I was curious last night to find out just what our Representatives voted on in HR1 that is going to stimulate the economy. So I read it. Importing it into OpenOffice it was 400+ pages. After reading all of the appropriations, it looks like Obama's campaign list. Literally. There is money being promised to everyone and everything. So the question then is how much stimulus is this really going to produce. To begin the purpose is listed as:
"Making supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and State and local fiscal stabilization, for the fiscal year ending September 30, 2009, and for other purposes."
Every thing looks good except for the last 4 words. "And for other purposes" means they can include whatever they want in the bill and still honestly say that it meets the stated purpose. America, prepare to be fleeced. We should be used to it by now. We had the Bank Bailout which we have no oversight of and no idea what the money was used for, we have the Detroit Bailout which they will be back begging for more in March, and we have 8 years of increasing discretionary spending under the "fiscally conservative" Republicans. Is it any wonder that they lost in '06 and '08? No reason to vote for a closet big spender when you can have the real thing.
To begin with, any massive spending bill that will be hard for the public to swallow needs to have a payoff to make it easier on the palate. This one gives $500 to each individual who files a return (it is slightly more complicated than this, but to simplify things I didn't want to explain all of the details). Now that the masses are placated, the gross spending can begin.
I compared the CBO report from the 2008 stimulus with the 2009 stimulus. The links can be found here and here. One thing to remember, even though we had the 2008 stimulus, the economy continued to tank.
The amount of tax relief (decreased revenues) in 2008 was $100 billion. The amount in 2009 is $76 billion. So we are getting less money back this year than last year. Somehow I don't think that is going to stimulate the economy. More than likely people will use it to pay down debt (just like last year).
Increased spending in 2008 was $58 billion. The amount in 2009 would be $92 billion. Well that is more, but it pales in comparison to the $4-5 trillion (with a T not a B) that has been lost in the stock market and real estate over the last year.
Total change in the first year was $158 billion in 2008 and $169 billion in 2009. In short, this stimulus plan will do about as much as the last stimulus plan in the first year - nothing. Don't plan on the government getting us out of the recession (I wouldn't be surprised if the recession is over by the end of the year anyway whether the government does something or not).
The real difference between the stimulus bills is what they do over time. The 2008 stimulus was primarily concentrated in one year 2008 with another $50 billion of spending increases and revenue decreases in 2009. The 2009 bill is designed to have $350 billion in "benefits" in 2010, $173 billion in 2011, and $50 billion in 2012.
Overall the 2008 stimulus was 57% individuals deciding how to spend the money and 43% the government deciding how to spend the money. In 2009 the ratio is 26% individuals and 74% government. Which one do you prefer?
Here are some other great quotes from the CBO report:
"CBO anticipates that implementation of H.R. 1 would have a noticeable impact on economic growth and employment in the next few years. Following longstanding Congressional budget procedures, however, this estimate does not address the potential budgetary effects of such changes in the economic outlook."
In other words, they assume that the policy only has the benefits listed in the bill. They don't analyze (and never have) how the policy may change the way people spend and do business (thereby indirectly changing the effect on the economy).
"Throughout the federal government, spending for new programs has frequently been slower than expected and rarely been faster."
In other words, the schedule of outlays from the government is the best case scenario. More than likely it will be much more sluggish.
"Historically, money appropriated for highways and transit is spent at a slow rate in the first year and has an extremely long “tail,” in that funds provided in a particular year are frequently spent over a six-to-eight-year period."
So one of the key job creators that is being pushed in this bill, probably will not result in any jobs this year. And last my favorite:
"Moreover, under H.R. 1, some programs would receive funding that is significantly above (double, triple, or more) the amounts provided for existing or similar programs in recent years. Frequently in the past, in all types of federal programs, a noticeable lag has occurred between sharp increases in budget authority and the resulting increases in outlays. Based on such experiences, CBO expects that federal agencies, along with states and other recipients of that funding, would find it difficult to properly manage and oversee a rapid expansion of existing programs so as to expend the added funds as quickly as they expend the resources provided for their ongoing programs."
In other words, we are going to throw so much money at all of these federal agencies, they won't know what do with it. Also, doesn't it bother anyone that in some cases we are providing "double, triple, or more" money to a program or agency than they normally get? I wish my job would do that for me. Trust me, I could figure out what to do with triple my salary.
