I wrote the article below for some journal in Wall Street on February 7, 2017. When there was a lot of talk about tax reform with the incoming administration. Since I am busting my butt in Greece cleaning out the family home and making other arrangements revolving the next stage of my mother’s life, meaning my time is very short, I decided to dig this up and then give each wish I listed a grade. Hope you like it. If not, complain to management for a refund lol.
Support TBB by applying for CREDIT CARDS & clicking our REFERRAL LINKS
You like my blog? Send a link to someone please!
I started my 25-year career in the financial industry as a tax accountant before I transitioned to a fee-only fiduciary adviser in 1999. During these years, I’ve seen a lot of what goes on in the financial sector.
So as the new administration prepares to make changes on the tax and other financial fronts, here’s my wish list. They are changes that I think would benefit consumers–and, admittedly, my industry.
1. Repeal the alternative minimum tax. This legislation was a knee-jerk reaction by an embarrassed government in 1969 when it became public knowledge that 155 tax filers with an annual income of $200,000 were legally paying $0 in federal income tax.
While President Ronald Reagan’s 1986 tax reforms eliminated most of the deductions that allowed this to happen, the AMT is still around 48 years after it began. Now it catches mostly middle class families instead of super-wealthy individuals. That’s because the level of income that triggers the AMT hasn’t been adjusted to today’s income levels—in fact, $200,000 in 1969 is equivalent to an annual income of more than $1.3 million in today’s dollars.
Grade B: The changes have almost eliminated the AMT for individuals. It would now apply to very limited occasions. This past year with the new tax law none of my clients were hit with the AMT tax and I expect this to continue. I would have loved to see it eliminated completely but you can’t have everything. And…the corporate AMT was left intact, boo! And this is why this grade went to a B and not an A.
2. Simplify and reduce taxes. Why stop at the AMT? Let’s go for real tax reform. The U.S. tax system is ridiculously and unnecessarily complex.
The federal tax code has 2.4 million words, up six-fold from 409,000 words in 1955, according to the Tax Foundation. Americans will spend 8.9 billion hours and $409 billion complying with IRS tax filing requirements this year.
President Reagan reduced the highest federal income tax rate from 50% to 28%, but that didn’t last long. It’s now up to 39.6%.
Meanwhile, American corporations face the highest tax rates in the world. The U.S corporate tax rate is 35%, whereas the global average is 25%. The tax rate has barely changed since 1986 and since then, other countries have cut their rates aggressively. The U.S. rate is two to three times higher than its direct competitors, like the U.K. (20%), and Ireland (12.5%).
Grade C+: With the increase in the standard deductions (and elimination/limitations of itemized deductions) many more taxpayers would not be itemizing their taxes. Which does mean that tax compliance would be easier. And corporate taxes were slashed to 21% to make them finally more competitive with other countries which I think it is very positive. But of course the tax lawyers and CPA lobbies did their thing to influence things go their way and an incredibly complex tax measure was passed into law that allows non incorporated entities to deduct up to 20% of their business profits. The law has so many holes that it would keep CPAs busy for several years. And we are already seeing efforts to patch up several provisions to please…other lobbying groups. Hey, democracy, smh!
3. Teach personal finance in public schools. As a foreign-exchange student my first year in the U.S. in the mid 1980s, my excitement to sign up for a class titled “Home Economics” was quickly deflated when I discovered the curriculum wasn’t about managing personal finances. It was a class where I could learn how to make pancakes and similar life skills.
We have math, science, English, yet we graduate students who are totally unprepared for a crucial life skill—managing the money they’ll earn. It’s past time to change that.
We need to graduate fiscally responsible citizens who understand that racking up $1,000 on a shopping spree and making the minimum credit-card payments will cost them $516 in interest and take 7.2 years to pay off.
They need to know how to create and manage their personal income and spending budget, how consumer debt and mortgages work, what choices they have to save and invest responsibly, how compounding interest works, and so on. Start in elementary school…or middle school…or high school. Just get the classes going. Will it work? It certainly can’t hurt.
Grade: Inc. This is a long term battle, a marathon. Battles are being won around the country. There was a state that mandated teaching of basic personal finance in primary education, I can not think the name of it right now. (North Carolina?). We are making excruciatingly slow progress. But it is progress nevertheless!
4. Institute real standards for financial analysts, experts and everyone else telling consumers how to save, borrow and invest. It’s amazing how anyone can be a financial planner or adviser these days—so it’s up to consumers to do the homework on the individual’s credentials and experience. And the confusion begins with a plethora of possible credential designations and the various organizations providing the certifications. You’ve got advisers, specialists, financial planners and analysts—everything from ABA, CLU, CFP, CFA, CFS, ChFC, CIC, CIMA, CMT, CPA, and MFP to PFS.
