Sick of the Job Creator Rhetoric

Last night the Senate voted down Obama's $35 billion jobs bill to hire teachers, policeman, firefighters and other first responders.  The bill was to be paid for by taxing those earning over a million dollars and extra  .5% , or $5,000 on a million dollars. The vote was 50-50 with all republicans voting it down.  One of the reasons stated for not passing it was that it would place an unfair tax hike on about 300,000  "job creators".  Every time there is an inkling of taking money from the wealthy, there is a knee jerk reaction  "But you will be hurting the job creators".

First off, jobs are created by demand for goods.  Jobs are created by the 99% of the people not making above one million dollars that are pumping most of their paycheck into the economy.  Taxing those making over 1 million dollars is not going to cost us any jobs.  The richest will probably spend the same amount even after you have reduced their income by .5 percent.  And I highly doubt that this amount would affect any decisions on whether or not to put money into a business.  Businesses have enormous amounts of money that they are holding onto right now, and they will still not hire people.  Adding a small percentage of personal income tax on so called "job creators" will not change that.

As far as I'm concerned, the "job creator" lingo is just code for "Don't dare touch the rich".

Herman Cain's 999 Plan is Unfair to Poor and Seniors

I came across an interesting calculator on the internet, the Herman Cain 999 calculator, and I figured out what my taxes would be if this plan were implemented.  Last year Bob and I paid $335 in taxes.  Under Cain's 999 plan, we would pay about $8,500.   I was so upset I wrote an article "Herman Cain's 999 Plan Threatens Seniors".  The bottom line is that Cain's plan favors the wealthy and penalizes anyone who has to spend a large percent of their money on goods, since practically all new goods are taxed at the 9% rate.  The effective tax will be highest on those who don't make much money but have to pay most of their money out for goods.  Seniors are at an added disadvantage since Cain is taking away the payroll tax.  Those working would effectively get 6.2 percent more than those retired.  How is this fair?

If you want to check out Cain's plan to see how it will effect you, go to the Herman Cain 9-9-9 calculator.  I think that there will be many of you that will find out your taxes will be higher under this plan, not lower.

How We Can All Help Reduce the National Debt

Many of us in this country are disturbed and extremely concerned about the growing national debt in this country.  The super committee is now looking at ways to make reductions in our expenses and bringing in more revenue.  I myself support raising the taxes on the wealthiest, but it occurred to me that all of us could help out.  If a line item was added on our income tax form 1040 to contribute $3.00 or more to the "Reduce the US Deficit Fund" in the same way that we contribute $3.00 to the Presidential Election Campaign Fund, I would readily donate, and I think the majority of other people would too, especially those that were getting money back.

The Tax Policy Center reports that there will be 155.1 million tax units in 2011.  If we collected an average of  $3.00 from all of them, that would bring in $465 million a year, and over 10 years would bring in $4.65 billion - not a trivial amount!  Individual contributions would be such a small amount that hardly anyone would miss it.  However, it would make us all feel as if we were helping our nation dig out from under the tremendous burden of debt that we are in, rather than feeling helpless and frustrated.  If the amount were left open so that we could contribute whatever we wanted, the amount would probably be even larger.

The bottom line is that most of us, Democrats, Republicans and Independents, love this country dearly, and if called upon to donate a small amount to help solve this critical debt problem, we would be more than glad to do so.

Who Doesn't Pay Taxes?

According to the Tax Policy Center, 46.5 of all tax payers will not pay any federal income tax in 2011. Not only will they not pay into the system, but some will actually get money out of the system without putting in a dime. I hear it on the news, I've read articles about it, and I am ready to grab a pitch fork and join the angry mob that is forming against these people that are draining our system.. "How is this possible?" I asked myself. I wanted to find out more about who these people were and how they were avoiding paying their fair share of taxes.

First I made up a spreadsheet based on the numbers from the Tax Policy Center. I wanted to see what the demographics were for each of the financial categories. Then I decided to fire up Turbo Tax 2010 and explore fictitious cases for the largest demographic groups in selected financial categories to see how they made out in 2010. Here's how things fell:

Under $10,000 - 24,300,000 or 31.9% will not pay income tax.
79% single, 7% married, 14% Head of Household, 16% have children, 13% are elderly. Many that fall into this group could be students, workers who just started and only worked part of the year, elderly that just started on social security and haven't received it for the full year.

2010 Case 1: Jeffrey is a college student trying to work his way through college. He has taken out student loans, and is paying the interest on them. He earned $9,000 and paid no taxes because of the peronsonal exemption, education credits and deductions for the interest on his loan.

$10,000 - $20,000 - 22,836,000 or 30% will not pay income tax.
65% single, 12% married, 23% head of household, 25% have children, 38% elderly.

