn’t seem like it would have been difficult to tie the cutoff limit to some other federal definition of inflation such as the CPI-U or COLA.
I gather that in olden times, “the law” as an entity didn’t have a good understanding of inflation, but it seems that in the last 50 years, the federal government now has a good institutional understanding of inflation. The question remains, why can’t the AMT limits (and the annual process of adjusting other income limits for marginal rates, IRA contributions, and so on) just become automatically tied to some federal measure of inflation? Why does every Congress need to twiddle the dials on these amounts? Is “always having cutoff amounts in political play” some kind of degree of freedom that tax policy horse trading needs?
With all due respect to Mr. Mundaca, shouldn’t the real tax expert Timothy Geithner be answering questions? I’d be particularly interested in how I could avoid paying my taxes for several years and still have my cushy government job.
@bmz,
Good question. I also have a retirement income and a second job and I’m getting screwed on the marginal tax rate as well.
Do you think the FairTax will have a chance to be passed in the near future? What is it going to take to get more public support for the FairTax? I think if more politicians started to speak out about it and educated the public it would gain more support, but the politicians don’t want to show support for it because most people will hear a 23% sales tax and automatically be against it without understanding how it really works.
If we want to create jobs in the US, wouldn’t it be a good idea to substitute a VAT tax for payroll taxes? For example, suppose the first $20,000 of income had no payroll taxes levied against it while revenue losses were recovered by imposing a 5% VAT tax.
Is this really a good year to die–Tax Wise?
And do you expect an uptick in deaths as the calendar year ends? Have we ever seen a similar incentive to die and did it spur deaths?
Has anyone figured out exactly how it is going to work for same-sex married couples in community property states like California? My accountant still has no clue…