Tax Frenzies and How to Hose Them Down

A question in e-mail based on all the recent “rich people feeling not rich” nonsense, and the associated commentary online:

Why is it that the people freaking out the most about taxes on the rich are the ones who don’t seem to know how the tax code works?

The answer is in the question: Because they don’t know how the tax code works. The major failing seems to be an incomprehension regarding marginal tax rates, but people also seem to fall down on the matter of taxable income vs. gross income (i.e. how deductions can work for you!), how to apply tax credits, and other various and fairly basic aspects of the tax code here in the US.

If you don’t know that stuff — if you basically wander through your life thinking the government taxes all of your income based on the highest possible percentage — then I suppose it’s no wonder you freak out. But it also kind of makes you the financial equivalent of the people who think that Darwin said we are all descended from monkeys, or that the Bible says “God helps those who help themselves.” In short, it means you’re a bit ignorant. You should stop being that. It’s easily correctable. In any event, at some point in time, real live grown-ups should understand the concept of marginal rates. It’s not that difficult to grasp.

There is another answer as well, which can be paired with the above or stand on its own, and it’s that there’s a certain sort of person who believes that all taxation (or all taxation outside of one or two very specific things of which they approve) is theft. Naturally that sort of person will fly to the defense of any who bleat about their taxes being too high, even if in point of fact, the wealthy in the US are currently being taxed at historically low rates (“but they’re still too high!”).

I really don’t know what you do about the “taxes are theft” crowd, except possibly enter a gambling pool regarding just how long after their no-tax utopia comes true that their generally white, generally entitled, generally soft and pudgy asses are turned into thin strips of Objectivist Jerky by the sort of pitiless sociopath who is actually prepped and ready to live in the world that logically follows these people’s fondest desires. Sorry, guys. I know you all thought you were going to be one of those paying a nickel for your cigarettes in Galt Gulch. That’ll be a fine last thought for you as the starving remnants of the society of takers closes in with their flensing tools.

Getting back to the real word for a bit, I’ll be the first to admit that while understanding the basics of the US tax code is useful for not irrationally freaking out when there is talk of raising the marginal rates of the top few percent of income earners in the United States, in point of fact, unless all one is doing is filling in a 1040 A or EZ form, on a practical level the US Tax Code quickly becomes too complicated for most people to deal with, especially when the only time they deal with it is between April 10 and April 15 every year. This is why probably the single most important thing you can do for yourself financially, the moment your tax profile outgrows the 1040 A or EZ, is to get yourself an accountant. Because it’s the accountant’s job to know the tax code — not just a half a week a year but all year long.

In the now-long-gone blog entry of Professor Todd Henderson’s that started off this entire recent round of income-related nonsensery, the one thing in it that actually gave me pause — and which convinced me the man was something of a fiscal naif — was when he revealed that a) he didn’t have an accountant and b) that he was still using TurboTax for his taxes. And I was all, like, what? Dude, you can pay for a gardener but then cry that paying for an accountant is too dear? No wonder you’re all worked up.

I very specifically don’t want to start another round of Henderson-whacking — the man’s been whacked enough — but I will say that after a certain level rather below Professor Henderson’s income and taxation situation, you should recognize that what you don’t know about the US tax code is probably making you pay more than you have to and/or making you miss something you shouldn’t. Which will come back to bite you in the ass in the form of an audit, followed by late payment penalties and fees.

My own moment of clarity on this score came in 2001, when we moved to Ohio; we became landlords and I also started my own company. Both of these things, and other financial events, caused me to look at my tax profile and go, oh, man, I am so very over my head right now. Bear in mind that I said this when I had written a book on finance, and when I was currently writing a finance newsletter for AOL, and also working as a consultant for a number of financial services companies. I was not exactly innumerate. But then maybe that was the thing: I knew enough to know I didn’t know nearly enough. So we got ourselves an accountant, and she was (and is) very good at what she does, and her competence at her job means our tax situation is both well-managed and never a surprise.

