Wednesday, December 29, 2010

The Tax "Cut" Debacle

Reading so many news stories lately, I tend to gravitate towards the comments sections so I can see what people think of X or Y writer's thoughts.  A few things are clear:
  1. Too many people expect too much.
  2. Too many people having the faintest idea what the tax break means.
  3. Too many people have no idea what it really costs.
  4. Too many people are jealous.
  5. Too many people are ill informed of the realities of taxes.
To be fair, there's dozens of news stories, anecdotal blogs (and hopefully, this post won't be one of them), thousands of "experts" all contradicting each other.

(Tax talk and math showing how a man on government "entitlements" makes more than a business owner lifetime after jump)

Let's start with the cold, hard facts.  The continuation (not a new tax break) is expected to cost $860 billion.  Many comments I've seen across the net talk about this figure, loving or hating the "$860 billion goes to the rich".  WRONG.  That's the total cost of the entire package!

According to several sites, sourcing CNN for this use, a whole $81.5 billion goes towards "the rich".  That's it.  Less than 10% of the package.  Yeah, that's a deal breaker.  Under $250k per year, the bulk of the package, $463 billion goes to the "rest of us".  You read that right, there's no typos.  In all the semantics and bitching of the masses, the package, without those tax extensions for "the rich", it would have still cost $778.5 billion.  Why should the rich be included in this?  Because they will be carrying the tax burden, even with the tax breaks to cover this package.  In all fairness, shouldn't we throw them a freakin bone here?  They aren't getting "free money".  They are keeping more of what they earned.  Why should that be punished?

By comparison, this bill also included extension of the unemployment welf... err, benefits at a cost of $56 billion.  What I can't seem to figure out, all these people are clamoring over the $81 billion mark for the rich, yet, no one is complaining about a full YEAR extension to people who've already gotten free money for TWO years.  Free money is free money right?  No one, under any age, any occupation or pay scale has ever paid into unemployment long enough to receive 35 months of unemployment checks.  This isn't an affront to those who get it, need it and live on it, but it is a testament to a system that pays out more than it's citizens give in.  (This is also the case for Social Security, we'll cover that another time.)  It's somehow not a bad thing, for unemployed people, by choice or not, to keep money they didn't earn, but it's peachy keen to take money from those who did earn it to give to them.

The next line item is Social Security's tax break.  This cost more than the cut for the rich.  In this rendition, this will cost $111 billion.  This is probably the break that makes the least sense to me.  It should for anyone of all income levels.  Social Security is in danger.  Doesn't matter which political party you side with, which tax class you fall in - it's already under projection to run out.  Having people (regardless of who it is) pay less into the system just makes it fade that much faster.  This puts a burden on our low end baby boomers, all the way down to those still in high school right this second.  Are people really saying that it's dandy to give away all this money to the retiring generation and that generation is so selfish, they don't give a damn whether or not anything is left for their descendants?

Another insertion is the $8 billion individual tax break.  This goes towards low and middle class families.  Okay, so they've got the break about for under $250k already, that cost more than half the package.  Then they throw in some more breaks for the little guys with the SS tax break.  What's next?  Why, throw more at them!  A theme here yet?  Those complaining the most about the tax cuts are the ones that in actuality, profit the most off of it.

The business tax break is the one I'm least on board with as a "bad idea".  It always has been and still is too broad.  $69 billion allotted to a rather vague writing leaves open lots of fraud or gigantic corporations to tap into it.  To be fair, I'm in favor of lowering taxes on businesses in general, but such a little amount of funds with little oversight, controlled by people who own businesses... gee, I wonder which businesses will get the cash?  It won't be mine.

Lastly, the $68 billion estate tax.  This is the stupidest tax ever, in the history of the US.  It doesn't just qualify as dumbest of this piece, simply because it does not pertain to this package alone.  Someone worked hard for their money.  They paid taxes on that paycheck.  They spent that money on buying a house.  That taxed money was taxed again.  When that house passes along in the estate after a death, you are going to tax the taxed money that was already taxed?  Great legacy for your kids.  "Gee kids, have a house that I spent my life earning, so you can pay taxes on it not only because I died, but when you go to sell it - it'll be taxed again."  Of course, the home could stay in the family, in which case, you get the lovely taxes for deed transfers, but in reality, most homes are sold.  So let's have a fun little scenario! (I like these.)

