Your Taxes

We can argue about how much taxes people SHOULD pay, but it is a good idea to get ready for what YOU will pay in the next couple of years. There is a good article at this link. They use the example of a 26 year old couple, Bill & Joan. Bill earns $65,000 a year in sales and Joan gets about $35,000 annually. This means their combined income is a little above average, but below what average college educated dual income couples make. They are paying off student loans, child care etc. Their tax bill will rise by $3,598 in 2013, even if their income does not rise.

I don't know how much the average Watchblog person makes, but since most of us can read and write fairly well, I am betting it is more than $35,000 a year and probably even more than $65,000. So if Obama wants to tax the rich, the rich is us.

There is an interesting permutation with this story. Is it worth it for the Joan to work at all? When you count in the cost of transportation, child care and others expenses associated with working and then add in the tax bill of $3,598, which is about 10% of her income, she might be better to drop out of the official labor force. The single income of $65,000 will be taxed a lot less and the family will be eligible for other benefits. Since all her income is taxed at a higher rate, due to the marriage penalty, her after tax real income is probably about half of her salary. When you count in expenses, she is probably below the break-even point.

Of course, other taxes and fees associated with working are also going up. Generally, when you make something harder or more expensive, you get less of it.

The biggest problem with most analysis of the economy is that they are not dynamic, i.e. they don't properly take into account changes of behavior that will be provoked by changes in incentives. Those who pay little or no taxes but want benefits may not understand this, so let me put it in their terms.

Say you are occupying Wall Street. You are highly qualified for your job enjoy your work, banging on drums and denouncing the capitalist system and would do it for fun, but you rely on the free pizza, beer and hot dogs to keep you going. Now imagine you have to pay for these things. Your motivation to "stick it to the man" and annoy other citizens may remain strong, but you need to find alternative ways to get the necessities of life, which will cut into the time you can spend drumming, chanting and raging against the system. You and your tovarishchi can vote to make a rule that people still must bang and chant, in other words compel them with regulation, but enthusiasm will dampen and some of the best chanters and ragers will wander back under the bridges or to the street corners from whence they came.

A similar incentive problem is operating among those of us who work in fields other than street sleeping, drum banging, capitalism denouncing & drinking from bottles in brown paper bags. If you raise costs (i.e. taxes) it might affect effort.

Posted by Christine & John at November 10, 2011 4:46 PM
Comments
Comment #331762

Good post C&J. Our liberal friends rarely think beyond tomorrows handout. I have called social liberalism a mental disorder numerous times. I can think of no other reason that they would prefer to place their hand in my pocket rather than to put that same hand to meaningful work.

Billions of tax dollars are spent on primary education and yet, colleges and universities all must offer remedial classes in the basics which were not learned at the appropriate time. Then, billions of more tax dollars are spent to pay for a higher education and a great percentage of those students do poorly and drop out, or graduate with some useless degree for which no employer has any use.

We have the same problem with education as we do with welfare. There is no incentive to do well, to apply oneself, to achieve at a level of our ability. We have safety nets for nearly every kind of failure. No one is culpable, no one is to blame, no one is held accountable for their own failure.

Unless and until this mind set is changed, we…as a nation, can not advance, but merely stagnate and decline.

Posted by: Royal Flush at November 10, 2011 7:27 PM
Comment #331771

C&J,

We can argue about how much taxes people SHOULD pay, but it is a good idea to get ready for what YOU will pay in the next couple of years. There is a good article at this link. They use the example of a 26 year old couple, Bill & Joan. Bill earns $65,000 a year in sales and Joan gets about $35,000 annually. This means their combined income is a little above average, but below what average college educated dual income couples make. They are paying off student loans, child care etc. Their tax bill will rise by $3,598 in 2013, even if their income does not rise.

Were talking about Clintonian tax rates right? I don’t recall those rates causing any economic catastrophes.

RF,

Our liberal friends rarely think beyond tomorrows handout. I have called social liberalism a mental disorder numerous times. I can think of no other reason that they would prefer to place their hand in my pocket rather than to put that same hand to meaningful work.

I am pretty confident that none of the liberals here are interested in putting their hand in your pocket and none of us are looking forward any sort of handout. Nobody here supports the sort of welfare state where able-bodied people loaf around while on public assistance.

Billions of tax dollars are spent on primary education and yet, colleges and universities all must offer remedial classes in the basics which were not learned at the appropriate time. Then, billions of more tax dollars are spent to pay for a higher education and a great percentage of those students do poorly and drop out, or graduate with some useless degree for which no employer has any use.

We have the same problem with education as we do with welfare. There is no incentive to do well, to apply oneself, to achieve at a level of our ability.

There definitely has been a shift in how our society treats education, especially with regards to education in math & sciences, which are really the only two areas of any use to private industry. There is much less cultural pressure to succeed nowadays.

Posted by: Warped Reality at November 11, 2011 12:12 AM
Comment #331782

Warped

We are talking about what happens in 2013 when the Bush tax cuts etc expire.

The interesting thing is that Obama doesn’t need to do anything to raise taxes. He just needs to do nothing, which he is good at doing.

The tax rates in the 1990s were during a boom time. The strategy we would follow during the Obama doldrums would be different.

Warped & Royal

re education - I have been studying that subject and have had the opportunity to talk to dozens of award winning public school principals. I am surprised how GOOD our schools can be … and how bad.

The amount of money spent per student is completely uncorrelated with success. Good schools use money to teach kids basics. Bad schools tend to put the money into cultural and diversity programs that celebrate (my words not theirs) failure.

The fact is that basic education is similar throughout the world and throughout the ages. When we make excuses for failure based on “oppression” or historical grievances, we doom the current generation to the fate of the past failures.

