Tax disincentive

There are two certainties in life: Death and taxes. And a third, “if it sounds too good to be true, it isn’t true”. But there is also another truth. Politicians, bureaucrats and their backers (the news media, bankers, billionaire investors, or celebrities), all stir up chaos for their opponents, whip up groups of like-minded people by pretending to care for them, and make all sorts of speeches promising better times ahead.


The only difference between death and taxes is that death doesn’t get worse every time Congress meets.

Will Rogers, via Brainyquote.com

While people my age have heard all this nonsense before and are less inclined to go along, the palaver is not meant for my age group. Psychological journals, in various published studies, revel in the obvious. Young adults between 18 – 27, are more idealistic, much less structured in goals, exhibit more fluid work ethic, and are more motivated by income “fairness” and other talking points they read on social media. By the time men and women reach their Thirties, with stable jobs, goals, and families, these issues, rhetoric, and ‘social-justice’ activism become much less an influence. But the common talking points in social media and in politics today is how unfairly wealth is distributed. As a child, I was raised that hard work, skilled effort, ethics and morals would, over time elevate my station and economic success. There was plenty of room for anyone to become wealthy and provide for their families without blaming and taking from others. What changed?

Paying their “fair” share?

In 2019, I fear that people who have contributed to the economic well-being of the country for the least amount of time or produced the least amount of economic goods and services are being made fools of, by the wealthiest, least added-value members of society: politicians and bureaucrats funded by taxpayers. It is not that young people are in any way less important or less credible in their contributions and feelings, but forty percent of the Congress is far wealthier than those they represent. While every taxpayer in the United States can voluntarily contribute more to fund the Government, donate to charities for causes they feel strongly, and volunteer to aid those they feel are under-served, are there any who voluntarily give more than they are legally required? But most demand that Government support causes and constituents that are better served through local donations. And despite all the rhetoric we hear, does any public servant reside in public housing, use public transportation, or donate salaries and perks to the underprivileged?

Many, like one of my old college buddies, are worked up frequently about the lack of fairness and greed exhibited by members of a certain American political party, though there is plenty of blame to go around. Tonight, I am more worked up by my miscalculation on our annual income tax returns for Federal and State. We owe a large amount of income taxes due to the change in the approved deductions and income limits for other deductions. This is due to the “Trump Tax Cut” enacted in 2018. Researching the new tax policy, there are two ends of the economic spectrum that are benefiting, though the wealthiest Americans are benefiting far more.

Who benefits from the new tax plan?

With change in the standard deduction, doubling it to $24000 for those who file a joint return, many do not have to file complex returns. While there is some who think that increasing the “standard deduction” will reduce the incentive to make charitable contributions by lower middle-income workers, the tax policy really changes the taxes owed by the higher wage households- reducing the graduated scale of highest earning workers from 39 to 37 percent. And if those individuals are business owners, the rate may drop to 20 percent.


The people are hungry: It is because those in authority eat up too much in taxes.


Lao Tzu

For those caught in the “middle”, such as older taxpayers whose grown children are no longer family deductions, their seniority at work may elevate their incomes to higher tax brackets, and all the expenses of living and home ownership, there are disincentives to continuing to be an employee. But retirement also may come at a cost. Withdrawals from qualified retirement plans prior to age 59.5 incur income taxes and penalties. Some states like California tax retirement pensions, and with public service pensions largely unfunded, these states increase taxes to provide benefits and sacrifice the maintenance of infrastructure – roads, schools, and vital services.

Entrepreneurs and tax sense

Like many, I chose security of being an employee over most of my working life. But being a “worker” and not a “business owner” in 2019 has its tax disadvantages. Fair, ethical, and legal provisions used in the last twenty years have been significantly changed. While younger workers at lower wages and with young families may find some benefit from new tax provisions, others in the “Middle Class” are not as fortunate. Older, still working, married adults with now-adult children, who may still be providing for certain of their needs – no longer can claim them as deductions for tax purposes. Those fortunate to own homes in high property tax states, are limited in the amount they can claim federally- basically paying taxes a second time on the same income. Others, such as small business owners have complex tax rules to follow. The “Trump Tax Cut” seems to be flawed.