So. If you’re freaked out about taxes, please make sure you actually know what you’re talking about when it comes to taxes. If you are a high-income earner and/or have a complicated tax profile, invest in an accountant. Either or both should help to calm your tax frenzy a bit. And if they don’t, accept that the reason you’re in a frenzy is probably because you want to be, rather than because the situation genuinely warrants it.

237 Comments on “Tax Frenzies and How to Hose Them Down”

  1. Ha Ha. I have the urge to start a nerdly volunteer group, helping the underprivileged, called the Ayn Rand Shit List. Probably would have to officially be called something more tactful, but the vision would remain.

    Or just call it “Annoy Ayn Rand Day.”

  2. I’m consistently amused by the folks on message boards who keep saying things like “It’s nice to spend other people’s money. But we’re not going to put up with it for much longer.” and then throw some Rand line out there. My response is invariably.

    “Oh. Are you going to go Galt? Awesome! Could you do that, like, right now? Please?”

    Maybe once all the hedge fund managers, tv personalities, trust fundies, and lobbyists go to ground in their libertarian utopia (and start arguing about who is, and who isn’t above having to scrub the toilets and cook the food) the rest of us can get back to work.

  3. For some reason the “tax frenzies,” as you call them, have no problem with the fact that our society sends men with guns to the doorsteps of the people who don’t pay their mortgages or their child support. They want men with guns to enforce those sorts of contracts, while they profess abhorrence of the use of men with guns to enforce the contract they have with the political sovereignty to pay for the services it provides them.

  4. “I really don’t know what you do about the “taxes is theft” crowd, except possibly enter a gambling pool regarding just how long after their no-tax utopia comes true that their generally white, generally entitled, generally soft and pudgy asses are turned into thin strips of Objectivist Jerky by the sort of pitiless sociopath who is actually prepped and ready to live in the world that logically follows these people’s fondest desires.”

    This sentence just made my day. Literally. I’m going to be giggling until this evening.

  5. Also, just so I have it out there before there’s a gripe about it, I don’t believe everyone who wants to argue tax rates are too high thinks “Taxes = Theft.” Indeed, I prefer it when they don’t.

  6. That thing about people who don’t think taxation is theft reminds me of something I saw on television in Iowa back in the early nineties, when farms were failing. A local TV station was interviewing people on the street about the situation. Two guys from out of state were asked if they were worried about farms failing.

    “No, not really.”

    “If farms fail, where will you get your food?”

    With a snort of laughter the guy said, “At the store!”

  7. The marginal tax rates cause a lot of problems.

    Consider my friends, who live in San Jose. The guy makes $70,000 a year. His wife could make the same. They have a kid, and are trying to decide if she should work or stay at home.

    Child care at the place they’d want to send their kid to is $2,000/month, or $24,000 a year. Including Social Security, additional other expenses (especially gas), and the high marginal tax rate, if she works full time at $70,000/year, she’ll bring home around $10,000/year.

    Would you work full time for $10,000 in cash?

    I wouldn’t. She won’t.

    And if the marginal tax rate on these “fat cats” increases, the decision becomes very easy to not work.

  8. Hmmm… “Anthony & the Cambodians (gardeners)” vs. The Accountant. Tough question.

    When Anthony and his merry men descend locust-like on my lawn and leaves it spotless, and I don’t have to spend the next few hours in misery (I have pollen allergy), it would be the gardener. On the other hand, when I fill out the form and send it with a large pack to receipts to my accountant every Feb., the accountant sounds best (I’m not allergic to anything in Feb.)

    Tough decision. The accountant is actually cheaper than the gardeners per annum. But I value not being in misery for dozens of hours each summer really highly.

    How much is a Darth Vader respirator and a lawn mower amortized over 3 years? I could do my own taxes if I really wanted to. How much harder than the tensor form of the Navier-Stokes equations can they be?

    Tough choice.

    Jack Tingle
    Who is not (by the Obama index) rich, but is well-off.

