How the heck are people so stupid?

[Magic Man]

MBall and others -

Regarding my family's taxes:

I really prefer not to get explicit about the exact amount of money we make. However, some people have stated that the only way we would have to pay more taxes at the end of the year is because we "didn't pay enough in" throughout the year.

This is absolutely NOT TRUE. My husband and I take ZERO deductions on our W-4s. That means we have the MAXIMUM federal tax taken out of our paychecks. The only way we could have more deducted would be to request that EXTRA be taken out each pay period - which in fact we have done in the past and both just signed up for that extra deduction again.

Well, there you go. I'm not sure what you're trying to say here. The point is that if you're owing at the end of the year, then you're not having enough taken out during the year. So, in essence, it is true that you "didn't pay enough in" throughout the year.

Regardless of that, even having extra taken out, we still owe money to the IRS at the end of every year.

Which means you didn't pay enough during the year. This would all be a lot easier if we had real numbers to work with, rather than vague ideas.

As for the guy at the bank - the 19 year old student - I believe he is married, which means at that young age he probably has a child.

You believe he is married? Are you sure? And why does that mean he probably has a child? You can't just assume that.

This means that he and his wife receive the earned income credit (what an oxymoron THAT is!) as well as deductions for their child.

So, you know this for a fact, or you're just assuming?

When you receive tax credits (mostly based on income level and number of deductions and whether or not you're in school), it is VERY possible to get a tax "refund" that far exceeds whatever amount of federal tax you actually paid IN that year. In fact, you almost certainly WILL receive a lot more than you paid in.

And what tax credits would those be?

Here's some info on the earned income tax credit for example:

A married couple with three kids can make up to $48,362 married filing jointly and receive the tax credit.

This family will get a minimum of around $4000 back - very possibly more if they itemize their deductions or have tuition or childcare expenses (or a wide variety of other expenses).

If they bought a home last year, their refund could be over $12,000.

Please keep in mind that they only paid in about $3500 in taxes probably, if they listed their family size on their W-4.

In other words they get tax breaks for doing certain things, like buying a home and having kids and such. What's your point? That family would have paid more than $3,500 in taxes.

And, I'm sorry. You lost me here. I wanted to keep reading, but I can't get through it. Could you summarize in maybe 2 or 3 lines?

 

[Magic Man]

By the way, I could definitely go for a tax system that simply doesn't tax people who make below a certain amount of money, based on family size. I was a single mom with four kids who didn't receive child support for two years. I know things can be tough. Back then, though, we didn't have the massive tax refunds I am seeing now. I was lucky to get $500 back - with four kids!

We have a tax system that simply doesn't tax people who make below a certain amount of money. I thought you knew about taxes. The figure is extremely low, though. A few years ago when I checked, it was somewhere around $7,000.

I also don't have a problem with the concept of tax categories based on income levels - WITHIN REASON. 10%, 15%, 20%, etc. You do realize though that people making around $120,000 a year (two moderate incomes of two educated people who have built their careers can easily come to that or more) will be paying in about $24,000 a year. That's TEN TIMES the amount that the person making $24,000 a year pays. Just putting it into perspective.

And? The couple making $120,000 and paying $24,000 also still has $96,000 left. The person making $24,000 has $21,600 left after taxes. Taking $200 a month from someone making $2,000 a month is hugely different from taking $2,000 a month from someone making $10,000 a month.

Deduct $24,000 from 120,000 and you have an income for two people of $96,000.

Ask yourself - in your career plan, with rising costs of living and the prospect of social security benefits going away - do you want to work for 30 years and clear $48,000 a year? Are you OK with that? Do you think you can buy a nice home, drive a decent car, put your kids through college, take care of your elderly parents, save for retirement, and live till you're 80 years old, clearing $48,000 a year? And don't forget - we're only talking about FEDERAL taxes. I haven't even deducted state and local taxes, Medicare and Social Security off that $48,000.

What I have a problem with is these huge tax "refunds" that equal so much more than the person ever paid in. This is what my posts (and rants) have been about.

What are you talking about? If you work in the same job for 30 years, you're going to be making more than $48,000. Besides, what does this have to do with anything? And $96,000 is a lot of money. It's not rich or anything, but you can definitely do quite well with that.

 

[Kathryn]

Right - if we owe at the end of the year, technically we didn't "pay enough in." My point is - WHAT IS ENOUGH? We already claim ZERO deductions on our W-4 form and usually pay more in than is required with zero deductions each pay period.