BTW - this is not a race issue per-se. Historically black colleges are among those that can and do really pursue excellence. Maybe BECAUSE they can safely ignore “diversity” in the sense that others feel too guilty to do.

It is also true that teachers are both underpaid and overpaid. GOOD teachers are underpaid while bad ones get more than they deserve. The problem is the standardized compensation systems that infect most of our schools. Teachers get paid based on seniority and on the courses they have completed. Neither of these things really measures performance.

So the simple (not easy). We should teach kids to read, write and do math - well. We should not lard in other courses that celebrate their roots of build “self esteem”. Self respect (better than self esteem) comes for being good at what you do. Help kids do that and everything else really takes care of itself.

As for teachers - we should make it much easier to get rid of bad performers. Teaching is a wonderful profession. Many people can do it well, but a few bad performers and really mess up the whole system.

Posted by: C&J at November 11, 2011 6:33 AM
Comment #331784

Jack-

But Obama did “do something” last time this issue came up: he extended the tax cuts another two years. No doubt Obama and the Democrats consider these tax cuts good policy because doing nothing would have been far simpler.

So it’s the Obama Tax Cuts that will exire in 2013 and not the Bush Tax Cuts. Give credit where credit is due.

Posted by: George at November 11, 2011 9:27 AM
Comment #331791

George

Okay - call them Obama tax cuts. But our Democratic friends like to blame Bush when talking revenue, so indeed the Democrats have given us these tax rates and all the good and bad that goes with it.

Posted by: C&J at November 11, 2011 11:54 AM
Comment #331797

They like to blame Bush when 56% of House Dems, 75% of Senate Dems, and the President voted for the extension. And they did it at a time when they still controlled all three branches. Sort of like Graham-Leach-Bililey. It’s all Graham’s fault even though the bill passed 90-8 in the Senate, 362-57 in the House, and Bill Clinton signed it (and still stands by his signature). As the Church Lady would say….

Posted by: George at November 11, 2011 1:27 PM
Comment #331800

C&J,

The tax rates in the 1990s were during a boom time. The strategy we would follow during the Obama doldrums would be different.

It also doesn’t hurt to point out that while President Clinton raised marginal tax rates, he (and Congress, of course) lowered capital gains rates. Over the next five years, capital gains tax revenues more than doubled.

In fact, looking at the IRS data, every time we’ve lowered capital gains rates over the last 30 years, the following years have seen GDP growth, lower unemployment and significantly higher federal capital gains revenues. When we’ve raised them, growth slowed, unemployment increased and revenues dropped. Coincidence?

Posted by: Kevin Nye at November 11, 2011 2:38 PM
Comment #331880

Obama put forward a plan to keep the middle class tax cuts(that is, those under $250,000) permanently, and Republicans rejected it. More to the point, all the Republican tax plans end up increasing the tax burden for the average person.

More to the point, any vain attempts to assign responsibility to Barack Obama for the Bush Tax Cuts will run up against the very unavoidable fact that these tax cuts originated during his administration.

George-
As I recall it, Republicans were near unanimous in supporting the tax cuts, which hardly makes this a defense, much less an exoneration.

More to the point, your party has spent the better part of my entire life successfully demonizing the raising of taxes, and using the tax increases by both Bush and Clinton as political weapons against them. It was even part of how your people got elected in 1994.

This relieves nobody on my side of their responsibility, but it means essentially that you are still wrong, just wrong with company. You cannot escape from the scorn of liberals and Democrats like me by trying to use our politicians, who more or less went way to our right to support these policies, as human shields for your responsibility.

A lot of us didn’t have your party’s unrealistic view on finance and fiscal responsibility, and we would have had our people, if they were listening properly to us at the time, maintain the status quo on the fiscal situation at the century’s turn. We would have had additional taxes written up to pay for things like the war, like the Medicare Drug benefit.

We were not unhappy to have seen a Democrat successfully balance a budget. It didn’t send ripples through our community. We were happy to say “Clinton balanced the budget!” We were happy, most Democrats out there, to be on the side of fiscal prudence.

It was the Republicans themselves who BSed themselves into undoing that, saying it was for the good of the economy. Ironic, that they undid the policies that had existed during the longest period of sustained growth in our nation’s history.

The Democrat’s policies of moderately higher taxes, especially on the wealthy, put our fiscal house in order much better than any Republican policy of cutting taxes and hoping that the calculus of the economy overcomes the arithmetic of the tax rate.

Posted by: Stephen Daugherty at November 12, 2011 8:57 AM
Comment #331886

Stephen

Obama’s plan is just smoke he puts up for the elections. There is not enough money in those high incomes.

Remember, you will tax their income at that higher rate only when they exceed $250k. You understand this,right?

So you are looking only at the money above that level to grab.

Personally, I don’t mind if you tax the crap out of fat cats like George Soros, John Kerry and all those overpaid entertainers and sports stars. I just know you won’t get that much money out of them because they will quickly move their case into places that are tax protected.

The way to get more money is to cut rates while at the same time closing loopholes. Republicans have proposed doing this in ways that would raise half a trillion in revenue, even assuming no economic growth. Democrats threw this out w/o considering.

You can wage class war or you can actually get the rich to pay more, but you cannot do both well at the same time.

Class war makes liberals feel good and helps them get votes but it is akin to auto-eroticism, w/o real world results.

Posted by: C&J at November 12, 2011 10:15 AM
Comment #331887

Stephen

I should also add that the Republican proposal would have addressed the baked in tax increases that will hit Bill, Joan, you and me. Obama doesn’t go for that either. He plain wants to grow government and bring tax rates up to that level to pay for it.

He says that he want to “tax the rich” He really means that he will tax the productive, sort of like they do in Greece and Italy.

Posted by: C&J at November 12, 2011 10:17 AM
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