New York Times Your Money columnist Ron Lieber got into some hot waters with readers after he wrote his column A Tax Plan That Might Not Be So Painful. I guess that’s because he used Dodging the Proposed 2013 Tax Increase as the headline for his blog post.
I feel really sorry for him. Ron writes good columns. The article in question had a good intention. It simply reminded people of benefits from underutilized pre-tax spending accounts: health care flexible spending accounts, dependent care flexible spending accounts, and transit pass and parking reimbursement programs. Making the best use of these programs will save you money, whether you are in a high tax bracket or a low tax bracket.
Ron actually tried to sugar coat the proposed 2013 tax increases by tying the tax increases with savings from the pre-tax spending accounts, saying that the tax increases aren’t a big deal — you only have to get smart about your pre-tax spending accounts to offset the increases, or “dodge” them as the title of his Bucks blog post says.
The word “dodge” opened a big can of worms. It came across to some readers as suggesting loopholes for “the rich” not to pay their fair share of taxes. Readers beat up Ron in the comments even though the pre-tax savings programs have existed for many years and they are not exclusive to “the rich.”
Only a few readers who commented picked up the real problem with the article. The savings from pre-tax spending accounts have nothing to do with 2013 tax increases. To borrow a favorite word from a co-worker, they are “orthogonal.”
You can realize the tax savings from pre-tax spending accounts today, in 2011, or in 2012, 2013, 2014 … Whether taxes will go up in 2013 has nothing to do with it. If people are already using the pre-tax savings accounts to the degree they are comfortable with, there won’t be any additional savings to offset the tax increases.
Some probably looked at those accounts and decided that the benefits are not worth the hassle and the risk of forfeiture. If they are not worth it today, they probably still aren’t worth it in 2013.
Matching tax savings from pre-tax spending accounts with tax increases in 2013 is pure mental accounting. It makes people feel better but one has nothing to do with the other. Whether you use the pre-tax spending accounts or not, you are not dodging the 2013 tax increases.
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The cap in 2013 for flexible spending plans, as I understand it, is reduced to $2500. So if participants are spending more than that it will be an increased out-of-pocket expense.
Harry Sit says
@Sherri – Only the health care flexible spending accounts are reduced to $2,500 maximum. The dependent care flexible spending accounts still have a maximum of $5,000.