Tax Vox’s Lump of Coal Award: The Worst Tax Ideas of 2009

By :: December 24th, 2009

As 2009 draws to an icy conclusion, Tax Vox is pleased to announce its Third Annual Lump of Coal Award for the worst tax ideas of the year. So many choices. So little time.

10.  The Roth Rollover. Let’s see, allowing people to turn their tax-deferred retirement savings into fully tax-free investments starting on Jan. 1 will be a long-term fiscal catastrophe. And in the short run, the up-front taxes people must pay to roll into a Roth could depress the stock market and damage the shaky recovery. What’s not to like?

9. The Bo-Tax and the Tanning Bed Tariff. This is what happens when you need money and won't talk seriously about revenues.

8. Obama’s Middle-Class. This is a rerun from last year, but it is too good to leave out. The President thinks we will somehow reduce the deficit and fix the tax code without raising taxes by a dime for those poor souls making a quarter million dollars-a-year or less. Unfortunately, that's 95 percent of us. Can’t wait to see how he does it.

7. Taxing the Rich. Why not let a handful of wealthy taxpayers finance all your new ideas. So let’s drive the top rate north of 45 percent, even though no one will really pay it. On the other hand, except for Barbra Streisand and those other Hollywood types, they are mostly Republicans anyway.

6. The Estate Tax. Now you see it. Now you don’t. Wait, there it is again. So what if nobody has any idea how to do estate planning anymore. On the other hand, Congress has had only eight years to fix this mess.

5. Tax-free health insurance. If Congress is serious about controling medical costs, taxing expensive employer-sponsored insurance is a good way to start. But the unions have made this a litmus test issue, and neither Obama nor congressional Democrats want to take them on.

4. California. It claims to be the fifth largest economy in the world but can’t pass a serious budget, and can’t govern itself. It is the poster child for dysfunctional state governments and fiscal crises everywhere

3. The homebuyer credit. Congress started the year by giving away $8,000 in subsidies to "first-time" homebuyers, as many as 74,000 of whom, it turned out, never quite got around to buying a house. Then, it extended the boondoggle to current owners who buy up. Bottom line: People who were already going to buy will get billions of dollars in government subsides. But you gotta make those real estate agents happy.

2. The Obama Tax Reform Panel. Not only will it fail to propose an improved tax code, it missed its own deadline. Nothing beats being both disappointing and late. “After the holidays,” the Obama people say. Does anybody care?

1. And the winner is, of course, the HAPPY Act. We've got a $1.5 trillion deficit and a Republican congressman named Thaddeus McCotter wants a $3,500 deduction for the cost of caring for our pets. Why? Because we love them.

27Comments

  1. Anonymous  ::  10:29 pm on December 27th, 2009:

    There's no number 5

  2. Anonymous  ::  1:17 pm on December 28th, 2009:

    Thanks. We've added a #5.

  3. Anonymous  ::  3:51 pm on December 28th, 2009:

    As a CPA I found it amazing how easy it was to get the homebuyer credit. Nothing was required except the form. A real invitation to fraud.

  4. Anonymous  ::  6:00 pm on December 28th, 2009:

    The repeal of the estate tax for (at least a part of) 2010 looks like it will become a reality. Even though it will be fixed – retroactively, there is a question of the enforceability of a retroactive tax due to constitutional arguments. With the estate tax scheduled to return in 2011, we will see a significant increase in homicide and suicide among the very wealty elderly persons in 2010.

  5. Anonymous  ::  6:11 pm on December 28th, 2009:

    Yeah let's keep cutting taxes on the rich. we've been doing that for 30 years now and we are far better off…..if you are a spoiled brat who was handed everything. While we are at it yeah tax medical insurance for working people but hands off those inheritances. I mean let's just rake working people over the coals but don't you dare touch a penny of the money handed to some spoiled teenager because of who his mommy had sex with. That is where real value comes from, who your mommy had sex with, not working for a living. After all it is the unions wrecking the country not the uber entitled heirs who produce nothing.

  6. Anonymous  ::  7:06 pm on December 28th, 2009:

    We are likely to see an increase in homicides on banksters long before 2011. Best tax idea, Financial Transactions tax. This taxes non productive activity of the Wall Street exploiters and gamblers. Second best, 100 percent inheritance tax, zero percent income tax. That way people keep what they earn and are encouraged to earn it rather than fluff off of Mommy and Daddy. Worst tax idea, taxing health insurance at least until we make health care a public utility like water, police or fire protection.

