Keynesian economics says that to improve the economy, government should increase spending AND/OR cut taxes. Taxes should not be increased during times of severe recession or depression. The massive spending effort of WWII is what brought about US economic recovery not Roosevelt's meager Public Works projects.
Times are very different today. Prior to the Great Depression the average income of workers was around $750 a year and all the wealth was in the hands of the top one percent of Americans. We can't even imagine a world such as this, but we should read and learn.
Wealth is distributed very differently than just a short century ago. There's a lot of cash being held by big business. Perhaps the "or cut taxes" approach of Keynesian economics needs to be explored before anymore big government spending.
Monday, July 11, 2011
Saturday, June 18, 2011
Tax Changes I'd Like to See
Our retirement income fluctuates depending on our investments, but with all our itemized deductions and personal exemptions we paid about 10% in federal income tax this year. I'm not complaining, mind you, 10% is a reasonable rate considering all our other expenses. We have two monthly mortgage payments, a car payment, monthly health, home and life insurances, utility bills, and don't get me started on the increase cost of food and gas.
Professional tax preparers have caused us to pay so much in additional taxes and fines over the years that I decided to try it myself this year. It was ugly - It took me two full days to understand and complete all the various forms and worksheets. I've come to the conclusion that I would prefer eliminating all tax deductions, personal exemptions, and loopholes than go through that again.
Why not institute a graduated flat rate tax? These rates are suggestions and would need to be adjusted so that tax totals collected would not decrease, although I wouldn't be surprised to see more money coming in than less.
People earning less than $25,000 a year would pay zero federal income taxes, but would still pay FICA and Medicare as they already do. They would only need to fill out a postcard and send that in along with their W-2 form from their employer.
People earning $25,000 to $250,000 would pay 10% tax, devoid of any exemptions or deductions.
People earning $250,000 to $500,000 would pay a flat tax of 15%.
People earning $500,000 to $1,000,000 - 20% flat tax.
$1,000,000 plus wage earners would pay 25% flat tax.
Capital gains tax rates would be scaled the same as wages, with no exemptions, deductions or loopholes:
1. Those making $20,000 to $250,000 in capital gains would pay 10% in taxes,
2. $250,000 to $500,000 in capital gains would pay 15%,
3. $500,000 to $1,000,000 - 20%,
4. $1,000,000 and above - 25%.
Those earning less than $25,000 in capital gains would pay no tax. This would help provide younger and senior lower income earners with an opportunity to build investments and wealth for the future or to offset future medical expenses.
Professional tax preparers have caused us to pay so much in additional taxes and fines over the years that I decided to try it myself this year. It was ugly - It took me two full days to understand and complete all the various forms and worksheets. I've come to the conclusion that I would prefer eliminating all tax deductions, personal exemptions, and loopholes than go through that again.
Why not institute a graduated flat rate tax? These rates are suggestions and would need to be adjusted so that tax totals collected would not decrease, although I wouldn't be surprised to see more money coming in than less.
People earning less than $25,000 a year would pay zero federal income taxes, but would still pay FICA and Medicare as they already do. They would only need to fill out a postcard and send that in along with their W-2 form from their employer.
People earning $25,000 to $250,000 would pay 10% tax, devoid of any exemptions or deductions.
People earning $250,000 to $500,000 would pay a flat tax of 15%.
People earning $500,000 to $1,000,000 - 20% flat tax.
$1,000,000 plus wage earners would pay 25% flat tax.
Capital gains tax rates would be scaled the same as wages, with no exemptions, deductions or loopholes:
1. Those making $20,000 to $250,000 in capital gains would pay 10% in taxes,
2. $250,000 to $500,000 in capital gains would pay 15%,
3. $500,000 to $1,000,000 - 20%,
4. $1,000,000 and above - 25%.
Those earning less than $25,000 in capital gains would pay no tax. This would help provide younger and senior lower income earners with an opportunity to build investments and wealth for the future or to offset future medical expenses.
