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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?
Jon, when the federal reserve buys treasury debt like that, it's basically printing dollars out of thin air in order to pay for government spending. This will make the dollar worthless.
Sure, perhaps even the highest taxes in the country (though Connecticut likes to complain about their property taxes) but lowest taxes overall.
You can debate which taxes should be used or whatever, but I think starting with the lowest overall is a good place to start.
Ah, so then "dollar is worthless" => "being zimbabwe". I wasn't sure what the connection was.
And yes, that makes sense. I have a friend who says (years ago, so not counting current events) we should short-circuit the whole process and just swap houses with all of the Indians, and we can all move over there, and then we don't have to live in this stress-filled world of off-shoring, etc. "Just get it over with and go live on $1/day or whatever..."
Chip, the feds health care spending is either for general health care services which doesn't really result in structural changes to how health care is delivered, or for establishing regional electronic health record centers which are a total invasion of privacy. They plan to store all your health records at centralized locations whether you like it or not. There are private sector companies which are working on the equivalent of personal usb devices which can store your data securely but they certainly wont be getting govt funding.
Although I'm generally a stay-out-of-debt person—I see no good place in our society for credit card debt, for example—debt does have a good and proper function. Like salt in food, it can enhance or destroy, depending on how it is used. As someone once said, when you save money, you are giving a gift to your future self; when you borrow money, your future self is giving a gift to you. If you've ever looked back on your life (most of you are probably too young to have done much of this yet) and said, "I wish I'd had back then some of the money I have now," you'll know why your future self might want to give a gift to you in the present. I would love, for example, to be able to take some of today's money (okay, six month's ago's money) and spend it on educational materials for our children that we felt we couldn't afford back then. (Hence, you might rightly conclude, grandparents' delight in buying things for their grandchildren.) Of course that kind of thinking can get 'way out of hand, which is why people have so much credit card debt.
Mortgages and college loans—and sometimes even car loans, though that's less clear—make sense on an individual, personal level. It depends on the economic situation of the area, but it can be less expensive to make mortgage payments than to pay rent, even if you're not gaining equity. Leverage is not all bad (again, like salt), and the income gain provided by a college degree can easily make a college loan worthwhile rather than drawing out the process by "working one's way through college." As for car loans, the chief problem I see is that as long as they're borrowing money, people will saddle themselves with foolish debt by getting a fancier car than they need for basic transportation.
Individual loans for specific purposes can make sense—it seems to me that loan programsare what mess everything up. Heather would not have had a college loan had the subsidized low interest rates not made it foolish to sell assets instead. What's worse, when so much loan money is available, it doesn't really make college more affordable because it drives up tuition and other costs; colleges assume you will be getting loans, and even consider a loan to be part of your financial aid package, which I call a cruel deception. Perhaps we should put the whole financial aid genie back in the bottle again, though that's probably impossible. What started out as an attempt to help the poorest of the poor now actively discourages saving for college and working one's way through, and begins to look more like an entitlement program for the colleges themselves.
Back when a mortgage was a carefully investigated and thought out agreement between one bank and one family, the system worked reasonably well. But when financing became looser and incentives for lending/borrowing only what one could afford were much reduced, prices were driven up—and eventually the house of cards collapsed.
I see a huge difference between prudent and foolish borrowing, whether by individuals or by governments. Unfortunately, inflation—which is where I fear we are headed—rewards borrowers indiscriminately and penalizes savers. True, the U.S. Government will always pay its debts, but it can also print money, and that $1 it returns to you may be worth only a fraction of the $1 it borrowed.
Chip said: "Jon, the state of NH and PA are so completely different that it is hard to compare them. The services that are needed in a tiny state are vastly different than those required in a large state with two major urban areas."
I've lived (among other places) in both Pennsylvania (higher tax state) and Florida (lower tax state), and have to agree with Jon about services rendered. Florida has four of the top 50 U.S. Metropolitan Areas (7, 19, 27, and 40) and Pennsylvania has two (5, 22), so it's perhaps a better comparison.
One area that's easy for me to compare is education. When our children were in Florida schools, the cost per pupil was a little over $3000; at the same time, the cost per pupil where I went to school in Pennsylvania was over $7000. Those who know me know that I can expound day and night on what's wrong with the American educational system, but that is independent of one state versus another. Both school districts were highly rated, and while there are some areas in which I would have called the Pennsylvania schools better, there are others in which the Florida schools were definitely superior. What is absolutely crystal clear is that in no way were the Pennsylvania schools twice as good as those in Florida.