  9. Bill, a couple making a combined $140k a year won’t be paying the higher tax rate. Also, they’re making more than enough money, if they’re paying on a home and have kids, etc., to justify hiring a CPA to find all those great little loopholes. No _way_ she’s only going to be bringing home $10k after taxes and daycare. But your numbers sure do SOUND scary. Congratulations, I think you’re ready to be a FOX News ‘commentator’.

  10. Consider this. Ralph Nader once put out that we should tax the activities we don’t like (like cigarette smoking) in order to discourage such activity. With the progressive tax system we are basically doing that: taxing and penalizing people for being industrious and working hard.

    No wonder we’re in a recession with a party that considers hard work a sin.

  11. Scorpius:

    I understand that you’ll feel better if you think they are strawman arguments. And considering the silliness you just barfed up in the comment just before this one, it’s clear you know all about that sort of argument.

  12. Bill
    “Child care at the place they’d want to send their kid to is $2,000/month”

    I’m glad we’ve agreed to throw reason to the wind hear and trot out the scariest bullshit we can think of on short notice. Do they have diamond encrusted baby bottles?

    Seriously, good work.

  13. Why don’t we just go to the Fair Tax system? That way we can get accountants doing something productive instead of a shell game.

  14. JR Kincaid:

    I’m sure we all have our favorite schemes to make taxes “fair” — and the “Fair Tax” in my opinion is one of the dumbest — but this isn’t the thread to discuss them. It’s not on point. What’s on point: discussing the tax system as it is and people’s knowledge and understanding therein.


    Leaving aside that personal expenses are not tax expenses, so factoring them into the discussion here is the equivalent of slipping cards into the deck, try making an argument that doesn’t posit paying for preschool $2,000 less a year than the average cost of annual tuition at a private college.

  15. “No wonder we’re in a recession with a party that considers hard work a sin.”

    I think that’s just about my favorite thing about the Rush Limbaugh ditto-head personality type. They all think they know what hard work is. Here’s a hint. Hardwork doesn’t net a you a billion dollars for bellowing into a microphone. Hard work doesn’t allow you to get up to 300+ lbs, because its Hard Work. Hard Work doesn’t involve desks, air conditioning, or Casual Friday.

    What you are talking about is the “Right” work. As in went to the Right schools, knows the Right people, has the Right degree to get the Right job.

    Largely, they have little or nothing to do with one another.

  16. DH and I started paying our tax accountant when DH started his own business about 12 years ago. It is more than worth it to NOT have to worry about an audit 5 years after the fact; we just went through that hoo-haw about 2 months ago. We forwarded the form letter about back taxes to our accountant, who sent the information our tax office had lost/overlooked to the tax office AGAIN. Mischief managed, and we are profoundly happy that we had someone on the payroll who could take care of it promptly and neatly.

    BTW, we are pleased to pay for clean water, firefighters, roads that aren’t dirt trails, and all other mod. cons. via our taxes. Plus a bit for people whose misfortunes aren’t their doing.

  17. I’ve been hiring out my taxes ever since I screwed up the childcare tax credit and had to pay a penalty. And that was before I was running my own freelance writing business.

    I have some freelance writer friends that do their own taxes and I just have to shake my head in disbelief every year when they mention it. I’m a fairly smart guy in a lot of areas, but figuring out each year’s shifting tax code and how to deal with deductions and estimated tax payments, etc., and frankly, my own feeling that the tax code is sort of unfriendly to small business owners, just gives me a headache. And I’m willing to pay H&R Block the fee each year that will have them sitting down with the IRS and me should we get audited. PITA, indeed.

  18. I think it was Mark Twain who said, “Go do some traveling, see how the world actually is, and you’ll sound less like a dumbass when talking about stuff.” I could be paraphrasing.

    With that in mind, it would be interesting to compare the percentages of people who are for and against raising taxes as Obama has suggested, and that have traveled extensively in impoverished areas throughout the world.

    It just blows my mind that so many people think they are poor in America. Even most of the homeless guys I work with know they have it better than people in many other countries.