AARP Open to Future Social Security Cuts
AARP wakes up to reality, kinda. Their new stance is:
1. Cuts should be minimal and affect "future" recipients only,
2. Cuts should be offset by a tax increase, and
3. SS Trust Fund should not be raided to pay down the deficit.
The thing that gets me is that the SS Trust Fund has been raided by Dems and the GOP for every hair-brained spending program you can imagine, but it's hands off the surplus to help pay off our national debt. Sounds a bit cockeyed to me.
How about eliminating the FICA (payroll tax) ceiling and using the SS surplus to help pay off our debt until it is needed by new retirees in about twenty years and not touching the Fund for any spending programs? This won't affect any working stiff earning less than than $106,800 a year. Even the Medicare payroll tax has no wage limit. I wouldn't even mind if Congress waived this increase for themselves (as they do for everything else) if that's what's holding things up.
1. Cuts should be minimal and affect "future" recipients only,
2. Cuts should be offset by a tax increase, and
3. SS Trust Fund should not be raided to pay down the deficit.
The thing that gets me is that the SS Trust Fund has been raided by Dems and the GOP for every hair-brained spending program you can imagine, but it's hands off the surplus to help pay off our national debt. Sounds a bit cockeyed to me.
How about eliminating the FICA (payroll tax) ceiling and using the SS surplus to help pay off our debt until it is needed by new retirees in about twenty years and not touching the Fund for any spending programs? This won't affect any working stiff earning less than than $106,800 a year. Even the Medicare payroll tax has no wage limit. I wouldn't even mind if Congress waived this increase for themselves (as they do for everything else) if that's what's holding things up.
Tuesday, April 5, 2011
The Third Rail
We frequently hear the term "Third Rail" mentioned as a warning cry in political discussions on TV and in newspapers. What is this Third Rail in politics? Well, it's a metaphor for an idea that is so untouchable that it would be political suicide for any politician to consider changing or modifying in any way. Social Security and Medicare are definitely "Third Rail" topics.
Whichever political party seriously brings it up for modification will face a barrage of attacks that will overwhelm common decency and common sense. Politicians would rather bankrupt our county and carry this burden into future generations that they will not be around to see. They talk about ten year plans for keeping Social Security solvent as though some magical solution to solve all our problems will come about in some imaginary future.
My husband and I are retired and living on an income that is based on 40% Social Security and 60% pension and interest from annuities. I worked twenty-four years contributing into SS and another twenty-four years contributing into a state retirement plan. The amount I receive from SS is only $655 per month minus $96.50 for Medicare. My husband's SS is just under $20,000 a year minus his monthly charge of $96.50 for Medicare. We would find it difficult to live on SS alone and, due to a minimum amount of planning in our youth, we don't.
If politicians really wanted to "save" Social Security and Medicare they'd make the hard decisions - increase FICA contributions to ten percent over the next ten years, have people retire later, eliminate the $106,800 contribution cap. The truth is the Social Security Trust Fund doesn't exist as a pool of money sitting some place collecting interest. It is just an accounting tool to transfer money from current workers to people who are retired or on disability. The money collected from younger workers goes in one door and out the other to the retired or disabled. As long as there were more workers contributing more money than retirees needed, it seemed like a good idea - but there was a wrinkle in that plan.
Presidents since Ronald Reagan have also been borrowing some of the surplus of collected SS taxes and issuing big fat IOUs known as "special issue" bonds, supposedly with the intention of paying it back before it was needed. The government has been spending the surplus revenue from SS on anything from soup to nuts. It's not unlike borrowing from your kid's piggy bank and leaving a note.
Beginning in 2018 the federal government has to start paying back all the IOUs and in 2042, should nothing be done to prevent it, Social Security will go bust. Seniors and the disabled are not going to wake up the first day of 2042 to find themselves penniless, the pain is going to start much earlier. Should I live to be 100, I may see this all unwind. Very scary thought.
Whichever political party seriously brings it up for modification will face a barrage of attacks that will overwhelm common decency and common sense. Politicians would rather bankrupt our county and carry this burden into future generations that they will not be around to see. They talk about ten year plans for keeping Social Security solvent as though some magical solution to solve all our problems will come about in some imaginary future.