James (two kids and a wife) spends his 40 years, working hard as a farmer.  During his tax returns, he grosses an average of $100,000 a year for his 80 hour work weeks but loves what he does.  At $100,000, with the average of 30% in taxes for a sole owner under federal taxes, he only gets to see $70,000.  Not too shabby.  Oops, gotta pay his state taxes!  Say goodbye to another average 10% of his income.  Okay, $60k, still a good wage.  (We won't even go into the possibility of needing to reinvest into new equipment with his income or any other required permits, inspections, etc.)  Wait, wait, wait... James wants to build a house on the farmland. Well damn.  The cost of the home?  $150,000.  So he pays 6% on that as well, just for the "right" to own his own place.  Another $9000 gone.  That's not all, now he has property tax.  That's a lovely $5000 a year.  (And the county is impossible to help repair the gravel road in front of his house because they are broke.)  *sigh*  Okay, so he's a proud man, proud job, proud of his home, but he needs to buy a car to get into town.  A $15k car, another $1000.  He'll own 5 cars throughout his 40 years.  Wait...why am I buying generic Mac N Cheese this week? Don't I make $100k?

Well, by the time James keels over from looking at his budget:
  • $30k a year in federal taxes x 40 years = $1,200,000 paid
  • $10k a year in state taxes x 40 years = $400,000 paid
  • 6% tax on $150,000 home = $9000
  • $5000 a year in property tax x 40 years = $200,000
  • 5 cars x $1000 in taxes = $5000
  • $400 a year to "register" his vehicle for 40 years = $16,000

James has made $4,000,000 over his lifetime.  His pay in taxes?  $1,830,000.  He is left with $2,170,000 take home in his life.  Almost half his money has went to required taxes.  This doesn't even allow for all the sales tax on daily goods or other services.  If James hadn't been the only man and had hired hands, his take home would have been less because he also would have had taxes to pay on his workers.  Without the tax break, if he died with a million in assets between all the farmland, equipment and home, another 40-50% is gone from his estate.  The final amount left to his next of kin?  $500,000 or so, after 40 years of hard work.  That breaks down to a whole $12,500 a year that he "made".  After his hard work, that comes out to $13/hr before estate taxes.  After, $6/hr leftover when all is said and done.  Never counting in the fact that he will also most likely pay $500 a month in health insurance.  Not also counting the majority of rural property owners also pay an additional levy for 911 services and more are passing these taxes, err, surcharges, every day.

Let's compare that to Mark (two kids and a wife).  He actually does make $12,500 a year for 40 years (this means part time wages, so we'll say 25 hours a week).  He'll pay less in property tax (that income slot generally goes to urban areas).  He'll pay about the same in the taxes for the cars.  He will pay nothing into state or federal taxes.  At the end of the year, he will get an additional $5000 back from the government in his refund.  He qualifies for government subsidized housing, which will equal to $700 a month.  He qualifies for utilities subsidies which runs $150 a month.  He qualifies for food stamps at $500 a month.  He qualifies for Medicaid - another $500 a month.  He qualifies for WIC for about 10 years worth which is also another $150 a month.  He qualifies for free lunch for the kids from school at another $80 a month for school age for the kids.  What's his true income?

  • $12,500 a year in income x 40 years = $500,000
  • $5000 a year in claiming the EIC x 18 years = $90,000
  • $700 a month in claiming minor dependents x 20 years = $168,000
  • $150 a month in utilities x 40 years = $72,000
  • $500 a month in food stamps (w/children) x 20 years = $120,000
  • $200 a month in  food stamps (w/o children) x 20 years = $48,000
  • $500 a month in Medicaid x 40 years = $240,000
  • $150 a month for WIC through age 5 for each child = $18,000
  • $80 a month in free lunch programs x 13 years = $18,720

This doesn't even account for all the free programs for things like sending children to camps, YMCA programs, state run kids activities, etc.  Nor does it account for medical that is totally free against James co-pays, deductibles and caps.  He will leave almost nothing to his children however.  His total true income for lifetime?  $1,274,720.  He has paid nothing in taxes at all.  His true annual salary?  $31,868.  At part time of 25 hours a week - that works out to be $26/hr.

That same above scenario applies for a family of 4 making up to $30k a year.  If we were to include that salary cap in the scenario, Matt would make $1,974,720 total.  At full time, 40 hrs a week, this works out to $23/hr.  Under this situation, Matt only made $195,280 less than James.

*It should also be noted that on an unemployment check of $1000 a month, James and his $37,500 over 3 years working all that time compares to $35,000 for those who are getting checks with no requirements.  This means no work for the money received.

Now tell me, what is wrong with this picture????????  And somehow, we still have people complaining that we need to give even more!

*Feel free to comment and let me know of any errors in math or something I may have missed and I'll try to update this post as soon as possible with correct info, if required.

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