If you want to read a recipe for a market disaster, take a look at the tax proposals of  Obama and Clinton.  In the 2008 presidential election, neither of the Democratic candidates has ever met a tax they don’t like. And even though they say they aren’t going to tax the middle class, they are either lying (or is it misspeaking) or they are clueless about the impact of their plans.  When you compare the Obama Tax Plan to the Clinton Tax Plan, you’ll find little difference.  Barack Obama on taxes. Hillary Clinton on taxes. Pick your poison. The result will be the same: a big fat tax increase!

To compound the problem with one of these tax zealots becoming President, it is entirely likely that both houses of Congress will be Democrat controlled.  There you have it:  the perfect storm.  In fact, Democratic Rep. Charles Rangel says he and his tax-happy buddies …

“Italian Tax Police Bust Up Fake-Ferrari Ring” is the title of a WSJ article dated February 28, 2008. The article goes on to a ring of auto-body shops that were trafficking in one of the most high end counterfeit cars of all time. Imagine, “a sophisticated operation that was running throughout Italy.” That’s how the head of the Palermo unit of the tax police who spearheaded the investigation summed it up. And we thought Tony Soprano was smart.

Forgive me for being underwhelmed at the very mention of organized crime in Italy. Since when is that newsworthy? What jumps out at me and I hope you, too, is the mention of Tax Police.

Maybe it’s just a more descriptive moniker than our vague Internal Revenue Service. What I could determine from using a Google search is that these guys get a lot of headlines breaking up some pretty clever criminals who work …

Let me give you a completely silly example of how tax impacts wealth accumulation. Suppose I gave you two choices. In your first choice, I would straight out write you a check for $10,000. Conversely, I would hand you a penny today, two pennies tomorrow, four pennies on the third day, and so on, doubling the amount every day until the end of the month. Without doing the math, which would you choose?

Being the learned person you are, undoubtedly you suspect the latter is the better choice, and right you are. In fact, presuming a 30 day month, you’d be $10,727,418 the richer soul by signing up for the installment plan and suffering the inconvenience of the daily get together.

Now, let’s suppose under this proposition you have to face an income tax of 28% that was taken out of each double. Choice one would result in $7,200. But are you …

Not one of these taxes existed 100 years ago and our nation was the most prosperous in the world, had absolutely no national debt, had the largest middle class in the world, and Mom stayed home to raise the kids. What happened?

This list does not assume to be the complete list.

Federal Income Tax
Federal Unemployment Tax
Workers Compensation Tax
Social Security Tax
Medicare Tax
State Income Tax
State Unemployment Tax
School Tax

Sales Taxes (State and Local)

Real Estate Tax
Property Tax
Building Permit Tax
Well Permit Tax
Septic Permit Tax
Utility Taxes
Severence Tax

Corporate Income Tax
Accounts Receivable Tax
Privilege Tax
Inventory Tax
Food License Tax
Fuel permit tax

Inheritance Tax
Interest Expense
Capital Gains Tax
IRS Penalties
IRS Interest Charges

Liquor Tax
Luxury Taxes

Marriage License Tax
Service Charge Taxes

Telephone federal excise tax
Telephone federal universal service fee tax
Telephone federal, state and local surcharge taxes
Telephone minimum usage surcharge tax
Telephone recurring and non-recurring charges tax
Telephone state and local tax
Telephone usage charge tax

Vehicle Sales Tax
Vehicle License Registration Tax
Recreational Vehicle Tax
Trailer registration tax
Road Toll Booth Taxes
Toll Bridge Taxes
Toll Tunnel Taxes
Watercraft …

In today’s WSJ was an opinion letter entitled “The Coming Tax Bomb” by John F. Cogan, senior fellow at the Hoover Institution and R. Glenn Hubbard, Dean of Columbia Business School.  Both have held cabinet positions.

The letter examines the virtually certain impact of the nearly consensus notion that taxes must go up, starting with letting the Bush tax cuts expire.  Based on their perfectly logical math, doing so would equate to the largest tax increase since World War II.  Presently federal revenues represent nearly 19% of GDP (which is historically high), having only been exceeded during the Clinton administration.  Letting these tax cuts expire would bring the income tax burden up to 25% of GDP, the highest level in our history.

By letting the cuts expire, the marginal tax rates will increase across the board:  from 13% more tax on the highest income households to a 50% increase in rates on …

According to the April 4 Kiplinger Tax Letter, the opportunity to donate your IRA withdrawals to charity without tax affect will be reinstated retroactively to January 1, 2008.  Congress allowed this benefit to expire at the end of 2007.  This is good news for people who are taking their RMDs (required minimum distributions) and otherwise donate to charity.  
At first blush, this may seem a silly notion.  You take the IRA distribution into ordinary income and you deduct the charitable contribution, no harm/no foul. 

But upon closer examination, this is a material benefit to hundreds of thousands of households.  Here’s why:

When you withdraw from a normal IRA, the income goes into your AGI (Adjusted Gross Income).   AGI triggers many limitations on deductions when it exceeds certain thresholds.  Consequently, if you fall into this situation, you may only be able to deduct half, or perhaps none, of the charitable contribution.

More importantly is the …

Yesterday I extolled the virtues of tax efficient mutual funds.   These funds are generally preferable to those without the tax efficient overlay (the fund name will carry the words “tax efficient” in it) because it is designed for maximum after tax growth.  These funds generally won’t have unexpected capital gains distributions at year end that complicate tax planning.

A little more sophisticated tool is the growing universe of Exchange Traded Funds.  ETFs have been bundles of unmanaged stocks such as the S&P 500.  Not only do these funds have virtually no management expense, thus giving you a near pure return, they have the added virtue of trading like a stock.  Nearly every imaginable sector of the investment universe has now been defined in ETFs allowing investors to buy a bundle of financials, energy stocks or broader indices such as small cap value stocks or various iterations of international baskets of stocks.

The …

You are what you eat.

We’ve all heard this old saying.  Regarding taxes, it’s sort of the same.  Our annual tax bill is a result of the nature of our income.  While certain foods are good for us and some, though seemingly delicious, aren’t so good for us.  Likewise, certain income is good from a tax perspective, and some not so good.

One of the areas of greatest tax liability that I find even really smart wealthy folks endure year after year is the unwanted capital gains distributions from mutual funds.  Mutual funds are conduit entities and do not pay taxes at the corporate level by passing through the income from their trading activities to the mutual fund owners.  Let me restate that:  after mutual funds tally up all the short and long term gains and losses plus any dividends or interest they earn for the year, they divide up the net …

If I can say anything positive about tax code it is this: It sure makes charity rewarding. Charitable giving reduces not only your income tax burden, but also escapes the mother of all taxes, the estate tax.

Most wise people I’ve met or read about, whether or not they are faith-based, believe in some principle of charity. So, presuming that the desire to give is an attribute you share with other wise souls, let’s look at a couple of special situations.

Give Those Municipal Bonds Away!

Say what? I know what you’re thinking: what is this guy smoking?

I encourage you to read on and perhaps a ray of sunshine will strike you and you’ll find yourself with one great big deduction that you can use over the next 5 years. Oh, by the way, you get to keep all the municipal income for the rest of your life.

Let’s suppose that you’ve accumulated a …