Our Tax Systems Are Fair

I still feel the need to preface every blog post with the reminder that these blog topic headings are myths, unless I indicate otherwise.  It is certainly a myth that our tax systems are fair.  Read this carefully, though; this chart doesn't show "Millionaires" as the title suggests.  This is individuals and couples who EARN $1,000,000 per year  in taxable income.  The decline shown from 2012 to 2020 occurred while the number of people in this category skyrocketed.

Here's another look at relative audit rates.  The wealthy have enjoyed the greatest decline in audit rates.  And this is primarily due to the reduced IRS funding for which they have lobbied.

So if you don't have an enrolled agent to do your taxes nor a tax law firm to fight IRS in tax court, you are an easier target.  Complex returns are more expensive to audit, especially if they end up in tax court.

We should welcome the Biden administration's increased IRS funding targeting those who owe more than $250,000 in taxes.
But why should we even care?  Well, a social and economic system based on merit and equity is simply a happier way to live and such a society is more likely to survive more than a couple hundred years.  Our ancestors came over here to escape primarily two plagues:  religious persecution, and, a society based on the accumulation of unmerited wealth, usually by inheritance.

Your Constructive Comments are Welcome!

HEALTHCARE WILL BE YOUR BIGGEST RETIREMENT EXPENSE

 The truth of this blog heading depends, of course, on the health and wealth of the individual.  But it is still rarely true.  In the plans I've developed, Taxes usually exceed projected health care costs 3 to 1.  I think a lot of health care cost calculators are unjustifiably alarmist for the purpose of selling insurance.  For example AARP's calculator said my health care costs would be close to $800,000 during my lifetime.

Huh?  If I met my maximum OOP every year for the rest of my life that would only add up to about $120,000.  Oh, you know, I'll bet they're referring to the total healthcare cost before insurance.  So why didn't they just say that?  How many age 65+ people are completely uninsured?

Vanguard Health Care Cost Estimator, on the other hand, seems to be more accurate.  I urge you to try it.  I plugged in all my details and here's what it churned out:

 

So that's a bit less than $120,000 in today's dollars.  And far less than the terrifying $800,000 generated by AARP's calculator. 
 

Taxes, on the other hand, take up the slack.  Below is a typical cumulative income tax projection that I create for clients.  (Here in Portland, OR we should probably include property taxes too as they average $500/mo. and increase about 3%/yr.  This is especially draining for fixed income folks.  But that's not included in the chart below).  Total tax bill for this client- without any strategizing -by 2040 is $837,000!!
Do you think it's essential, then, to have a retirement cash flow plan that factors in taxes?  A specific, written retirement cash flow plan is the only "insurance" for reducing that gigantic tax bill.

Your Constructive Comments are Welcome!