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May 12, 2002 at 08:00 PM
Annuities Can Be A Solution To The Most Taxing Of Situations
Its hard to have a discussion about annuities without talking about taxes. That shouldnt surprise anyone. Tax advantages are high on the list of reasons why people buy annuities.
Interestingly, however, tax deferral is not usually the top reason. In todays environment, the number one reason for buying a fixed annuity is safety. But theres no doubt that tax deferral is a consideration in every non-qualified annuity sale. Thats where I want to focus this article.
I dont think it is possible to understand tax motivation without understanding our tax system. Most people think that they pay taxes on April 15 and they are done for another year. Thats not quite right. According to the Tax Foundation, every dollar we earned from January 1 to April 27 went to pay taxes. Thats the bad news.
The good news is that, thanks to the Bush tax cut, it is four fewer days than it was last year. That, however, is all the good news.
On average, Americans pay a total effective tax rate of 32.1%. The average American pays more in taxes than for food, clothing, and shelter combined.
Taxes are so complicated that 56% of Americans pay someone else to do their taxes. Since 1986, there have been about 7,000 changes to the federal tax code, which is now 14,368 pages long.
A government audit of IRS answers to taxpayer questions found the answers inaccurate 73% of the time. The IRSs own audit found its answers wrong 50% of the time. My favorite audit showed that the IRS calculations for interest owed on back taxes are wrong 27% of the time.
The IRSs defense on this issue is that they have to do these calculations manually because their computer system does not have the capability to compute, assess, and store all the necessary tax law rules that will allow for complete and accurate systemic interest calculations. You try that argument! Is it any wonder that people hate paying taxes?
