New proposed tax on income from interest/dividends

[FIREd]

I can only speak for myself here. But it looks like our marginal tax rate will probably go up at least 4-5% starting in 2011 based on the proposed tax increases. That means a serious pay cut for our household. But it is foolish to think that we will be the only ones impacted. Less money coming in = less money coming out, it's that simple. Any current beneficiary of our spending and investing, such as local businesses, local governments, local schools, and charities, will be negatively impacted as well. I guess, like us, they and the people they support will have to learn how to make do with less.

 

[eridanus]

Instead of whining about taxes, let's hear some solutions. I'll start.

We can means test Social Security.
We can means test Medicare.
We can cut benefits for federal employees.
We can cut the defense budget.
We can stop building roads.

(All in unison, "Noooo, we can't cut those! It's not fair/prudent! Those spending categories are sacred cows!" Hence the problem.)

 

[ziggy29]

(All in unison, "Noooo, we can't cut those! It's not fair/prudent! Those spending categories are sacred cows!" Hence the problem.)

It's a tragedy of the commons problem. No one wants to feel like they are being singled out to bear the brunt of the punishment. In other words, if I'm going to be made to pay more, receive less benefit, retire later, et cetera, I want to make sure everyone else is sacrificing their own sacred cows along with me.

This is why I think there needs to be some across-the-board stuff that spreads the pain at least somewhat more evenly than most of the usual advocacy. I'd be willing to allow my ox to be gored to restore fiscal sanity if I didn't think I was bearing an undue brunt of it relative to everyone else.

 

[JPatrick]

Instead of whining about taxes, let's hear some solutions. I'll start.

We can means test Social Security.
We can means test Medicare.
We can cut benefits for federal employees.
We can cut the defense budget.
We can stop building roads.

(All in unison, "Noooo, we can't cut those! It's not fair/prudent! Those spending categories are sacred cows!" Hence the problem.)

Not so fast fella, I'm kinda warming up to your number 3.

 

[ziggy29]

Not so fast fella, I'm kinda warming up to your number 3.

Actually, federal employees had their benefits cut quite a bit in the 1980s when CSRS was replaced with FERS. State and local, on the other hand, often have a MUCH bigger problem than the Feds who already tackled the worst of it, and it's state and local that's busting the budgets.

 

[FIREd]

Instead of whining about taxes, let's hear some solutions. I'll start.

We can means test Social Security.
We can means test Medicare.
We can cut benefits for federal employees.
We can cut the defense budget.
We can stop building roads.

(All in unison, "Noooo, we can't cut those! It's not fair/prudent! Those spending categories are sacred cows!" Hence the problem.)

The problem is this: taxes won't increase for 95% of Americans so, as long as they don't have to reach deeper into their purse to pay for those things, why would they agree to cut any of these expenses? Besides half of all Americans don't even pay any federal income tax which makes them net beneficiaries of taxes paid by others, so why would they voluntarily cut [-]expenses[/-] benefits?

If you have teenagers and you pay for their car insurance for example, do they give a damn if your rates go up? Probably not. As long as you keep providing the service, the cost incurred to you is not their problem. Now, make them pay for their own car insurance and you can be sure that they will start to care about rate hikes!

 

[eridanus]

The problem is this: taxes won't increase for 95% of Americans (and half don't even pay any federal income tax anyways) so, as long as they don't have to reach deeper into their purse to pay for those things, why would they agree to cut any of these expenses?

Loosely translated as, "Those are my sacred cows. Don't touch them."

 

[ziggy29]

Loosely translated as, "Those are my sacred cows. Don't touch them."

This was a predictable outcome of a society which produced many new taxing and spending programs designed to help one group at the expense of another. Great way to create an us-versus-them mentality, yes?

 

[eridanus]

This was a predictable outcome of a society which produced many new taxing and spending programs designed to help one group at the expense of another. Great way to create an us-versus-them mentality, yes?