Some regulations should have come with bold print. With retirement savings such as employer 401K plans, IRAs and healthcare savings accounts available, these come with certain stipulations. Pre-tax income placed in flexible health spending accounts must be used within the calendar year or are lost; certain employer health plans can place pre-tax earnings in an account which can grow year after year, even into retirement, but must be used for medical expenses – or are taxed heavily. And for higher wage earners, traditional Individual Retirement Accounts, money invested for the purpose of reducing income taxes does not provide the immediate benefit sought.

The wealthiest Americans are fairing a lot better in 2019 than before. While true that the top 20 percent of all wage earners contribute the largest share of the revenue to fund the Government (50 percent of working Americans pay little income tax, while three percent contribute most of all), the overall taxes for those wealthiest Americans – many of whom are business owners – dropped significantly. I’m beginning to think that wealthy politicians are being disingenuous. They are not feeling nor acting in private like the outraged they claim to represent.

If people want to participate more fully in the “American Dream”, operating a successful business seems to be the vehicle to do so in 2019 and into the future. Except perhaps in California, or should the country decide to follow the anti-capitalist and anti-constitutional policies that have been voiced since the President’s election. A look at statistics indicates that the country is not in jeopardy of an economic crisis as some suggest. In the United States in 2017, the median family income was $61,000; in California, $81, 000, according to the US Census Bureau. While there are many who are at the extremes in California and elsewhere, there are many who have gained wealth and property through operating successful businesses.

Paying closer attention to income tax, balance sheets, and government policies that affect income is necessary. But that comes with age and the acquisition of property. All the rest is just politics.

Sandcastles

a tale of three citizens

“A house divided against itself cannot stand.” I believe this government cannot endure, permanently half slave and half free. I do not expect the Union to be dissolved — I do not expect the house to fall — but I do expect it will cease to be divided. It will become all one thing or all the other.” Abraham Lincoln

https://www.goodreads.com

Allen

As you sip a latte at Starbucks, feeling outraged by a President who apparently does not share your social conscience, you wonder how the country has become so brazenly racist and homophobic. While you have not seen any negative impact to your paycheck nor fewer clients to your business, the economy is horribly worse because others are earning significantly more. You did not vote in the Presidential election, though you like what you hear about the new Congress: a Muslim woman and a Green social media-savvy gadfly. When not supporting gender-equality pastry shops, you purchase organic, locally-grown produce at Trader Joe’s. You buy Emerging Markets coffee beans online from a group that supports Guatemalan children. And you truly believe your Tesla, Prius, or Audi lessens your carbon footprint.

Yrena

As an immigrant who saved up the required fees, filed for the visas and immigration forms, and emigrated to her new country according to the laws and practices of each nation, you are diligently working to learn the language, customs and history of your new home. You know your ethnic community in the area you have settled have members – family and extended family perhaps- who live in violation of the law. Some overstayed their student visas, and other came across hiding in a van or in leaky boats that beached one moonless night. You are working two jobs to pay for your daughter to attend community college. She will become the first college-educated member of your family. Your son is learning to be a mechanic after school. When the television, newspapers and the Internet declare that you support wholeheartedly the new ‘migrants’ and see them being pandered to by politicians and journalists, you are conflicted, upset, or angry. And your family are not “hyphen” Americans. You are American.

Cole

As an Iraq War veteran, you do not understand people who hate you sharing your opinions, and do not financially support veteran suicide-prevention projects but pay to hear activists demean America at college campuses. You are irritated by people who do not remember what happened on 9/11 or tell you how the current Administration is working with the Russians. Like your father before you, you are teaching your son or daughter firearm safety and how to hunt for deer, elk, or boar. You may not be religious, yet you assert your rights as parents to approve what they are taught as curriculum. You know when you are being played by b.s. artists in government, the media and education – that was one of the skills learned from military service and especially from time in a war zone. You don’t trust politicians or bureaucrats. Not from any party.

Politics and personal loyalties based on ideology fluctuate over time. Human nature is flawed and subject to the same weaknesses. Politicians acquire power from citizens, and get more corrupt as the citizens get more aloof. Without unity, a house divided cannot stand. And observing all the past civilizations collapsed in the dust of history, the lack of unity of a people accelerate the incoming tide.