Category Archives: COMMENTARY

CPA Firms Haskell & White, Katherman Kitts & Co. Combine Practices to Enhance Client Services

Media Contacts
Andrew King / Jade Terry
HKA, Inc. Marketing Communications
(714) 426-0444



IRVINE, Calif. (Feb. 3, 2017) – Haskell & White LLP and Katherman Kitts & Co. LLP are proud to announce they have combined their practices, effective Feb. 1, 2017, and are now operating under the Haskell & White name. The expansion bolstered the combined international tax practice and increased the team of highly skilled CPAs. The entire team at Katherman Kitts & Co. moved to Haskell & White and James Katherman and Stacie Kitts joined the firm as partners.

The unification of these two experienced and well-respected organizations comes at a time when the nation’s tax laws are on the brink of a major overhaul, and clients will require more guidance than ever. By combining the staffs and resources of both teams under the prestigious Haskell & White brand, all clients will have access to an extremely deep bench of hard-working and talented CPAs, now totaling more than 75 professionals.

“With this combination, Haskell & White enhances its already robust standing in the market. We will add more capabilities, including Katherman Kitts & Co.’s deep experience with technology companies and international tax expertise, to bring an even greater level of service to the clients of both firms,” said Haskell & White’s Managing Partner Wayne Pinnell. “Having worked in the same building with Katherman Kitts & Co. for several years, we have gotten to know them personally as well as professionally, and we believe the cultures of our teams will blend seamlessly while producing excellent results.”

By joining Haskell & White, one of Southern California’s largest independently owned accounting, auditing and tax consulting films, the clients of Katherman Kitts & Co. will gain access to Haskell & White’s superb team of professionals and numerous resources and benefits that have been a hallmark of Haskell & White for decades. These capabilities include a team of audit professionals able to provide reviews, financial audits and retirement plan auditing, as well as access to a world-wide network of CPA firms in the Leading Edge Alliance.

In a joint statement, Katherman and Kitts said, “We are very much looking forward to this new relationship with Haskell & White as it is an excellent move for our team at Katherman Kitts & Co. and – more importantly – it will bring even greater value to our clients, give our employees considerable growth opportunities and allow for operating efficiencies.”

Katherman emphasized that since Haskell & White shares similar client service philosophies, the business combination will not change the clients’ fee structure and the hands-on attention they are accustomed to receiving.

About Haskell & White LLP
Haskexll & White LLP is one of the largest independently owned accounting, auditing and tax consulting firms in Southern California, servicing public and private middle-market companies. With locations in Irvine and San Diego, Haskell & White combines the expansive services, knowledge, experience and reach of national and international accounting firms with the personal attention, responsiveness and value of a local organization. Haskell & White works with companies in a broad range of industries including real estate, manufacturing, distribution, life science, technology and retail. The firm provides solid expertise and services to its clients in the tax and audit disciplines, including advising SEC registrants and consulting on mergers and acquisitions. Further information on Haskell & White can be found on the firm’s website, http://www.hwcpa.com. Connect with Haskell & White at http://www.facebook.com/haskellandwhite and http://www.twitter.com/haskellandwhite.


Trump Taxes and 2016 tax planning for higher income earners

By Stacie Clifford Kittscartoon-trump-300x316

The proposed tax plans offered up by President Elect Trump and the House Republican Tax Reform Plan are presenting some unique year-end tax planning challenges.

The most common question that taxpayers are asking is, will tax rates be lower in 2017?

To help answer this question, we should first review how our tax rates work now.

We currently pay federal income taxes at graduated rates ranging from 10% to 39.6%.  However, if you are a higher income earner making more than $125,000 (single) or $250,000 (married), you may pay an  additional 3.8% tax on your net investment income,  making  your top federal rate 43.4%.

An analysis of Trump’s current plan, indicates that if your income is over approximately $425,400 (single)  and $487,650 (married), you may (depending on your itemized deductions) see a significant reduction in income taxes under his plan.

