Dispatches from Wolf Country — Tax Increases for the Middle Class

Very few people have signed the petition so far because liberals don't like to try to understand mathematics. It scares them. Conservatives tend to not understand mathematics so they'll believe anything. And, they have...

Reagan-Walking Contradiction Source: Ramseycartoons.files.wordpress.com/2012/02/20

Reagan, his sane advisers  and possibly Nancy’s astrologer became concerned…

Rising tide might lift all boats, but not all boats rise at the same rate

I remember waiting for my wife to get out of work on a wet, rainy evening in 1982, sitting in my VW Sirocco in a spring rain at Fort Huachuca, and listening to Reagan talk about how he was going to redo the tax code. I was not impressed, and for most of us, it remains pretty unimpressive. Lost some deductions, maybe got a bit more around the edges, but it really didn’t do a lot for people like me. I was a Staff Sergeant teaching at the Intel School with 8 years service; my wife was a GS-4 in a word processing center for the old Army Communications Command out of Greeley Hall.

The taxes were easier to do after the Reagan Tax Reform, but the middle class lost a lot of deductions. State and local taxes went except for property tax as did interest on credit accounts and loans unrelated to your mortgage. It probably cost me a few hundred dollars in deductions, but the stress level was marginally reduced come tax time. Of course, the big winners in the Reagan “Reform” were corporations and the rich. They watched their highest marginal tax rate plummet; Reagan could figure out when what he was doing wasn’t working, unlike President Orangutan Troll, and he raised taxes several times. But not for the reasons you might expect.

Reagan and his sane advisers like Jim Baker and possibly Nancy’s astrologer became concerned about the deficit driving by things like the military buildup, and that was as President Bush 41 might have put it, “Prudent.” But the greater concern among the President and the people who worked for him who weren’t crazy was simple; they became concerned that the difference between the wealthy classes and the rest of the country was simply growing at two fast a rate. A rising tide might lift all boats, but not all boats rise at the same rate. And, the bridge on an aircraft carrier is always higher than the bridge on a garbage scow.

You can cut taxes on the middle and working class to the absolute minimum, to where the taxes are basically a usage fee for American citizenship, and have minimal impact on the deficit or the National Debt. There are a lot of us, but the imbalance between economic classes is such that 90% of the nation’s wealth is held by the top 1 percent. They think of us as chumps in some corners of the Kleptocracy –President Troll glories in it, and his supporters roll over so he can rub their bellies and show off just how dumb than they are. They’ll cheer and buy more $40 gimme caps.

Now, the rich don’t get much of their income from salaries. Once you cross out athletes and

Oliphant on Bush  12/88http://www.loc.gov/exhibits/oliphant/part3.html#obj18

movie stars who if they are not stupid don’t get most of their income from salaries, do you really think that Bill Gates used to worry about his CEO salary at Microsoft? Stock bonuses and stock options yes, he worried about in so far as he did after Windows really took off? You think Warren Buffet worries about his salary at Berkshire Hathaway? Even if it’s some mad category, it’s chump change compared to what he derives from his existing wealth and his compensation is geared to increase that wealth.

It’s simple, really. It’s not addition and subtraction so much as Algebra. I have no idea how Buffet is paid by Berkshire, but let’s say most of his compensation is something simple like tax deferred income. In effect, he might let Berkshire keep a big hunk of whatever his compensation would be and let the corporation use it as if it were a loan, deferring income for X number of years at 6% interest. Even Berkshire would have problems finding money for loan or lines of credit at that rate. In twelve years, his money from this year would have more than doubled, since compound interest accrues continuously.

Now, you and I can save our money at about .8% now and we have to spend most of it. We can invest in our 401k or our IRAs or our SEPs or the Securities Market, but it’s never going accrue enough to do more than maybe keep us from eating cat food when we retired, and probably not the good stuff if all we have going us is our SSI and our savings.

I came on this in a petition from Change.Org and I am reluctant to get too excited about them as a general rule –signed a lot of petitions in college to end the war, end poverty, feed the hungry and clean up the environment while ending racism and discrimination, and haven’t noticed any great changes in the 40 some years since. However when I saw this one  had to think it made a lot of sense and might even be considered before the Republicans screamed bloody murder and Mitch McConnell ran screaming into the night babbling about “The Precious, The Precious, I won’t let them hurt the Precious!” The precious consists of the people who contribute to Mitch’s PAC, not the working people and middle class and retirees in Kentucky or any other place.

As you’ll see, very few people have signed the petition so far because liberals don’t like to understand mathematics. It scares them. Conservatives tend to not understand mathematics so they’ll believe anything. This has to do with the Standard Exemption which is key to actually making the Tax Plan work. If you want to make it work for the middle and working class, you keep it and cut the proposed windfalls for corporations and the wealthy; if you’re trying to sell the 99% some underwater waterfront property in Miami so you can the benefits to the wealthy and corporations, gut the exemption or get rid of it in the name of fairness.

So, if you live on your pay and not your bond coupons, you need to sign this petition, and get your friends and family to…

A hydra has bothered me greatly during this tax debate: Lots of issues both deep-seated ones and obvious problems that might impact everybody. As a nation, a large number of us seem to trust old white guys in power, which isn’t necessarily the wisest approach to evaluating their potential for service or good sense. One reason that presidents have always had some relevant track record is that’s how you get good at what you do, how you get to know the good people you need to help you, and having experience at how things work at this thing you’re trying to control, being held responsible for your mistakes and your errors, and maybe being defeated once or twice can build character and resilience in the face of adversity.