2010 Case 2: Jane is a 67 year old retired widow who collects $1,400 in social security or $16,800 a year. She took $10,000 from her IRA. Her total income is $26,800 a year, but she is only taxed on 1/2 of her social security, and after adding in that amount with the $10,000 she is still below the $25,000 limit for a single person on social security.  Therefore, she paid no taxes.

$20,000 - $30,000 - 12,653,000 or 16.6 will not pay income tax.
43% single, 22% married, 35% head of household, 45% have children, 32% elderly

2010 Case 3: Marie is a single unmarried mother with two children. She works at low paying job, but is going to school to better her future. She earns $25,000 a year, and took out a loan for a $3,000 course in medical terminology. She can deduct her tuition and interest, and gets $2,479 in Earned Income Credits as well as $2,000 for the Child Tax Credit. She also received a Making Work Pay credit of $800. She paid no taxes, and got $3,834 back from the government.

$30,000-$40,000 - 7,112,000 or 9.3% will not pay income tax.
18% single, 43% married, 39% head of household, 61% have children, 23% elderly.

$40,000-$50,000 - 4,188,000 or 5.5% will not pay income tax.
7% single, 71% married, 22% head of household, 58% have children, 31% elderly.

2010 Case 4: Bob has a job making $30,000. Gale earns about $15,000 as a school aid. They have two children. He received an Earned Income Credit, Making Work Pay and a the Child Tax Credit. They own a home and were able to deduct mortgage interest and property taxes.  They paid no taxes and received $947.00 back from the government.

$50,000-$75,000 - 2,858,000 or 3.8% will not pay income tax.
9% single, 77% married, 14% head of household, 66% have children, 23% elderly.

2010 Case 5: Gerry has a $60,000 job, his wife Kay is a stay at home mom. They have a modest house with a mortgage, and four children. They paid no taxes and received $1,629 from the government because of the personal exemptions, dependent child credits, making work pay credits and the standard deduction.

$75,000 - $100,000 - 723,000 or .9% will not pay income tax.
11% single, 82% married, 7% head of household, 68% have children, 16% elderly

$100,000 - $200,000 - 381,000 or .5% will notpay income tax.
20% single, 75% married, 5% head of household, 45% have children, 21% elderly.

2010 Case 6: Ted and Kelly have three children. Ted earns $50,000 and Kelly earns $50,000. They own a $350,000 house with a mortgage They just bought an energy efficient Chevy Volt, and got the full energy efficient car credit of 7500 plus $2,100 off for the new car tax. They also spent $2,000 on new energy efficient doors and windows. They have to send their youngest two children to day care, but get to deduct that cost. They paid no taxes and received a check for $1,665 from the government.

$200,000-$500,000 - 81,000 or .1% will not pay income tax.
22% single, 77% married, 1% head of household, 41% have children, 23% are elderly.

I tried to provide sample cases for those earning over $200,000, but I couldn't come up with enough tax breaks to get them down to 0. I guess that the 110,000 people that earned $200,000 to over $1,000,000 that paid no taxes can afford some pretty good tax accountants.

$500,000 - $1,000,000 - 22,000 or less than .01 percent will not pay income tax.
18% single, 68% married, 14% head of household, 40% have children, 23% are elderly.

More than $1,000,000 - 7,000 or less than .01 percent will not pay income tax.
15% single, 85% married, 0% head of household, 42% have children, 14% are elderly.

What can we surmise from this study?

1. The poor shouldn't be demonized for not paying taxes. Considering that there are so many elderly and people with children earning below $20,000 I would expect that the 61% comprising this group would not have to pay taxes. Between the personal exemptions that everyone gets, child tax credits, earned income credits, and the social security exemptions this group often becomes relieved of any tax burden. Also, let's not forget that all of these people still have to pay payroll taxes, excise taxes and perhaps state and local taxes.
   
2. The tax code definitely favors families with children, students and senior citizens. It also gives incentives to work, and promotes energy efficient homes and cars through cash rewards. These are simple values that most of us support, but it may be questionable if the tax system should be the mechanism to promote these things.
   
3. It is not that hard to make money from the system - not pay any taxes and still get money back. It was easier than you would expect in brackets $50,000 and above. I didn't even think it would be possible in the $100,000 but it was. This seems wrong, and probably needs to be addressed. I don't think any tax system should pay you back money once you have reached 0 tax liability.
   

Perhaps the tax code does need to be reformed to make things more fair and generate more much needed revenue. However, fair is the key word. Nobody that works and falls into the defined poverty levels should have to pay taxes. However tax reform unfolds, those who can pay their fair share should, but we should not put an unfair burden on those who can't afford it and we should not unfairly burden those who can.