However, middle class taxpayers may face an  increase in tax depending on the size of their family and filing status.  This is largely due to the Republican and Trump plans which seek to limit itemized and dependent deductions, expand income tax brackets, and  repeal the personal exemption and head of household status.

To help better understand  the possible impact on your taxes, here are some of the key proposals affecting higher income earners (AGI over $150K).  Because the Trump and Republican plans are not the same, we will most likely see some sort of mix of the two plans:

Individual income tax

  • Both Trump, and the House Republican Plan, will drop the number of income tax brackets to just three, at 12%, 25%, and 33%.
  • The plan will also eliminate the alternative minimum tax (yay),
  • it also eliminates all itemized deductions (boo) except mortgage interest and charitable giving.
  • They have further proposed to limit the amount of total itemized deduction to $100,000 (Single) and $200,000 (Married).  This proposal will reduce the tax incentive for charitable giving once your itemized deductions reach the allowed limit.
  • Significantly for us here in California, state income taxes paid would no longer be deductible on Federal returns.

Investment income

The top rate for long term capital gains is currently 20% plus the 3.8% investment tax imposed by the Affordable Care Act (for high income earners), for a total top rate of 23.8%.  Interest and non-qualified dividend income is taxed at ordinary rates.

Trump’s Plan

Trump proposes to repeal the affordable Care Act including the 3.8% tax which will cap long term capital gains at 20%.

 House Republican’s Plan

On the other hand, the House’s plan would apply tax to 50% of interest income, dividends and capital gains at ordinary income tax rates.  The remaining 50% would not be subject to tax.   This translates to a top rate of 16.5% for investment income.

Estate and gift tax

Under current law, estates are subject to a 40% tax on the estates value over $5.45 million. In addition, beneficiaries of the  estate receive a step-up in the basis of the assets value equal to the fair market value at the date of death.

Trump and the House Republican Plan propose a repeal of the estate and gift tax entirely.  Trump proposes to repeal the step up in basis provision and replace it with a carryover provision for computing taxable gains on sales for estates in excess of $5 million (single) or $10 million (married).  The Republican Plan provides for carryover of basis on all assets.

Business tax

The top corporate tax rate is currently 35%.  Income from pass-through businesses such as partnerships and S-corporations are taxed at individual rates.

Trump’s Plan

  • Trump’s plan would reduce top corporate income taxes from 35% to 15% and repeal corporate AMT tax.
  • Individuals can elect a tax rate of 15% for business income from pass-through entities (including sole proprietorships).
  • Distributions from large pass-through businesses received by owners who elected the 15% flat rate would be taxed as dividends.  (included in overall personal taxable income)
  • The Trump plan eliminates all tax credits (tax incentives) except the research credit.
  • The plan would allow businesses to elect to expense capital equipment, structures and inventories directly rather than over time. However, if direct expense is elected, interest expense deductions would not be allowed.

House Republican’s Plan

  • The Republican Plan would reduce the corporate tax to a flat 20%.
  • Eliminate the corporate alternative minimum tax.
  • Income from pass-through entities would top out at 25%.
  • Costs of capital investments are immediately deductible
  • Eliminates the deductibility of net interest expenses on future loans.
  • Restricts the deduction for net operating losses to 90 percent of net taxable income and allows net operating losses to be carried forward indefinitely, and increased by a factor reflecting inflation and the real return to capital. Does not allow net operating losses to be carried back.
  • Eliminates the domestic production activities deduction (section 199) and all other business credits, except for the research and development credit.
  • Creates a fully territorial tax system, exempting from U.S. tax 100 percent of dividends from foreign subsidiaries.
  • Enacts a deemed repatriation of currently deferred foreign profits, at a tax rate of 8.75 percent for cash and cash-equivalent profits and 3.5 percent on other profits.[Tax Foundation]


An analysis of your personal itemized deductions along with the type of income to be reported on your return, including pass through or investment income,  is necessary to determine the actual impact of these proposed tax plans on your 2017 income tax.  Higher income earners might consider deferring income into 2017 if possible.