  19. How disingenuous to say those daycare numbers are high. 4 years ago, when I left work to stay home with my second child, daycare for infants in Westchester county New York was $1850. I assume the cost is at least the same now. With a second child, my professional life in finance (although not hedge funds) as not worth working 12+ hour days to bring home less than a nanny would have made, if I could have afforded one after tax. That’s why we moved to Germany, where a single income supports a family. Read Elizabeth Warren’s book, The Two-Income Trap, to see exactly how that worked. We don’t all have jobs that let us move to the midwest. On the other hand, our taxes are substantially higher in German, substantially… and I am fine with the society that my tax dollars bring me (and before you ask, we file a tax return in the US- our German taxes more than offset the merican ones, so I am sure that our rate here is 19% higher than there).

  20. I have an accountant, but even if you do have an accountant, you should go through the return carefully and double check their work. I have caught a couple of important mistakes in my return over the years–not because my accountant is incompetent, but because I know my financial situation better than he does. If he makes a mistake, I’m still the one that has to pay the penalty, which means it’s still a pretty good idea to understand how taxes work and what all the forms in your return are about.

  21. While now teaching HS English I am still a CPA and do my own taxes annually, save for one year–the year of my divorce in 2002. Even though still practicing accounting full time back then, I knew that I was not up to speed on the divorce laws and their interplay with the tax code and regulations. So, I a CPA, hired out my tax return preparation to another local CPA. And frankly, a lot of CPAs in public accounting always hire out their own returns to their partner CPAs so that a fresh set of CPA eyes look at their own numbers.

    Amen, brother John, amen. Anyone who needs to prepare their return on the actual Form 1040, instead of the watered down versions, needs to have a professional third party preparer do the deed.

  22. GinBerlin:

    “How disingenuous to say those daycare numbers are high.”

    It’s not disingenuous at all. They are high. Here’s a data sheet for the costs of child care in California; here’s one for the cost of child care in New York. They’re from the National Association of Child Care Resource and Referral Agencies. In both the case Bill notes and the case you note, the amount is substantially above the average.

    However, again, child care costs have nothing to do with the tax discussion here in the US, except to the extent one wishes to discuss the Child and Dependent Care Credit — which will lower one’s overall tax burden — so let’s not get ourselves off on a tangent here.

  23. When the day arrives, will you tape a thin strip of Objectivist Jerky to Ghlaghghee?

    Mmmm….Objectivist Jerky. The other other white meat.

  24. I sincerely wish I made enough money to have to worry about marginal tax rates. Until that time I will have to live with a purely theoretical understanding of the subject. I mean, up here in Canada we have a tax regime that is so much simpler . . .

  25. Day care in the DC area for infants is competitive at around $12k a year.

    Bill – FYI for your friends, day care expenses are tax deductible. Up to a point, not sure what its ceiling is. Certainly lower than 24k a year.

    So, not only is a portion of that daycare deductible, but their marginal rate only goes up for the income earned above the bracket. So, for the example of the 250k+ club, only TAXABLE dollars that they earn above 250k pay the increased taxrate.

    Your friends won’t be effected by that tax hike. If your argument in general is that marginal tax rates are a disincentive to work, you might as well go ahead and argue against taxes period. Because, same difference.

    Taxes are not a disincentive. Tax rates can be prohibitive, but taxes are a cost of doing business.

  26. There will be no positive economic change in this country unless there is a bi-partisan effort to drastically reduce SPENDING, particularly Defense spending. If Barney Frank and Ron Paul can come together on this one, why can’t we all?!! Sometimes I think that all of the animus centered around who should or shouldn’t get tax breaks is purposefully fueled by politicians (from both parties) in an effort to distract us from the ridiculous amount of deficit spending that is crippling any chance for economic recovery.

  27. If there’s ever a sequel to Atlas Shrugged in which Objectivist Jerky is featured, I’ll be sure to buy a copy. Hint, hint.

  28. I don’t think it’s tangential, except in the highest levels. Certainly at my income, it was a reason to stop working and I am an accountant and know how to use tax credits: it wasn’t taxes paid, it was cost of childcare. The state of NY is large, as is the state of Illinois: I will guess that the people living outside metro areas pay substantially less than that average, just as the median household income in metro areas is substantially higher.

