As Captain Midnight pointed out to you in his link to the CNN web site, and as I did in a post, you're totally ignoring what came after ERTA. Subsequent bills passed during the Reagan administration broadened the base and eliminated loopholes and tax shelters.
Originally Posted by Tiny
I'm not sure you even realize what your saying as you seem to be bragging about Reagan's increasing taxes on one hand and cutting them on the other.
Originally Posted by WTF
Part of me wants to believe that you're naive. Another part wants to believe you're a tax shelter lobbyist. I shall educate you. I could use thoroughbred horses, pig farms or real estate partnerships as examples. But I shall use an industry near and dear to your heart, oil and gas.
If I got a nickel for every time an old time oil promoter told me "we made a lot of money under the Democrats", I'd have at least a buck. Maybe two.
What are they talking about? Well, Democrats effectively controlled Congress from Roosevelt all the way until the Reagan administration, when Republicans controlled the Senate but not the House. They jacked the maximum marginal tax rate up to over 90%. Kennedy kind of saw the light and brought it down to 70%.
Now who's going to pay 90% of their income in taxes? Or even 70%? Every imaginable tax shelter arose.
One was oil and gas drilling partnerships. You hand over, say, $100,000 to the partnership. The partnership goes out and gets another $200,000 on your behalf, through nonrecourse loans. That is, the lender couldn't demand repayment from you, but rather only from the partnership.
You may get to deduct the majority of that $300,000 the first year, through intangible drilling costs and the like. If you deduct $200,000 and you're in a 90% tax bracket, then you've already realized $180,000 in tax savings on your $100,000 investment.
And then there's the sweatener. Thanks to the percentage depletion deduction, kept in effect by Lyndon Baines Johnson and his Democratic colleagues, you got to deduct 27.5% of the REVENUES from production. In the past, I believe there were no limitations on the percentage depletion deduction, in terms of the wells actually producing income. So if your well was making $100,000 a year in revenues, and expenses were $110,000, who cares. You're pocketing an extra $27,500 in tax deductions so you're still making money!
That's an example of a tax shelter. You can lose money hand over fist and still end up like a bandit, after the tax deductions. If you're in a 90% tax bracket, this sort of thing made a lot of sense. Obviously it was great for oil promoters.
I don't know whether the Reagan Administration did anything to modify percentage depletion, which in its current form is 15% and subject to income limitations, but the 1986 tax act did make it where you couldn't deduct passive losses, like what you'd get from the drilling partnership, from your other income. So it shut down drilling partnerships as tax shelters.
So you can call it a tax increase if you want. I call it common sense. Instead of allocating capital to drilling partnerships that were going to lose money, people used their money more productively.
More later on the rest of your incredibly misleading post.
