April 15 Isn't Just for Taxes Anymore

Dear Steve,

Thank you for making April 15 something more than a day to pay taxes. And thank you for your love.

The gift of this heart-shaped necklace with diamond chips was so sweet. You and I were never much for pomp and circumstance, so sliding a plain white box over beside my dinner plate last night was as formal as we've ever gotten with our romance. Perhaps we are like the couple that Rogers and Hart were thinking about when they wrote, My Romance.



Gee, hearing Bernadette sing, reminds me of that time we watched her sing Send in the Clowns and as she did tears, real tears flowed down her cheeks, and we were charmed and touched.

Extraordinary moments occur ordinarily. An evening, in a go-green apartment, a rowdy puppy-dog romping, tax forms, receipts, Schedule C's, W-2's, seemed to matter intensely. The forms were so critical. And then the things that only appeared to be making April 15 extraordinary fell away, with a few words.

And then we were thinking, not backward on the economic exigencies of the last 12 months, but forward to a life, potentially, entwined and returning jointly, for as long as we both shall live. We will live, (if I said yes?) uninterruptedly together, always, with memories of the first dinner in that crazy basement apartment, you and me, oh, and Phil was there, too, and Leah the dog, and we talked and Phil walked me to the train station, and Phil scolded you for being rude, but I was, nonetheless, enthused about you and wanting to meet again soon, even though my thin shoes were wet from the walk in the rain.

And then we were thinking forward to a marriage, but Leah bounded in with that first interruption to prove that together is never without interruption even by dogs needing to be walked in the back alley of a big city where, even then, there was not privacy but the passing company of a gregarious neighbor with a doberman. And the mist of the evening glowed in a distant lamplight and our breaths took in, not just the night breeze, but the alley-air reminders of yesterday's supper-trash from apartment 12g and even the diaper refuse from 8b. But that was long ago and prescient of other interruptions to come.

And back in the apartment I said, "Yes, yes," and we fell together into loving arms. But not for long, did we embrace, because it was, after all, April 15, and we had yet to check the filing status box, "Single," and walk to the post office before the midnight deadline.


My darling Steven, I am so overwhelmed that you chose me to be the one and only one with whom you would say, "Yes, married filing jointly" for the rest of your life. Thank you for that, for the beautiful necklace reminder, and for your love.

XOXOXOX
Betsy

Tax Day Tally

Dear Secretary Geithner,

Today is tax day, though I paid my taxes a week or so ago.

Each year, April 15 gives me pause, since I am forced to actually look at my finances and think about the money I send on to the government. Most years I get a refund for amounts I've overpaid. Getting a big pile of money is generally a happy thing, and I tend to focus more on what I'll do with that stack o' cash than the money that I've already paid.

However, this year I had the dubious privilege of writing a check. And as I wrote that check, I began to think a bit harder about the sum total of the taxes I pay. And not just the complexities of the tax code, such as the difference between marginal and effective tax rates, which we've talked about before.

I started with my Federal and State (Illinois) income tax, thinking that would be a pretty big dent in my family's finances. I was a bit surprised, as we only paid about 16.8% of our total income to income taxes. Not bad!


Then, I realized that this was not the end of my tax payments. Indeed, every time I make a purchase, I pay 10.25% in various sales taxes: Illinois takes 6.25%, Cook County takes 2.75%, and Chicago takes an additional 1.25%*. That's nearly as much as the amount I pay in income tax! Yikes! Thankfully, I'm not a homeowner, or I'd be paying property taxes too!


But then, Mr. Geithner, I started thinking about all those tax dollars and the things that are accomplished with them. Besides paying for Blagojevich to take his family to Florida for a last fling before he goes to jail, my tax dollars help build roads, provide health insurance to poor people, and make sure my peanut butter stays free of salmonella. I'm pretty sure at least three of those are good things.