  7. Anonymous  ::  7:35 pm on December 28th, 2009:

    we will see a significant increase in homicide and suicide among the very wealty elderly persons in 2010.
    They will die anyway with the new health insurance reform. Look at the bright side. They won't have to kill themselves or get murdered. So the crime rate will go down.

  8. Anonymous  ::  7:40 pm on December 28th, 2009:

    You fail to understand the difference between tax rates and tax revenues. Overall, the tax rates paid at the different brackets have gone down. However, the actual taxes paid by “the rich” have gone up. The percentage of total federal income taxes paid by the bottom 50% of wage earners has declined year after year. They now pay less than 5% of all income taxes. Sounds like you've drank too much of the class envy Kool Aid.

  9. Anonymous  ::  10:15 pm on December 28th, 2009:

    Re #9: Apparently the tax on certain “medical devices” is still in the bill. A great way to reduce the cost of healthcare, no? And it includes taxing motorized wheelchairs, of all the Grinchy ideas.
    Re #5: There does seem to be a tax on “gold-plated” health plans, but unions representing the longshoremen, etc. managed to get themselves exempted.

  10. Anonymous  ::  12:25 pm on December 29th, 2009:

    Great list… too bad you left off the Massachusetts legislature's raising the State Sales tax from 5 to 6.25%. With tax-free goods less than an hour from most residents it's been laughingly dubbed “The New Hampshire Stimulus Package”

  11. Anonymous  ::  1:32 pm on December 29th, 2009:

    I have to say that I've never seen that advantage of doing a rollover into a Roth. Right now, I'm at (or near) my peak earning rate, and am paying a high marginal tax rate. If I rolled money over, I'd have to pay taxes on that money this year at my high marginal rate. But when I'm retired, I expect that my income and, therefore, my marginal rate will be much lower than now. I'd rather pay taxes at a low retirement marginal rate than a high current rate. Even if overall tax rates do go up in the future, I expect my own rate will still be lower after retirement.
    Or, to put it another way — my income is fairly high now. If it's lower in retirement, I'll have made the right decision in not rolling over. But if by good fortune, I'm even richer in retirement than now? Well then I won't really be sweating the taxes, will I? The only really bad mistake would be to pay a high marginal rate on retirement funds now only to discover that, in retirement, I'd have paid little or no taxes on those monies anyway.

  12. Anonymous  ::  2:42 pm on December 29th, 2009:

    I think Pittsburgh's proposed 1% tuition tax should at get an honorable mention.
    Tom Blumer
    BizzyBlog.com

  13. Anonymous  ::  6:10 pm on December 29th, 2009:

    So since we have no manufacturing sector left, let's also make sure we have no financial sector either? That'll show 'em! Back here on earth we are going bankrupt because we are providing free health care to too many people, so the obvious solution is to provide free healthcare to more people! Brilliant!

  14. Anonymous  ::  7:42 pm on December 29th, 2009:

    There is no class envy, only a firm belief that rewards ought to be earned by a persons effort not handed to them because of who their mommy had sex with. America fought for generations agaisnt Europe'f broken down aristocratic system where privelege was inherited. Now we set it up here instead of relying on merit.

  15. Anonymous  ::  7:49 pm on December 29th, 2009:

    The financial sector is not part of the problem, it is the whole problem. The financial sector started looting manufacturing companies in the 1980's with leverage and forced them into short term strategies. Because any investment in R&D or spare cash to weather a downturn made them a takeover target to be parted by financiers operating like common auto thieves American manufacturers quit investing for the long term and handed any technical edge to the Japanese. If finance had been forced to only risk their own money through strict leverage limits and tax policy had discouraged short term speculation we would not be in the disaster we face today. It is wholly the fault and responsibility of the finance sector and the sooner they are shoved back into their holes the better off we will all be. None of them can see beyond their next drunken party.

  16. Anonymous  ::  7:53 pm on December 29th, 2009:

    Another idea whose time has come is to return capital gains to the same tax rates as ordinary income. The preference has failed to encourage productive investment and has only driven more gambling and speculation. The capital gains preference should be number one on any list of tax ideas which seemed good at the team but are actually bad.

  17. Anonymous  ::  9:03 pm on December 29th, 2009:

    Dude, you really need to let go of the class-envy stuff. You sound like a grade-schooler.
    If Rich Man Stevens wants to leave his inheritance to his bratty son, that's his choice. It's his money. He earned it. It's no concern to me.
    I'm middle-class. My dad isn't worth $200, and his house might be worth $20,000. But, I have no claim on any rich people's money.
    Grow up, take care of yourself, and mind your own business.