Death and Taxes

Dear Client, Sorry About All Those IRS Notices – They Clearly Have Their Heads…ummm located someplace it doesn’t belong

By Stacie Clifford Kitts                                                                      image

If you are interested in developing a lucrative practice with a steady stream of income, you might consider specializing in the resolution of erroneous IRS notices.

Sadly, over the last few years, many tax practitioners, my firm included, have witnessed a marked increase in the number of erroneous IRS notices received by their clients.

These notices are usually automatically generated, are lacking in the information necessary to determine the exact issue or issues, and often include a mysterious amount due for taxes, penalties and interest.

For the savvy entrepreneur, this erroneous IRS notice phenomenon might just provide for an interesting business opportunity. That is – if you can stomach the mind-numbing and often infuriating interaction you will have with the Internal Revenue Service.

It’s no secret that the IRS is experiencing some extreme customer service related problems. One need not search long or far to find a truly eyebrow-raising example.

Case in point, this is one of my personal favorites: After waiting as much as three hours for an IRS agent to pick up a call and ending with an extremely rude agent refusing to help because she didn’t understand the difference between a partnership and a single member LLC (a concept this lady should have understood), my shocked staff asked, “Are they always that mean?”

“Sadly”, I explained. “They didn’t used to be.”

Written correspondence sent to the Service doesn’t seem to fair much better. In many cases, it is clear that correspondence has fallen into one of three categories 1) not actually read, 2) read but content ignored 3) issues are beyond the understanding or research ability of the agent.

As a result, you sometimes get the feeling that you are dealing with a high school student who was trained to click the picture of the “value meal” while taking your order at the drive through window. And it’s no wonder. The IRS’s own Internal Revenue Manual “Incoming and Outgoing Correspondence/ Letters” (IRM, is a litany of – if this – then that scenarios. I found the instructions for “working” the correspondence policy particularly entertaining. (As a side note – Dear IRS, clearly it’s impossible to properly respond to all correspondence by using this “checklist” approach when often times it requires a facts and circumstance analysis. I’m just sayin.)

Our law makers have, over the course of the last 100 years or so, created a tax code that is nearly impossible to get right all the time, and for taxpayers and practitioners, whether trained or untrained, you must expect that will be the case. Sometimes, taxpayers won’t get it right.

However, It is ludicrous for taxpayers who did get it right, despite all the obstacles and complications in our tax code, to waste time and resources dealing with the Services inability to recognize a correct application of their own rules or the correct application of settled law. Frankly, if you are not going to properly enforce the rules, there is no point in having them at all – and for that matter there is certainly no point in keeping the Internal Revenue Service around.

Regrettably, something that is becoming more and more common for practitioners, is the need to explain to clients, “sorry about those notices, but we did do it right, they just have their heads up their ….”

Things My Mom Wrote That Made Me Cry

By Stacie Clifford Kitts

I can hardly believe it’s already 2015. A new year, with new possibilities, some new tax laws, and yet another holiday season spent without Mom. Last year my daughter and I flew to Kansas City, and as people do at those times, began the chore of cleaning out Mom’s things. We cleaned closets, packed boxes, took things to goodwill, filled trash bins and marveled at some of the things she kept. And when we ran out of time, we packed up boxes with what remained and shipped them home.

Yesterday, as the new year started, I decided it was time….time to stop delaying and find out what those last boxes contained. And….fine, I admit it. I had this slight hope, okay fantasy, that maybe there was something really interesting and even noteworthy among what remained of Mom’s things…like, I don’t know, a key to a mysterious safety deposit box with instructions to open after her death.

I know. I’m an accountant, okay. And although I do get a thrill out of structuring a good tax plan…you see where I’m going here…discovering a deep dark family secret would certainly liven things up a bit!

But as luck would have it, what I found was much better. Not a deep dark family secret…but a secret non the less. Mom wanted to be a writer. I found pages of notes, beginnings of chapters, and short essays about her uncles and her grandparents…But as interesting and wonderful as this find is, I am sad that she never had time to finish what she had started. I read the things I found and cried when there was no more.

