Buy a house, for 600k in California pay a property tax of $6,000 a year. Buy a car for 40K. Pay $4,000 in sales tax. Buy $10,000 of taxable goods add on another $1,000. Income tax on 100K add on about $18,000. Social Security and Medicare, add about another $10,000. Then there is a gasoline tax, telephone tax, electricity tax. The tax people pretty much know where you live.
So for a 100k salary, with husband and wife working, looking at the chart below, after taxes, you’ve got 71K. Subtract the other items on the list and what’s left over---about $6,000.
Surprisingly the third group living at the poverty level on my spread sheet seems to have the ability to get by almost as well as the middle group earning 50K. Food stamps are a big item, as well as one adult being able to stay home to manage the children without having to pay for day care. With the medical benefits, there is almost an assumed incentive for larger families.
What can we learn from all of this? First off, I should probably be shot for the quite arbitrary excel spread sheet. I kind of modeled the spread sheet to my family even though we don’t have expenses for student loans, car payments or day care. Of course having a son going to Berkeley is kind of a wash. The thing that impressed me was the realization, that 100K of income in California is not upper middle class. Let's face it, what do I have left to put in the bank for retirement? Our family's current earnings feel good only because we can remember making a lot less in the past.
When I was an engineering student, many a time we took a napkin and with some rudimentary drawings, we arrived at answers that pointed to problems that were not apparent. It’s obvious to me that in order to save more for retirement, there isn’t much left that our family can cut. It also appears, that many people in this country will when given time figure that health care and car insurance are not a necessary thing. This is probably where Obamacare will crash and burn on the economic highway. It is obvious that Congress needs to raise taxes, and I cannot afford to pay more, to support those now paying less. How do we as a nation determine what is each person’s fair share of taxes? Let's tax those that pay no taxes now and cut off benefits to those that have not paid taxes. The damn thing is that won't float, no Democrat would ever get reelected. Go Figure! I'm really getting tired of the free lunch program. This country was founded on "Pay as you go," not,--- "Uncle Sam will pay, if you're too poor."
So for a 100k salary, with husband and wife working, looking at the chart below, after taxes, you’ve got 71K. Subtract the other items on the list and what’s left over---about $6,000.
Figure the same scenario for a family of 4 with one wage earner making 50K. No new car, figure same amount on taxable goods of 1,000, zero income tax. Rent payment figure $20,000, no health or student loan. Take off 3k for utilities, forget car insurance and figure 4 k for gas and car repairs. The same 6k as rich people for food. No day care, the wife doesn’t work. Spending money after expenses is about 10K. The $10,000 is almost illusionary for this group, going to the dentist or one car accident is all it takes.
Surprisingly the third group living at the poverty level on my spread sheet seems to have the ability to get by almost as well as the middle group earning 50K. Food stamps are a big item, as well as one adult being able to stay home to manage the children without having to pay for day care. With the medical benefits, there is almost an assumed incentive for larger families.
What can we learn from all of this? First off, I should probably be shot for the quite arbitrary excel spread sheet. I kind of modeled the spread sheet to my family even though we don’t have expenses for student loans, car payments or day care. Of course having a son going to Berkeley is kind of a wash. The thing that impressed me was the realization, that 100K of income in California is not upper middle class. Let's face it, what do I have left to put in the bank for retirement? Our family's current earnings feel good only because we can remember making a lot less in the past.
When I was an engineering student, many a time we took a napkin and with some rudimentary drawings, we arrived at answers that pointed to problems that were not apparent. It’s obvious to me that in order to save more for retirement, there isn’t much left that our family can cut. It also appears, that many people in this country will when given time figure that health care and car insurance are not a necessary thing. This is probably where Obamacare will crash and burn on the economic highway. It is obvious that Congress needs to raise taxes, and I cannot afford to pay more, to support those now paying less. How do we as a nation determine what is each person’s fair share of taxes? Let's tax those that pay no taxes now and cut off benefits to those that have not paid taxes. The damn thing is that won't float, no Democrat would ever get reelected. Go Figure! I'm really getting tired of the free lunch program. This country was founded on "Pay as you go," not,--- "Uncle Sam will pay, if you're too poor."
18 comments:
Greatness costs money. A nation can be judged how well it treats its most vulnerable. Me, I like paying taxes.
Hi Joseph
That's true, but what I was trying to show was that people making 100k a year, don't have much more to give for taxes, they have been tapped out.
I need to save for retirement more than I did in the past because of the very low interest rates.
CA and the fed govt offer many ways to minimize taxes, esp for the middle class. I do admit few know that and benefit.
America exited off the road to prosperity and stability a long long long time ago. What do we have to look forward to? More political correctness, more liberalness, more corruption in government, more unpayable debt, more devaluation of the dollar, higher taxes on all levels, decaying infrastructure, collapse of health care, less liberty and privacy, more unemployment, more price devaluation in housing, more decreases in wages, more crime and immorality, more welfare, and on and on. Fall of the Roman Empire all over again... but just at a faster speed due to technology and hubris of the highest order.