Thank you for helping me make my point. So all year long we get taxed at a zero deduction rate and then some, and then get to pay MORE at the end of the year? And this is even with itemized deductions.

The 24% tax bracket is a joke when you actually pay over 30 percent of income in taxes. Likewise the 10% tax bracket is a joke when you actually get a refund for MORE than you really paid in.

That is my point.

 

[Kathryn]

And? The couple making $120,000 and paying $24,000 also still has $96,000 left. The person making $24,000 has $21,600 left after taxes. Taking $200 a month from someone making $2,000 a month is hugely different from taking $2,000 a month from someone making $10,000 a month.

Are you really this dense? The person making $24,000 a year doesn't generally even PAY taxes, if they get a tax refund for more than they paid in. That's my point!

 

[Magic Man]

Right - if we owe at the end of the year, technically we didn't "pay enough in." My point is - WHAT IS ENOUGH? We already claim ZERO deductions on our W-4 form and usually pay more in than is required with zero deductions each pay period.

Thank you for helping me make my point. So all year long we get taxed at a zero deduction rate and then some, and then get to pay MORE at the end of the year? And this is even with itemized deductions.

The 24% tax bracket is a joke when you actually pay over 30 percent of income in taxes. Likewise the 10% tax bracket is a joke when you actually get a refund for MORE than you really paid in.

That is my point.

Then, you're not in the 24% tax bracket, you're in the 30% tax bracket. Again, this would be much easier if we had some sort of real numbers to work with.

Anyway, the point is you're paying what you should be paying. Clinging to technical definitions is silly. You claiming zero deductions doesn't take enough taxes out. That's the bottom line. They could just change it so that for you claiming zero deductions would take out the right amount, but what does it matter? Either way, you're going to pay the same amount.

 

[Magic Man]

Are you really this dense? The person making $24,000 a year doesn't generally even PAY taxes, if they get a tax refund for more than they paid in. That's my point!

No, actually that wasn't your point, and you're wrong anyway. If you have kids and other deductions, you might very well not pay taxes on $24,000. However, anything over about $8,000 you're supposed to pay taxes on, unless you have such deductions.

The point you were making is to "put into perspective" the big difference in the amount paid by someone making $120,000 versus someone making $24,000. At least that's what you said your point was. You can make a different point now, but that was your original point.

But as for your original point, thank you for putting it into perspective. Taking 10% from someone making $24,000 means them making $1,800/month rather than $2,000/month. Taking 20% from someone making $120,000 means them taking home $8,000/month rather than $10,000/month. The money in the first case comes directly from their rent/mortgage/food/clothing/heat money.

Last year, I made $26,500. I had to pay taxes. All told, I probably paid around 20-22% including everything.

 

[Kathryn]

And? The couple making $120,000 and paying $24,000 also still has $96,000 left. The person making $24,000 has $21,600 left after taxes. Taking $200 a month from someone making $2,000 a month is hugely different from taking $2,000 a month from someone making $10,000 a month.


If you work in the same job for 30 years, you're going to be making more than $48,000. Besides, what does this have to do with anything? And $96,000 is a lot of money. It's not rich or anything, but you can definitely do quite well with that.

Using the figure of $120,000 combined income for two people working for the past 30 years, taxed at the current rate, that leaves them about $96,000 COMBINED. That equals $48,000 EACH. That's what it boils down to if you're married and filing jointly and your combined income is $96,000.

But let's go with that $96,000 figure - which probably isn't reached for most people till later in their combined careers. That's an assumption based on median income figures, by the way. (Maybe one person works, maybe two, maybe one makes quite a bit more than the other, but their combined incomes are around $100,000 - seems pretty average for that age range).

Anyway, say you're in your fifties and your income is in that range. You've got ten to fifteen years till retirement. You lost half your retirement fund in the stock market crash. You've got kids in college and two sets of elderly parents and a brick home in a subdivision for mid level executives, which you are. You're both driving 3-5 year old autos. You've got a mortgage payment and maybe a credit card, or child support. You've got utilities, property taxes, and you're really trying to sock it away in that 401K because from everything you here, Social Security is in big, big trouble and by no means a guarantee in your future.

I'd say that's a pretty standard picture. Most of the people I know in my age group and demographics fit that pretty closely. And they're the lucky ones.