There's probably some clever way to apply game theory to the problem. Get some chips, get some cards with budgetary items printed on them, and then pass around the chips to the stakeholders. When the chips run out, that's it.

Of course, then you'd have to decide how many chips there are at the beginning.

Eh, it's an intractable problem. It'll crash when China stops buying our debt.

 

[Bikerdude]

Actually, federal employees had their benefits cut quite a bit in the 1980s when CSRS was replaced with FERS. State and local, on the other hand, often have a MUCH bigger problem than the Feds who already tackled the worst of it, and it's state and local that's busting the budgets.

I agree with this, it's the at the State level now that employee benefit cuts need to be made. But another problem is the feds pushing unfunded mandates down to the States and the States doing the same to the localities. My taxes (total) have gone through the roof since 1980 as I assume, have most others.

 

[JPatrick]

I agree with this, it's the at the State level now that employee benefit cuts need to be made. But another problem is the feds pushing unfunded mandates down to the States and the States doing the same to the localities. My taxes (total) have gone through the roof since 1980 as I assume, have most others.

BINGO!
And I fear we are only in the 6th inning of this one..

 

[bobbee25]

Seems like every day we hear how they are spending a million here, a billion there, nothing to do with entitlements or running the country. Last week it was 2 billion to help fight obesity, ... 33 czars each receiving 100 - 200K, plus offices, staff, medical and other related expenses,... the list goes on and on. It all adds up to an enormous amount. But if there is a cut back it will in Medicare, SS, and the like.

 

[Gone4Good]

Instead of whining about taxes, let's hear some solutions.

Queue crickets . . . chirp, chirp, chirp.

 

[FIREd]

Queue crickets . . . chirp, chirp, chirp.

Crickets? Is that the solution you propose?

 

[JPatrick]

Crickets? Is that the solution you propose?

Crickets make good bait.....How about a string of Cricket Bait Shops owned by the taxpayers and operated by politicians during their free time..and let's make lots of free time available.

 

[Gone4Good]

Crickets? Is that the solution you propose?

Sure, why not. It makes about as much sense as claiming taxes are out of control when rates are lower than any time in living memory.

But I forgot, there is a plan out there to balance the budget. It's Paul Ryan's Roadmap for America's Future. Which at least has the virtue of being intellectually honest about what he wants to see done. And that plan includes . . .

1) Privatizing social security for everyone under 55 - similar to what George W tried to do
2) Medicare would be replaced by a voucher system for those under 55 (in case you didn't notice, if you're under 55 you should probably vote more). Recipients would get a voucher toward purchasing private health insurance. The value of the voucher is indexed to grow at the average of CPI and a health cost index, so it is designed to lose purchasing power over time.
3) Freeze all non-defense discretionary spending at 2009 levels for 10 years
4) Eliminate taxes on capital gains, dividends and interest
5) Replace the existing tax rates with a 10% tax up to $100K and 25% above that amount.

The CBO gives the plan the thumbs up from a budget perspective, although they for some strange reason* didn't score the tax provisions of the bill. Instead they say . . .

The proposal would make significant changes to the tax system. However, as specified by your staff, for this analysis total federal tax revenues are assumed to equal those under CBO’s alternative fiscal scenario (which is one interpretation of what it would mean to continue current fiscal policy) until they reach 19 percent of gross domestic product (GDP) in 2030, and to remain at that share of GDP thereafter.

So they propose a massive overhaul to the tax code but tell CBO to use rates under existing law (which are scheduled to increase significantly). OK. At least we're being halfway honest, which is halfway better than what we usually get.


* The "strange" reason for not scoring the tax provisions is almost certainly because the CBO doesn't use the preferred "dynamic" scoring method which treats all tax cuts as revenue enhancing.

 

[Bikerdude]

Unfortunately, I have the dubious honor of living in the #1 State.