Bottom line, we are in a recession. We are probably going to be for most of this year. This bill won't do anything to change that. In the long run, we will come out of the recession, lets just hope the government isn't still trying to micromanage the economy when we do. Propping up failing companies (or failing mortgages) right now will only lengthen the process.
Friday, January 30, 2009
Thursday, January 29, 2009
Taxes, Guns, & Furniture Part IV
We probably won't be getting all of the guns and furniture listed in Part III, but we'll try to make a dent. The important thing is to make our mone stretch as far as possible. Even though we have the money to spend, as with all big ticket purchases, we need to make sure that the buy is a good deal.
How is buying furniture going to stimulate our economy? Let me list 12 reasons:
1) We decided to make this a date that we would actually hire a babysitter for instead of mooching off of one of our friends, so some young lady is going to have $20 - $30 extra dollars to spend.
2) Just by going on the date we are going to be using gas that we hadn't planned on. So some local gas station will benefit (we will probably get the car washed at the same time). A refining company will benefit by making the 12 ounces of gas we will need. That had to come from somewhere, so an oil company is going to benefit. Naturally, this will benefit some government due to royalty fees paid to them. If the government is a civilized country (like US, Canada or UK) they will probably use the extra 32 cents to invest in education for the children. If the government is some third world dictatorship (like Venezuela, Nigeria, or Iran) the leaders will probably skim the money from the government and use it to buy luxury goods for their personal use (cars, yachts, HDTVs). These products provide jobs for people all over the world. Either way, people are benefiting from this.
3) We are going to shop locally. So now we can feel good about supporting our local economy and providing jobs for people here at home.
4) The majority of the furniture will have to be shipped in from other parts of the country. This benefits the truckers of America and more than likely the teamsters. So even if I don't like unions, I am still helping them out.
5) The majority of the furniture will also be wood. This means that lumber companies have to chop down trees (providing someone a job) and if they are smart (which most are), plant new trees (providing someone else a job). These new trees are going to soak up a lot of carbon dioxide as they grow up, and since the old trees are made into furniture, their carbon is still trapped. So all of the global warming disciples should be happy that I am buying my own version of carbon credits. (Of course we might celebrate this whole shopping spree by having a charcoal barbeque, but at least we didn't burn down the trees).
6) More than likely, we will have to get rid of some stuff to make room for the new stuff. From this we have several options, all of them beneficial.
a) We can throw the stuff away. This will wind up in the landfill, providing jobs for the people who haul it and work there. Eventually, the whole place will be covered over and turned into a park for future generations to enjoy.
b) We could sell it on ebay. This would give us more stimulus money. Give someone else a product they need at a discount, and decrease the amount of stuff going to the landfill. I will have to ship it to them so either UPS or the US Postal Service will benefit. Everyone wins (except the landfill workers if we took this route for everything).
c) Donate to Goodwill. This is probably the best option. Goodwill is going to give me a charitable donation slip, which will count towards next years deductions (thereby giving me more stimulus money). Goodwill will sell it to make money, thereby providing jobs in our community. Someone will buy it from goodwill and get a good product at a steep discount. Lastly, my wife and I will have a good feeling in our heart knowing we helped someone out.
7) Gun shopping will be at a local gun store. They usually have a great selection of new and used guns. Since my wife will be with me, we can probably pick her up a .22 pistol so that I can get her to go shooting with me (shooting guns and blowing things up is a great date).
8) For every gun you buy it is like doubly stimulating the economy. Whereas furniture you buy it once and then don't have to worry for decades, a firearm requires a constant supply of ammunition. So we'll be back for more. Plus, there is customizing your firearm with scopes, stocks, bipods, and grenade launchers (and any other scary feature that may later be part of a ban).
9) The local gunstore won't have everything, so I will probably have to buy some stuff online. So other people across the country will benefit. For any foreign weapons, these would have been imported providing even more jobs. Furthermore, with every gun purchase from a FFL dealer there is plenty of redundant paperwork that gives somebody in Washington something to do. (Did I mention that someone needs to make the paper to begin with).
10) Another benefit from buying and shooting guns, is it provides jobs to scientists and researchers who are concerned that the lead from our spent bullets is getting into the ecosystem and slowly poisoning all life on earth. So, these purchases directly support science (oh yeah, and they print their results on paper, which someone has to make).
