So, did you provide housing to a Midwestern displaced individual?
I completed my taxes this morning. Or, at least I did for now. Quarterly filing means I have to spend a few more frustrating hours on the activity this year. I had hoped that the time would be less than twenty hours, but guessed thirty. That is about how many it took. The final frustration was that, for whatever reason, my Acrobat Reader seems not to be able to download the quarterly estimated filing forms. I'll have to stop at the library to pick them up. All this effort and we owe the IRS $757 for last year. Most of this was for wage tax. It is now 15%. Is it any wonder most people don't save anymore or that so few work? Still, with this tax, Social Security should be rolling in dough. We know it is not. The idea was a good one, but sadly the government turned a simple old-age insurance program into the largest Ponzi Scheme in history. I am doing my best to cash out before the bottom falls out. Still, we just paid in $656 and have not collected a cent. We are probably twenty years too young.
Our actual income tax for last year comes out to $101, and this is where most of the hours went in. Why so much time? Because the Congress is schizoid with regard to taxes. It has to bring in income, but it wants taxes to be "fair." It also wants to "encourage" certain behaviors, among them saving for such things as retirement, education, and health care. Unfortunately saving makes one wealthy and the wealthy have money to pay more taxes, and Congress twists the tax code to make them do so. All this leads to a witches brew of a tax system that is irrational in itself and pushes the taxpayer to adjust their behavior to the tax code because taxes much more affect our cash for spending than does income.
What is a fair tax. Clearly we all benefit from the government. So, we should all pay a tax. But, some are wealthier, have more income, property, or savings. Should these pay more? Probably not, though some make a case that the rich benefit more from government services such as law and order or national defence. Perhaps, but they are much less likely to receive food stamps and entitlements that make up the bulk of federal expenses that don't go to the national debt.
Still, the do-gooders argue, the rich should pay more. OK, but how much more? Should they pay 10% more or twice as much? No the argument once went, they should pay in proportion to income. That obsencely means that a person who earns ten times as much as another pays ten times as much. The problem with this is two-fold. It provides too much money to the government and it makes government profoundly undemocratic. If the rich pay for government, don't the rich own it?
If a tax in proportion to income was bad, today it has become enormously worse. The rich pay a much higher rate on their income and so are encouraged not to earn it. Earn what you need and drop out becomes a reasonable strategy. We are following it.
As taxes grew, workers ceased to save. How can one save when the government taxes 15% directly out of earnings? The government realized that this was a problem. Especially since the government old-age plan was a Ponzi Scheme and was never intended to be a complete retirement plan, something had to be done to get people saving again. There have been a multitude of solutions. These have included IRS's, 401K's, 403B's, etc. The view was that people would save to avoid income taxes now, and the government could nail them with taxes when they cashed out of these savsings accounts later. This has worked to some extent, but mostly only the rich use these devices. Why? Because the tax system has become so "fair" that most with a low income pay scant tax and don't bother. Saving subjects them to more tax.
Congress cannot simply stop itself from taxing savings. Now, there is even discussion of imposing wage taxes on savings. Of course, initially this will be done "only to the wealthy." That was once the case made for the "income tax."
So, today we have a tax code that has provisions for savings and for a zillion other things that Congress supposedly wants us to do. We may deduct for contributing to our church or the Red Cross, for paying mortgage interest, and, apparently, for providing housing to a displaced Midwestern individual. See line no. 42. Sadly we the people have created this monster. It is fair only to those who boldly say yes, I housed a displaced Midwestern individual. Prove they did not.
So many interest groups - all of us - studidly think we benefit from this grotesque and unfair system of taxation that it will not be undone or simplified until it collapses of its own weight. We are addicted to it and no politician speaks of changing it. We can only hope for change.
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books
sounds like you'd be interested in these books if you haven't read them already:
best selling--Liberal Fascism by Jonah Goldberg; The Forgotten Man by Amity Shlaes
and 1944 book: The Road to Serfdom by F. A. Hayek
Wagners Law
The Perils of Pay Less, Get More
By DAVID LEONHARDT
As a society gets richer, its tax rates tend to rise.
This idea is known as Wagner’s Law, named for the 19th-century economist who came up with it. Citizens of richer societies generally prefer more government services, Adolf Wagner explained. With their basic needs met, they want a military to protect them, good schools for their children, comfortable retirement for the elderly, medical care even when it isn’t profitable and a strong social safety net.
Sure enough, the United States followed this path for most of the last century. In 1900, federal taxes amounted to just 2 percent of gross domestic product. By 2000, the share had risen to 21 percent.
Over the last couple of decades, though, we have repealed Wagner’s Law — or, more to the point, only partly repealed it. Taxes are no longer rising. They fell to 18 percent of G.D.P. in 2008 and, because of the recession, to a 60-year low of 15.1 percent last year.
Yet our desire for government services just keeps growing. We added a prescription drug benefit to Medicare. Farm subsidies are sacrosanct. Social Security is the third rail of politics.
