Tuesday, May 15, 2007

Minnesota State Tax Proposal :
The Bill Cooper Legacy Tax

Anybody has a right to evade taxes if he can get away with it. No citizen has a moral obligation to assist in maintaining the government. If Congress insists on making stupid mistakes and passing foolish tax laws, millionaires should not be condemned if they take advantage of them. -- J. Pierpont Morgan

In the spirit of J. Peirpont Morgan, I propose The Bill Cooper Legacy Tax as a lasting tribute to the man who fought Minnesota tax policy.
For those of you who do know the name Bill Cooper, it’s probably because you are not a Republican millionaire who views taxes as evil and excessive.
Bill Cooper has thrown in the towel and left our state ….
But with our money.
Legally, I might add … because the State Legislature wrote the laws.
"I reject feeding this dysfunctional [Minnesota government] beast," said Cooper, who made millions in cash compensation and is worth more than $100 million in TCF stock, admitted that Minnesota also proved a decent place for him to eke out a living.

It’s time to correct that stupid mistake and correct a foolish tax loophole.

Many Minnesotans participate in deferred retirement programs … i.e. 401k. The Federal Government wants us to save for our retirement (hint : don’t count on Social Security). As a general rule of thumb, the maximum amount the IRS allows a person to defer to a 401k plan is $15,500 and may go as high as $20,500 -- although many company programs may have lower thresholds. Although many of us do participate in such programs, our income limitations may not allow us to max out. So what we have here is an example of a good program that provides unequal benefits … but that is the way it goes.
Financial planners recommend deferring income recognition with the assumption that your income will be less -- as well as your overall tax rate -- during your retirement years.
To the Federal Government, they are willing to permit this, since eventually you will be paying a tax.

Now, here comes the Minnesota problem.
Minnesota mirrors the Federal Government deferral … but Minnesota is not guaranteed that you will be a taxpayer during your retirement years. Bill Cooper is no dummy and he is not alone. Some people permanently move out of state, while others maintain multiple residencies … but only one for tax purposes. Minnesota relies on a variety of taxes while other states such as Florida do not have a State Income Tax. Regardless if they are permanently gone or just “snow-birds”, Minnesota is being “legally” manipulated by the current tax law. And as a result, the tax burden is shifted to the current residents and depriving the government of revenue needed for the common good.

For someone in Cooper’s income bracket this can be a nice little windfall … as 401k plans have been around since 1978 … easily over $100,000 of deferred income ... that every year has been excluded by Minnesota and who now will never get any tax dollars. In fairness to Bill Cooper, this is a tax loophole that should have been corrected earlier ... in fact, I approached my former State Senator about this but he told me that he was retiring to Arizona so he could not help me. But every good legislation needs a snappy title ... so let's pay homage to the former head of the Republican Party in Minnesota and name it after Bill Cooper --- it will be a legacy that we'll all remember.

Here is the simple solution, when completing the M1 Minnesota Individual Income Tax form, simply include the income on line 3 of the form. Yes, that income will be considered in your reported income, but that’s fair for all of us. And since the tax was paid on the income already, your withdrawal would be tax-free.

And for the politicians that have taken a No Tax Pledge, this should not be a problem since this is not a new tax, nor an increase in tax rate … it is only a change in when it will collected (Remember when Property Taxes were due in November then got moved up fifteen days?).

Cooper complains of taxes but the problem is not taxes … the problem is the tax law writers. The problem with taxes is because of subsidies, credits and loopholes --- fairness is missing.

“The avoidance of tax may be lawful, but it is not yet a virtue. -- Lord Denning

1 comment:

Anonymous said...

the fact is-you cannot get away with not paying taxes.they will come back in the end-no matter where you live.