    I still don’t think that’s a reason to whine about anything other than a government that doesn’t use tax dollars to provide adequately staffed and maintained daycare, as the government of the country that I now live in does. Isn’t this thread about whether taxes are worth whining about or not, or have I lost track? I’m all for higher taxes and better services (childcare, family, infrastructure, welfare support, job training) myself.

  29. maybe you can help me out and write an entry on the “Spending Elephant” in all of our rooms, then

  30. GinBerlin:

    “I don’t think it’s tangential, except in the highest levels.”

    And yet, it is, because the discussion is whether people understand the tax code (and/or believe taxation is theft), not whether expenses unrelated to taxation motivate people to work less or more.

    Your second graph is more on topic, however.

  31. Perhaps relevant to this discussion, at least in the “after reading this post and laughing about ‘Going Galt’ seeing this kept me laughing” way:

    Still chortling, here.

    And um, I think if a couple is grossing $140,000 and can’t make childcare work on that income, something is wrong with their math, and they really do need an accountant. Even in the Bay Area. Maybe *especially* in the Bay Area. Perhaps they bought more house than they could actually afford?

  32. Also:

    “Would you work full time for $10,000 in cash?”

    No, but I’d work full-time to cover all my necessary expenses like housing, transport, food & water, child care, household maintenance, health & dental care and yes, also my taxes, and have $10,000 disposable income left over.

    Because that’s what you’re actually saying, isn’t it. After spending her share of the bills and paying her taxes, she’s got $10,000 left over.

    I should think pretty much anyone would LOVE to have $10,000 every year with which to do whatever they want. I sure would!

    By the way, if they both make the same $70,000, doesn’t that mean that after splitting all the bills and taxes and childcare, the family has $20,000 left over? Wow, that’s great!

  33. John,

    There are disincentives built into the tax system that penalizes several categories of people and discourages people from investing their income into more productive businesses, which in turn if the disincentives were not there or reduced, would create more jobs for other people. There is the marriage penalty; my sister makes about 30K a year in her job, if she were single, she would pay about 10-15 percent of her income in local,state and federal taxes. Being married with 3 kids, she and her husband now pays about 25 percent in local, state and federal taxes. They have a higher income, but the disincentive is still there. My mom lives on the 401K my dad spent his whole working life making sure it was well funded, she gets taxed twice by the feds, once because she gets dividends from the investments in the 401K and once again when she files her personal income taxes. She has the best tax accountant around who does his best to minimize her tax burden, but the disincentive to invest is smacking her in the face every time she gets her quarterly 401K statement. In NY state, it is even worse because the state does not allow dividends from investment income to be deducted from state taxes unless it is an officially approved NY state bond. And she doesn’t invest in NY state bonds because they pay bubkus for a dividend. So there is that disincentive to invest on a state level. In my own case, my tax accountant has warned me that I can expect to pay NY and Vermont state taxes even though I only lived and worked in NY state for 15 days in 2010, having taken a job in Vermont. NY State figures it would cost me more in time and money to contest their erronous tax bill than to just grit my teeth and pay up. They are right. I dont make tons and tons of money, I work for the feds and make about 45K a year. It is crap like this and other disincentives that make me steaming mad about this so-called “progressive” tax system. A flatter tax system would actually, in my view, encourage people to keep more of their own money and invest it in productive enterprises of their own choosing, instead of having Uncle Sam taking more and more every year, wasting 1/3rd of it on bureacracy and pet funding schemes and earmarks. A flatter tax system would also do 2 other useful things; 1) without all the tax breaks and loopholes written into the system by the wealthy that can afford lobbyists and lawyers, the rich would pay more in actual dollars and 2) the rich would actually save money not having to pay said lobbyists and lawyers to game the system for them.