In this alphabet soup of financial designations, the certified financial planner (CFP) is the most highly recognized and recommended for giving personal financial planning advice (and, in the interest of full disclosure, the one I have). Becoming a CFP also requires qualified work experience and that’s important. The CFP designation should become the standard and we should rally behind it if we want to elevate our industry to a true profession.
Grade F: This remains a fantasy. No wonder any dweeb can blog and sell credit cards in whatever way imaginable and no doubt some of these who fall for them end up…subsidizing the rest of us. Yes, ANY dweeb can do this. And it is likely not going to change for a long long time—–>bank lobbyists.
5. Stop measuring advisers and brokers by assets under management. While it’s an easy statistic for journalists to verify and quote, it means nothing in terms of competency of the adviser.
Certainly there are more predictive credentials to ask about and report, such as how many clients do you have that you personally deal with? Or, what is your client retention rate? Or even, what experience do you have working with people in my situation?
Grade F: This is done because it is easy. And lazy for the media to come up with something else because it would require…more work and they ain’t got time for dat! Barrons has an infamous list of the Best Financial Advisors in America that is full of wirehouse brokers listing their assets in management…it’s like a gang of smooth fraternity bros comparing body part sizes or something…
6. Apply the fiduciary standard to all financial advice, not just retirement accounts.
An executive order by President Trump last week has called into question the fate of the fiduciary rule, which had been expected to go into effect in April. And there has been lots of confusion since its issuance.
I am a firm believer in the rule, under which brokers would no longer earn commissions unless they agree to do so pursuant to a best interests contract agreement with the client. It’s a huge step in the right direction requiring transparency and disclosure—stating that brokers can only earn “reasonable compensation” for giving advice in the “best interest” of their clients.
Other countries have enacted more stringent reforms than the fiduciary rule with positive outcomes. In the U.K., for instance, the ban on commissions has actually created an environment that is better for both the industry and advisers. An unexpected consequence of the separation of fees from products has led to advisers better understanding the needs of clients and articulating the value they provide, which has resulted in clients who are willing to pay for an adviser’s expertise.
Grade F: The new US administration has turned the clock back to square one pretty much. These phuckers killed the fiduciary rule which, after many many years of efforts, we managed to get it to pass sooooo close. Unbelievable harm done to consumers. Thank the Wall Street firm lobbyists again who have managed to own the legislators for….ever! SICK! Think about it…you should advise people who rely on your advice based on what is best for them…why is it so hard huh? THINK!
7. Fight tax identity theft. In the 2013 filing season, it was estimated by the Government Accountability Office, that the IRS paid $5.2 billion in fraudulent identity tax refunds. That was the year one of my clients got victimized and it was awful and lengthy experience to resolve.
A step in the right direction is a new law that requires the IRS to hold refunds tied to the Earned Income Tax Credit and the Additional Child Tax Credit until Feb. 15. The hold allows the IRS to match information from forms W-2 and 1099 with information reported on tax returns; in prior years, refunds could be issued before forms were matched, increasing the likelihood of fraud.
But is that enough? The IRS still has difficulty telling if the person filing the return and claiming the refund is actually the real taxpayer. The IRS needs to take a lesson from the credit-card companies, which are much better at flagging suspicious charges before they are paid out.
Grade B: Everyone likes to beat up on the IRS. Not me. Based on what they do and the lack of resources (think budget) they have been dealt with…they do the best they can. And on this issue they have done great progress indeed. Has this problem been eliminated? Nope! But they have managed to limit it to a great extent. I do not have exact stats handy right now but the number of tax identity theft instances have dropped a great extent. And they continue to do so. One way for you to help fight this is always: FILE EARLY!
And I leave you with this…Yeah!
Follow TBB on Twitter @FlyerTalkerinA2.
You can subscribe to TBB below, winners only!
Opinions expressed here are author’s alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.
But your reforms would do away with graft!
Gracious!
Hope things are ok there.
Silver! For the Pacific North West!
Been there doing that kind of stuff for Dad years ago, George. Pace y0ourself and take good care of yourself AND your mom! Best wishes, man!
Personal Finance in High School? I wish they’d teach kids to read in high school or start them towards a trade that they can use to get a job after HS if they arent going to college. Personal FInance seems like a pipe dream when the % of kids who leave HS and cant read is so high.
The Amazon Prime Channel has a movie free streaming you might like called CBGB staring Alan Rickman and others……good fun
8. Stop taxing weed
Back in the day, there was a small percentage of Pilots (usually Captains) who were egotistical assholes who would treat the flight attendants like The Help….It didn’t happen often but I was aware of it happening on more than a couple occasions that the F/C flight attendants put Visine Eye Drops in the Pilots coffee. That stuff will have you running to the toilet faster than Chia seeds
take that Stroopwaffle lover