The Tax Foundation - America Celebrates Tax Freedom Day®

 

[Gone4Good]

The Tax Foundation - America Celebrates Tax Freedom Day®

Interesting how Tax Freedom Day calculated using taxes actually paid arrives in 2010 on the earliest date since 1967.

 

[Bikerdude]

Interesting how Tax Freedom Day calculated using taxes actually paid arrives in 2010 on the earliest date since 1967.

"This shift has been driven by two factors: the recession has reduced tax collections even faster than it has reduced income; and the stimulus package, a.k.a. HR 1, the American Recovery and Reinvestment Act of 2009, includes large temporary tax cuts for 2009 and 2010. Nevertheless, in 2009, Americans will pay more in taxes than they will spend on food, clothing and housing combined."

quote from The Tax Foundation.

 

[Gone4Good]

"This shift has been driven by two factors: the recession has reduced tax collections even faster than it has reduced income; and the stimulus package, a.k.a. HR 1, the American Recovery and Reinvestment Act of 2009, includes large temporary tax cuts for 2009 and 2010. Nevertheless, in 2009, Americans will pay more in taxes than they will spend on food, clothing and housing combined."

quote from The Tax Foundation.

Yes. I saw that. Whatever the reasons, it doesn't change the fact that people are paying less in taxes in 2009 relative to their income than at any time since 1967 according to the Tax Foundation. That doesn't exactly jibe with the popular narrative that we're suddenly living under some kind of socialist oppression.

Meanwhile federal spending is also elevated because of the recession and the American Recovery and Reinvestment Act but I haven't heard anyone mention that as an excuse.

 

[Bikerdude]

Yes. I saw that. Whatever the reasons, it doesn't change the fact that people are paying less in taxes in 2009 relative to their income than at any time since 1967 according to the Tax Foundation. That doesn't exactly jibe with the popular narrative that we're suddenly living under some kind of socialist oppression.

Meanwhile federal spending is also elevated because of the recession and the American Recovery and Reinvestment Act but I haven't heard anyone mention that as an excuse.

Dude,

“Nevertheless, in 2009, Americans will pay more in taxes than they will spend on food, clothing and housing combined."

 

[Gone4Good]

Dude,

“Nevertheless, in 2009, Americans will pay more in taxes than they will spend on food, clothing and housing combined."

Yes, and apparently we have since at least 1967 (which according to my calendar includes the 1980's when all was rainbows and unicorns). So old news, right?

 

[Bikerdude]

Yes, and apparently we have since at least 1967 according to the Tax Foundation? So in other words, old news, right?

And I thought all you needed was a bi-focal adjustment chart.

 

[Disappointed]

This is depressing. My effective tax rate for my Fed Tx for 2009 = 28.31%, my State Tx for 2009 = 9.6% (source = Turbo Tax). Add the two together and about 38% of my income goes to Fed+State. Almost all income are from my W2, not much investment income. Haven't figured out percentages of others (sales tax, property tax, other payroll taxes, etc.).

Now, I can look forward to paying more taxes

Our government, Fed and State keep spending money they don't have. The city that I live in is also running a deficit but is looking to buy more land for open space (a new park). I am wondering if these government officials are running their own personal finance the same way, borrow, spend, borrow, spend, borrow, spend, oh and lets tax the s... out of those rich people.

mP

 

[MasterBlaster]

This is depressing. My effective tax rate for my Fed Tx for 2009 = 28.31%, my State Tx for 2009 = 9.6% (source = Turbo Tax). Add the two together and about 38% of my income goes to Fed+State. Almost all income are from my W2, not much investment income. Haven't figured out percentages of others (sales tax, property tax, other payroll taxes, etc.).

I suspect that when all is totaled you are giving half for taxes. Your case is not all that atypical. Higher income people pay even more.

And yet people keep saying that we aren't taxed very much.

How much do they want ? Do they want it all ?

How high do taxes have to go before people say - Hey I'm not gonna play this game anymore.