I also don't follow why a bigger state would need more tax money, unless there weren't enough people to support the "larger" state. And why does PA have the largest legislative body in the country (I think that is still a current statistic)?
I tried to include a link, so I may have typed "< a" or made some such goof. Anyway, I only wanted to point to the wikipedia articles on Income Tax in the United States (with its table showing the different rates), mention that I'd first thought 94% meant 94% on the entire income, not just the part that fell into the highest bracket (though that's still a serious disincentive - is that a word?), point to the paragraph immediately below the table of tax rates, and finally muse out loud what would happen if voters in the US got to decide on the tax rates like we do in Switzerland (of course with a link to the wikipedia article on Taxation in Switzerland). No worries.
Ah right, I wasn't thinking when I read that part too quickly. Yes, the tiered system does get high as you go up, which is why whatever that statistic is about 5% of the people paying 75% of the taxes or whatever it is. And some people want to tax the rich even more.
Ah, the American dream...
Unfortunately, it is kind of hard to ask the filtering system why it didn't like a particular comment, but another comment of Phil's was blocked, now showing above.
I do find it humorous that people complain about the couple hundred million bonuses for AIG, but don't seem to care all that much about the billions of dollars that are being wasted just as much, or perhaps even worse.
But, as Chip would say (presumably) this money is actually being spent well. No?
I wonder if one of the items that may explain the different cost per student in PA and FL would be the difference in the cost of living in those areas and thus the expenses for teachers, etc. It certainly cost a lot more in that part of Philly to own a house.
That's true; housing costs were higher there. There were plenty of homes in our zone that cost as much as or more than the houses in that part of Pennsylvania, but there were definitely more homes at the lower end—or we wouldn't have been there. :)
On the other hand, food costs between the two areas are only marginally different. And of course a big reason why the cost of living is higher there is that the taxes are much higher.
One thing the Florida schools do is rely much more on a well-organized network of volunteers. When our kids were in school, I considered my volunteer work "in lieu of taxes." This not only relieves teachers of a lot of grunt work, but also encourages the parents to be involved in their children's schools, which I see as a very good thing. And before anyone jumps on me with the idea that "working" parents can't do that—somehow they found a way, because there were plenty of employed volunteers.
I had to get a form signed by the Middlesex Township for Pittsburgh in order to convince them that I actually moved, and aren't just ripping Pittsburgh off by not paying the taxes. While I was there, she had me file the township taxes, rather than mail them in, which was good, since she told me that Middlesex no longer cares about rental income (though I showed her in the instructions where it says they do, but she insisted they haven't, since 6 years ago, so I stopped arguing and let her give me money).
And once the rental income isn't taxed, then Pittsburgh and Middlesex both tax the same income, so it is quite easy to verify if the taxes are correct and line up with the PA Schedule C, which they didn't. She said she didn't care, and just reduced the Middlesex taxes to make it line up with what I was paying Pittsburgh and PA.
She also said it would be likely that we would get audited in 2012, when the state sends Middlesex the report about how much income I reported to them. But, she said not to worry, that I just had to show the Pittsburgh taxes, and everything should be fine.
Since the numbers were wrong, I went back to figure out what I had done wrong, and fixed up our finance program to give us better reports, so we do less math by hand. It looks like we took out rental income without taking out rental expenses or something. But, even after I fixed that, I had calculated the mileages incorrectly also. Urgh.
So, I'm refiling Pittsburgh, PA and Federal taxes today. I'll end up paying Middlesex $.50 too much or something like that, but if they want to audit me over that, I guess they can feel free.
I also discovered that Middlesex also has various business taxes, where I definitely owe one of them ($52/year - copying Pittsburgh's local services tax) and perhaps some of the others, I'll need to talk to them to make sure.
The local services tax is pretty annoying - I bought the argument that Pittsburgh needed that tax, since so many people work outside of the city, and come in and take advantage of various things, without paying for it. I am not sure what services Middlesex Township provides. I wish they would just simplify the taxes, ie. add the $52 to the percentage on the income, since I think it only affects people earning income, so it'd end up being the same thing - though I guess it is hard to make the flat tax be a percentage - but just add it as a line-item to the income tax form or something.
A bit of a tangent, but there's an article in the Economist on tax havens, which makes me think that one way to get out of paying US taxes as an overseas resident citizen would be to open a business in Delaware... what a wacky world.