  34. Thank you so much for this Scalz, since the first thing I thought when I read that too is that one of them thar fancy accountants could probably shave enough off of his taxable income in order to push him into the lower tax bracket if he’s really that close to the line. (I bet private school is tax deductible…)

  35. I have an income in that magical six figure territory, though only just barely. I do my taxes every year with Turbo Tax. Yes, a very high earner should use an accountant. Likewise for someone who has a complicated return (like anyone self employed). But, if you have a more basic situation, like most people who have one or two employers in a household, the computerized tax programs can do a great job. I dare anyone to find any deduction the program has missed in my returns. The only thing slightly complicated is a couple thousand a year for consulting and the expenses are all obvious. Where are all of these “loopholes” everyone talks about? There really aren’t any. We take the standard credits every year. We’re getting the education tax credit for our son in college and this year the energy tax credits. We itemize our mortgage interest and state/local taxes. Yes, the return seems complicated, but we just answer the questions and Turbo Tax fills it all in for us. I can read over what it has produced. We have never been audited because there’s really nothing to be audited about.

    I always tell the story of a friend of mine who took his complicated tax return to an accountant one year and the accountant managed to save him $800. He was very pleased. Of course, the accountant charged him, coincidentally, $800. I hope people realize what many accountants do with your tax return: they use a program not unlike Turbo Tax.

    In general, an accountant can be a good choice, but saying anyone over $X per year should use one is very much an oversimplification.

  36. Off topic, of course. It’s been at least 15 years since I saw/heard anyone use “flensing” in a sentence.

  37. Bill@11: I find those numbers amusing, because my wife and I had that exact situation. She makes about $70k. I live in the SF East Bay. However…

    $10k/year is utter and complete bullshit.

    Again, speaking as someone whose wife stayed home and then decided to go back to work at about a $70k salary…

    1) Preschool is less than $1k/month (Even now, the private school my son goes to is only running us $890/month)
    1.1) Day care is also tax deductible.

    2) I make substantially more than that guy did and we are thus much higher up the tax ladder, yet taxes aren’t even close to what you imply.

    Speaking, again, as someone in almost exactly that situation, your numbers are obviously completely made up. Having been in that *EXACT* situation, we found that her job meant about $30k/year net. (Actually, more, because that’s after maxing out the 401k on her salary.)

    There are certainly “mommy-trap” situations, but they generally involve entirely unskilled labor, where only minimum wage is involved, not the sort of skilled labor that brings in $70k.

    On another topic, one thing that many people are completely unclear on are two ways the tax code entirely favors the upper middle class:

    1) FICA tops out at around $107k. What this means is that in real terms, unless you pretend that FICA is not a tax, someone making $120k/yr pays a lower percentage of their income in taxes than someone making $90k/yr.

    2) By far the biggest deduction for individuals is the mortgage interest deduction. Renters generally get nothing like it. It should be pretty obvious that poor people aren’t likely to be able to use it. That tax code punishes renters to the benefit of owners, and this thus essentially punishes the poor to the benefit of the middle and upper middle classes.

  38. Christopher Schaffer:

    1. Paragraphs are your friends.

    2. You apparently missed the note I left upthread mentioning that trotting out our favorite alternate systems of taxation is not on point to the thread.


    “I hope people realize what many accountants do with your tax return: they use a program not unlike Turbo Tax.”

    This is a little like saying since you can buy the same surgical equipment as a doctor, you can do your own surgery out of a book. You’re paying for the expertise, not the tools.

  39. @Bill so you are saying this person could make ten grand a year cash after expenses and doesn’t consider it worth it? Well fuck me sideways with a cucumber, but if you can give me the name of her prospective employer I’ll start Tuesday morning bright and early and never bitch about money again.

    I make only a couple of K more than her predicted pocket-money per year (I think about 13-15USD depending on the bouncing about of the exchange rate from GBP) before expenses & tax so you’ll pardon me for being a bit lacking in sympathy there.

    As to why rich people panic because they don’t understand taxes, it is because they are rich. By and large the centre middle class upwards have enough money swilling around that they don’t know the real value of true money. They, generally, have never had to account for every single last penny, and do a bit of robbing Peter to pay Paul on top of it. The well off panic about money because it is an abstract to them.

