Tax Awareness Day, Summer Edition: Another Oddball Idea

Happy (?) Tax Awareness Day! Yes, it’s the Ides of June, and time once again to think about taxes.

If you pay your taxes quarterly, then today’s the day.

If your employer withholds taxes from your paycheck, however, or you have an accountant who takes care of such mundane things for you, it’s a good day to remind yourself how much in taxes you’ve paid so far this year. I encourage you to take a look at the last pay statement you received in May and note the “year to date” figures of how much you made and how much was taken out for Federal, state, and other taxes.

What do you think of what you paid? You may think it was too much, or too little, or just enough; I don’t know. You may think of the things you could’ve done with that money, if you could’ve kept some of it. You may think of it as contribution; you may think of it as confiscation. Perhaps you may think about all the things the government does with your money.

Tax

(Image: “Tax,” by 401(K) 2012, on Flickr under Creative Commons.)

 

For this Tax Awareness Day, here’s another oddball tax-related idea I had. (“Another” because I’ve tossed out a plethora of tax ideas over the years.) Instead of having flat amounts for the maximum contributions a person can make to retirement plans, have the total amount increase incrementally with age.

Each type of retirement plan has its own rules and limitations, all of which serve to make the tax system even more convoluted than it would be otherwise. For instance, the maximum that can go into a 401(k) through an employer is currently $53,000 (not counting any “catch-up” contributions), unless you make less than that in which case you can only put in as much as you make from that employer. In contrast, individual retirement account (actually, in IRS parlance, “arrangement” rather than “account”) maximums are currently $5500 for everyone up to age 50, then $6500 after that — again, not counting any “catch-up” amounts.

What if, instead, the total amount for all retirement plans was a multiple of age? If the maximum was set at, say, $2500 times age, then an 18-year-old could invest $45,000, a 22-year-old would be able to invest $55,000 — more than the current employer-plan maximum — and so forth. (I prefer “invest” to “contribute,” because we hope that retirement plans will grow with time; the end result may be the same, but investing in the future seems a bit more compelling than contributing to it.)

Why have the amount increase incrementally, and would it make any difference?

Ideally we have more money to invest as we get older, either by virtue of getting better jobs or by having lower expenses over time. And some of us — perhaps many of us — didn’t learn the lesson that we should invest as much as we can as soon as we can; thus the “catch-up” allowances that are already in place. Most of us may never be able to invest the maximum amount, of course, and those of us who aren’t very good money managers may never invest very much, so raising the limits may make no difference in most cases. I guess it’s possible that this kind of incremental approach would make the system more complicated, rather than less, but to me it seems it would at least be easier to understand.

Regardless, I hope you enjoy the rest of the summertime Tax Awareness Day.

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Tax Awareness Day, Spring Edition

It’s the Ides of April! Have you paid your taxes?

I don’t mean filed your taxes for 2015, although you might have done that, too. Maybe you’re expecting a refund; maybe you already got one; maybe you have to pay.

But even though April 15th falls on a Friday this year, which gives you a three-day reprieve on filing your annual taxes, today still represents Tax Day — and the day first-quarter estimated tax payments are due for this tax year.

If you don’t make your own tax payments — for instance, if you have taxes withheld from your paycheck or someone else takes care of your taxes for you — you might not have a good grasp on just how much you’ve paid in 2016. Those of us who pay quarterly estimated tax ourselves know all too well, whether we paid the first of four set payments based on our expected earnings or we paid according to what we actually made so far (projected out through the end of the year).

Tax Day

(Image: “Tax Day,” by Simon Cunningham, on Flickr under Creative Commons.)

 

If you haven’t had the pleasure this year of writing a check — either electronic or paper — to the government for your 2016 taxes, then today is a good day to take a look at the last pay statement you received in March. Check out the “year to date” figures of how much you made and how much was taken out. Depending on whether you think it was too much or too little or just enough, you can either think about all the good things the government is doing with your money … or the things you could’ve done, if you could’ve kept a little more of it.

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Tax Awareness Day, Winter Edition

Beware the Ides of January! It’s tax-time again.

Those of us who pay quarterly estimated taxes had to make our final 2015 payment today. Maybe you paid a set amount each quarter, based on your expected earnings, or maybe (like me) your income varies month-to-month and you paid your estimated taxes according to what you actually made. Maybe you paid electronically, as I did, or maybe you actually wrote out a check. Regardless, you probably know exactly how much you’ve paid to the government for 2015.

Tax Bill
(Image: “Tax Bill,” by 401(K) 2012, on Flickr under Creative Commons.)