Vic & Velda Van Hook (Mother and Pa)
By Patricia Kennedy

My grandmother was 36 when I was born. She didn’t want to be called Grandma, so she insisted that I call her Mother. And of course there was Pa, and everyone called him Pa, so they were Mother and Pa to me. I didn’t realize this growing up, but Mother was a very pretty woman who loved pretty things.

Mother was a talker. She would start on something and keep going and going and going. Pa would sit there swinging one crossed leg, reading his newspaper, and flipping cigarette ashes into his cuffs until suddenly he would say, “Be quiet Velda” and then she would.

Mother was stubborn and liked to get her way. She wanted to name me Sally. Although, I was named Patricia, that didn’t keep Mother from calling me Sally sometimes. I think she did that mainly to irritate my mom.

Mother taught me songs. “The Doors Swing in – The Doors Swing Out”, “Please Mr. Conductor Don’t Throw me off the Train”, and many more. I could have “stumped the band” on the Johnny Carson Show.

Pa was so quiet that you didn’t realize he was in the room. He left every morning for work and came home every night for dinner.

He loved fried foods, bacon, chicken, pork chops, and even the pork fat normally used when cooking beans, which he would cover with mustard and eat.

Mother always had coffee cans of bacon grease that she saved for the whole family and when Pa died, the doctors said he had the heart of a 20 year old. Cholesterol? Go figure.

Pa loved wrestling. I don’t remember why, but he would occasionally take me to wrestling matches. I still remember Gorgeous George with a head of blonde curls. He would throw gold bobby pins into the audience. Pa would watch the matches and chew on his thumb he got so excited.

Uncle Kenneth
By Patricia Kennedy

My uncle Kenneth named me, Patricia. He taught me, among other things, how to skin a frog, bait a hook, tie a string to a beetles back leg and baste an egg. When I was a little girl growing up in Springfield, sometimes he’d come home with a burlap sack full of watercress, poke, doc greens and perhaps sweet corn acquired from the unknowing generosity of a farmer.

He brought me two wild baby rabbits when he accidentally killed their mother mowing a right-of-way. He knew grandma Van Hook wouldn’t be happy. But he did it anyway because he knew it would make me happy.

He taught me to sing all the verses to “Froggy Went a Courting” and a song about a tattooed lady that I wasn’t to sing in front of my mother.

I learned cribbage by watching him and Victor. And when I was older, he became a fun opponent at poker, even if he did say I was the luckiest blankety blank person he knew.

Just before I got married, he taught me how to baste an egg and said, “Now you and Joe won’t starve”.

He could be gruff and sometime loud, but he was good hearted, kind, and loved.

Uncle Donald
By Patricia Kennedy

Uncle Donald was very artistic and funny. I thought he was the greatest artist ever. I remember some ballet dancers in harlequin costumes that he painted and I remember thinking they were beautiful. Once he saw me tracing out of a coloring book and he told me, tracing is fine, but you should try to draw free hand, and so I did.

Don and Jack would sometimes walk the three blocks to my elementary school and carry me home on their shoulders. I told everyone at school that they were my brothers.

Don would come over to my Grandma’s house and she and Don would put their heads together and come up with unbelievably beautiful things. The one I remember the most, is the Christmas tree they did together. They took the tree into the back yard and skillfully decorated it. Then Don stood on a ladder and sprayed snow over the tree covering the lights and the ornaments. When they brought the tree back into the house and the lights lit up, they twinkled through the layer of fake snow. It was really beautiful.

Don’s house always looked great. He could decorate on a dime and he could find antiques anywhere. He would make trips and find some farmer with old outbuildings and say, “I’ll give you $5 to look in that shed.” And when they would let him, which was most times, he would find something worth restoring. He and grandma worked on a chaise lounge that was lovely. He was able to make beautiful things out of what other people thought was junk because he could see what was beneath.

Love you mom.