11) Most likely we will go out to eat and provide a tip commensurate with the service we get. So a waitress, a busboy, and a restauranteur will benefit. What's more, if we choose a publically traded chain restaurant, their corporate earnings will increase (benefiting them) which may lead them to pay out a larger dividend (benefiting the shareholders) and the whole process starts over again.
12) Finally, we will probably pick up some ice cream for the kids from the local grocery store. It may be a brand that is made in our state thereby spreading the wealth even more.
To conclude, I would encourage everyone to buy more guns and furniture. It can't be any worse than giving car companies billions to make products we don't want to buy or banks money to buy more banks. Don't rely on the government stimulus, create your own stimulus plan!
How is buying furniture going to stimulate our economy? Let me list 12 reasons:
1) We decided to make this a date that we would actually hire a babysitter for instead of mooching off of one of our friends, so some young lady is going to have $20 - $30 extra dollars to spend.
2) Just by going on the date we are going to be using gas that we hadn't planned on. So some local gas station will benefit (we will probably get the car washed at the same time). A refining company will benefit by making the 12 ounces of gas we will need. That had to come from somewhere, so an oil company is going to benefit. Naturally, this will benefit some government due to royalty fees paid to them. If the government is a civilized country (like US, Canada or UK) they will probably use the extra 32 cents to invest in education for the children. If the government is some third world dictatorship (like Venezuela, Nigeria, or Iran) the leaders will probably skim the money from the government and use it to buy luxury goods for their personal use (cars, yachts, HDTVs). These products provide jobs for people all over the world. Either way, people are benefiting from this.
3) We are going to shop locally. So now we can feel good about supporting our local economy and providing jobs for people here at home.
4) The majority of the furniture will have to be shipped in from other parts of the country. This benefits the truckers of America and more than likely the teamsters. So even if I don't like unions, I am still helping them out.
5) The majority of the furniture will also be wood. This means that lumber companies have to chop down trees (providing someone a job) and if they are smart (which most are), plant new trees (providing someone else a job). These new trees are going to soak up a lot of carbon dioxide as they grow up, and since the old trees are made into furniture, their carbon is still trapped. So all of the global warming disciples should be happy that I am buying my own version of carbon credits. (Of course we might celebrate this whole shopping spree by having a charcoal barbeque, but at least we didn't burn down the trees).
6) More than likely, we will have to get rid of some stuff to make room for the new stuff. From this we have several options, all of them beneficial.
a) We can throw the stuff away. This will wind up in the landfill, providing jobs for the people who haul it and work there. Eventually, the whole place will be covered over and turned into a park for future generations to enjoy.
b) We could sell it on ebay. This would give us more stimulus money. Give someone else a product they need at a discount, and decrease the amount of stuff going to the landfill. I will have to ship it to them so either UPS or the US Postal Service will benefit. Everyone wins (except the landfill workers if we took this route for everything).
c) Donate to Goodwill. This is probably the best option. Goodwill is going to give me a charitable donation slip, which will count towards next years deductions (thereby giving me more stimulus money). Goodwill will sell it to make money, thereby providing jobs in our community. Someone will buy it from goodwill and get a good product at a steep discount. Lastly, my wife and I will have a good feeling in our heart knowing we helped someone out.
7) Gun shopping will be at a local gun store. They usually have a great selection of new and used guns. Since my wife will be with me, we can probably pick her up a .22 pistol so that I can get her to go shooting with me (shooting guns and blowing things up is a great date).
8) For every gun you buy it is like doubly stimulating the economy. Whereas furniture you buy it once and then don't have to worry for decades, a firearm requires a constant supply of ammunition. So we'll be back for more. Plus, there is customizing your firearm with scopes, stocks, bipods, and grenade launchers (and any other scary feature that may later be part of a ban).
9) The local gunstore won't have everything, so I will probably have to buy some stuff online. So other people across the country will benefit. For any foreign weapons, these would have been imported providing even more jobs. Furthermore, with every gun purchase from a FFL dealer there is plenty of redundant paperwork that gives somebody in Washington something to do. (Did I mention that someone needs to make the paper to begin with).
10) Another benefit from buying and shooting guns, is it provides jobs to scientists and researchers who are concerned that the lead from our spent bullets is getting into the ecosystem and slowly poisoning all life on earth. So, these purchases directly support science (oh yeah, and they print their results on paper, which someone has to make).