If you haven’t had the pleasure of making your own tax payments — for instance, if you have taxes withheld from your paycheck or otherwise have someone who takes care of all that for you — you might not have a good grasp on just how much you’ve paid. So today is a good day to take a look at the last pay statement you received in 2015, and really pay attention to the “year to date” figures of how much you made and how much was taken out.

I’m not using this post to advocate for lower or higher taxes. It’s up to you to decide whether what you paid was too much, not enough, or possibly right about what you think it should have been. But you won’t be able to evaluate that until you look at how much it was — not how much you’re likely to get back in a refund this year, if any, but how much you actually paid into the system last year.

I only want folks to be aware of how large their tax burdens are. So take a look: Maybe you’ll be surprised.

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Campaign Chronicle, 5 Weeks to Election: Various Political Thoughts

I’ve done a little canvassing around my district (still lots more to do!), but so far I’ve found that most people have expressed similar preferences on what they appreciate about living in Cary and … let’s say, what they find annoying. And since I’ve been talking with folks who could be my constituents one day, I thought I should relay some of my thinking about what you might expect from me in terms of political service.

First, a reminder: Election Day for the Cary Town Council race is October 6th, but early voting begins on September 24th!

Liberty
Looks as if this eagle is deep in thought. (Image: “Liberty” by Joel Olives, on Flickr under Creative Commons.)

For about as long as I’ve been running this blog, I’ve occasionally written about political topics — long before I started this “election countdown” series of posts, at least. In this current series, though, I’ve discussed how my long practice in telling people “no” may have made me a poor political candidate, why I’m not making any promises to anyone, and how you can help spread the word about my campaign.

But some of my older posts might be instructive to people who are deciding whether to vote for me.

I did a series of posts called “If I Were My Own Representative,” for instance. In that series, I discussed my intention to understand, as fully as possible, any bills I would be voting on, why my default position on legislation that would hurt people would be “no”, and the message I hope I always deliver, that the U.S. is still “the greatest hope for peace and prosperity in the world”.

I also wrote a series of posts in which I floated various ideas for tax reforms, such as taxing long-term investment income at a lower rate than income from short-term speculation, eliminating taxes on interest from savings below certain amounts, and phased-in business taxes to help young businesses succeed.

And I’ve written about broader political topics, like putting civility back into civil discourse, metaphors for the opposing ends of the political spectrum, and why we shouldn’t punish good people when bad things happen.

I hope voters who might be considering me as their candidate will read a few of those that interest them. I don’t expect anyone to read through all of them (those series, for instance, were longer than just the ones I mentioned), but reading a few would give anyone a deeper look into how I think about political subjects. I have more political posts to choose from, too — plus some that I didn’t even categorize as such. But for a quicker assessment of what I’m about as a candidate, consider this:

  • I believe the fundamental purpose of government is to preserve your (and my) rights to life, liberty and the pursuit of happiness;
  • I believe that our rights, both individual and collective in the form of the government, should not infringe on the rights of others;
  • I believe that government action intended to help anyone should be carefully evaluated on the basis of who it is likely to hurt in the process, and rejected if the benefits do not justify the cost;
  • I believe in being accountable, by which I mean being “able to give an account,” i.e., able to explain my reasoning for actions taken … and not taken;
  • I believe that many if not most people who present themselves as politicians take themselves far too seriously; and
  • I believe that serving in office is more important than running for office.

If any of that appeals to you, I hope you’ll consider voting for me.

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Help spread the word about my campaign! Share this post on social media or forward it specifically to anyone you know who lives in North Carolina, especially in the Research Triangle area or the Town of Cary. Or download a Print-It-Yourself Flyer in either color or black and white and put it up in your office or at your favorite hangout. For additional updates and info, sign up for my newsletter using the form in the right sidebar or visit the election page on my website. Thanks!

Spending Disclosure: As of this date, my campaign has spent a total of $84.

This blog post was “paid” for, at the cost of $0 and whatever time it took Gray to write and upload it, by The Gray Man: Service, Leadership, Creativity.

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What Media Bias? This Media Bias

CAUTION: Political Post Ahead.

The pro-Obamacare slant in major media came home to Raleigh, NC, this week.

The local CBS affiliate, WRAL-TV, aired a story — Some have success signing up for health coverage online — that chronicled how a self-employed graphic designer who had a $176 per month insurance plan got a new plan “on HealthCare.gov with the help of a federally trained navigator.”

Without going into the question of why Internet-savvy people (who can presumably purchase all manner of goods on commercial websites) would need a “navigator” to guide them through the Federal health care maze, let’s get to the obvious spin WRAL put on the story.

