Managing MAGI

[47]

Then you're SOL. Life's unfair. Get used to it. And stop whining.

Actually, I was going for something less in-your-face... like

What about all the child related exemptions, deductions, credits, saving vehicles etc. the parents enjoyed when one is a child? Truth be told, I was envious of those when I was single.

It's the society's collective decision to provide help in raising a child. So having everyone pitch in for education is not qualitatively that different.

 

[47]

47%, If you go to the FAQ on the KFF site, they say that if you go over the 400% FPL, you have to pay it all back. 300 to 400%, married, you pay a max of 2,500. 200 to 300%, married, you pay 1,500 max. Less than 200, married, 600 max. 1250, 750, 300 for singles.

I guess what this tells me is that not getting approved for the subsidy and settling later is not the same as getting approved early, because the full price payer doesn't have access to this benefit.

That's great.. Thank you very much for the info.

I am assuming you are referring to two scenarios both within the exchange in your second paragraph --overestimating your income vs. under-estimating with a subsequent clawback. In either case you *have* to go through the exchange if you are to avail of the subsidy at all.

If you bought an exchange-equivalent plan outside of the exchange, you would essentially forfeit the subsidies even if you find your income is low at the end of the year.

 

[sengsational]

Right, that's what I meant...going through the exchange.

 

[scrabbler1]

Actually, I was going for something less in-your-face... like

What about all the child related exemptions, deductions, credits, saving vehicles etc. the parents enjoyed when one is a child? Truth be told, I was envious of those when I was single.

It's the society's collective decision to provide help in raising a child. So having everyone pitch in for education is not qualitatively that different.

But when does it end? Parents get all those things as you wrote. But they made a lifestyle choice (to have children) which then gets all of these subsidies and tax deductions at the expense of those of us who are childfree. So why can't we childfree get a break on our local school taxes because we are not a burden on the school system? I am not saying that we childfree should pay zero in local school taxes, only that we should get a discount on those local school taxes simply because we are childfree.

 

[scrabbler1]

Both SS and Medicare are pay-as-you-go systems.

People say that "but, but, but I paid into the system, and I am owed these benefits". They forgot that these were just promises, and promises could be easily broken when there were no more "new blood", just like pensions that got into trouble. If nobody has children, where's the tax to pay for the promised benefits? When there's no money, promises are, well, tossed to the wind. Can't squeeze blood from turnips.

This sounds a lot like the justification for any Ponzi scheme. "If we can only keep getting new investors ("new blood") into my Ponzi scheme, it won't collapse or get into trouble." Local schools are pay-as-you-go systems, too. If the number of children in a district were to drop to zero, then we could close all the schools down and eliminate (nearly) all the school taxes, except for the legacy costs to retired school employees, UGH!).

 

[47]

This sounds a lot like the justification for any Ponzi scheme. "If we can only keep getting new investors ("new blood") into my Ponzi scheme, it won't collapse or get into trouble." Local schools are pay-as-you-go systems, too. If the number of children in a district were to drop to zero, then we could close all the schools down and eliminate (nearly) all the school taxes, except for the legacy costs to retired school employees, UGH!).

The taxation for schools is not just within the specific district. A good part of the budget money for the schools is allocated from the state taxes. The district does assesses some add-ons for specific projects. Even in areas with no schools within 10 mile radius (sex offenders territory??!), the tax for schools will not come down that much as long as people in the state are busy making babies.

All I am saying is the sooner one gets to the zen state of ziggy the better -- just be creative and come up with some justification that works for you.

The same is true for SS, Medicare etc. They all have some draw backs, but overall the goal is good, and they do a half way decent job of getting there. The alternative is definitely worse. We can't let perfect be the enemy of the good. Although it doesn't feel like it right now, I am sure ACA will get there soon enough, and for people who couldn't get insurance before it is there already now.

 

[scrabbler1]

Just to bring the issue of school taxes and managing MAGI together, I have become aware of another quirk or inequity.

The payment of local property taxes may be tax-deductible if one itemizes his deductions (Schedule A) on his federal income tax return. This will not lower one's MAGI, however. But if the taxpayer later receives a property tax rebate such as New York's STAR rebate, that is counted as income and is part of the MAGI determination. This means it may not pay to try to bunch one's itemized deductions into a calendar year because by doing so it may increase one's MAGI in the year after the bunched-into year. (I realize that such a tax rebate may be reduced as part of its addition to the MAGI if the itemized deduction did not exceed the standard deduction by much.) But with the steep ACA subsidy "cliff," any benefit from bunching may be blown away by having to increase the MAGI in the year after the bunching takes place.

 

[NW-Bound]

But when does it end? Parents get all those things as you wrote. But they made a lifestyle choice (to have children) which then gets all of these subsidies and tax deductions at the expense of those of us who are childfree. So why can't we childfree get a break on our local school taxes because we are not a burden on the school system? I am not saying that we childfree should pay zero in local school taxes, only that we should get a discount on those local school taxes simply because we are childfree.

At the risk of making you more upset, which I really do not want to do, I can make a counter argument that it takes a lot more than these tax deductions to raise a child, and to bring him/her up to be a productive citizen to work and pay taxes for my and your SS and Medicare.

So, are parents not making a personal sacrifice for the good of society? Should they be rewarded even more? I already mentioned how European nations with low birthrates are doing exactly that.