Professional Coaching Expert Ken Potalivo pens One of the Most Relevant Business Development Books Around

By Stacie Clifford Kittsmindshare

Several years ago I wrote a post entitled An Accountants Search For The Bat Cave – A Story About Networking: and it went something like this:

As a young staff, I questioned how the firm partners were heading out into the world and bringing back stacks of new clients for me to work on.

I was mystified and oh so innocent…..It seemed like some sort of *magic*.

What else could it be, except maybe an underground society known as “networkers”, who ventured out into the world, performed some secret handshake, and produced clients from thin air?????


But, where was this secret society? Did they have a secret location?… like – The Bat Cave – a giant underground warehouse where they plucked potential clients off the shelf and checked them out at the front of the store?

Was that it?

I longed for someone to tell me…..I had to know the answer to this secret networking magic.

Luckily, the mystery was solved by my good friend and my business coach Ken Potalivo, who I credit with helping me grow from staff to the managing partner of my own firm Katherman Kitts.

Am I worried that I’m giving away the secret to my success? Nope!

We are all unique professionals with our own special super and yes *magical* powers just waiting to be offered to the world. Learning how to recognize and develop those super powers will help you “get the referrals you want by making your competition irrelevant.”

Ken Potalivo’s Book, Secrets of MindShare: Get the Referrals You Want by Making Your Competition Irrelevant offers a clearly defined and targeted path on how to create and maintain referral relationships, how to distinguish yourself so that you stand out from your competition, and explains how to identify those relationships that will provide the most benefit from your time investment. This book is a must for any professional who recognizes that survival in today’s competitive environment is in the hands of those who can attract clients and maintain relationships.

Top ten things accountants know


Street Accountants – city claims it ain’t right

When I grow up

Are Your Tax Records “Company Clean”?

By Stacie Clifford KittsMom

My mom had a philosophy about housekeeping. I think this stemmed from her preference to spend her free time on other activities like mastering a still life in watercolor, or watching a classic old movie. In any case, her philosophy usually resulted in our house being in one of two stages. She lightheartedly referred to these as “lived-in clean”, or “company clean”. I can still recall the first time I noticed mom running around the house painting over dirty little finger prints, or using Old English scratch remover (love that stuff by the way) on the furniture. This was when she explained that “company clean” meant paying attention to the details while “lived-in clean”, maybe not so much.

We sometimes see Taxpayers that have this same philosophy. They never quite seem to pay attention to the detail, that is, until they have company knocking at the door. Sometimes that company is a taxing agency. But, more often than not, everyday life events have resulted in the need for “company clean” records. Those include:

1) Accurate tax planning
2) Retirement planning
3) Applying for a home or business loan
4) Divorce or marriage considerations
5) Estate and succession planning

Taxpayers are often shocked at how costly it is to have someone “clean-up” after the fact. But consider the cost of hiring someone to clean or repair your house after a long period of neglect. Imagine the damage that can occur to your property when not taken care of properly. If you cannot, might I suggest an episode of Horders as an arguably extreme example of the damage caused by a lack of proper housekeeping.

“Company clean” records do not need to steal from your free time thought. Here are a few tips.

1) Do not wait until the end of the year to accumulate your records or do your accounting. You should be accumulating this information and doing an accounting (if necessary) at lease monthly.
2) Know what records you should be keeping. Ask your accountant or check out the IRS Website
3) Hire a qualified bookkeeper. This is someone who has a basic knowledge of accounting rules, not just someone who knows how to use Quickbooks.
4) Have your CPA look at your accounting records before the end of the year to make accounting suggestions and to help with tax forecasting.
5) Budget for the costs of hiring qualified tax and accounting professionals. Usually, the quality of your tax and accounting information is a reflection of what you pay for them.

The IRS LOVES Social Media

The IRS apparently likes social media. Here are all the ways you can connect.

1. IRS2Go 2.0 IRS’s smartphone application allows you to check your refund status, get tax updates and follow the IRS via Twitter. IRS2Go 2.0 is available in the Apple App store for iPhone or iPod touch devices and in the GooglePlay store for Android devices.