11) Most likely we will go out to eat and provide a tip commensurate with the service we get. So a waitress, a busboy, and a restauranteur will benefit. What's more, if we choose a publically traded chain restaurant, their corporate earnings will increase (benefiting them) which may lead them to pay out a larger dividend (benefiting the shareholders) and the whole process starts over again.
12) Finally, we will probably pick up some ice cream for the kids from the local grocery store. It may be a brand that is made in our state thereby spreading the wealth even more.
To conclude, I would encourage everyone to buy more guns and furniture. It can't be any worse than giving car companies billions to make products we don't want to buy or banks money to buy more banks. Don't rely on the government stimulus, create your own stimulus plan!
Taxes, Guns, & Furniture Part III
Now that the tax situation is explained, it is time to get to the fun part. Guns and Furniture! Your probably wondering how they fit into the equation. Well, after going over our taxes initially, my wife and I realized we would be getting several thousand dollars back that we were expecting and had not budgeted for. (Actually, we haven't made our budget for this year. We usually do that in December, but we have been so consistent with our budget since we were married, we already know what it probably is and what we can spend.) With all of the bailouts and stimulus bills going on, we felt it our patriotic duty to at least spend a good chunk of it.
Bear in mind, we usually plan big ticket purchases well in advance. This year was suppose to be hearing aids (read my wife's blog about hearing aids) and house siding. In addition, we have found that we need to have surgery for one of our kids and so the other big ticket item, furniture, was put on hold. That has all changed.
When my wife saw that she said we could buy the furniture now. Quickly doing the math in my head, I realized there was still going to be a lot left over. So I asked if I could get an AR-15 (one of those scary black rifles that Clinton banned, and Obama says he plans on banning). I have never asked my wife to let me have one before. In fact, under the circumstances, I was saying it more as tongue in cheek.
Her response floored me. "How much is that?"
I hemmed and hawed a bit and said "$1200."
She just nodded and said, "You could probably do that."
My heart stopped, could this really be my wife? I decided to push it a little further. "You know, with $8,000 we could get a Barrett .50 rifle, the rounds only cost $5 a piece."
"Honey, we are not blowing all of this money on one gun." OK, she really was my wife. But notice she didn't even ask me what use I would have for a .50 caliber rifle. Maybe I can convince her of that next year.
She then immediately starts to call her friends to find out where would be the best place to get the furniture we were planning on. Here is the short list:
Dresser and side tables for the master bedroom
Day bed and trundle for the spare bedroom
Mattresses for the bunk beds
Table and chairs for the family room
New dining room table and chairs
As for the guns, at first I was adamant about buying American. Then my wife said "Why not buy some more of those inexpensive Russian guns?" I now had a quandry: Do I go with the American made and try to lift up our own sagging economy or do I look for foreign firearms and do my part as a citizen of the world.
There are still AR-15s to be bought so I know that these are available. However, I just like to shoot and the AR-15 isn't as fun as the AK-47, plus it jams too much. Unfortunately, the AK-47 is so popular and so scary looking it is bound to be the first firearm listed in any new ban. That means right now there aren't many on the market (If you have one and would like to sell it, let me know). Another good option is an SKS. I would prefer to have a Romanian or Bulgarian version, but Chinese ones might be the only ones available right now. With prices today, I could buy an AK-47 and an SKS for the price of an AR-15. Some other rifles I would like, although since I shoot guns for fun, I try to stick with calibers that have very common ammunition.
I could try to get one of each of the major models of the Mosin Nagant. There are several other rifles that I wouldn't mind having before they are banned again. Kel-Tec, FAL, Galil. Then there are Mausers, Garands, Enfields which probably won't be banned (even though they fire more powerful cartridges than most of the scary guns).
There are some other options I could consider.
A Hi-Point 9mm Carbine with the ATI stock would be great because then I can use 9mm ammunition with something besides a pistol.
A lever rifle and a revolver chambered in .357 magnum. Two fun guns that I could use the .357 or .38 special ammunition for.
A 1911 pistol is something else I would like.
I need a .22 pistol or revolver (or both) just to be able to shoot the cheapest ammunition ever.
Last but not least, I would like two shotguns (pump and semi-auto), one with a scary looking pistol grip and folding stock.
Plus, there are some other gun accessories that we could get. A gun cabinet, a gun rest, scopes, cleaning supplies, etc. So many choices, but best of all, my wife gets to help pick them out. This could turn out to be the best date ever!