Even if we do not have Medicare and SS and totally rely on our own, without enough youngsters to provide the services and products that we geezers consume, we will have to pay higher prices for what we will consume. I guess if one goes to a 3rd world country he can get more for his money, but if more people do that, would the US become a huge Detroit?

Although I have two grown children, I used to agree with a Libertarian friend of mine that I should not have to subsidize people with 4 or 5 children. I no longer think the same. I do not know when I changed, but perhaps it was when I started to think about how some developed nations are having trouble with an aging population. Japan is the most obvious example.

This sounds a lot like the justification for any Ponzi scheme. "If we can only keep getting new investors ("new blood") into my Ponzi scheme, it won't collapse or get into trouble." Local schools are pay-as-you-go systems, too. If the number of children in a district were to drop to zero, then we could close all the schools down and eliminate (nearly) all the school taxes, except for the legacy costs to retired school employees, UGH!).

It is a Ponzi scheme only when the benefits are so generous that it takes many workers to support one retiree and requires that the number of workers keeps growing and growing.

Think about the equilibrium case when the population reaches a stable value, and suppose that we have a stable ratio of 2 workers for 1 retiree. If the benefit is computed properly, the workers can support the retirees forever. I forgot how this benefit ratio would be computed, but if the retiree wants to get the same pay as the worker, and is going to spend as many years in retirement as in his work life, then the tax is going to be very high for the workers. It would not work.

Any retirement system will go broke if it is going to pay a retiree the same pay as when he worked, and with his years in retirement being as long or even longer then his working years. The only way for that to work is for the worker to save 50% or more of his pay.

People will say that they can save less than 50% and investment growth will take care of the rest. However, the economy and the stock market also stop growing when the population reaches equilibrium.

 

[47]

Just to bring the issue of school taxes and managing MAGI together, I have become aware of another quirk or inequity.

The payment of local property taxes may be tax-deductible if one itemizes his deductions (Schedule A) on his federal income tax return. This will not lower one's MAGI, however. But if the taxpayer later receives a property tax rebate such as New York's STAR rebate, that is counted as income and is part of the MAGI determination. This means it may not pay to try to bunch one's itemized deductions into a calendar year because by doing so it may increase one's MAGI in the year after the bunched-into year. (I realize that such a tax rebate may be reduced as part of its addition to the MAGI if the itemized deduction did not exceed the standard deduction by much.) But with the steep ACA subsidy "cliff," any benefit from bunching may be blown away by having to increase the MAGI in the year after the bunching takes place.

Holy C%ap!!

Never thought about this. I don't know what the property tax rebate is, as I have never heard of it.. but this is definitely an issue for state tax refunds.

Imagine if you file your returns with an extension on Oct 15th and you are expecting a refund of a few hundred dollars from the state. I can see a possibility where if they time it just right and you get your check at the end of the year you may be out of options and it could push you right off the cliff.

This whole idea of deductions past being resurrected from the grave and showing up as income above the line is perverse.

When in doubt, just have the refund to be applied to the following year!

 

[scrabbler1]

At the risk of making you more upset, which I really do not want to do, I can make a counter argument that it takes a lot more than these tax deductions to raise a child, and to bring him/her up to be a productive citizen to work and pay taxes for my and your SS and Medicare.

[mod edit]

So, are parents not making a personal sacrifice for the good of society? Should they be rewarded even more? I already mentioned how European nations with low birthrates are doing exactly that.

[mod edit]

Even if we do not have Medicare and SS and totally rely on our own, without enough youngsters to provide the services and products that we geezers consume, we will have to pay higher prices for what we will consume. I guess if one goes to a 3rd world country he can get more for his money, but if more people do that, would the US become a huge Detroit?

[mod edit]

Although I have two grown children, I used to agree with a Libertarian friend of mine that I should not have to subsidize people with 4 or 5 children. I no longer think the same. I do not know when I changed, but perhaps it was when I started to think about how some developed nations are having trouble with an aging population. Japan is the most obvious example.

I like how your former self felt. I still feel that way and I am not a Libertarian.

It is a Ponzi scheme only when the benefits are so generous that it takes many workers to support one retiree and requires that the number of workers keeps growing and growing.

How many is too many? Even two may be too many. [mod edit]

Think about the equilibrium case when the population reaches a stable value, and suppose that we have a stable ratio of 2 workers for 1 retiree. If the benefit is computed properly, the workers can support the retirees forever. I forgot how this benefit ratio would be computed, but if the retiree wants to get the same pay as the worker, and is going to spend as many years in retirement as in his work life, then the tax is going to be very high for the workers. It would not work.

Any retirement system will go broke if it is going to pay a retiree the same pay as when he worked, and with his years in retirement being as long or even longer then his working years. The only way for that to work is for the worker to save 50% or more of his pay.

But remember that people are living longer and longer, so allowing the benefits calculated 25 years ago to be calculated the same way today is a losing proposition for the system. People are collecting benefits for 20, 25, 30 years now, further straining the system.

People will say that they can save less than 50% and investment growth will take care of the rest. However, the economy and the stock market also stop growing when the population reaches equilibrium.

What makes you so sure of that? We will still have people buying stuff and consuming services. I disagree.

 

[MichaelB]

Porky Pig Cartoon Ending "That's All Folks!" - YouTube