Personal Tax Inequity

I paid lower taxes when I was rich. Yesterday I did my taxes. I knew it would be bad, but didn’t know how bad. It turns out, the less I’ve made the more I’ve paid. That’s not right. Add tax inequity to wealth inequity and income inequity and begin to understand why so many are dismayed. I knew this before, but I feel it now. The two main solutions are to either have a lot of money or find a way to live beside but not in the system. That’s another recipe for a bifurcated society, and that’s not good.

The situation is simple, and explains why living off investments is a cheap way to live. At least for my style of investing, which is to own individual stocks, the

re were usually losses to balance the gains. The match didn’t have to be exact, just enough to dramatically lower the tax. Invest for the long term (LTBH) and the taxes reduce some more. For the really risky, invest in small enough companies, hold them long enough, and there can be additional tax breaks. Taking on risks has its rewards.

Risks are called risks because they don’t always produce rewards. In my case, a string of misfortune struck coincidentally with the economic downturn just after I bought my house. My portfolio began its dramatic slide, but at least for a while, I was paying bills with stocks that played by the old rules. My taxes were so embarrassingly small.

Misfortune continued for too long and I had to rely on selling stock from my IRA. I cut my living expenses in half while trying to get a job and build my business. My non-housing expenses were near or below the poverty line. My taxes went up. There’s a penalty for misfortune. For some, living on so little means not having to file taxes; but, if living on so little means diving into an IRA before its time, then penalties must be paid.

Sucking whirpools happen

For some, those penalties must be paid by selling more stock, which is in an IRA, which incurs an new penalty, which becomes a negatively compounding cycle.  If those stocks weren’t in an IRA there’d be no penalty and there’d be no taxes.

The government had good intentions when they instituted the various IRAs. But they were designed with some of the same assumptions as Social Security: work until you’re 62, er 65, er 67, and then receive an income. Our world isn’t working that way. A recent NBC News report states;
One in four Americans is raiding their meager retirement savings to pay their monthly bills, according to a new study.
and as one of their interviewees said,
We didn’t know what to do. It was either bankruptcy or cash in our IRAs,” Amy Shankland told NBC News.”
Some are selling. Some are borrowing. Neither is a good sign. And, if life doesn’t improve before the IRA is emptied, bankruptcy remains the only option.

I paid my taxes yesterday, by credit card. The frugal part of me fought the notion for hours. Paying in cash would cost too much because I would have to sell IRA stock within days, thereby reducing my dwindled portfolio significantly. Getting an extension can incur penalties and fees, and isn’t supposed to be used for delaying payments. Counter-intuitively, paying by credit card was the most optimistic choice – and that was and is a difficult realization. In my life of sooner or later something marvelous is going to happen, a lot of sooners have passed by and the laters are due. If that good news is going to alleviate my foreclosure woes, then it will come in at a time to alleviate my credit card tax woes too. Stock, job, consulting, art news can arrive in time to cause that celebration. If that sounds uncomfortably risky to you, then congratulate yourself on being perceptive and wise. These are risky times. By the way, if the recovery comes via my stock portfolio, it will be stellar, probably based on MVIS, and inside my IRA which means I’ll pay penalties.

My situation and the other IRA tappers are undoubtedly not the only tax inequity examples. We complain about, yet accept, loopholes because loopholes seem to multiply faster than they can be closed. There must be other stories of dysfunctional systems, but I need to dwell on my recovery first. I’ll let others research the rest.

The troubling part for our system is that the inequities are compounding. Tax, wealth, and income inequities have always existed; yet, the data suggests this combination is historically uncommon. And something that historically uncommon may create an uncommon reaction that can be historic.

About Tom Trimbath

consultant / entrepreneur / writer / photographer / speaker / aerospace engineer / semi-semi-retired More info at: https://trimbathcreative.wordpress.com/about/ and at my amazon author page: http://www.amazon.com/-/e/B0035XVXAA
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