$8000 per month minus:

$1200 (mortgage)
$500 (utilities and internet/TV)
$500 (minimum for charitable causes - would like to give more, and sometimes does)
$200 (property taxes)
$500 (car payments)
$1000 (Could be life insurance, college for a couple of kids, child support, braces for kids, medical expenses, etc - any number of real and significant costs)
$400 (health insurance - and that would be a very low figure)
$200 (phones, misc)
$200 (gas for two people per month)
$600 (Medicare, SS payments)
$1000 (savings, short and long term - not enough, by the way)
$600 (groceries, eating out, entertaining)
$200 (clothing and personal items)
$200 (car insurance for multiple vehicles)
$150 (average of vehicle expense for two vehicles over a year - tires, maintenance, etc)

This comes to $7450 - leaving a monthly balance of $550 - a "surplus" if you will of $127 per week. And I haven't even added in dry cleaning, haircuts, birthdays, spa memberships,etc. All those nice little things come out of the $127 a week.

Oh but wait -

THEN you've got Christmas, vacation, unexpected emergencies (like funerals or large auto repairs). OK, you're now officially out of money, except for your savings.

NOW - here's the kicker. So far it's all good, right? Sounds like a comfortable enough life - who could complain? Certainly not me. This is the American Dream!

Now throw in a storm that takes off your roof, and insurance only pays $3500 of a $7000 expense. Or your pipes burst, or your 30 year old house needs, genuinely needs, new flooring. Say goodbye to another $3000-$4000, and you either pay cash - or you charge it.

Now take off $5000 for a new septic system - or the $500 a month your grown child needs when their husband leaves them and they need to make the mortgage payments till the house sells and they settle up - or she loses her house and has to move your grandkids into the projects.

Oops - suddenly you're way in the red. You're tapping into your long term retirement savings and thinking, "Hmmmm, hope I can put this back later... I really would like to retire when I'm 65 rather than 70..."

Then...THEN... you do your taxes and you have to send in another $3000 to $4000.

If you say that $1000 a month is too much to put into savings, just do the math - if you sock away $1000 a month for ten years, you'll have $200,000 including interest earned at 5% per year (which is more than you will earn in low risk investments like CDs or money markets or annuities these days by the way). After you retire at 65 or 70, how long do you think you can subsidize your income on $200,000?

If you live for fifteen more years after retirement, as a couple you will be LUCKY to bring home $1800 combined in monthly SS benefits. You will be able to subsidize your income with your savings by about $1500 a month. This gives you a monthly income for retirement of about $2800 after taxes.

If SS goes away, as many predict, this will bring your income down to $1500 a month. That's IF you've been able to save instead of tapping into your savings repeatedly.

This doesn't even factor in inflation and the rising cost of living in general.

And you wonder why seemingly affluent middle aged people are nearly frantic about inflation, taxes, and social security!

This is reality, people. This is real life.

 

[Kathryn]

And by the way, I know it's just one version of real life. There are other much more difficult versions - and I've lived them.

But in the above example we're talking about your average professional, middle aged American couple who have both worked for 30 years toward a comfortable retirement - not a LAVISH retirement - just enough so that they don't have to burden their kids, or worry about paying the electrical bill.

They don't WANT to rely on the government or charity or their kids to survive. They've worked hard all their lives to AVOID that. They also want to leave their kids SOMETHING to show for their hard work - they don't want to have to take out a reverse mortgage in order to make ends meet, and they CERTAINLY don't want to burden their kids with their final expenses or end of life health costs.

I'm speaking from experience - from my own and from years of listening across the desk at the bank, to people who are trying desperately to structure their remaining years of working to meet the needs of their families and themselves.

If you're under retirement age and reading this, you better worry (unless you're a multi-millionaire). Social security is probably going away, or going to be drastically reduced. The dollar is losing traction at an alarming pace. Inflation is growing in leaps and bounds. Interest rates on low risk deposits like CDs, IRAs, and annuities are under 4% and continuing to drop (for instance, most CDs under 24 months are earning less than 2.5 percent).

The stock market is a gamble that most people can't afford to bet on.

And our government spending is totally, totally out of control and has been for years. Our national debt is so astronomical that most people can't even really fathom it.

Someone is going to have to pay the piper - and it's going to be via taxation. Those of you who plan on working hard, building a career, saving for retirement, and living comfortably from, say, age 35 on should be very, very concerned.

Us middle agers are more than concerned - we're distraught. We know we are the largest American generation. We will have paid the most into Social Security - and are probably going to lose it due to national debt restructuring. Meanwhile the generation who will be in charge of our healthcare and retirement needs is the smallest generation ever born in the US.