2. YouTube IRSvideos YouTube Channel offers short, informative clips on various tax-related topics. The videos are available in English, American Sign Language and Spanish.

3. Twitter IRS tweets include tax-related announcements, news for tax professionals and updates for job seekers. Follow us @IRSnews.

4. Facebook IRS has Facebook pages that post tax information for individuals, tax professionals, and for those needing help resolving long-standing tax issues with the IRS.

5. Audio files for Podcasts These short audio recordings provide information on tax-related topics — one per podcast. The audio files (along with transcripts) are available on iTunes or through the Multimedia Center on IRS.gov.

6. Widgets These tools, which can be placed on websites, blogs or social media networks, direct people to visit IRS.gov for information. The widgets feature the latest tax initiatives and programs and can be found on Marketing Express, the marketing site that allows IRS partners and tax preparers to customize their IRS communications products.

As a reminder, the IRS uses these tools to share information with you. Do not post any personal information on social media sites, especially your Social Security number or other confidential information. The IRS will not be able to answer personal tax or account questions on any of these platforms.

For more about IRS’s social media tools, visit IRS.gov and click on “Social Media.”

My Joy of Solitary Public Dinning

Yes, that’s me, the lady eating by herself.  No, I’m not waiting for friends or being stood up on a date. I chose to be here, all by myself… And it’s glorious.

Normally, and just like other service professionals,  I spend long days, nights and weekends taking care of, or preventing, other peoples problems. “We worry for you” isn’t  just a slogan, it’s a fact of life.

Really, and I’m being totally serious here, the questions, What can I get you?  How was that?  Can I get you something else?, well..they are just plain magical.  So magical in fact, sometimes they amaze me.

And it’s not only that. The whole darn process is satisfying.

First, there are so many wonderful venue choices-and the choice is all mine!  Better yet, if I want to go to the same place over and over- who cares?  I never have that irritating conversation with myself that starts, where do you want to go?  I don’t know, where do you want to go. I don’t care, what do you want to do? Argh- shoot me.

Next, I arrive and someone greets me.  “Can I help you?” Why yes, yes you can.

The smiling, friendly and eager hostess leads me to my own temporary little bubble of personal space, where she leaves me alone with a list of tasty and fun treats.  Of course, this magical piece of fine literature, from which I can choose anything I want, is the menu. No really, menu writing is a skill and a work of art if done correctly.

And, if all of this isn’t enough, someone is willing, nay, begging, to cook, clean and serve ME while I indulge in something I enjoy – completely stress free – like reading, catching up on the news, or even writing a blog post. I do imagine that heaven must be something like this.

I admit, sometimes people are a bit puzzled by my enjoyment of solitary “public” dinning. And yes, in my younger days, there was often that “one guy”  who just didnt think it was right for me to be alone and so wouldn’t go away.

But, as I’ve gotten older, that problem has faded sweetly and comfortably (for the most part) into the past, allowing for much cherished ME time.

When you think about it, here is a process that focuses totally on your wants and needs, no pressure to perform or entertain, and allows you the ability to do something you enjoy?  I mean really, need I say more?

Oh, and what does this have to do with a tax blog? Absolutely nothing.

Experience the Joy of Tax With Katherman Kitts – We are Hiring Right Now

Stacie Kitts is a Tax Partner at Katherman Kitts

I know, tax blog not job search site.  But I thought, what the heck, who says I can’t?

We are activity searching for the right candidates who want to experience our love of tax first hand and in person.

Katherman Kitts serves a variety of high net worth individuals and businesses with complex and interesting tax issues.

We are a forward thinking firm in every respect.   We are a green firm.  We believe the less paper- the better. We believe that as a CPA firm, we are a leader in exploring new and interesting ideas in technology and management styles.

Our firm values include our commitment to provide proactive planning and ideas so that our clients are not surprised at tax time.  They know and feel that we care about them, their businesses and their financial lives. Our clients hire us to do the worrying for them and we do just that!

