Everybody needs money. That's why they call it money. Maybe that's why the heist movie is still a Hollywood staple. It's been a while since we thrilled to classics like Heat, or Oceans 11, or The Sting. But who can resist the heist film's enticing promise: the coolest crew coming together to take the ultimate shortcut to the American Dream, the one huge payday that means never working again?
They say Washington is Hollywood for ugly people, so it shouldn't surprise you that Washington likes a good heist, too. Except, in Washington, the thieves aren't eyeing priceless art, jewels, or stacks of bearer bonds. (Why do bearer bonds even exist other than to get stolen in heist movies, anyway?) In Washington, they're after your money — and they're tiptoeing as carefully after it as the stealthiest cat burglar.
On May 12, the House voted 417-3 to pass the "Setting Every Community Up for Retirement Enhancement" (SECURE) Act. (Someone on the Government Office Acronym Team worked overtime on that.) Now, "SECURE Act" probably conjures up images of happy seniors sipping lemonade on the porch, watching the grandchildren frolic in the sprinkler. And the bill includes a grab-bag of provisions designed to keep Grampy and Nona smiling, like adding annuity options to defined contribution plans and pushing back the required minimum distribution age from 70½ to 72.
But the bill sneaks in one move that even Danny Ocean would admire. Under current law, your nonspousal beneficiaries can keep your retirement accounts on life support, even after your death, for as long as their own life expectancy. It's called a "Stretch IRA," and it can mean decades of extra tax-deferred compounding. The SECURE Act forces them to take everything out — and of course pay tax on it — over just 10 years. Maybe they should have called that provision the Hidden Efforts Imposing Stealth Taxes (HEIST) Act!
The SECURE Act won't just make your beneficiaries pay tax faster. It's probably going to make them cough up more. That's because they'll have to pile those forced distributions on top of their regular income. Imagine a six-figure executive or professional inheriting a significant IRA. The extra cash could easily push them into higher tax brackets at both the federal and state levels.
Had enough? It gets worse. Right now we're enjoying the lowest tax rates in a generation, thanks to the Tax Cuts and Jobs Act of 2017. But those rates are scheduled to self-destruct after 2025, making SECURE Act distributions even pricier. (While we're at it, if your grandchildren are heading to college, the extra cash could blow up their FAFSAs, too.)
Right now, the Act is stalled in the Senate. Texas Senator Ted Cruz, who's never been afraid to irritate his colleagues if it means scoring brownie points with his base, is the roadblock. He's holding it hostage because it doesn't let families raid their kids' 529 accounts to pay for home schooling costs. It's almost a shame . . . in today's Congress, a 417-3 agreement is more precious than the Monet Pierce Brosnan targets in The Thomas Crown Affair. Still, the Capitol Hill Bandits will probably wind up taking down the score.
The greatest trick the devil ever pulled was convincing the world he didn't exist. And just like that, your money's gone. Good thing you've got us to keep an eye on Congress. So call us whether Washington gets away with this one or not — either way, we'll have your plan!
Showtime's hit series Billions invites us into the gilded life of Bobby "Axe" Axelrod, a working-class kid from Yonkers who makes his billions running a hedge fund. The camera teases us almost erotically with the spoils of his success: the $63 million Hamptons house he buys on a whim, the his-and-hers private jets he and his wife take when just one jet isn't enough, and the helicopter that drops his sons off at Little League practice. Axe is a guy who loves every dime he spends, and he isn't afraid to let us watch him spend it.
Of course, the full story is a little darker. (We're talking Showtime, not the Hallmark Channel.) Axe is so shady you could throw a picnic under him. His portfolio strategies include bagmen, blackmail, and bribery (and those are just the ones that start with "B"). His plots and schemes are so deep and layered they could teach philosophy. Axe gives millions in charity to museums and 911 first responders. But behind the scenes, he's evidence of Balzac's epigraph that behind every great fortune, there's a great crime.
Axe has his fingers in lots of different pies. (Note to self: don't eat the pie.) He makes plenty of enemies, wheeling and dealing his way through four seasons of Billions. But there's a new threat lurking on his horizon, and it's the sort of thing Bobby should spot from miles away. We're talking about politicians looking to raise revenue without targeting the actual masses of voters who get them elected. How do they do that? They skip "income" entirely and head straight to net worth.
Massachusetts Senator Elizabeth Warren is the highest-profile legislator floating this sort of wealth tax. Her "Ultra-Millionaire tax" takes 2% of their assets above $50 million and 3% over a billion. Warren estimates her plan would raise $2.75 trillion over 10 years. Best of all, it hits just 75,000 registered voters. (Sadly for Warren, they're also the registered voters with the most money to hire lobbyists to fight back.)
Of course, it's easy to propose that sort of flashy new tax. It's harder to collect it. Who wants to fill out a form telling the IRS everything they own? (Oh, did I forget that second Swiss bank account?) What price do you use for assets that fluctuate, like stocks? What about illiquid assets like real estate, closely-held businesses, and art? How would Axe value his yacht, his cars, and his motorcycles? And who's going to pay for the auditors to make sure he does the math right on his wealth tax return?
As for the tax itself, three percent might not sound like much. But when you're a billionaire, it adds up fast, especially if you're getting mugged for it every year. Amazon founder Jeff Bezos has $158 billion, which would make his tax $4.74 billion. Stroking that check would have to hurt, even for him!
Warren isn't the only high-profile American who says we should tax the rich like we mean it. Last month, a group of card-carrying plutocrats including Abigail Disney, Facebook founder Chris Hughes, and Hyatt heiress Liesel Pritzker Simmons signed an open letter urging every 2020 presidential candidate to back Warren's plan. And polling shows that a surprising 60% of voters support it. (We're guessing the other 40% think someday they'll be that rich, too.)
Warren's wealth tax isn't going anywhere soon. It might not even be constitutional. But it's starting a conversation, at a time when Washington is looking harder than usual for sneaky new ways to pay the bills. So, while it may not be on Bobby Axelrod's radar, it's on ours. We'll let you know when it's time to start hiding your helicopter and pawning your jets!
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John Leidy, EA
DIY Books Coach
It was the third day of the very first income tax course when I realized that it will become my mission to help people understand their taxes better to be able to make better decisions and STOP wasting money on taxes they should not have to pay.