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Old 12-04-2012, 09:21 AM   #41
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Originally Posted by scrabbler1 View Post
The money Medicare would save by raising its age is from the less healthy seniors in the 65-67 age range, the ones who would have the most trouble finding affordable insurance elsewhere and need Medicare the most. The younger, healthier seniors may or may not be enrolling in Medicare but the younger, less healthy seniors will surely be enrolling in it. This is the anti-selection bias I referred to in my other post. Raising the premium for an early buy-in would address this anti-selection bias.

I do agree with your second point (about costs).

Just as an FYI, almost all seniors sign up for Medicare when they become eligible... if not, they have permanent premium increases.... so even the healthier ones actually do sign up....
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Old 12-04-2012, 09:28 AM   #42
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Originally Posted by Texas Proud View Post
Just as an FYI, almost all seniors sign up for Medicare when they become eligible... if not, they have permanent premium increases.... so even the healthier ones actually do sign up....
The only ones who don't, for the most part, are the increasingly rare few who have lifetime "Cadillac" retiree health care benefits from their employer. This is less and less prevalent, though. Virtually all employers today who still offer retiree health insurance drop their retirees onto Medicare as soon as they hit 65.
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Old 12-04-2012, 09:58 AM   #43
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Basically, my wife and I get the following deductions--

$34k for 401k\403b\457 (actually a little more because my wife can use a 403b and a 457 plan, and she's allowed 17k for each)

mortgage interest deduction
state income tax deduction
state property tax deduction
child deduction
child care deduction
HSA deduction
charitable giving deduction

In addition, we get low 15% rates on dividends and capital gains. That's assuming that we pay anything on them, since we take advantage of our 401k and Roth IRAs to shield about two thirds of our portfolio from current taxation.

In contrast, my single friend rents his house. He's a lot closer to the edge, so he doesn't save much. He ends up taking the standard deduction. Almost all of his income is actually taxed, while a large chunk of my income is shielded from taxation.

Our current tax system is designed to benefit homeowners, parents, savers, and people who get their money from investments rather than work.
Here's another married guy with kids saying I pay basically zero federal tax on a decent six figure income. Well, I may pay $300 or so this year if I don't feel like optimizing taxes too much.

Deductions we get:
$51000 off the top for 2 401ks and a 457 plan.
$4200 government pension contribution
$10,000 traditional IRA contribs
5 exemptions (2 adults, 3 kids)
Married std deduction
$5000 Childcare FSA
$6450 HSA (next year; we did FSA this year)
$3000 capital loss deduction against ordinary income
$1000 student loan interest
$480 family Health insurance comes out pre-tax
$700 family dental insurance comes out pre-tax

Then on top of it all we get $3000 in child tax credits (3 kids).

For 2013 we will probably get a sizeable refund from the Fed taxes (ie we will have a negative tax rate).

We don't even itemize deductions in most years as we are just below the standard deduction even if we lump 2 years real estate property tax into 1 year. Our mortgage is almost paid off and only 1.99% interest anyway, so it is a tiny bit of interest annually.

Crazy federal tax policy and I laugh all the way to the bank every year. I used to think it is unfair, but now I'm more "git mine while the gittin's good, cause they will git me one day".

(edited to add: I just added up all the deductions and there is more than $110,000 in deductions from our gross income.)
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Old 12-04-2012, 10:11 AM   #44
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Getting a bit off topic here but the federal tax code is so convoluted, unfair and biased against single people who make decent money and have no deductions as well as married couples with decent income and no deductions. You are basically penalized for not having kids and not having any debt, just doesn't hardly seem right.
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Old 12-04-2012, 10:14 AM   #45
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I don't think our savings is all that unusual at our income level (over 150k gross). It would be very unusual at my friend's income level (75k).

The 401k deduction brings the most benefit to the upper middle class. The lower income groups have a hard time saving a large amount of money, and regardless of what they save, the tax savings they get is smaller because the tax rate they avoid paying is lower. For the higher income groups, the absolute amount of the deduction is less significant.