We also understand that our employees have personal lives.  I’m not going to throw out that tired old adage about  work life balance blah blah blah.   Look, we understand – you need a life outside of work. We get you have a family.  We want you to be happy at Katherman Kitts, and we understand that you want to maintain your personal life.  As a former/recovered single mother of three, I grew up in this industry personally experiencing the challenges of public accounting and life issues.  I get it. We will try and work with you to find a resolution should those two universes collide.

So who are we looking for:

Tax Manager – This person is a CPA, has 5-8 years of experience working as a tax manager in a public accounting environment. This person already knows the joys of tax and can manage people, clients, and projects.  This person understands the tax rules and or knows when and how to find them.  This person can prepare tax returns, can review tax returns, and can make sure the product is delivered timely.  This person understands that meeting client expectations is how we all get paid!

Tax Senior – This person is a CPA, has 2-5 years of experience working in a public accounting environment (tax department).  This person is developing a joy for tax and has experience preparing tax returns – c-corp, s-corp, individual, trust, partnerships.  This person has a firm grasp of debits, credits and accounting principles.

If you don’t quite fit the requirements of the above job descriptions, but think you would be an asset to Katherman Kitts, contact me, maybe you can talk me into it.

Please contact me by email with a resume at skitts@2kcpas.com

My morning drive with Rush Limbaugh – OMG His Tax Knowledge Cracks Me Up

Rush Limbaugh Is a Big Fat Idiot and Other Obs...

Love My Morning Drive With Rush

By Stacie Kitts, CPA

I’ve considered myself a bleeding heart liberal Democrat ever since I knew what a Democrat was, an interesting political choice for a successful business owner / Certified Public Accountant living in the OC. But an even more interesting dichotomy is how much I enjoy my morning drive listening to the lunatic ravings political commentary of Rush Limbaugh.

I can’t help myself. It’s like comedy hour really.

Now I know there are a lot of people who like Rush and that’s okay, I’m not judging. However, this morning he was so over the top that I couldn’t resist making him the subject of this blog post.

In the spirit of full disclosure, I must admit I arrived at work before Mr. Limbaugh’s ranting commentary concluded so he may have redeemed himself later in his broadcast.

Here is what I thought I heard – no quotes here because I am recalling this from memory.

  1. Obama wants to tax the rich by increasing the 15% tax rate that many wealthier Americans enjoy on the sale of their investments. ( I have also heard this point made on several other news broadcasts)
  2. The 15% tax rate is a double taxation because wealthy Americans have already paid taxes at a 35% rate on the money they invested.


First, I want to start this discussion by helping my readers to understand that different types of income are taxed at different rates. (I promise I will get to Rush’s points – I can hardly wait to tackle those) This varies from the regular tax rates that you might be familiar with.

So the basic tax rate schedule looks like this for 2011:

Tax Rate


Married Filing Joint

Married Filing Separate

Head of Household

10% Up to $8,500 Up to $17,000 Up to $8,500 Up to $12,150
15% $8,501 – $34,500 $17,001 – $69,000 $8,501 – $34,500 $12,151 – $46,250
25% $34,501 – $83,600 $69,001 – $139,350 $34,501 – $69,675 $46,251 – $119,400
28% $83,601 – $174,400 $139,351 – $212,300 $69,676 – $106,150 $119,401 – $193,350
33% $174,401 – $379,150 $212,301 – $379,150 $106,151 – $189,575 $193,351 – $379,150
35% Over $379,150 Over $379,150 Over $189,575 Over $379,150

But here is what you may not know – tax law has all kinds of exceptions. In addition to the “regular” tax rates mentioned above, there is a whole host of other tax rates that might apply to your income.

Many of these “exceptions” are a decrease to the regular tax rates. For example:

  1. Qualified dividend income starting in 2003 and ending in 2012 has a maximum tax rate of 15%.
  2. Long Term Capital Gains income (selling stock you held for more than 12 months for example) is taxed at a maximum rate of 15% from years 2003-2012. The maximum rate increases to 20% in year 2013.

