Oil Tax and Roth IRAs
Dear Mr. Berko: Please answer the following two questions for me. A co-worker believes that Congress wants to add a $10 tax on each barrel of oil used in the U.S. to pay for infrastructure improvement. How much would that add to the price at the pump? In the same discussion, he said Congress will be changing the Roth IRA rules. Why would Congress do that? — MP, Rochester, Minn.
Dear MP: It’s all true, according to retired CPA Helen Highwater from Kokomo!
In June, some members of Congress floated a proposal for a $10 tax on every barrel of oil. This tax would fund needed infrastructure upgrades. And I’m told there’s a few billion dollars for Elon Musk’s Hyperloop train system. The Hyperloop, according to Musk, will zoom you from LA to New York City in 45 minutes. That’s about 4,000 miles per hour! So for every barrel from overseas or pumped from U.S. soil, Congress wants a $10 tax. Washington calls this a tax on big oil, not a tax on a barrel of oil. Disingenuous?
If Congress passes this legislation, I’ll give you my FBI guarantee that neither a pence nor a farthing of that $10 will come from big oil. According to the American Petroleum Institute, big oil will fight this tax to the death because it would swallow an enormous amount of its profits. As a result, every penny of that tax would most likely trickle down to the motorists because big oil probably would raise the price at the pump. Economist Nicolas Loris of The Heritage Foundation guestimates that the cost would be 22 cents a gallon, and Forbes suggests 25 cents. But that would be a drop in the bucket. Infrastructure improvement requires trillions, not billions, and this might be the beginning of much higher fuel prices. A gallon of gas in London costs over $9.
Last year, the U.S. consumed about 20 million barrels of oil a day, so a $10 tax per barrel would bring in about $200 million a day, or about $73 billion annually (not including foreign oil). That $73 billion would translate to $136.5 million per member of Congress. And according to a friend of mine, professor O. Leo Leahy, that would be an opportunity for a lot of delicious graft, with the money passing through the manicured fingers of Congress. Professor Leahy says congressmen would enjoy fatter wallets doling out infrastructure contracts to friends who generously show their appreciation under the hat. There’s a 27 percent chance that this tax will be passed. This isn’t a Democratic or Republican proposal. It’s a cooperative effort of both parties to find a new honey pot from which both sides of the aisle can suckle.
My dad liked to say that this country was built by men in work clothes and disparaged by men in three-piece suits. The Roth IRA was a grand idea. It allowed us to invest between $5,500 and $6,500 yearly. And because we don’t deduct Roth contributions from our gross income, the investments appreciate tax-free, and when we retire, the money comes back to us tax-free. Well, the three-piece suit brigade has abused the Roth, turning it into a Golconda for the wealthy, helping them make billions of tax-free dollars. White-shoe lawyers have advised qualified investors to put low-value assets in a new Roth IRA. So if someone owned 100,000 shares of a private company at 5 cents a share and put the assets in a Roth IRA, it would be worth $5,000. And 18 months later, if the company went public at $20 a share, the account’s value would zoom to $2 million, tax-free. That’s cool beans!
This type of dealing allows people of privilege to circumvent tax and income limits that normally apply. The Obama administration realizes that it’s losing important tax revenues. And because the Government Accountability Office found over 9,000 taxpayers with $5 million to $10 million in their IRAs, Congress may decide that enough is enough and try to prohibit certain contributions to Roth IRAs. I know two investors who used this loophole. One pocketed $11 million, and the other collected $6.6 million, tax-free. This loophole, a sop from the congressional swamp for the privileged, may be closed in 2018.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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