Why The Payroll Tax Holiday Should Not Be Extended

Hooray - we may be getting our "Payroll Tax Holiday" extended!  Doesn't the name make you feel like breaking out the champagne glasses and celebrating?  We're getting another holiday!  It seems to be one of the few things that Democrats and Republicans can agree on.

But wait a minute - before we party on, let's look at the facts.  The benefits to the everyday worker are small ,  but the cost to the government in making up the deficit is huge.   The payroll tax holiday reduces worker's contributions into social security from 6.2 percent to 4.2 percent.  To a worker making $50,000 a year this means getting an extra $1000 a year or $19.23 a week.  I am not saying that today's worker's can't use the break and that they wouldn't put the money back into the economy, but I think that the cost to our national budget outweighs the advantages.  Did the tax holiday improve the economy last year?   It doesn't appear to have done much at all.

According to FactCheck.org , last year the Congressions Budget Office's figures projected that the tax holiday will drain the government's general fund of $85 billion in this fiscal year and $29 billion in fiscal year 2012.  All of this money must be borrowed, and contributes to the national deficit.

We need larger scale propositions to get our economy going.  Why don't we look at important issues like the tremendous trade deficit that this country suffers from.  If we could get more of a market for American products, this would be a better way to grow the economy.  We need to look at long term sustainable efforts to grow the economy, not short term solutions designed to give everyone instant gratification.   When longer term solutions take effect I will indeed break out the champagne glasses!

Has Social Security Really Been Raided?

The other day I got concerned about what changes would be passed concerning Social Security since any changes will greatly affect me.  So, I started out by looking at the proposals put forward by the two non-partisan committees (the Simpson-Bowles commission and the "Gang of Six")  to see what they recommended.  In both reports it is stated that changes need to be made to keep Social Security solvent into 2036, because at that point there will only be enough left to pay 75% to social security recipients.  I started to investigate when this shortage was first reported, and I found many reports  from the American Adademy of Actuarials - an association that assists public policymakers on all levels by providing actuarial advice on risk and financial security issues.  One of the earliest publications,  Social Security Options and Their Effect on Different Demographic Groups reported the shortage in  1999, but this shortage has been known about as early as 1980.   In 1983 the tax rate was raised during the Reagan administartion in order to build up enough money into the trust fund for the baby boomers, and you hear repeatedly that there is now 2.6 trillion dollars in that trust fund, and that is what makes Social Security solvent until 2036.
As I continued to read articles concerning all of this, I ran into the ones that rage about Social Security having been raided, and that there is really no money in the trust fund.   I decided to investigate on my own if this is true.

The government buys special government bonds with any surplus that is seen from unspent SSI taxes, and these bonds have to be repaid with interest when needed.  However, once the government puchases these bonds, the money is immediately available to be used for other government needs, usually to pay down the current federal debt.   This surplus actually has the effect of  making  the deficit in the Federal fund look smaller than what it really is.

Therefore, there has never been any cash in the trust fund, but there are bonds that the government is fully obligated to pay back when needed.  The government will have to use federal funds to pay back the trust fund to cover any shortages that exists between social security revenues and Social Security expenditures.   As reported in the 2011 Trustees Report on the Social Security web site:

Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983. The $49 billion deficit last year (excluding interest income) and $46 billion projected deficit in 2011 are in large part due to the weakened economy and to downward income adjustments that correct for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink to about $20 billion for years 2012-2014 as the economy strengthens. After 2014, cash deficits are expected to grow rapidly as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Through 2022, the annual cash deficits will be made up by redeeming trust fund assets from the General Fund of the Treasury. Because these redemptions will be less than interest earnings, trust fund balances will continue to grow. After 2022, trust fund assets will be redeemed in amounts that exceed interest earnings until trust fund reserves are exhausted in 2036, one year earlier than was projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2085.”

So although there is a 2.6 trillion dollar surplus in the Social Security Treasury Fund, that surplus is really a government debt that has to be paid back.  I don't know if you can say the money was stolen or the trust fund raided, but you certainly can say that it was spent, and now it is payback time.

These facts can be used by either Democrats or Republicans who can accuse each other of using the funds for their own purposes.  The fact is that whenever there is a deficit in the federal budget, these funds have been used to pay it down, and there has been a federal deficit through both Democratic and Republican administrations except for Clinton. 

It really is too late to question the wisdom of handling the Trust Fund in such a way since there is no longer a surplus coming in, and there will not be a surplus in the forseeable future.  However, when the discussions come up about how to handle the upcoming shortage in Social Security, keep in mind that it would hasten the reduction of the national debt to reduce current benefits somehow, whether this is fair or not.  The less money that has to be paid back out of what is owed, the less money will have to be borrowed.