Bear in mind, we usually plan big ticket purchases well in advance. This year was suppose to be hearing aids (read my wife's blog about hearing aids) and house siding. In addition, we have found that we need to have surgery for one of our kids and so the other big ticket item, furniture, was put on hold. That has all changed.
When my wife saw that she said we could buy the furniture now. Quickly doing the math in my head, I realized there was still going to be a lot left over. So I asked if I could get an AR-15 (one of those scary black rifles that Clinton banned, and Obama says he plans on banning). I have never asked my wife to let me have one before. In fact, under the circumstances, I was saying it more as tongue in cheek.
Her response floored me. "How much is that?"
I hemmed and hawed a bit and said "$1200."
She just nodded and said, "You could probably do that."
My heart stopped, could this really be my wife? I decided to push it a little further. "You know, with $8,000 we could get a Barrett .50 rifle, the rounds only cost $5 a piece."
"Honey, we are not blowing all of this money on one gun." OK, she really was my wife. But notice she didn't even ask me what use I would have for a .50 caliber rifle. Maybe I can convince her of that next year.
She then immediately starts to call her friends to find out where would be the best place to get the furniture we were planning on. Here is the short list:
Dresser and side tables for the master bedroom
Day bed and trundle for the spare bedroom
Mattresses for the bunk beds
Table and chairs for the family room
New dining room table and chairs
As for the guns, at first I was adamant about buying American. Then my wife said "Why not buy some more of those inexpensive Russian guns?" I now had a quandry: Do I go with the American made and try to lift up our own sagging economy or do I look for foreign firearms and do my part as a citizen of the world.
There are still AR-15s to be bought so I know that these are available. However, I just like to shoot and the AR-15 isn't as fun as the AK-47, plus it jams too much. Unfortunately, the AK-47 is so popular and so scary looking it is bound to be the first firearm listed in any new ban. That means right now there aren't many on the market (If you have one and would like to sell it, let me know). Another good option is an SKS. I would prefer to have a Romanian or Bulgarian version, but Chinese ones might be the only ones available right now. With prices today, I could buy an AK-47 and an SKS for the price of an AR-15. Some other rifles I would like, although since I shoot guns for fun, I try to stick with calibers that have very common ammunition.
I could try to get one of each of the major models of the Mosin Nagant. There are several other rifles that I wouldn't mind having before they are banned again. Kel-Tec, FAL, Galil. Then there are Mausers, Garands, Enfields which probably won't be banned (even though they fire more powerful cartridges than most of the scary guns).
There are some other options I could consider.
A Hi-Point 9mm Carbine with the ATI stock would be great because then I can use 9mm ammunition with something besides a pistol.
A lever rifle and a revolver chambered in .357 magnum. Two fun guns that I could use the .357 or .38 special ammunition for.
A 1911 pistol is something else I would like.
I need a .22 pistol or revolver (or both) just to be able to shoot the cheapest ammunition ever.
Last but not least, I would like two shotguns (pump and semi-auto), one with a scary looking pistol grip and folding stock.
Plus, there are some other gun accessories that we could get. A gun cabinet, a gun rest, scopes, cleaning supplies, etc. So many choices, but best of all, my wife gets to help pick them out. This could turn out to be the best date ever!
Taxes, Guns, & Furniture Part II
Let me give an illustration. Pretend for a moment that I make $100,000 at my job. This sometimes is called gross income but really is just my salary and bonus. Because of other adjustments (stock trading, real estate depreciation, etc.) I only have $90,000 of Adjusted Gross Income. This is important to remember because it is one of the numbers that is used when reporting income statistics from the federal government.
For the IRS every year, my job is to lower that $90,000 as much as legally allowed (I definitely advocate following the law, more on that later) and only pay the minimum amount of taxes I owe. I always laugh at people who complain that they are not paying enough in taxes (Warren Buffet, George Soros, Bill & Hillary Clinton, etc.). They can always not take all of the deductions and exemptions they are allowed and thereby pay more in taxes. In fact I will make them an offer. Pay me $100, I'll fill out your tax return and guarantee that you pay more in taxes. The IRS doesn't fine you if you pay too much. They only care if you pay too little.
Anyway, we'll start with assuming that I pay $8000 in morgage interest and $7000 in state and local taxes. That reduces my taxable income to $65,000. Next, I was generous and gave $10,000 to charity. Now I am at $55,000. Finally, assume I have a family of 6 (2 adults and 4 kids). This gives me $21,000 in exemptions and I now have a Taxable Income of $34,000.
