If you do what you have always done, you will get what you have always had.

Wednesday, October 15, 2008

Real tax reform

I haven't been paying attention to the political rhetoric on the news. If a headline names one of the candidates, I skip it. The only thing I have heard recently that caught my attention was a plan to raise taxes on individuals or companies earning $250,000 or more a year. My gut reaction was that if I was in that category, I'd be quietly looking for ways to lower my taxable income by bartering for everything possible. Yes, I'm obstinate; I'd take a pay cut to lower my taxes, not that it's an issue for me at this point.

I got to thinking about it this morning, so I did some number crunching. $250,000 income is currently in the 33% tax bracket. The top end of the 28% tax bracket is $164,550. That's a difference of $85,450, or 34% of a $250,000 income. Those in corporate America have fewer options than self-employed folks here, but they could lower their taxable income by maxing out pre-tax benefits like 401k, traditional IRA's, and flexible spending. Self-employed people have more options, depending on their line of work. If, for instance, you are a veterinarian who has a website, you could trade annual pet food for web design. If your clients include restaurant owners or clothing store managers, you could work for gift certificates. Shaving income by $85,000 would be a stretch, but in theory, it could be done.

Here's the problem. If 1% of the U.S. population did that (rounded down to 3,000,000 people) it would result in a net loss of over $256 billion in Federal tax revenue. It would also shave over six billion from Social Security. It really adds up. On the other hand, we'd all still be spending and probably contributing to some kind of retirement fund, so the economy wouldn't be any worse off than it already is.

In today's society, I doubt there are three million people with enough guts to voluntarily shift a third of their income from cash to barter. Pulling that off would require a great deal of discipline and effort. Many of us are living paycheck to paycheck and need first to convert from credit to cash before barter could even come over the horizon. Real tax reform would hurt, and it would require all of us to become more fiscally responsible. Programs would have to be cut, people would be falling off welfare and social security rolls, subsidies would dry up. The states would have to foot the whole bill for infrastructure and perhaps education. Heaven forbid, churches might have to start more soup kitchens, and we might have to learn to make due with what we have, or without certain things altogether. We might have to go back to the standard of living our granparents had growing up. We'd all have to become responsible and *gasp* a little more practical.

You want real tax reform? We can't handle real tax reform! That's why the best we're going to get is a bandaid on a sucking chest wound.



Blogger Jean said...

Yup. We want to government to ride in on their white horse to save the day. What we've forgotten is that's commonly known as Socialism, and it looks like we just might be getting a proponent of just that. And the masses are clamoring for it.

Cash is a good thing.

Personal responsibility, even when it hurts, is a good thing.

I heard Rush Limbaugh say yesterday or today (I forget which) there was a one word solution for the mortgage crisis. It's called, "Rent." He's more right than people are willing to admit. I was in just such a crisis in Texas in the mid-80s (house over-valued by VA appraiser no less, interest rate at 13%!, and I got PCS orders and had a house I couldn't give away). I lost my house. I worked my way back out of the hole. I've been real leery about buying a house on credit since. I rented on subsequent PCSes, even when I thought I might be able to buy. I got burned real bad, and I wasn't going to let it happen again.

1:13 AM  

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