You know what I realized? I realized that the taxes I'm paying this year don't come close to paying for all the things that my government does. Chicago, Cook County, Illinois, and the USA are all dealing with the fact that they've spent more than they 'earned,' and they are now looking for ways to close that "budget gap." Illinois is likely to raise the state income tax to 4.5%. The Federal government will probably just sell more T-bills to China.

And all of that money will need to be paid back someday. So eventually, I bet we'll have to raise taxes to cover that as well. Let's just call this a "Future Tax." Here's what it looks like, split out per person.


Oh, my! That's a lot of money! I'm not sure where the government is going to get all that. I sure don't want to foot that bill, though I suppose I already am in some form or fashion. Perhaps this is why there's such outcry against taxes this year, in the form of "Tea Parties" and the like.

Mr. Geithner, I really hope you can come up with a plan to help pay down some of this debt. Our country can't live on credit cards borrowed money forever. And the amount I'm paying in taxes have to do other stuff besides pay interest, like pay the Navy to fight pirates.

And, as the House of Representative's own Harry Reid says, our taxes are voluntary anyway:



So, I guess my point in all this is that while you guys in government have managed to keep our income taxes pretty low, it would be nice if you kept the other, less visible taxes low as well.

And as a helpful reminder, don't forget to file your taxes today! I've heard you've had troubles with that in the past!



TheUkieVillain



P.S. If anyone is interested, the research and sources for debt and such can all be found here and here. It isn't pretty, but you can at least follow it back to the source. Consider this a footnote.

*The sales tax is reduced quite a bit for buying food. But it's even higher than 10.25% when buying gas, alcohol, and cigarettes (glad I'm not a smoker!). Oh, and Chicago has an extra tax on bottled water, extra taxes on fast food in the downtown area (aka tourist tax), extra taxes on parking downtown (parking!?), and an extra amusement tax at many of the popular attractions, like Navy Pier.

"Figures Lie and Liars Figure"

Dear John Gault,

We still have not figured out who you are, I don't think.

For this post I want to compare two schools of thought when it comes to taxes. One side says "Tax the rich heavily because they have more money to give and then give more entitlements, goodies, rebates, etc. to the poor to help them out, and minimize the burden to the middle class."

The other side says, "Tax everyone less and give deductions and reductions in taxes to the richest so that it will trickle down to the poor in the form of jobs, employee benefits, and salary increases. Minimize pressure on the middle class, but recognize that the upwardly mobile in the middle class will pay more taxes through sales tax and income tax as the make more due to the cuts for the wealthy companies."

Which side is right? Well, lets explore.

First, a concern I have is that we know WHO the middle class is. Funny enough, Politifact.com says that "More than a third of Americans with incomes below $20,000 describe themselves as middle class. So do a third of people with incomes above $150,000". We all want to think of ourselves as middle class, "Average Joes or Janes" (six pack and hockey stick optional). And so the candidates want to pander to that larger group.

But that broad definition certainly does not match with what the candidates mean when they use the term in relationship to their claims about tax increases or reductions. Politifact looked at the middle class as the middle 20% of income earners. That is approximately those who make between about $37,595 and $66,354. When Obama claims the middle class will get three times the tax relief under his plan, he is referring to this abbreviated group and only for the first year of his tax plan. When one looks at other sections of the middle or 2-4 years down the road, the gap is not nearly so large. But this is just one example of how this definition colors the truth of claims, so just keep that in mind. PLEASE go to Politifact's tax claim page and see numerous claims and their level of truth from all candidates. It is so interesting with all the statements and attacks going around.

So we come back to who to tax and how. I found a very interesting article written by someone at Yale talking about the history of taxation and why taxing the rich could work. It was a review of a book called "Does Atlas Shrug?", which plays off Ayn Rand's book "Atlas Shrugged". But there was so much information in both the article and in Ayn Rand's book to really present here. I should do a post just on "Atlas Shrugged" sometimes, as I think that book is seminal to me in thinking about this issue.