  40. Some math:

    At $70k/yr, you are in the 25% bracket, which runs to $82,400/year. The next bracket is 28%. So the federal taxes on a “new” $70k/yr job are::

    25% * $12,400 = $3100
    28% * $57,600 = $16128
    Total fed taxes = $19,228

    In California, one bracket runs from $47k to $1 million, and it is taxed at 9.3 percent, so state taxes are:

    9.3% * $70,000 = $6510

    And of course, there is FICA at 7.65%

    7.65% * $70,000 = $5355

    The grand total is $31,093 in taxes leaving a take home pay of $38,907 per year.

    If you assume the gold plated preschool, yes this works out to about $15k per year. But if you are looking at taxes of $31,093 and day care expenses of $24,000, I’m not sure you can really blame the government.

    Note that this is only if you’ve made no effort to find tax deductions. For instance, there’s a $3k deduction for child care. (Admittedly a drop in the bucket with even reasonably priced day care.)

    Also note that, according to wiki, the median individual salary for women in San Jose is $36,936 before taxes.

  41. CrypticMirror:

    What is the real value of true money? How much true money does it take to make a real value?

    I’d say the great thing about capitalism is that the money one has is real whether or not one has a metric shit ton of it or not. And I’m not all that receptive to the idea of the rich being the ignorant ones.

    Lack of knowledge about taxes seems to be a pretty equal opportunity ignorance.
    Same with money. It takes all types. There are people who take an interest and learn money and its managent. And there are people who don’t.

    And then there are people who don’t know they don’t know and speak extensively about the subject on the internets.

    Mind, this isn’t to say I particularly disagree with your first and second paragraphs there. I don’t think Bill’s numbers add up. But, it sounds like second hand information and analysis.

  42. Having followed your posts on the professor’s article, I think you missed the point (perhaps deliberately.) I have also noticed that you tend to tar everyone who is concerned about high taxes and government spending as an Ayn Rand fanatic.

    While this may score brownie points among the Scalzi Peanut Gallery, it is intellectually lazy—not to mention inaccurate.

    Ayn Rand devotees comprise a small subset of Americans who are concerned about the growth of government spending. When you bring out this straw man, you sound a bit like the right-wing commentators who want to cast every liberal Democrat as a closet Trotskyite.

    Henderson made two points, which are quite reasonable: 1.) Government-sponsored social spending usually triggers the law of unintended consequences, and 2.) The cost of government is rising, and someone has to pay for it.

    A desire for small government and lower taxes does not necessarily make one an Objectivist or a radical libertarian. I don’t make $250K per year, but I dislike seeing so much of my tax money going to foreign wars, foreign aid, Wall Street bailouts, and yes, welfare.

    To cite one concrete example, 40% of the births in the U.S. are now out-of-wedlock, and many of these receive government aid (i.e., tax dollars). This trend is guaranteed to increase our tax burden. Does one become a radical libertarian if they argue that government aid should be cut off at the second out-of-wedlock child? Why should I–or you, for that matter—have to underwrite flagrantly irresponsible behavior?

    The recent mortgage bailouts were another example of government spending that frankly made me angry, without reading a single chapter of Atlas Shrugged. I waited until I was in my 30s to purchase a home, and I bought something modest with a decade’s worth of savings. Why should I have to underwrite homeowners who purchased homes they could not afford?

    Likewise, I wasn’t happy when President Obama paid back his political debts to the UAW by bailing out General Motors. (UAW workers already make more than the average taxpayer.) The President and Congress effectively forced us to subsidize the UAW’s support of the Democratic Party.

    This has nothing to do with Ayn Rand, radical Libertarianism, or a fanciful desire to pay zero taxes. Congress and the President are clearly wasting a large percentage of our tax dollars, largely to secure their own future elections. Why do you think it is unreasonable for Professor Henderson (or anyone else, for that matter) to remind the government who ultimately pays the bills?