Where are those tax dollars coming from?

 

[Kathryn]

No, actually that wasn't your point, and you're wrong anyway. If you have kids and other deductions, you might very well not pay taxes on $24,000. However, anything over about $8,000 you're supposed to pay taxes on, unless you have such deductions.

Last year, I made $26,500. I had to pay taxes. All told, I probably paid around 20-22% including everything.

Did you get any sort of tax refund? Just curious. Or did you have to pay more at the end of the year?

And do you have any deductions other than yourself?

 

[McBell]

Then they came for me...

did you speak up?

 

[enchanted_one1975]

Except that you can always lay people off, as brought up by Dallas. And that really has nothing to do with working hard, long or smart.

Although layoffs suck, you still get paid for the time that you worked prior to the layoff and, depending on your length of service, you can collect unemployment benefits to help you temporarily. The business owner gets none of this.

 

[Magic Man]

This is reality, people. This is real life.

Was there a point to this long, rambling post?

 

[Magic Man]

Did you get any sort of tax refund? Just curious. Or did you have to pay more at the end of the year?

I about broke even. I can't remember whether I owed anything or got anything back, but either way, it was very little.

And do you have any deductions other than yourself?

I didn't last year.

 

[Magic Man]

Although layoffs suck, you still get paid for the time that you worked prior to the layoff and, depending on your length of service, you can collect unemployment benefits to help you temporarily. The business owner gets none of this.

Yes, you get paid for the time you worked, but you can at least cut it off after that. The point is that the owner has options to deal with his losses.

 

[Kathryn]

Was there a point to this long, rambling post?

Yes - it's called a reality check.

Your profile says you're 30 years old. According to you, you make about $24,500 and bring home after taxes about $11.70 an hour (assuming you work full time).

Who is going to take care of you in YOUR old age? Where is your retirement fund coming from?

I guess I can see why you're not too worried about paying into the tax bucket though.

 

[Neo-Logic]

It's not a crime to make money and earn a great living in America. It shouldn't be punished as such. Progressive tax is great for re-distribution of wealth to marginally address the imbalance, but throw that around too much and there's bound to be trouble.

Example: in the new budget proposed, anyone making $250,000 and over would be capped as to how much of their mortgage interest they can deduct. Question: Who can afford expensive houses, or buy a lot of houses? Rich people or the average Joe? The answer is obvious. So why do we disincentivize those who are in the best position to buy up houses? Answer: redistribution of wealth taken to the nth degree with an agenda and no footing in economic reality.

 

[Reverend Rick]

I can't believe that some folks think that life is all about a house and a couple of cars.

 

[Kathryn]

With the average age of death in the US creeping up every year, people need to be worried about a lot more than houses or cars. They need to be worrying about retirement, and who's going to be supporting all the huge generation of aging Baby Boomers when the Baby Boomer Social Security coffers are emptied for other social programs and to pay our national debt.

THEN they need to worry about who is going to support THEM.

 

[Reverend Rick]

With the average age of death in the US creeping up every year, people need to be worried about a lot more than houses or cars. They need to be worrying about retirement, and who's going to be supporting all the huge generation of aging Baby Boomers when the Baby Boomer Social Security coffers are emptied for other social programs and to pay our national debt.

THEN they need to worry about who is going to support THEM.

Thats the thing Kathryn. People making a decent living need their money to save for the future, not send it off to the government so they can squander it.

I don't think many of these younger folks realize the reality of life. When all these evil rich hard working business people retire, they will not be making a living any more and will not have a sizable tax liability.

Younger lower wage folks who pay next to zip in taxes will not be able to shoulder the burden of responsibility to fund the government adequately.

mball keeps saying that lower wage people need all of their money to live on and cannot afford to fund the government.

When the liberals finally become the majority in this country and choke off the last entrepreneurs (evil rich), who will pay taxes?

All the old white rich men will be retired or dead.

Who will shoulder the tax burden in this country then?

When taxes become so draconian that only a fool would go into business, young folks will not step up to the plate and for the most part and I would not blame them.

The sad hard facts are, common folks will not be able to defer their tax responsibilities on the rich any more because the rich will become extinct.

Dig a little deeper and make due with less will be the order of the day.

 

[Kathryn]

Make do with a lot less - in a country that is no longer a superpower.

I am not sure they are really aware of what the future holds for them and for their kids.