Another little quirk of our tax code is how much it can benefit a married couple compared to two singles living together. When a low income person marries a higher income person, it basically allows them to use double the deductions, since many of the low income person's deductions weren't useful to that person alone, but are very useful for reducing the combined couple's taxable income.

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Originally Posted by pb4uski View Post
I understand now, but I suspect that a young couple saving the way you do is unusual, and your single friend would be in a lower tax bracket if he saved as much as you do (as a percent of his income).

I would actually like to see them get rid of all deductions other than those for retirement/HSA savings that encourage people to become self sufficient and not be a burden on society.

While I think that tax advantages are a small factor in people wanting to own their own home and have children and donate to charity, I think many people would continue to do so without the tax incentives.
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Old 12-04-2012, 10:21 AM   #46
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The obvious question I have to ask--

What the heck do you live on?

Quote:
Originally Posted by FUEGO View Post
Here's another married guy with kids saying I pay basically zero federal tax on a decent six figure income. Well, I may pay $300 or so this year if I don't feel like optimizing taxes too much.

Deductions we get:
$51000 off the top for 2 401ks and a 457 plan.
$4200 government pension contribution
$10,000 traditional IRA contribs
5 exemptions (2 adults, 3 kids)
Married std deduction
$5000 Childcare FSA
$6450 HSA (next year; we did FSA this year)
$3000 capital loss deduction against ordinary income
$1000 student loan interest
$480 family Health insurance comes out pre-tax
$700 family dental insurance comes out pre-tax

Then on top of it all we get $3000 in child tax credits (3 kids).

For 2013 we will probably get a sizeable refund from the Fed taxes (ie we will have a negative tax rate).

We don't even itemize deductions in most years as we are just below the standard deduction even if we lump 2 years real estate property tax into 1 year. Our mortgage is almost paid off and only 1.99% interest anyway, so it is a tiny bit of interest annually.

Crazy federal tax policy and I laugh all the way to the bank every year. I used to think it is unfair, but now I'm more "git mine while the gittin's good, cause they will git me one day".

(edited to add: I just added up all the deductions and there is more than $110,000 in deductions from our gross income.)
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Old 12-04-2012, 10:30 AM   #47
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Originally Posted by FUEGO View Post
Here's another married guy with kids saying I pay basically zero federal tax on a decent six figure income. Well, I may pay $300 or so this year if I don't feel like optimizing taxes too much.

...

(edited to add: I just added up all the deductions and there is more than $110,000 in deductions from our gross income.)
I can't fault anyone for taking full advantage of any and all *legal* methods to defer and/or avoid (not evade) taxes, but yeah, this is an example of how screwed up and inequitable the tax code can be.
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Old 12-04-2012, 10:31 AM   #48
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The obvious question I have to ask--

What the heck do you live on?
Kegs of Whoop-A$s and willpower

Very little actually. I don't think we spend more than 15-20% of our gross income. I track it pretty closely, and our core expenses* run about $20-25k/year.

Much of our spending is from tax-free income (child care, health/dental, student loan interest).

*excluding the mortgage payments which I equate to moving money from one pot to another
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Old 12-04-2012, 10:50 AM   #49
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Even though we have children, I used to think that tax subsidy for raising children was wrong.

Now that my children are grown, and I can claim no benefits from it, I reflected on this subject and thought that there might be some merits in it. Seeing that so many people prefer to be child-free, I wonder who will be the workers to support our generation when we are getting old. Heck, many people here, myself included, already stopped working. Some European countries have even more generous benefits to encourage people to have children, due to their low birth rates.
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Old 12-04-2012, 10:59 AM   #50
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Now that my children are grown, and I can claim no benefits from it, I reflected on this subject and thought that there might be some merits in it. Seeing that so many people prefer to be child-free, I wonder who will be the workers to support our generation when we are getting old. Heck, many people here, myself included, already stopped working. Some European countries have even more generous benefits to encourage people to have children, due to their low birth rates.
We have no kids, and for a long time I strongly resented the bribes tax incentives (deductions, credits, school taxes, et cetera) for procreation, and to some degree they still feel unfair. But in more recent years I've mellowed and developed a sense of equanimity about it all, figuring that if nothing else, they are raising a generation that will pay my old age benefits some day, and I didn't have to pay for most of their room, board and education for 18+ years...
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 12-04-2012, 12:01 PM   #51
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Yes, whatever we do, we need to think of the younger generation, if only for enlightened self-interest.