Income types that will increase your tax above the regular rate are:

  1. Self employment income (so if you are a business owner, you will likely pay more than the “regular” rates)
  2. Penalty taxes for early withdrawals of retirement investments (so if you pull money out of your 401K before you are eligible you will pay more than the “regular” rates)

Other exceptions to the regular tax include:

  1. Alternative minimum tax
  2. Depreciation recapture

So what is the argument?

It is simply this – working American’s, the ones who “work for a living” and are likely receiving a paycheck and Form W2 at the end of the year are paying taxes at a higher rate than individuals who make most of their income from investments. In addition, those American’s receiving a paycheck are also paying Social Security and Medicare taxes on top of the regular tax.

And why does this equate to the wealthiest Americans pay less tax? As Warren Buffett pointed out, working Americans don’t have the “extra” funds to invest. Middle America spends the money earned from their jobs on day-to-day living, not on investments that could earn income at a lower rate.

I like visual aides so here is one to help make the point:

If you are married and filing jointly and your taxable income after everything you can deduct, is $70,000 (and assuming all your income came from your paycheck) you will pay to our government in the form of Federal Taxes 25% of your income – on top of the social security taxes withheld from your check.

Married Filing Joint


Total tax including social security)

Joe Tax Payer 70,000


Warren Buffett 70,000


Now that you know a bit more about how the tax system works – I hope – here are my answers to what Rush implied:

  1. Obama wants to tax the rich by increasing the 15% tax rate that many wealthier Americans enjoy on the sale of their investments .

Well, no Obama wants to tax income earned from investments similar to the way working Americans are taxed. Does this equate to taxing the rich more? More than what? -If most of your income is coming from investments – More than now – YES. More than the average American – well DUH NO.

  1. The 15% tax rate is a double taxation because wealthy Americans have already paid taxes at a 35% rate on the money they invested.

First, how does Rush know that wealthy Americans paid 35% on the income they invested? As we have learned, there are all kinds of ways income is taxed. And second, you only pay tax on the net profit – the increase in the value of the investment after you sell it and have control of the cash. The amount used to purchase the asset is subtracted from the profit to come up with the taxable amount and therefore is NOT taxed twice. (see post script)

Post Script: It appears Rush’s comment on the 35% rate relates to income that is taxed at the corporate level before being distributed out at dividends or capital gains.

The tax policy blog explains:

The reality is that capital gains and dividends are taxed at a lower rate at the individual level because this income has already been taxed at 35 percent at the corporate level before it was distributed to shareholders. Both Mr. Obama and his tax advisor Warren Buffett seem unaware that the U.S. has the 4th highest overall tax rate on dividend income among the largest industrialized countries in the OECD at 49.5 percent. Only Denmark (56.5 percent), France (55.9 percent) and the United Kingdom (54 percent) tax dividends at a higher rate.

So here is my take on the argument above:

If I earn money from my job (for which I pay taxes) and I take my money (lets say $1.00) to the grocery store and buy my dinner, then the grocery store takes my $1.00 and adds it to their profits (for which they pay taxes) leaving oh say $.85 – and then they buy merchandise from a vender using my $.85 and that vender adds it to their profits (for which they are taxed) and so on and so on. My dollar, or portions of my dollar were taxed over and over and over.

When a corporation makes a profit it pays taxes, just like I do. A corporation is considered a separate person distinct from its shareholders. So in the same manner as the rest of us, it takes some of the money it makes and its spends it. When it distributes its “profits” to pay investors (investors get dividends – its a perk of ownership and an incentive for them to buy the stock) those investors pay taxes on the income they receive in the same manner (all be it the investors get a tax break) as the grocery store does when I take my $1.oo profit (for which I have already been taxed) and buy my dinner.

I’m still struggling to understand why the profits that I distribute from my job to others are different than the profits distributed by the corporation.

%d bloggers like this: