Monday, March 2, 2009

What Incentive?

I read an interesting article at Forbes.com. It is titled, So What's in the Simulus for You? Nothing! In it they talk about phaseouts (curtailing tax breaks as income rises) and give the following example:

Take an example of a single mother with an adjusted gross income of $75,000. She claims the standard deduction and has one high schooler and two kids in college. Under the stimulus package, she'll have her 2009 federal income tax bill chopped to $1,465 from $7,865 thanks to two $2,500 college credits, a $400 worker's stimulus credit and a $1,000 child credit. But if she takes a second job to help pay college bills and her AGI rises to $90,000, she gets no college credits and only $100 of the worker's credit and $250 of the child credit, for a total tax bill of $11,265. That makes the tax rate on the $15,000 of extra earnings 65%--not counting the 7.65% employee share of Social Security and Medicare or any state and local income taxes.

If this hardworking parent knew what was about to hit her, she might be able to reduce her 2009 AGI, say, by increasing her pretax contribution to her 401(k). But with three kids and two jobs, she's likely too busy to figure this out. "With all these phaseouts, planning is pretty hard," says Mark Luscombe, principal federal tax analyst at Wolters Kluwer (other-otc: WTKWY.PK - news - people )'s CCH business.

This really bothered me. I was listening to the radio the other day. I don't recall which program... and a gal called in that told the story of how the stimulus check she received under Bush pushed them up into the next tax bracket and in doing their taxes learned that it actually cost them money to accept it. Talk about falling through the cracks! I wonder how many people were right on that line and didn't realize it was going to cause them some problems? The people that have made more money have always paid more taxes... now they must pay even more.

I just don't get it. Of course, my husband is an accountant and he works for a small family owned company. A family that has worked to build their company for 25 years and who is going to be one of the many small company owners that are going to pay. The American dream is changing. Hopefully, there are enough people with character that will continue to do what they do and to live out their principles. Sadly, I think a lot of people will look at things and not see the point in working harder and independence will be lost.

7 comments:

Two Dogs said...

Coffee Bean, no one is going to work harder, they are going to become criminals in the eyes of the Fed. You cannot continually beat the horse and think that it will not just lay down and die.

Also, increasing your contributions to your investment accounts is NEVER a good idea when Democrats control Congress. You can see that on a daily basis by watching the market. The Dow is below 7000 this morning, at its lowest point since 1997, all thanks to the Democrat Congress that has undone in two years the twelve years of Republican Congressional good.

Yes, they won, and now everyone is running for the hills.

Coffee Bean said...

Given how much we've lost, it did occur to me that the increased 401K contribution for the fictional mother was a risk.

Maybe no one will work harder... the vast majority will not anyway. I can't think of any examples off of the top of my head but there has to be some innovative people that have come out of countries that are socialist. Some people work of intrinsic rewards and continue to create regardless of what the benefits to them are... even to their detriment. Of course, those types usually suffer from some sort of mental illness like OCD or something.

I just think that it is sad. It used to be that people came here from other countries to pursue the "American Dream" where they could make of their life what they wanted with determination and hard work. Now the American Dream seems to be the security of the equivalent of three hots and a cot.

Two Dogs said...

CB, there has never been one single accomplishment ever to come from a socialist country. Not a single one. Well, unless you count as an accomplishment equal poverty of all citizens.

The USSR would have never been able to develop and deliver a nuclear warhead if not for Barry Obama's folks stealing the technology from the US and delivering it to the Soviets. Same goes for China, but they got their stuff from the USSR after the Soviets had been given the information by Democrats.

Even the technology that socialists steal is inferior because there is no incentive to do better aside from the fear of getting DEAD.

One Salient Oversight said...

The Median household income in the USA is $48,000.

Someone who earns more than that should pay more tax.

There's always an incentive to make more money, even when people who earn more get taxed more (or spend more).

One Salient Oversight said...

Sorry. $50,740 is the Median figure.

Source.

Two Dogs said...

I am certainly glad that economic socialists think that a progressive tax system is better. You know, because that socialist model has worked so awesomatically everywhere it is tried. Well, that is if you desire to bring on "Teh Suck." Wonder what that median income is in Cuba or China? About 5,000 and around 6,000 a year, respectively. MAN! That economic socialism is ROCKING for the peoples, huh?

It is very funny to me that dumb people want smarter folks to pay more taxes. Yes, smarter people make more money than dumb people. Just so you are aware, the people that are hurt by progressive taxation are the poor people because they never are motivated to increase their lot in life. If they knew what being self-reliant was really like and had to pull their own load, they might just quit dropping babies and get a job. In other words, progressive taxation and higher taxes on smart people HURTS the dumb people the most.

By the way, median family income in the United States in 2007 was $50,233.

Much Better Source than previously linked by another commenter.

Do you find it odd that the same government agency's site has two different numbers? Could it be that government is not the end-all, be-all that dumb people think that it is?

Oh, I am certainly NOT calling OSO "dumb." Just terribly misinformed and small-minded.

Coffee Bean said...

Now, wait a minute...

OSO, people that make more money DO and HAVE paid more in taxes all along. We have different tax brackets that have increasingly higher percentages of our wages that are taken. It is not like we have a flat tax where the poor are having to pay the same as the rich.

Obama has said that the tax increases are only going to be for those that make over $250K. To someone who makes much less than that it sounds like it's not a big deal. However, the people that make around that amount of money tend to be small business owners. That kind of taxation is a problem because those small business owners provide jobs... some of which will be lost if they are having to pay more in taxes. That hurts those employees that are in the lower tax brackets.