The Coming Food Tax

Excise taxes violate the most basic principle of taxation–low rate, broad base–since they are purposefully levied on a narrow base and generally with the highest rate possible.  Why?  Generally to “discourage” the activity being taxed.

Take cigarettes for example.  The base is defined as one product and the tax rate, especially over the last decade or so, keeps going up, up and up i the name of “reducing smoking.”  Unfortunately, violating the principles of taxation carry a heavy price.  In the case of cigarettes it can lead to cigarette smuggling and cross-border shopping.

Now, apparently, they want to tax your food . . . I wonder what kind of unintended consequences will come of this?

Hat Tip to International Liberty

2009 HGTV Dream Home Winners Sell House . . . Thanks to Taxes

Following on my previous blog which estimated the tax costs of winning the 2010 HGTV Dream Home in Stowe, Vermont, this news story confirms the difficulty of hanging on to the HGTV house due to . . . TAXES!

A Florida couple who won the 2009 HGTV Dream Home has sold the property back to developer Steve Ledson after deciding it was too expensive to maintain and too far from their grandkids . . . Cheryl Smith said their taxes on the winnings would have been up to $500,000. Property taxes and assessment would have been an additional $25,000 a year. Smith said her husband, a retired engineer for Ford Motor Co., would have had to go back to work to support their Dream Home.

Other winners have tried to hang onto their homes as well, but with little success:

Of the 13 Dream Homes HGTV has given away, only two winners managed to keep their homes for any length of time. A Thousand Oaks family held on to their home for eight years before selling, but another couple had to auction off their Dream Home in Texas last year after running through their savings and taking out a loan to pay the taxes. [emphasis added]

In the end, the old saying still applies–“The Tax Man Cometh and The Tax Man Taketh Away.”

Win Dream Home, Go Broke Paying Taxes

Art Woolf has an amusing post “A Taxing Gift” which shows how winning HGTV’s 2011 dream-home in Stowe, Vermont will actually leave you with a tax bill that will leave you $500,00 in the hole.

What the article doesn’t tell you is what it will cost you to win.  As a public service, Vermonttiger presents the numbers:

1.  Vermont Purchase and Use Tax on a $50,000 vehicle at 6% = $3,000

2.  Vermont Property Transfer Tax on a $1.5 million house at 1.25% = $18,750

3.  Annual Property taxes on a $1.5 million house in Stowe = $24,350

4.  U.S. Income Tax on $2.05 million (house + cash + car) at 2011 tax rates

a.  assume Bush tax cuts do not expire as per Obama compromise plan = $678,000

b.  assume Bush tax cuts expire =  $772,000

5.  Vermont income taxes = $187,400

The lucky winner of the house will pay about $1 million in taxes in 2011 on their good fortune.  With the $500,000 cash that is part of the winning package, the winner will only have to come up with an additional half million bucks.  Maybe they can rent out some of those extra beds to help pay the taxes.

To continue the story: you would need to sell the house to pay your taxes . . . but with the slow housing market you may not sell it in time (or at all) to pay your taxes . . . the house is taken by the IRS and auctioned for less than the taxes you owe . . . the IRS then garnishes your wages for the rest of the tax bill.  If that’s not Wealth Alchemy in motion I don’t know what is!

Update: 2009 HGTV Dream Home Winners Sell House . . . Thanks to Taxes