Friday, December 11, 2009

Taxes and the US Postal Service

It's December. And one of the times of the year when two government agencies particularly draw my ire. The US Postal Service and the IRS. It's a good thing Christmas is here this year so that I can have a breath of good cheer in the air.

With winter comes snow. With snow comes the drudgery of shoveling out the driveway. And as I found out the first year in Iowa, also making sure that the area in front of the mailbox is cleared. If not then I will undoubtedly get a nasty gram from the mailman telling me that I need to clear it or he won't deliver the mail. Now, mind you. I own my house (and the land that it is on). The city owns the sidewalk, but I am responsible for clearing it. The street/cul-de-sac that I live on is owned and maintained by the city. I don't even have a say in who does the plowing.

So, when the plow truck came by that first year and deposited three feet of snow and ice near the curb (in front of the mailbox), I get a nasty gram. After about the third time, I finally started snow blowing in front of the driveway and mailbox so that there was less stuff to be deposited. After reassessing the situation this year, I think I will just leave a nasty gram myself to the postman if he leaves one for me. "Dear sir, Thank you for your concern about getting my mail to me. However, if you leaf through it you will find over the course of a month there is only 1 or 2 letters that are actually worth opening. The rest goes in the recycle bin. So, please hold my mail until spring. I don't need it."

I am amazed that there is still individual house service by the US Post Office. Earlier this year when they knew they were going to be losing billions (again), there were whispers of maybe cutting service on Saturdays. However they weren't going to make a decision until the September board meeting, more than 6 months away. Doesn't that sort of defeat the purpose of whining about losing money if you aren't going to take any action for 6 months? So I came up with a plan if I was given control over the US Post Office to turn it around.

First, no service on Tuesday or Thursday. Also, I would cut service on every other Saturday. Postal workers would work 12 hour days on Monday, Wednesday, Friday, and every other Saturday. Second, no more individual mailboxes for each house. There would be a community mailbox area like I have seen in most new neighborhoods. My street has about 2o houses. These could be served by a single station with 20 boxes at the beginning of the street. I would be willing to bet that you could eliminate half of the delivery workforce just by doing this. Third, no more package delivery to the door. There could be a few large boxes at the community station for packages or they can be held at the post office. Fourth, rural delivery routes would occur once a week. No sense in wasting all that driving to deliver coupons from Bed Bath and Beyond (why don't they just lower all of their prices by 20% rather than sending me a coupon every single week?). Fifth, eliminate the franking privileges of elected officials. We pay them enough and provide enough for their office budgets that they can buy their own stamps. Some quick back of the hand calculations make me believe that these 5 suggestions would cut the postal expense by 75%. If you can't meet your budget after cutting 75% of your expenses, there is no help for you.

The US Postal Service is becoming an anachronism. Sure for 150 years, there was no other economical option to get documents from point A to point B if they were separated by more than 50 miles. However, there are several package/document companies that will do it for you now and overnight. Furthermore, if it weren't for monopolistic government regulations which require them (private companies) to charge more than the US Post Office, than their prices would be very competitive. Email and online bill pay has nearly eliminated the need to send checks through the mail. Frankly, the junk mail people are the only thing keeping the post office afloat. I send out more Christmas cards, than I do all other mail combined. And if there is ever a private company that will deliver them for 50 cents to a dollar a piece, I would use them. Even digital photography has made it so that you can share pictures with family without the mail. So, let's see if we can't get rid of the US Post Office in the next 25 years. Don't worry, private companies will come in to pick up the slack for less money, with better service, and faster.

So the next subject of my ire this time of year is the IRS (and subsequent state department of revenue). Every December, I do an estimate of my taxes to see how much I owe or how much I get back. This is so that my wife and I can budget out the next year. The last few years have been wacky, resulting in thousands of refunds. My work has always had a significant portion of my pay in the form of bonuses and overtime which is automatically withheld at 25% even though I claim enough deductions on my W-4 so that very little is taken out of my regular paycheck.

One of the results of the convoluted federal and state tax systems is that I have paid more SS tax than state income tax than federal income tax. In fact last year, once all of the credits were added in, I had zero federal income tax liability (Note: I am not foolish enough to believe that if I get a refund I don't pay taxes, what I am saying is that my federal refund was equal to or more than the total amount of federal income tax that was withheld). And I make a decent amount of money. The states that I have lived in that charge an income tax (Iowa, New York, South Carolina, Oklahoma) always seem to get more than enough. And while the federal return has enough deductions and credits to eliminate my tax liability, the states don't.

For instance, Iowa allows you a $40 tax credit for each person claimed on your taxes. $40! Compared to the federal child tax credit of $1000 + the $3650 per person exemption of income (which translates into $360 to $1200 of taxes depending on your marginal rate). The $40 is more like an insult than anything else. Why bother even giving it? Times like these, it makes moving back to Texas (with no income tax) look real promising!

The other thing I don't understand the logic for is underpayment penalties. Basically, both the state and federal systems are set up so that if you don't have enough withheld from your paycheck. In Iowa, the penalty is 5% of whatever your underpayment is. However, on the reverse side, if you overpay (i.e. get a refund) they don't tack interest on to it. So, the system forces you to overpay your taxes. Frankly, I'd be happier if we just had to write one check a year. So far our elected officials don't seem to care how much money comes in, they spend 10% to 50% more each year. Any complaint that the government wouldn't have a steady income flow is laughable.

Dividends are another big gripe. In case you didn't know, when a company reports earnings, that is the amount they are taxed on. To the tune of 35%. Then, the company pays out dividends (which have already been taxed at the corporate level), and the individual getting the dividends pays taxes on those (15% or 25% although for the next couple of years some of them are 0%). Double taxation at its finest.

I've blogged before about the federal budget. I support the Fair Tax. Is it perfect, no. But it is a heck of a lot better than the system we have. Now, I need to go look at some retirement properties in Texas, Washington, Alaska, Florida, Nevada, South Dakota, and Wyoming. I may work in an income tax state right now, but when I no longer am tied to a location for a job, you can bet I won't be living in a state where I have to pay income taxes.

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