The lady’s original plan, which she categorized as “bottom of the barrel” (whatever that means; no specifics were offered on the plan’s supposed deficiencies or how long she had been dissatisfied with it), was replaced with a better one:

She took about a week to compare plans and enrolled in one that provides better coverage than her current plan. With federal subsidies, her monthly premium for her new insurance will be $91 a month – a 48 percent decrease.

In case you missed it, the bias comes by way of the quickly passed-over phrase, “with federal subsidies,” in the information that’s missing about how much the new plan costs and how much the subsidy is. That information is not in the audio or the transcript, but it shows up on screen at about the 1:30 point, as seen below:


(Screenshot of the WRAL-TV story.)

From this we see that the premium on her new, Obamacare-approved policy is actually $344.46 per month, nearly twice what she was paying before. We might hope this new policy would be better than the one she had, if it costs that much more.

But she’s only paying $91 and change for that policy, because the silent graphic shows that over $250 of that monthly cost is listed as a “premium tax credit.” That’s more than her original policy cost, for an annual total of over $3000, paid by the enforced generosity of the U.S. population and the borrowing habits of the Federal Reserve.

Remember, this was a “success story” in the eyes of WRAL: not what I often hear touted about an uninsured person or someone with a preexisting condition getting coverage, but that someone who had health insurance and was paying for it on her own has now been forced by law into dependence on the government. Yet in preparing their approved narrative, they chose not to call attention to those facts.

I thought I felt a breeze, that story spun so fast. But I’m a failed engineer, so what do I know about journalism?

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Tea … and Sympathy?

I didn’t attend the local “Tax Day Tea Party” in Raleigh; yesterday being a work day, I worked. My “Tea Party” event consisted of going to the bank to transfer money to cover the check I’d just written to the IRS for my estimated tax payment. I think there may be some irony in that.

My opinion on taxes is readily available to anyone who wants to read it: The Anti-Candidate Position on TAXES. And last month I posted a series of blog entries with some oddball tax ideas. But this post is less about taxes themselves and more about the demonstrations yesterday.

I followed some of the chatter on Twitter*, and from my observation it fell into several categories:

  • Questioning the rationale, since the original Boston Tea Party was about “taxation without representation” and what we have is taxation with representation
  • Conviction that the “vast right-wing conspiracy” was behind what appeared to me to be as grassroots a movement as any
  • Opposition to the very notion of demonstrations against paying duly enacted taxes … by people who presumably would support demonstrations against other things
  • Annoyance with the movement as a whole, for a variety of reasons
    • The appearance of hypocrisy among conservatives, who did not object loudly enough when the former President reacted to the collapse of the housing bubble
    • The unfortunate antics of a few whack jobs among what were otherwise normal people
    • Apparent ingratitude over the token “tax cut” expected for some ludicrously high percentage of the population

Let me address that last one, the one that says we should shut up and be happy with a few hundred dollars parceled out in monthly installments by reduced withholding. So happy that we should ignore the thousands of dollars’ worth of debt the government has created in each of our names, debt that would take years to work off but that we appear to have no intention of ever clearing. And, so happy that we should ignore every other increased tax and fee that has come and will come down the pike.

As I told my best friend** tonight on the phone, the idea that I should be happy about a small tax cut when faced with a huge increase in debt is like telling me I need to sprint the distance of a marathon. That tax cut will evaporate quicker than gasoline, and whatever boost it gives will be gone in an instant. But the race is a long one. We need to be preparing for the long race.

And fiscal conservatism — limited government spending supported by sufficient but minimal levies — and free-market creation of private sector wealth are the keys to running the economic marathon.

So in the absence of the kind of leadership that will return us to the principles that encourage hard work, thrift, and prosperity, a few hard-working and thrifty citizens gathered in public squares to call attention to their belief that government takes too much out of their pockets and is bent on spending even more than it takes. Most of them did not protest by refusing to pay; they demonstrated and called attention to the problem, and mostly in dignified and respectful manner.

I salute them.

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*Follow me at http://twitter.com/GrayRinehart
**Follow him at http://twitter.com/Dragon464

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Bonus Entry on Taxes: Guest Post on Withholding

My series on taxes officially ended yesterday, but here’s a bonus entry submitted via e-mail by my college buddy David O’Nan:

Personally, although tax changes are needed badly, the first action that should be taken is to do away with withholding. Make every taxpayer pay a check to the government every month for taxes and another check for their FICA/etc (and quit allowing them to move surpluses from one to the other to hide their spending). It’s so “hidden” now that most only have general ideas and don’t feel the pain the same way they would if they consciously had to pay the taxes. And any changes are similarly “hidden.” If every time they made a change in taxes you had to change the amount you paid (up or down), everyone will know exactly the difference rather than relying on pundits and wonks and people with agendas to tell them a slanted view of the impact.