This disconnect is, far and away, the main reason for our huge budget problems. Yes, the wars in Iraq and Afghanistan, the recession and the stimulus have all added to the deficit. But they are minor issues in the long run. By 2020, government spending is projected to equal 26 percent (and rising) of G.D.P., mostly because of Medicare and Social Security. Taxes are on pace to equal just 19 percent.
On Friday, Congressional Republicans named six members of a deficit commission that President Obama created last month. In all, the commission will have 10 Democratic members and eight Republicans. It is scheduled to issue its recommendations late this year.
“By any reasonable projection, we’re on an utterly unsustainable path,” Peter Orszag, the White House budget director, told me last week. “And the fiscal commission, while not guaranteed to succeed, offers the best hope of getting ahead of this problem before it becomes a true crisis.”
The commission can succeed, of course, only if it comes up with solutions that Congress and the White House accept. For now, political leaders in both parties are still in denial about what the solution will entail. To be fair, so is much of the public.
What needs to happen? Spending will need to be cut, and taxes will need to rise. They won’t need to rise just on households making more than $250,000, as Mr. Obama has suggested. They will probably need to rise on your household, however much you make.
A solution that relied only on spending cuts would dismantle some bedrock parts of modern American society. Paul Ryan, the ranking Republican on the House Budget Committee, recently released such a plan, and it got rid of Medicare for everyone now under 55.
A solution that relied only on taxes would muzzle economic growth. To cover the costs of future spending — the retirement of the baby boomers and everything else — federal taxes would have to rise by almost 50 percent, immediately and permanently, according to a recent analysis by the economists Alan Auerbach and William Gale.
A solution that combined spending cuts and tax increases would not need to be ruinous — or start in the next couple of years, when unemployment is likely to remain high. But the federal government does have a decent amount of fat in it. And, just as Wagner pointed out, tax increases are not inherently bad. Done right, they do not even have to reduce economic growth by much.
In recent years, economic research has suggested that moderate changes in the tax law don’t actually have a huge impact on growth. You don’t need econometrics to grasp this, either. Just look at the last 20 years. Economic growth after Bill Clinton’s tax increases was far more rapid than economic growth after George W. Bush’s tax cuts. Despite the Bush tax cuts, average annual growth over the last decade — even before the Great Recession began — was slower than in any decade since World War II.
The biggest hurdle to solving the deficit problem will be politics, not economics. Even if the tax increases and spending cuts don’t need to be ruinous, they will not be popular. None of us like the idea of losing benefits or paying more taxes. That’s why Mr. Obama and Congress have outsourced the first stage of the process to a commission.
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On the spending side, health care is easily the biggest item. Not only will many people in their 50s and 60s live into their 80s, but technological advances will make medical care for any individual person much more expensive in the future.
A crucial aspect of the final health reform bills is that they take early steps toward trying to distinguish between care that makes people healthier and care that does not. These steps, along with some Medicare cuts, are the reason that many economists think the bills will reduce the deficit. The bills will also make it easier for Medicare to make further changes in the future.
Beyond heath care, Social Security benefits could be reduced for high-income households, and the annual inflation adjustment could be trimmed (making it more accurate, some economists believe). Many corporate subsidies — for agribusinesses and banks, among others — serve no useful economic function. Some military contractors could also stand to be squeezed.
Don’t expect that any one program can close the deficit, though. Military spending, for example, already takes up a much smaller share of the budget than a few decades ago, as Douglas Elmendorf, the head of the Congressional Budget Office, said last week. Without the end of the cold war, the deficit might have already soared.
On taxes, the affluent can certainly stand to pay higher rates than they have. Over the last three decades, they have received both the biggest pretax pay increases and the biggest tax cuts. But there is not enough money at the top to eliminate the long-term fiscal gap. Households making more than $250,000 pay federal taxes equal to only about 5 percent of G.D.P.
The ideal way to raise taxes for everyone else is not through the income tax code — which can affect people’s incentive to work — but through another means. As Victoria Perry of the International Monetary Fund points out, every industrialized country in the world except Saudi Arabia and the United States has some kind of consumption tax. A modest consumption tax would give households more incentive to save and could raise significant revenue. Another option is to reduce some big deductions, like the one for mortgage interest.
I’ll confess that I have a hard time seeing how any of this will happen in the next few years, no matter what the deficit commission recommends. Congressional Republicans have shown little willingness to consider any tax increases, and Mr. Obama has shown no indication of breaking his $250,000-and-under pledge. We voters, meanwhile, tend to oppose government spending in general while supporting the government programs that the spending pays for.
But a lot can happen in a few years. For one thing, interest rates on government bonds are likely to rise, making the need to reduce the deficit more pressing. “It doesn’t seem like policy makers are currently afraid of the bond market,” Mr. Orszag says, “and I wish that weren’t the case.” Someday soon, they may have to be.