Let's recap that again:
$100,000 salary
$90,000 Adjusted Gross Income
$34,000 Taxable Income
In other words, by availing myself of only the most common deductions, the USA says I only need to pay income taxes on 34% of my income. Roughly based on the current tax brackets I owe $4000 in income taxes. Not bad, only 4% of my income. Of course I paid an additional 6.35% in SS taxes and my employer matched that so I pay three times as much SS taxes as I do income taxes, right?
Wrong. $4000 is the tax liability to me. The government already took out $8000 from my paycheck so I should be getting a $4000 refund? Wrong still. We still have our credits. Since I have 4 kids that is $1000 per child. (Interestingly, each child was worth about $4000 as an exemption which in the 25% tax bracket would be the equivalent of decreasing tax liability by $1000. Doesn't that sound like double dipping to you? Well, it is and the government allows it and unless your filling out your tax return by hand, there is no way you can not get this benefit. All the tax software does it for you.)
So already, my tax credits meet by tax liability. But wait there is more. Remember the 2008 economic stimulus. Well, technically that is a tax credit for this year's taxes. However, assume my wife gave birth to a child last year. That would mean they are giving us another $300 tax credit because they didn't give it to us last year. So now, besides getting back all the income tax that was withheld, we are getting back an additional $300. So even if the government had withheld no money from my paychecks, I would still be getting a refund. And that is just with two tax credits. Imagine what my situation would be like if I qualified for more.
In spite of not paying any income taxes, I don't feel guilty. Here is why. I pay state and local taxes, I pay sales taxes, I buy from corporations who pay corporate taxes. Moreover, I pay SS & Medicare taxes. While these may be earmarked for the SS trust fund, the government (by law) borrows from this fund to support all of the spending that they do. With the way the system is structured, I believe there is no chance I will see any of that money when I retire. Also, I buy US Savings Bonds thereby keeping some of our national debt out of foreign hands. (In other words, I don't owe the government anything, they owe me whenever I cash in those bonds, thereby getting back more of my hard earned tax dollars). So, the moral of the story is that if you want to lower your taxes, get married and have lots of kids.
For the IRS every year, my job is to lower that $90,000 as much as legally allowed (I definitely advocate following the law, more on that later) and only pay the minimum amount of taxes I owe. I always laugh at people who complain that they are not paying enough in taxes (Warren Buffet, George Soros, Bill & Hillary Clinton, etc.). They can always not take all of the deductions and exemptions they are allowed and thereby pay more in taxes. In fact I will make them an offer. Pay me $100, I'll fill out your tax return and guarantee that you pay more in taxes. The IRS doesn't fine you if you pay too much. They only care if you pay too little.
Anyway, we'll start with assuming that I pay $8000 in morgage interest and $7000 in state and local taxes. That reduces my taxable income to $65,000. Next, I was generous and gave $10,000 to charity. Now I am at $55,000. Finally, assume I have a family of 6 (2 adults and 4 kids). This gives me $21,000 in exemptions and I now have a Taxable Income of $34,000.
Let's recap that again:
$100,000 salary
$90,000 Adjusted Gross Income
$34,000 Taxable Income
In other words, by availing myself of only the most common deductions, the USA says I only need to pay income taxes on 34% of my income. Roughly based on the current tax brackets I owe $4000 in income taxes. Not bad, only 4% of my income. Of course I paid an additional 6.35% in SS taxes and my employer matched that so I pay three times as much SS taxes as I do income taxes, right?
Wrong. $4000 is the tax liability to me. The government already took out $8000 from my paycheck so I should be getting a $4000 refund? Wrong still. We still have our credits. Since I have 4 kids that is $1000 per child. (Interestingly, each child was worth about $4000 as an exemption which in the 25% tax bracket would be the equivalent of decreasing tax liability by $1000. Doesn't that sound like double dipping to you? Well, it is and the government allows it and unless your filling out your tax return by hand, there is no way you can not get this benefit. All the tax software does it for you.)
So already, my tax credits meet by tax liability. But wait there is more. Remember the 2008 economic stimulus. Well, technically that is a tax credit for this year's taxes. However, assume my wife gave birth to a child last year. That would mean they are giving us another $300 tax credit because they didn't give it to us last year. So now, besides getting back all the income tax that was withheld, we are getting back an additional $300. So even if the government had withheld no money from my paychecks, I would still be getting a refund. And that is just with two tax credits. Imagine what my situation would be like if I qualified for more.