People will start to think twice about what they expect government to fix when they get slapped upside the head with the tax bill the first few times. Once that object lesson is learned, then you could make better headway in addressing some of the ridiculous stuff that doesn’t raise widespread ire because the consequences are out there in the ether somewhere.

In a separate e-mail, he wrote,

It would be a fun idea to implement, but even if someone has direct-deposit and banks online, they still get to see the impact on every bank statement (paper or online). Every taxpayer already has a taxpayer ID number so it can’t be any more difficult to track than tax returns. Have them pay their tax within a month of the paycheck (more than one paycheck a month, more than one tax payment and FICA payment a month).

I don’t know about having to write so many checks based on how many paychecks you get — for those of us with multiple jobs, that would be a real pain. But I do know that my tax burden became much more real when I started paying estimated taxes, since part of my income has no withholding and my income fluctuates from time to time. So with respect to making it more obvious just how much everyone is paying in taxes, David is certainly on to something.

Thanks, David, for sending that in and letting me post it!

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The GrayMan Writes About Taxes: Phased-in Business Tax

Before I forget: Happy Vernal Equinox, everyone!

And now, on to today’s tax topic:

States and municipalities often vie against one another to offer tax breaks to businesses moving into an area, but not so often to new businesses that are too small or too local.

Most new businesses fail within the first couple of years.

Those two situations together form a nice nexus of opportunity, in which new businesses that do not qualify for other tax incentives could be spared the full brunt of corporate taxation when they are most vulnerable.

We could choose whatever phase-in period was appropriate, but for the sake of argument let’s assume a four-year phase-in. In that case, a business’s corporate tax would be multiplied by x/4, where x is the number of years since the business started. The first year’s taxes would be 25% of normal, the next 50%, the third year’s 75%, and only in the fourth year and thereafter would the business have to pay their full tax. By reducing the tax burden on new businesses, it would give them more money to spend on stabilizing their businesses and making them successful.

Other adjustments could be added based on the size of the business, giving bigger breaks in the early years to businesses with more employees, or possibly based on the type of business. For example, a small manufacturer making a product important to national security might operate on a longer adjustment schedule.

How many businesses that would otherwise fail would succeed under this arrangement? We have no way of knowing. And perhaps it would be counter-productive, in that the businesses that would fail anyway might be better off failing sooner rather than later. But small- and medium-sized businesses are vital to the overall stability and health of our economy, so it seems prudent to give them the best possible chance to succeed.

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This proposal may be a nice adjunct to the Business Activity Tax Simplification Act favored by the National Taxpayers’ Union. That act makes it clear that cities, counties, and states may only levy business taxes on companies whose employees or property are actually within their jurisdiction. Read about the act here.

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The GrayMan Writes About Taxes: Fractional Reserve Excessive Risk

Let me admit right up front that I don’t know all there is to know about fractional reserve banking. My degrees are in engineering and management, which seem to be less arcane fields than finance and banking.

Here’s what I understand, and my four regular readers or any curious visitors are welcome to correct me: fractional reserve banking allows a bank to hold a certain amount of money on deposit and lend a higher amount — i.e., lend more than they actually have on hand — charging more interest for the loan than they pay on the deposit, on the theory that the depositors will not claim their money all at once (make a “run on the bank”). As long as the depositors play along, they are safe in having the assets on their balance sheet consist mostly of accounts receivable.

Got it? You put a hundred dollars on deposit at the bank, to keep your money “safe” and receive your miniscule interest payment. If the bank is operating on a 10% reserve, they loan out ninety dollars, charging a higher rate of interest and noting the loan as an account receivable: an asset. The bank has $10 on hand, not $100, but your $100 is listed as a deposit and that $90 loan is an account receivable.

That ninety dollars is spent on something and the money is deposited in another bank or even your original bank. Then, on the basis of that ninety dollar deposit, the bank can loan out eighty-one dollars, which they again note as an asset while keeping only 10% in reserve. As banks repeat this process, they “create” money (and wealth); by the time they’re done, your $100 deposit has become close to $1000 in loans. But the banks hold only a fraction of their money on deposit; hence, they operate on a fractional reserve. (You can read more on this Wikipedia page.)