The Rosetta stone of Reaganomics. (Courtesy of the National Museum of American History, American Enterprise exhibition), Quartz.

Oh, and if we have learned anything in our 228 or so years as a federal republic, beware people claiming that they alone are the solution and that they alone are the salvation. And, oh yeah, never trust anyone who bases their ideology or economic theory on an evening drinking with Dick Cheney.

So Mattis and Kelly and Tillerson and McMaster have all done that. The other clowns and possibly Tillerson neither understand nor really care about their agencies and their purpose. When the President’s economic adviser says that the proposed plan will give the average middle class family making $100000 a year a $4000 tax break, is it believable? And, is a $100,000 really middle class? It’s already crazy when he says you might be able to buy a new car for that four grand, but since he came out Goldman Sachs, he really can’t be trusted on details like that. The last new car I bought for about $4000 was the 1976 Gremlin I bought the first time I re-enlisted because my 1962 BMW 2000 was spending most of its time being broken down. So, already not comfortable that he knows what we’re going to be able to do with the pittance we might gain from this plan…which according to a variety of people who’ve run the actual numbers and thought about from a basis in knowing tax codes means that we’ll see about a thousand or so apiece over 10 years.

It’s a $1.5 Trillion dollar tax transfer, with $30 billion being aimed at the average schmuck. That transfer is over 10 years so and there are about 3oo Million of us. I know it’s long division but it’s not that hard because it’s mainly zeros. We would each get 1/10th of 1 percent of the total on average. About a grand apiece over ten years. If you’re a normal family of four you’re looking an actual tax cut of maybe $400 a year.

Another problem is what happens when you fill out the form. If you don’t itemize now, you will see a change in the way they calculate your exemptions and deductions. The exemptions are what you get for being alive, now set for a family at $4K a head. That goes away under this plan. However, the standard deduction goes from $12000 to $24000. If your family consists of 3 people, then it’s a wash. If your family consists of four people, you lose money on the deal.

How can that be? It’s Arithmetic. If the old exemption was $4000 a head and the old standard deduction was $12000, you would have your taxable income for your family reduced by the deduction and the exemptions you could claim. For a family of three, that’s $12K plus $12K basd based on the Standard Deduction (12K) plus the exemptions (3x4K) or 24K. No change here.

If you have four people in the family unit, you could claim the same $24K plus the extra exemption ($4K), for a total of $28000. Add a kid or let mom move in and claim her, and you can claim an additional exemption for each.

Well, since the new system is “easier” that means that it doesn’t matter how many people you have in the family, Uncle Sam will allow your family of 2 or you family of 12 to claim $24000. If you had that family of 12, your taxable income used to be reduced by 12 times the exemption plus the standard deduction, or $60K. Now, it’ll be $24K, regardless of how big your family is.

Now what if you itemize? Well, under the old system you got the standard exemptions and you also got itemized deductions if you were going to deduct more than $12000. In the days of higher interest rates, if you were paying a mortgage you could deduct it and the property tax. So, you were looking at a reduction in your taxable income in a family of four of $16K plus whatever your were deducting.

Now, with what’s proposed, you get nothing except those deductions. If your deductions are more than $24000, you claim that. But with a lot of people holding mortgages at the 2-4% range, the interest deduction is probably going to be less than it used to be. You’ll have to find other ways to make up the difference.

Let me use my wife and me as a sample case. Both worked, both retired, both over 65 so both drawing social security plus government pensions, her Civil Service and my Army retirement and VA disability. We have an annual income of about $80K, and the interest and property taxes are about $15K. Add charitable deductions both in cash and in materials, business expenses, job-hunting expenses, education expenses, moving expenses if the move is work related, and it wasn’t hard to get our total deductions, up to about $18K. So with our Standard Exemption of $8000, our taxable income was going to be reduced by about $26000, or from $80K to $54K.

Before we look at deductions under the new system, as it stands right now most of the non-mortgage related deductions go away. Big ones include the elimination of moving expenses which has a number of effects on those of us who are not so valuable as to have our move picked up by a new employer. Businesses used to do this a lot, but now don’t do it very often at all. So, if you are going to change jobs, you used to be able to see the expenses as deductible; for example, the $8K in Mayflower charges to move from Western Washington to here. There’s some question as to how they’re going to handle education expenses; there’s discussion about medical expenses and so on. But, bottom line is pretty simple — the people drawing this stuff up have no idea how middle and working class people live.

So, under the new propsed “REFORM” system, my income will be reduced only by my deductions. My income is pretty much fixed. Social Security and retirement for Vets and Civil Service will get a 2% increase this year but no guarantee for the future. My mortgage interest payment will go down, marginally but my property taxes will increase marginally. So I’m going to use the same numbers here that I used for my 2016 taxes.

We still are possibly OK under the proposed system if I can get my total deductions up to at least $26K — what I used to have exemptions for plus the deductions. Personally,  I won’t be able to do that or close to it. I’ll be left to the standard deduction, and my taxable income will be reduced by $24K instead of $26K.

That does not necessarily mean that my taxes will increase by $4K. They have not published the new tax tables, and  tax liability is based on the taxable income. I know that most of my income will be taxed at 12% instead of 25%. And, some of the income isn’t taxed at all! For single filers, for example, it’s income above $12K up to $90K which is the new standard deduction for single people. For couples and families, it’s income above $24K (Sounds familiar, doesn’t it) which means that for my family, our tax bill will be about $7200, or about $1100 less than last year.

Free bubble-up and rainbow stew anyone? Well…Peroxide laced ditch water and the family dog with dandelions, actually…

 

 

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