My husband and I are retired and living on an income that is based on 40% Social Security and 60% pension and interest from annuities. I worked twenty-four years contributing into SS and another twenty-four years contributing into a state retirement plan. The amount I receive from SS is only $655 per month minus $96.50 for Medicare. My husband's SS is just under $20,000 a year minus his monthly charge of $96.50 for Medicare. We would find it difficult to live on SS alone and, due to a minimum amount of planning in our youth, we don't.
If politicians really wanted to "save" Social Security and Medicare they'd make the hard decisions - increase FICA contributions to ten percent over the next ten years, have people retire later, eliminate the $106,800 contribution cap. The truth is the Social Security Trust Fund doesn't exist as a pool of money sitting some place collecting interest. It is just an accounting tool to transfer money from current workers to people who are retired or on disability. The money collected from younger workers goes in one door and out the other to the retired or disabled. As long as there were more workers contributing more money than retirees needed, it seemed like a good idea - but there was a wrinkle in that plan.
Presidents since Ronald Reagan have also been borrowing some of the surplus of collected SS taxes and issuing big fat IOUs known as "special issue" bonds, supposedly with the intention of paying it back before it was needed. The government has been spending the surplus revenue from SS on anything from soup to nuts. It's not unlike borrowing from your kid's piggy bank and leaving a note.
Beginning in 2018 the federal government has to start paying back all the IOUs and in 2042, should nothing be done to prevent it, Social Security will go bust. Seniors and the disabled are not going to wake up the first day of 2042 to find themselves penniless, the pain is going to start much earlier. Should I live to be 100, I may see this all unwind. Very scary thought.
Sunday, March 6, 2011
A Tax Story
I am very thankful to the rich who pay 85% of the taxes in this country. I personally don't believe that anyone should pay more than a total of 30% in local, state, and federal taxes combined. Giving more than a third of your income to government each year goes beyond good citizenship. It approaches usury.
So I was surprised when I heard this story - a resident living in a very pricey apartment complex in Washington DC with units costing 1.2 million dollars pays only 15% in federal taxes thanks to IRS loopholes, deductions, etc,, but the janitor working in that same building earning $35,000 annually pays a tax rate of 25% in federal taxes alone. The janitor also pays local taxes and FICA taxes on his entire income. The resident also pays local taxes on his adjusted gross income and FICA taxes on the first $106,800 of his income.
This inequity bothers me. I'm not looking to milk anyone dry, but a flat tax and an elimination of loopholes, deductions, and exemptions might actually bring in more revenue, give a break to the lower income people, and not overtax those earning higher incomes.
So I was surprised when I heard this story - a resident living in a very pricey apartment complex in Washington DC with units costing 1.2 million dollars pays only 15% in federal taxes thanks to IRS loopholes, deductions, etc,, but the janitor working in that same building earning $35,000 annually pays a tax rate of 25% in federal taxes alone. The janitor also pays local taxes and FICA taxes on his entire income. The resident also pays local taxes on his adjusted gross income and FICA taxes on the first $106,800 of his income.
This inequity bothers me. I'm not looking to milk anyone dry, but a flat tax and an elimination of loopholes, deductions, and exemptions might actually bring in more revenue, give a break to the lower income people, and not overtax those earning higher incomes.
Saturday, February 5, 2011
Simplistic Solution to Our Tax & SS Problems
This solution is in the "What if..." category.
I propose that we eliminate the current unfathomable tax code and...
1 - institute a flat 10% federal tax on all income over $20,000 with absolutely no other deductions or exemptions allowed, income under $20,000 would not be taxed.
2 - institute an additional 10% flat tax on income over $50,000 a year, no other deductions or exemptions, to pay the interest on our national debt and to begin paying down our national debt, income under $50,000 would not be taxed.
3 - increase FICA tax to 10% each for employee and matching employer contribution to cover Social Security and Medicare and eliminate the contribution ceiling of $106,000 plus. A ceiling for collecting SS upon retirement would need to be determined (means testing, so that truly needy receive support). The gradual increase of age eligibility for retirement would also need to be reevaluated.
The federal budget would need to be cut to match the revenue collected by tax #1 and tax #2. Would this hurt existing programs and current appropriations? It absolutely would, but Social Security and Medicare would be out of the equation entirely. Currently the interest paid on our national debt constitutes over 18% of our federal budget and will increase annually unless we start paying down the principle and borrow no more. Tax #2 would be used to pay the interest each year and to begin paying off what we owe to domestic and foreign lenders.