As I see it, part of the economic crisis we’re in — with the subprime mortgages and derivatives and all the other arcane manipulations of money, which (if I recall correctly) James Fallows referred to a long time ago in the Atlantic Monthly as “paper entrepreneurialism” — was started by banks and other lending institutions accepting far more “receivable” assets while holding far fewer assets in reserve. That is, they took excessive risk by exceeding a reasonable ratio of loans to deposits.

(If that doesn’t make any sense, take a look at this fairly long cartoon video that presents an intriguing look at the fractional reserve system and how it contributes to our mounting debt: “Money as Debt.”)

What does this have to do with taxes?

It seems there should be some way to penalize banks and other lending institutions that take excessive risk, and to do so in proportion to the risk they rake. If the “safe” ratio of loans to deposits is 9:1 — arguments could be made that some other ratio is better — then it seems the further they get from that ratio the more they should pay. Originally, I envisioned this penalty as coming in the form of an “excessive risk tax:” the idea being that an institution operating imprudently such that it may fail (leaving its depositors to collect deposit insurance), or that it may come to the government to be “bailed out” of a situation they could have prevented, should pay more into the government to cover that cost.

Unfortunately, that’s not a good idea: it would place a greater financial burden on an institution that is already operating on shaky ground. And I oppose enacting a regulation or law that would mandate any certain fractional reserve limit — risk taking is not the evil that some people, particularly those who want to protect everyone from everything, seem to think it is.

So what I propose is this: as part of a lending institution’s annual tax preparation, they should state how far they are from the “safe” fractional reserve level — and should do so in the clearest possible way, by providing a simple run chart covering at least the most recent ten years, showing the ideal and their distance from it. Those who show a consistent disregard for prudence would thereby be flagged for extra scrutiny of their books. In addition, the institutions should, as part of their adherence to the Federal Truth in Lending statutes and F.D.I.C. requirements, post that chart for all to see so that every consumer can decide if they want to choose a lender — or a bank — based on their stability as well as whatever interest rate they offer.

If the banks had to disclose how much risk they were taking as well as what return they offered, consumers would be able to choose where to put their money. That’s a reform with real benefit to regular people.

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The GrayMan Writes About Taxes: Corporate Returns and Reports

If you haven’t read The Cheating Culture by David Callahan, I recommend it. It’s disturbing, and I don’t think I absorbed all of its implications, but it’s an important book. I bring it up because it catalogued many examples of corporate cheating — cheating their customers, cheating their stockholders, and cheating the government.

Let me say first of all that I believe the U.S. corporate tax rate is too high, and acts as an incentive for companies to move out of the U.S. to friendlier places. Unfortunately, I don’t see any signs of it coming down under the current Administration and current Congress, because the loudest voices in the public sector seem to cry out in favor of punishing private sector success instead of making more success possible. I fear for the long-term effects.

That said, I don’t believe elevated tax rates justify the kinds of corporate cheating that Callahan wrote about. And one of the potential cheating tactics that seems possible to confront is the practice of reporting earnings on tax returns that differ from earnings reported in annual reports to stockholders.

Until the recent economic and financial turmoil, many companies posted profits every quarter even if it took some creative accounting to record those profits. Some of those companies got caught cooking the books, but usually not until they had collapsed or were close to collapse. They got into this habit in order to satisfy public perception and stockholders’ expectations, because no one wanted to mention the Emperor’s nakedness in terms of how unrealistic those expectations were. I understand that some of those companies that reported near-constant growth and profits in their annual reports, however, somehow produced lower earnings or even losses when it came to filing their taxes.

It doesn’t seem right for companies to tell their stockholders something different than they tell the government, especially if they’re telling their stockholders they made a profit in order to boost their share price, and then telling the government they took a loss in order to avoid paying taxes. Some might argue that this practice is only the difference between preliminary and final numbers, i.e., that it’s just a matter of “corrections” — I understand about honest mistakes, but it seems to me that either their accounting is good at the time it’s done, or it’s not good at all. If there are questions, resolve them before you issue the report with your name on it.

How can this influence tax policy? Let companies file their annual report as their tax return. Or, if that puts too much onus on the IRS to figure out any tax liability, let them submit the annual report along with their tax documents and show that the two match. If they don’t agree, or they differ more than some small allowance, assess a penalty based on the difference. (This would be irrespective of the company’s actual performance, and only related to what the company reported.)

In other words, split the difference between the return and the report, since we apparently can’t have complete faith in either one.

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For those who are interested, The Cheating Culture has its own website at http://www.cheatingculture.com/.

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