  18. Anonymous  ::  9:07 pm on December 29th, 2009:

    You want money… you want to earn and estate…
    GO WORK FOR IT! Quit complaining. Stop buying frivolous stuff. Save like a freaking miser. Work hard, study hard. Deny any and all self-gratification. Work 60 hours a week. Never take a vacation. Never go out to eat.
    You can do it. And, if you don't do it, you'll instill in your children the ability to do it. Within two generations your family line will have the things all the privilege they need for you to be on the other side.
    But, no… you want to tax those who have it, and make them share it with you.
    Buddy… that is NOT the American way.

  19. Anonymous  ::  9:48 pm on December 29th, 2009:

    What makes you think that you will be in a lower tax bracket when you retire? With the current congress, today's high could be tomorrows low rate. Not to mention you will be paying taxes on compounded growth. I would rather pay taxes on $100,000 today than on $1,000,000 later.

  20. Anonymous  ::  9:59 pm on December 29th, 2009:

    If you want to create jobs and help small business, get rid of capital gains! Believe me, it hasn't caused gambling or speculation in the way you mean. I bet you've never had a capital investment, if you did, you would know it's always a risk! You are saying people should be punished more for investing and taking risk….Why doesn't anyone figure out we have A SPENDING PROBLEM not a tax problem! Congress needs to STOP the bleeding of OUR tax money before it's not worth the paper it's printed on. The bank speculation was brought about by the federal government's regulations, forcing them to make bad loans to unqualified borrowers.

  21. Anonymous  ::  11:47 pm on December 30th, 2009:

    No 90 percent of the capital gains is money shuffling and speculation on Wall Street, not small business investment. Wall street activity does nothing for the economy and neither does 90 percent of the salesboy scams that pass for entrepeneurship today. Just because buying stocks on margin or hacking some company with leverage is risky does not mean it does anything of any value for the country. Neither do the derivative scams, credit default swaps, hedge funds, house flipping or fake estate finagles which have passed for business activity since reagan's regime. Time to get back to rewarding work and hammering the shysters pretending to be financiers who have ruined this country.

  22. Anonymous  ::  11:53 pm on December 30th, 2009:

    Been down that road buddy. It has not worked. No it is time to get back to rewarding work. The founders and most of the immigrants came here to get away from that garbage which ruined Europe. Let sonny boy or girlie shift for himself or herself. This class system was garbage in Europe and it is garbage here. It is not the American way. The American way is being hijacked by third and fourthe generation heirs who have no clue how to do anything but shuffle paper wealth from one pocket to the other. It is wrecking this country.

  23. Anonymous  ::  1:51 pm on December 31st, 2009:

    The BEST 2 tax ideas:
    1. Investigate how certain people turned into billionaires through methods of fraud (Madoff and friends), illegit business practices (such as Microsoft forcing people to buy a copy of their OS with every computer they buy, even if they have no intention of ever using that OS), treason (e.g. Prescott Bush and his descendants making lots of money dealing with Hitler even during WW2), or plain theft.
    Make them pay back with interest, and charge them with heavy punitive fees on top of it.
    2. Stop the corruption and increase efficiency. There are quite a few rich people who would want to help fix the debt mess, but the way things are, they know if they made a donation towards the cause, it would not actually repay debts, but line the pockets of politicians and bureaucrats entrusted with handling it.
    Fix that mess, and the money will come in.

  24. Anonymous  ::  2:24 pm on April 5th, 2010:

    I fail to see how taxing health benefits would reduce costs. That would simply make a divot on the demand side of the economic equation. But the pricing issues (led mainly by a near vertical demand curve) are more of a supply side problem.

  25. Anonymous  ::  8:07 pm on May 28th, 2010:

    The Roth Rollover. Let’s see, allowing people to turn their tax-deferred retirement savings into fully tax-free investments starting on Jan. 1 will be a long-term fiscal catastrophe. And in the short run, the up-front taxes people must pay to roll into a Roth could depress the stock market and damage the shaky recovery. Cheap Electric Guitar
    What’s not to like?

  26. Anonymous  ::  1:43 pm on October 18th, 2010:

    i am agree with you. “Tax-free health insurance” i think that medical insurances is very important and making it free allowed to the people to make one. so the number of Insurance grows. the taxes can be taken from the private companies that makes insurance. no one is losing.

  27. paket wisata jogja  ::  9:44 am on January 21st, 2012:

    good post man..