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Powered by LifeTypeI haven't looked at how much time it took us to do taxes this year - I thought we were doing pretty well, time-wise, until we blew 8 hours or so today finishing them off (or is it them finishing us off, I'm not sure which...)
I noticed a number of places where the strange, complicated math formulas to figure out different values seem to be kind of odd (ie. not just complicated, but don't calculate in the intuitive way for people at different incomes, etc.) The child credit is biased against self-employed people for some reason, where you can hit a cap relatively quickly, where if you work at a regular company, the cap is much higher (and at least for one guy (with a relatively low salary as a teacher with lots of kids) I asked, impossible to hit - he actually didn't know there was a cap).
There is also a minimum to getting the child credit, which I hadn't realized. Once you have three kids, then that limit is mostly removed (though you have to work at the calculations to figure out how much you actually get), but with only one or two kids, you can actually earn too little and not get any tax credits for your children. One could argue that if you are earning small amounts of money (or at least have a small adjusted gross income) that perhaps you can't afford lots of kids, and so shouldn't have the tax credit to motivate you, but I don't know how much people think about the tax credit when thinking about having another child or not.
Another interesting thing that happened this year, though I suspect it is mostly our "fault" due to not giving as much, is that though we earned a little over half what we earned last year, the actual tax rate is higher this year due to the self-employment chunk being bigger. Last year, we were in the 15% bracket, and "actual" taxes were 9%. This year, we're in the 10% bracket, but actual taxes are 13%. I am defining "actual tax" as taxes paid divided by gross income. (actually, I didn't do the calculation this year, taxact happened to point out that I was paying a higher tax rate than last year, I guess just to cheer me up) But, the numbers sound right for last year, when I did do that calculation, and I'm pretty sure I used straight gross income.
TaxAct also pointed out that 13% of my taxes went to pay for other people's social security and medicare, etc. 9% went towards the US defense fund. And then the rest of the categories (probably about 8) were all small percentages. Just gives you a warm, fuzzy feeling, doesn't it?
Most people don't consider the 7% their employer pays for Social Security/Medicare as part of their tax rate - so from that perspective they think they are paying a lower rate.
The less money you make the more the 14% SS tax as a self employed person comes in to play as a percentage of the taxes you pay. This can make your tax rate look higher. This is another reason I don't like the flat tax idea -- we already have one in the SS tax, and it is pretty onerous the less money you make.
I consider my employer's contribution to be part of my tax rate. They'd pay it to me to bid for my services if they didn't have to pay it to the feds.
I don't like the flat income tax idea either. I like the no income tax idea.
On the no income tax idea Andorra agrees with you, Phil.
So does Florida. :)
And NH, DE and Oregon, presumably among others... Pennsylvania though is not the place to be - we like our taxes, and think there should be more. And so I decided that we might as well take advantage of all of our taxes, particularly after I found out Pittsburgh had all those other taxes I didn't know about, and had to waste all that time calculating back taxes and penalties, etc. that we should get some cheaper healthcare for the kids, and just today we got the notification that we got free health care for the kids, can use our same doctor, and can go to the dentist we really like as well.
So, I say, as long as we live in a big government state (and country), we might as well get them to pay for stuff.
If you can still go to your good doctor and dentist, by all means. That's good news, as long as you're going to have to pay all those taxes anyway. If they forced you to go to a different doctor, that might require more thought, as a good relationship with one's doctor (and dentist) is worth a lot.
Stephan: So did the US as little as 100 years ago.
I hadn't realized that income taxes were that new.
Looks like in four years the IRS will celebrate its centennial. It makes me wonder, though, what caused the apparent need for an income tax.
How are tax rates changed in the US? Are they voted upon?
Some would say that the income tax as people generally believe it exists, doesn't actually apply to "regular" citizens, and that the whole thing is a big scam on the American people.
Unfortunately, like the rest of our legal system, the people with the money win, no matter who is right, and so the various people who have stopped paying taxes have ended up in jail for long periods of time, though some have eventually won. And I liked the story of the guy who was paying his employees with US circulated $50 coins made out of gold, which are actually worth $800 each or something. He filed his taxes like he had only paid them $50, since that is what the value of the coin is. The IRS sued him and lost.
It makes for a nice story, but I don't think it is all that great for the employees, unless there is some way for them to get out of the taxes from selling their profit on the gold.
Wikipedia linked to this article about the origination of the income tax in the US.
The article I linked in the previous comment looks like a pretty good article; anyone know if his history is wrong?
Its hard to imagine a 94% income tax. And too bad for the South, that if they had continued to oppose it, maybe it wouldn't be here today. And like so many things, they voted for it since it only taxes the higher earners, which didn't include most of them, so it didn't matter too much.
I also hadn't heard the statistic of the average American taking 20 years of work to pay his taxes, and then he can start actually earning on the 21st year. I had heard about the celebrations of "freedom day" or whatever it is called, when people celebrate the first day of the year that they are earning money for themselves, rather than paying the government. My day was February 16th, which I realize is early compared to lots of people, but pushing it lower and lower is always better.
Anyone know why I read that the old saying, "starve the beast", is an "old saying", and not still used? I'd never heard of it before, and I think it sounds pretty good.
The "14%" tax isn't exactly that for self-employed folks, since the formula is actually as calculated below. This formula is only valid for incomes between $433.13 and
$110,449.38. Below the minimum, you don't pay any, and above the maximum, you pay 11.45% on the first $110K, and 2.68% on the rest.
Variables:
GI: gross_income (not counting rental income, at least for "active income", which is what we earn)
TR: Tax rate: whatever percentage bracket you fall into (10%) for us.
GI * .9235 * .153 - TR * (GI*.9235*.153*0.5)
So, for us, it is actually 13.42%.
I just figured out why "starving the beast" doesn't work any more - they'll just spend money they don't have, and let someone else deal with figuring out where to get the money later.
I have a novel thought - what if we only spent the money we actually had???
I have a hard time believing TaxAct's reporting of where your particular taxes go. Defense makes up about 30% of the federal budget and the combination of Social Security/Medicare/Medicaid (which doesn't make much sense to me to combine, but everyone does) is about 45% of the budget. If you are in the 10% tax bracket, I would have guessed that a much, much higher % of your taxes would have been for SS/Medicare/Medicaid, but only 9% to defense does not seem very likely to me either.
As to "starving the beast," it does not work because it is a silly political slogan, not an approach to policy. Most Americans have no desire to live in a third world country. I agree that we spend way too much money on defense (we spend about $623 billion while the rest of the entire world combined spends $500 billion!) but the politicians who talk about starving the beast have no desire to touch the single largest item in the federal budget. Actually, I don't think very many other Americans really want us to reduce defense spending either.