In spite of not paying any income taxes, I don't feel guilty. Here is why. I pay state and local taxes, I pay sales taxes, I buy from corporations who pay corporate taxes. Moreover, I pay SS & Medicare taxes. While these may be earmarked for the SS trust fund, the government (by law) borrows from this fund to support all of the spending that they do. With the way the system is structured, I believe there is no chance I will see any of that money when I retire. Also, I buy US Savings Bonds thereby keeping some of our national debt out of foreign hands. (In other words, I don't owe the government anything, they owe me whenever I cash in those bonds, thereby getting back more of my hard earned tax dollars). So, the moral of the story is that if you want to lower your taxes, get married and have lots of kids.
Taxes, Guns, & Furniture Part I
No, this is not a new federal agency under the Obama administration (although that would be humorous) this is about how screwed up our tax system is in this country and what my wife and I plan on doing to stimulate the economy. To preface this, while my wife and I didn't vote for Obama during the election, we fully agree that more spending is needed to get us out of this slump, albeit we believe it is spending by individuals that will help. Most of last year and the year before when the economy was skating on thin ice we were spending thousands of dollars to remodel our home. This is money that was staying in the USA. We were using cash, not credit so our debt load hasn't increased. Several businesses (big box and mom & pop) benefited from our spending spree. Unfortunately, our remodeling came to an end in September, and if you were following the news that is when the economy really went to the crapper. We have held off on major purchases until the new year, but seeing that the rest of America is not following our lead, we have decided we need to inject our own stimulus package into the local and national economy.
To begin with where would we get the money? While the government can print their $800+ billion and then spend it, when individuals do that they call it counterfeiting. We could go into debt and rack up a large credit card bill but that hasn't worked for the government or individuals so far. Let's face some facts, in eight years of President Bush we doubled the national debt to $10 trillion. It is very possible with all of the bailout and stimulus bills in congress that we could double that again in 4 years of Obama. So we had to get the money from somewhere.
Since it is the beginning of the year, it is tax refund time. Let me be clear about one thing. I hate tax refunds. I despise them. Getting a tax refund means that you have lent someone (in this case the government) X thousands of dollars at no interest. I'll do that for family in need but not for anyone else. That being said, there are some funny rules that almost make it inevitable that I will always get a refund. Let me go over some of these:
1) Bonus withholding - While regular income is withheld at a marginal rate based on the number of exemptions claimed and the amount of money you make, Bonuses are withheld (not taxed) at the rate of 25% (plus an additional 6.35% for payroll taxes). So even if you are in a tax bracket of 10%, your bonus is withheld at 25% necessitating a refund of the 15% the next year.
2) Social Security Cap - There is a cap on the amount of wages that you pay SS tax on. It is around $106,000. If you ever switch jobs and say one pays you $60,000 for half the year and the other pays you $60,000 for half the year, then both will take out the SS on all of your pay, necessitating a refund of the $14,000*6% that was taxed over the SS Cap.
3) Tax credits count as if you made payments. (Unlike adjustments or deductions or exemptions which only lower your total taxable income). So by having enough tax credits, you can effectively pay no income taxes (and if you are really good, they you can have enough to get the amount of your payroll taxes refunded too).
So now I have a confession to make. Ever since I started working, I have made enough money to pay income taxes (not just have them withheld). However with our current system, I have now made enough money (and have enough credits) to pay no income taxes and get back some of my payroll taxes. All of this, without the earned income tax credit.
To begin with where would we get the money? While the government can print their $800+ billion and then spend it, when individuals do that they call it counterfeiting. We could go into debt and rack up a large credit card bill but that hasn't worked for the government or individuals so far. Let's face some facts, in eight years of President Bush we doubled the national debt to $10 trillion. It is very possible with all of the bailout and stimulus bills in congress that we could double that again in 4 years of Obama. So we had to get the money from somewhere.
Since it is the beginning of the year, it is tax refund time. Let me be clear about one thing. I hate tax refunds. I despise them. Getting a tax refund means that you have lent someone (in this case the government) X thousands of dollars at no interest. I'll do that for family in need but not for anyone else. That being said, there are some funny rules that almost make it inevitable that I will always get a refund. Let me go over some of these:
1) Bonus withholding - While regular income is withheld at a marginal rate based on the number of exemptions claimed and the amount of money you make, Bonuses are withheld (not taxed) at the rate of 25% (plus an additional 6.35% for payroll taxes). So even if you are in a tax bracket of 10%, your bonus is withheld at 25% necessitating a refund of the 15% the next year.