Just yesterday, I saw that an Italian grocery store announcing that shoppers who spent more than 30 euros there would be entered into a lottery run by the store.

The prize? They will offer 12 jobs, part-time at 4 hours/day, paying 1,100 euros/month. Such bleak job markets! Spain and Greece are even worse, and even Sweden. Bleak, bleak, bleak...

The store says that 90% of shoppers have chosen to enter.

See: http://www.bloomberg.com/news/2012-1...ng-crisis.html
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Old 12-04-2012, 12:25 PM   #52
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[snip]

[snip]

Another little quirk of our tax code is how much it can benefit a married couple compared to two singles living together. When a low income person marries a higher income person, it basically allows them to use double the deductions, since many of the low income person's deductions weren't useful to that person alone, but are very useful for reducing the combined couple's taxable income.
True, but the converse of that is when two high-income persons marry. There, if lower income of the two chooses to remain in the full-time workforce after kids, s/he has first dollar taxed at the highest marginal rate (plus payroll taxes). Been there, decided that it wasn't worth it to work just to pay the nanny and other two-income expenses.

Some of this is not perfectly fixable, but the system is creaking.
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Old 12-04-2012, 01:23 PM   #53
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Quote:
Originally Posted by FUEGO

Here's another married guy with kids saying I pay basically zero federal tax on a decent six figure income. Well, I may pay $300 or so this year if I don't feel like optimizing taxes too much.

Deductions we get:
$51000 off the top for 2 401ks and a 457 plan.
$4200 government pension contribution
$10,000 traditional IRA contribs
5 exemptions (2 adults, 3 kids)
Married std deduction
$5000 Childcare FSA
$6450 HSA (next year; we did FSA this year)
$3000 capital loss deduction against ordinary income
$1000 student loan interest
$480 family Health insurance comes out pre-tax
$700 family dental insurance comes out pre-tax

Then on top of it all we get $3000 in child tax credits (3 kids).

For 2013 we will probably get a sizeable refund from the Fed taxes (ie we will have a negative tax rate).

We don't even itemize deductions in most years as we are just below the standard deduction even if we lump 2 years real estate property tax into 1 year. Our mortgage is almost paid off and only 1.99% interest anyway, so it is a tiny bit of interest annually.

Crazy federal tax policy and I laugh all the way to the bank every year. I used to think it is unfair, but now I'm more "git mine while the gittin's good, cause they will git me one day".

(edited to add: I just added up all the deductions and there is more than $110,000 in deductions from our gross income.)
There is definitely a sweet spot in the tax code and I think you've found it. Simplifying the tax code would prolly cost you about 25000 dollars/ year. [MOD EDIT]
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Old 12-04-2012, 01:28 PM   #54
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There is definitely a sweet spot in the tax code and I think you've found it. Simplifying the tax code would prolly cost you about 25000 dollars/ year. [MOD EDIT]
The hog calling contest is underway...
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Old 12-04-2012, 01:31 PM   #55
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The complex tax code of the US has been going on for years. It is pointless to blame it on any single pol. Blame ourselves, the citizens, for demanding various "gimme", "gimme".

Mea culpa, anyone?

No? Yep, I thought so.
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Old 12-04-2012, 01:43 PM   #56
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I think Tocquevilles quote is right on target...

The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money.
Alexis de Tocqueville
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Old 12-04-2012, 01:47 PM   #57
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Thanks folks.

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