The Latest Tax Planning Strategy--Be Stupid

I got my LL.M. in taxation from Georgetown University Law Center in 1979. That degree capped over 20 years of formal education. However, even now, I find more things to discover and learn.

For instance, thanks to the efforts of the conservative Tax Foundation, I have just learned that one of the best long-term tax strategies to follow is simply to be stupid. In its most recent publication, Putting a Face on America's Tax Returns, the Foundation points out:

[A] college education is . . . the ticket to a higher tax rate.

. . . [L]ower income taxpayers have lower levels of educational achievement, while higher income taxpayers have higher levels of educational achievement. . . . As we look further up the income scale, the percentage of taxpayers with a high school degree or less falls sharply while the number with some college or better grows considerably. Among those taxpayers in the top 20 percent, more than 8 out of 10 have some college education or better. This illustrates an ironic result of our progressive tax rate system and our national efforts to encourage young students to get a college education – there is a stiff tax penalty for achieving a college education.

How could I have missed something that, in retrospect, seems so obvious? Throughout my professional carreer, I have recommended such tax planning techiques for clients as having wealthy grandparents pay the college tuition of their grandchildren directly to the colleges they attend, thus avoiding any taxable gifts and having the money subject to estate tax. (I'll bet that even the Bush family employs this strategy. My guess is that George I is paying the Yale tuition for W's daughter.) Instead, I should have been recommending that the grandparents paid as much estate tax as possible and to leave their progeny to fend for themselves.

I've drafted trusts with provisions that assure that if a child is not fully educated when his or her parents die, the family's assets will first be employed to pay that child's tuition. How was I to know that I was condemning these children to a lifetime of high marginal rates? Should I put my malpractice carrier on notice?

I now see the wisdom of Republican social policy. For instance, in Maryland, Governor Bob Ehrlich has dramatically cut back the budget at the University of Maryland, resulting in tuition increases that have put the University beyond the economic reach of many students. It is obvious that, in doing so, he was wisely attempting to save these kids from the curse of low cost higher education that he himself has had to endure.

Thanks to the Tax Foundation for educating us all.