I realize this is simplistic, but some modification of this plan or something like it is necessary for our nation not to face economic collapse by mid-century.
I propose that we eliminate the current unfathomable tax code and...
1 - institute a flat 10% federal tax on all income over $20,000 with absolutely no other deductions or exemptions allowed, income under $20,000 would not be taxed.
2 - institute an additional 10% flat tax on income over $50,000 a year, no other deductions or exemptions, to pay the interest on our national debt and to begin paying down our national debt, income under $50,000 would not be taxed.
3 - increase FICA tax to 10% each for employee and matching employer contribution to cover Social Security and Medicare and eliminate the contribution ceiling of $106,000 plus. A ceiling for collecting SS upon retirement would need to be determined (means testing, so that truly needy receive support). The gradual increase of age eligibility for retirement would also need to be reevaluated.
The federal budget would need to be cut to match the revenue collected by tax #1 and tax #2. Would this hurt existing programs and current appropriations? It absolutely would, but Social Security and Medicare would be out of the equation entirely. Currently the interest paid on our national debt constitutes over 18% of our federal budget and will increase annually unless we start paying down the principle and borrow no more. Tax #2 would be used to pay the interest each year and to begin paying off what we owe to domestic and foreign lenders.
I realize this is simplistic, but some modification of this plan or something like it is necessary for our nation not to face economic collapse by mid-century.
Wednesday, January 26, 2011
Taxes and the National Debt
Does anyone really understand taxes or the national debt? I sure don't, but I can speculate, just as everyone else does. Most people are in favor of cutting government except for those special programs that benefit them or the groups they support. I guess this is healthy self interest, but basically we are living with a system that will eventually crash. Our country is not generating enough income to pay for our current expenses not to mention what we already owe to China, so our national debt continues to grow at the rate of billions a week.
At the rate we are going there is no way we are going to pay back China and they know it. Ronald Reagan helped to bring about the collapse of the former Soviet Union by getting them to ruin their economy in a unwinnable Arms race with the United States. The Chinese will accomplish the same result by getting the US to spend itself into debt. Even if the federal government took every dime from the wealthiest people and businesses in the country it would not be enough to pay off our debt. We are in serious, serious trouble.
I am very discouraged when I watch politicians of either party on TV congratulating themselves on being more civil as they march headlong into an inevitable economic collapse. Very soon they will enter into discussions on raising the ceiling for the budget. That means spending more money that the federal government doesn't have. That would be like giving a new credit card to someone who cannot pay anything on existing debts or even necessities and have them go out and buy new stuff on the new card with no ability to pay it back.
This is craziness! How long can it be ignored? What can we do?
First, the federal government needs to admit that spending is taking us down a path of destruction and create no new programs or expenditures. This is the really hard part - Do not raise the budget ceiling for the rest of this year! This would mean reducing current appropriations to match expected revenues. The sooner this is done, the less painful it will be.
more to come...
At the rate we are going there is no way we are going to pay back China and they know it. Ronald Reagan helped to bring about the collapse of the former Soviet Union by getting them to ruin their economy in a unwinnable Arms race with the United States. The Chinese will accomplish the same result by getting the US to spend itself into debt. Even if the federal government took every dime from the wealthiest people and businesses in the country it would not be enough to pay off our debt. We are in serious, serious trouble.
I am very discouraged when I watch politicians of either party on TV congratulating themselves on being more civil as they march headlong into an inevitable economic collapse. Very soon they will enter into discussions on raising the ceiling for the budget. That means spending more money that the federal government doesn't have. That would be like giving a new credit card to someone who cannot pay anything on existing debts or even necessities and have them go out and buy new stuff on the new card with no ability to pay it back.
This is craziness! How long can it be ignored? What can we do?
First, the federal government needs to admit that spending is taking us down a path of destruction and create no new programs or expenditures. This is the really hard part - Do not raise the budget ceiling for the rest of this year! This would mean reducing current appropriations to match expected revenues. The sooner this is done, the less painful it will be.
more to come...
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