So I kept searching for more "layman's" type information. I found an interesting article online, which inspired the title of this post, which is a quote from Mark Twain. There was some mathematical explanation before the writer got to the conclusion, so again, I recommend reading the article, but the conclusion stated:

"But one particular event comes to mind. During the Bush-Kerry election in 2004, each candidate staked out opposite positions on capital gains taxes. President Bush argued that the current 15% rate should be maintained and made permanent, while Senator Kerry advocated raising them on the top 2% of wage earners. An interesting thing happened during that election, as at approximately 2:30 PM EST on November 2nd, flawed polling data leaked to the press indicated that Kerry would win Florida and the entire election. Prior to the false news leaking, the Dow had increased as much as 125 points, or about 1.2% during the day. Afterward the market proceeded to fall 150 points (about 1.5%) from its peak. In other words the prospect of higher taxes immediately motivated investors to sell assets. As clear as the message the market sent about higher taxes was, it sent an even stronger and clearer message about keeping taxes low. Over the next 2 days, the Dow rallied approximately 3% or 280 points signaling its relief that taxes would remain low and capital would likely continue to flow into investments.

America faces a similar choice in 2008. Virtually every Republican has vowed to keep capital gains taxes constant or to reduce them further, while every Democrat has vowed to work to restore capital gains taxes for all (or at least the wealthiest taxpayers) back into the low 30% range. Because polls continue to indicate that no party has a clear path to the White House, the market most likely has not discounted the effect of potential tax changes on stock prices. However, should one side gain a clear advantage, prepare to make appropriate strategic changes in the composition of your portfolio."

Could Obama's apparent path to the White House paired with his desire to tax the rich at a higher rate (or at least not decrease taxes) be playing into the current crisis? From reading the above, one could come to that conclusion...

But many people talk about the need to increase taxes in order to have more revenue for government use. How else can we know we will have money to then budget out for necessary government programs? And this is a sore point for me. We must have a balanced budget, I feel.

Recently here in Tennessee, our governor wanted to fund education through a cigarette tax. This was very confusing to me, because a tax would actually discourage people from buying more cigarettes (not that this is bad), but then our education system was dependant on people buying MORE cigarettes. How can one know how much money will be obtained to then budget out? Granted, there will always be "estimated tax revenue", but I guess it seemed like a strange way to fund something.

So I guess the same would go for taxes on business. You are penalizing people for making money, so the basic behavioral principle is that after a certain point it becomes less reinforcing to make more money because you lose more of it. But if you make more, then you will engage in more of the behaviors (investing, growing business, hiring, saving, etc) that led to making money in the first place.

Now I feel like I am talking in circles. So I will go to another resource... Another link to a good article. Here is a quote from Pete Peterson, a newly minted billionaire who is now using his billions to set up a charitable foundation which will "increase public awareness of fiscal imbalances, Social Security deficits and nuclear proliferation." He feels that the taxes for the rich must go up. He said, "We are at a make-or-break point in American history...The entitlement monster is unfunded. We are dangerously dependent on foreign capital, our health care costs per capita are twice the level of the developed world. The goal is to integrate public policy and charitable giving and to answer this question: How do you educate a public that has become largely inert?"

But Peterson also recognizes that things must change in this country because our current course is not sustainable. From the article: "Peterson's ideas are many. One is organizing a youthful equivalent to the powerful lobbying group for senior citizens, AARP. Another is working with HBO on a documentary film adaptation of his book "Running on Empty," in the hope that the American public wakes up to the dangers of deficits and entitlement spending as it did to global warming after Al Gore's film "An Inconvenient Truth." "

Deficits are a danger we must avoid. And economics are not as simple as I thought before now! And I did not even get into concepts of what government should be doing and how they are spending tax money once they get it...or pork barrel spending...or, well, so many things. Maybe in another post. But I learned a lot doing this one, so that is good.

All to all of you out there, if you want to know how to get through this turmoil, check out Dave Ramsey for how to live debt free. I am not there yet, but I would love to be!!

Bye for now,
CaDh 8