"Buy a car for 40K": that sounds pricey to this foreigner. But then we've always (except once) bought second hand and then kept them for years. Mind you, we are not high mileage people; for much of my career I cycled to work.
Of course, it would be far easier to fund a welfare state if any serious effort were made to discriminate between the deserving and undeserving poor. The distinction was effectively scrapped for the British welfare state by the Labour government of 1945-50. The costs have been horrible, especially the social cost of the multiplying for three generations of a feckless underclass that never works.
The detail matters too: if you want a national health service, fair enough, but on no account copy the National Health Service. I once saw Megan McArdle (I think) imply that the US couldn't run a sensible national health service like many of those on the Continent simply because the US Federal government is too incompetent to do so.
There is a thing called morality. Healthcare is more than just costs. Seems those against universal care because of costs, love making unneeded wars. I'd rather doctors, nurses, etc make excessive money than tank manufacturers, bullet makers, etc. Jonas Salk refused a patent for the polio vaccine. There is a thing called morality.
Hi dearieme
I've noticed that when I watch the British House of Commons on PBS-TV, there seems to be a very firm assumption that entitlements in place should never be reduced.
I think we are beginning to notice the same thing here with people saying the government has to do this or that, and uses our kids as a motivational excuse.
I tend to side with Megan McArdle. Government health care in Europe is not working as planned. It is failing miserably if you examine the financing. I don't see much hope for it over here. What the individual expects is a lot different than what was promised to the group as a group.
"a very firm assumption that entitlements in place should never be reduced": aye, there's a ratchet, for the well-known reason that those who gain from a handout (both those getting it directly and those pimping off it) feel the loss more acutely than those who gain from its suppression.
The government has, however, announced one tiny abolition. Old age pensioners get a "winter fuel allowance" of up to 500 USD (tax-free) to help them cope with winter heating bills. Well, it is purportedly going to be scrapped for those who have retired to warmer climes. There's a blow to the economy of the Great State of Florida!
AS I said. The Fall of the Roman Empire deja vu. What the politicians and leaders are doing, all of the issues that we look at and opine upon as to what is and isn't fair, all or the economic summits and attempts to deal with the new global economy, etc. etc. are tantamount to...
rearranging the chairs on the Titanic.
The damage has been done. The iceberg has penetrated the hull. This is all damage control and flight to safety (which doesn't exist) in slow motion.
Income inequality in the US bigger than Roman Empire. Obstructionists do want to follow that fate. Fortunately, CA voters kicked out obstructionists.
Joseph,
Other than mortgage deduction, property tax, and so forth, what are some other ways of minimizing tax payments?
if you don't feel comfortable in disclosing, please provide a link for some education.
Thanks in advance.
LT cap gains (don't take them, no taxes) stock dividends, college tuition tax credits, $250/500k home profit cap gain tax exemption. Muni bonds tax free int. Plus, tons of ways per tax code. And, esp with the housing crash, many govt provided ones - prev tax credits, short sale tax exemptions. IRAs, 401ks. Plus, take advantage of sales (loss leaders are that, selling stuff below cost). Plus, coupons and everything is negotiable. But, some actually like to max on things, either lazy, uninformed, like to complain or appear wealthy to impress others.
Muni bonds, hah. What a terrible investment that is turning out to be. As defaults come in, and the interest rates spike....
I don't buy munis, but some do. It's all abt timing and knowledge abt which to buy. Plus, impossible to lose all since cap losses reduce taxes, same with stocks and other bonds. I like when govt guarantees can't lose all on some things. Thanks, govt!
LT cap gains (don't take them, no taxes) stock dividends, college tuition tax credits, $250/500k home profit cap gain tax exemption. Muni bonds tax free int. Plus, tons of ways per tax code. And, esp with the housing crash, many govt provided ones - prev tax credits, short sale tax exemptions. IRAs, 401ks. Plus, take advantage of sales (loss leaders are that, selling stuff below cost). Plus, coupons and everything is negotiable. But, some actually like to max on things, either lazy, uninformed, like to complain or appear wealthy to impress others.
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LT Cap Gains: gotta take them sometime. No return of capital or profit if you don't. Longer you wait... higher the taxes. Stock dividends: being taxed plus the additional 3.8% tax due to Obamacare. College tuition: who's going to college? Home sale tax exemption: who has a house with equity? Muni bonds: municipalities are collapsing all around us and there will be many defaults as they can't print like the Fed gov can. All of this is tantamount to a slave being happy that the master threw him a few table scraps. Business, entrepreneurship and investing have been destroyed by our wonderful government.
"This country was founded on 'Pay as you go'": strictly, it was founded on lets not pay at all.
Hi dearieme
The subtlety of your humor cracks me up.
We are dicing words here, but I think we "evolved" into "lets not pay at all."
We still have people out there willing to loan the government hard earned money. Trusting blokes to be sure. Go figure.
It's all just agreements and thin air now. No more assets or collateral or money. No more debt or deficits or credit worries. Who needs it? All we need are ideas, theories, principles, policies and so on. As long as we all agree it will be fine.
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