Debt deal ready for passage - absent a shock - next few months interesting.

The bill (soon to be law) contains requirements for additional spending cuts, plus some elements of tax reform.

That should make for some interesting discussions on this blog for the next few months.

One thing to point out though - Obama didn't fail to increase taxes on the wealthy.  He failed to increase taxes on people whose taxable income exceeded $200,000.

The headlines always say "raise taxes on the rich" or "fails to raise taxes on the wealthy" - but that isn't the case.  The federal government doesn't tax wealth (unless it's the estate tax which is such a small portion of tax revenues, it can be ignored for this discussion).

The federal government taxes taxable income.  Period.

Now, of course, you can argue that wealth and taxable income are heavily correlated - and you're probably right most of the time.

But it is a smart tax-literate person who can figure out how to disconnect the two. (It is usually done through years of savings, squirrelling away money into investment vehicles that don't pay current taxable income, and reaping returns on investments which produce income that is not currently taxable - think some stocks, real estate, etc.).

Take as an example, Mr. Miser's portfolio of assets totaling $2,200,000 (and assume he has no debt):

Non-dividend paying stock     $1,000,000
401(k)                                         $500,000
Land holdings                             $300,000
Personal residence                      $400,000

Suppose Mr. Miser's salary from his job last year was $100,000, and each of his investments listed above grew 10% for the year. 

How much taxable income does he have?  Easy - just his salary of $100,000 (less some deductions). None of his investments listed above will appear on his 1040 tax return since none produce taxable income in the current year.

How much did his assets grow?  Well, his total assets listed about were $2,200,000, so he "made" another $220,000 on that - but none of that is currently taxable.  Total income - $320,000.

So Mr. Miser is wealthy - he is a multi-millionaire - he made over $300,000 last year - but his taxable income is "only" $100,000 (less some deductions) - and he won't register on Obama's "tax increase on the wealthy" list.

And no, the tax reform you're going to see over the next few months isn't going to change any of those rules.