2) Social Security Cap - There is a cap on the amount of wages that you pay SS tax on. It is around $106,000. If you ever switch jobs and say one pays you $60,000 for half the year and the other pays you $60,000 for half the year, then both will take out the SS on all of your pay, necessitating a refund of the $14,000*6% that was taxed over the SS Cap.
3) Tax credits count as if you made payments. (Unlike adjustments or deductions or exemptions which only lower your total taxable income). So by having enough tax credits, you can effectively pay no income taxes (and if you are really good, they you can have enough to get the amount of your payroll taxes refunded too).
So now I have a confession to make. Ever since I started working, I have made enough money to pay income taxes (not just have them withheld). However with our current system, I have now made enough money (and have enough credits) to pay no income taxes and get back some of my payroll taxes. All of this, without the earned income tax credit.
LED Nightlights
I was excited today when I went to WalMart. They had LED nightlight bulbs for $4.96 for a pack of two. This was a great price since we go through nighlights like candy at our house. So why did I buy them? Because I wanted to become 'Green'? Not even close. I bought them because LED lights are finally econmical (at least the nightlights are). A four pack of incandecent bulbs would have cost me $2.96. They would probably last me 6 months. With a 4 watt bulb the filaments are so thin that they regularly get broken from just jostling them. The new LED bulbs are only 1.4 watts and have a plastic case (that isn't vacuum sealed) so there is no worry of breaking. Plus, they come with a lifetime warranty.
But wait, aren't they 'Green' anyway? Uh maybe. I don't care. They cost less money over their lifetime which is the driving factor for me. By buying them I feel good. They were bought at WalMart (which will help thier millions of stockholders), the bulbs were probably made in some Vietnamese sweatshop by a 10 year old girl making $2.00 a day for 12 hours of work. This is good for her too. If it weren't for WalMart, she would probably be working 16 hours a day just to get enough food for herself. Worse yet, her family might have sold her into prostitution. Not only that, but because the LED lights were cheaper (over the lifetime cost) I will now have more money to buy other 'cheap' foreign products that end up providing a better life for people here at home and abroad. I can't wait until regular LED bulbs are economical.
Now, since they are labeled as 'Green' I will have to do something to make up for it. Perhaps I can rev my engine some more at stoplights so that my carbon footprint doesn't decrease. Actually, I have several 'Green' products: rechargeable batteries, natural gas fireplace, energy star appliances, LCD monitors, Low-E windows, etc. In each and every case, I use these for economic reasons and don't give a hoot about their 'Green' attributes (although if one looks at the total resource demand of the product including manufacturing and disposal a lot of green products aren't that green, and some are downright toxic). Some 'Green' products that I don't buy are: hybrid vehicles and organic foods. In each of these cases, they don't make economic sense.
But wait, aren't they 'Green' anyway? Uh maybe. I don't care. They cost less money over their lifetime which is the driving factor for me. By buying them I feel good. They were bought at WalMart (which will help thier millions of stockholders), the bulbs were probably made in some Vietnamese sweatshop by a 10 year old girl making $2.00 a day for 12 hours of work. This is good for her too. If it weren't for WalMart, she would probably be working 16 hours a day just to get enough food for herself. Worse yet, her family might have sold her into prostitution. Not only that, but because the LED lights were cheaper (over the lifetime cost) I will now have more money to buy other 'cheap' foreign products that end up providing a better life for people here at home and abroad. I can't wait until regular LED bulbs are economical.
Now, since they are labeled as 'Green' I will have to do something to make up for it. Perhaps I can rev my engine some more at stoplights so that my carbon footprint doesn't decrease. Actually, I have several 'Green' products: rechargeable batteries, natural gas fireplace, energy star appliances, LCD monitors, Low-E windows, etc. In each and every case, I use these for economic reasons and don't give a hoot about their 'Green' attributes (although if one looks at the total resource demand of the product including manufacturing and disposal a lot of green products aren't that green, and some are downright toxic). Some 'Green' products that I don't buy are: hybrid vehicles and organic foods. In each of these cases, they don't make economic sense.
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