  43. Apologies for vomiting my thoughts out there; my point is people of all economic classes complain about taxation because the politicians love to make the tax system as complicated as possible.

    Their justification is to make it “fair”, according to whatever subjective political/economic theory they fell in love with. It also allows them to bribe the electorate with their own money and other peoples’ money in order to get elected.

    People complain about the level of taxation because above a certain income level, their percentage of tax paid increases (case in point, when my fiancee and I get married and file our 2011 taxes, our federal income tax will jump to 25-30 percent together from 15 percent filing seperately) and the government services they receive from tax dollars will go down.

    More to the point, even though higher income brackets don’t need the services provided to lower income tax brackets, I am tired of the waste and mismanagement of our tax dollars that is spent more on government overhead and government earmarks. I am also tired of hearing bloviating Congresscritters like Barney Frank tell the American people that the rich don’t pay their fair share when the high end of the income tax bracket pays 33% of all federal taxes.

    I’m all for having government help those in need when they need it, I am less enthused about politicians and pundits invoking class warfare rhetoric and envy of the better off to justify their sloppy handling of the economy and domestic spending and to grab more money to shovel into domestic spending and stimulus when they can’t manage the damm programs properly in the first place.

    Off topic, I’m aware but I think the level of taxation and the mismanagement of federal spending are very intertwined.


  44. Real trouble for the somewhat rich person who thinks they’re poor – the dreaded AMT.

    Getting back semi on topic. As someone with libertarian leanings, I sympathetic to the tax = theft argument. However since I live in a world where useful services like fire depts, police, roads, etc are paid for out of taxes, in practice the idea is lunacy.

  45. Todd

    “Why should I have to underwrite homeowners who purchased homes they could not afford?”

    Because you care about the value of your house.

    Also, dude, you should totally read that book. You’ll dig it. Hard.

  46. Interesting post and comments.

    I’m (mostly) with Charles @44; IMHO, John’s oversimplified things re. hiring an accountant. No doubt some people need an accountant but don’t use one; I bet the reverse is true, too. But graduating to the full 1040 doesn’t mean you automagically need an accountant. My taxes are pretty simple (and not because I’m overlooking a bunch of things ;-) and while I may need other things, an accountant isn’t one of them. At least, not yet. ;-)

  47. Bill @11, even if that $10k number is true (and I doubt it), there are other reasons it would be financially beneficial for the wife to work, e.g., she’d be earning social security benefits.

  48. Todd:

    “I have also noticed that you tend to tar everyone who is concerned about high taxes and government spending as an Ayn Rand fanatic.”

    You missed comment #7, which means the rest of your comment is a misapplied lecture. Try again.

  49. @OtherBill the real value of money is the amount you have to pay to avoid living under a bridge and digging through rubbish bins for food.

    Once you get above having to choose between rent or food, then money is an abstract and you’ve got it to spare. Real money is the stuff you don’t spend on little (or less than little) luxuries.

    Real money is the amount you have to spend. Abstract money is the amount you don’t have to spend but like to think it is.

  50. Other Bill@56:

    “Because you care about the value of your house.”

    Actually, the government’s meddling in the housing market was one of the factors that led to the housing crash in the first place. Rather than letting the market decide who should be a homeowner, the Federal government bullied banks into underwriting low-income mortgages for years. (To be fair, this policy was continued under both Democratic and Republican administrations.)

    As for the Obama Administration’s current efforts to “fix” the problem by throwing good money after bad, the results have not been promising so far. Government attempts to manipulate markets almost always result in bubbles or shortages, as any economics professor will tell you. Like Ronald Reagan said, the most frightening words in the English language are: “I’m from the government, and I’m here to help.”

    As for reading that book (I assume you mean Atlas Shrugged), I actually did read it about 20 years ago. Ayn Rand’s novels were never really my thing.

  51. John:

    “This is a little like saying since you can buy the same surgical equipment as a doctor, you can do your own surgery out of a book. You’re paying for the expertise, not the tools.”

    It’s a little like it, but it’s a lot unlike it. Turbotax is a computer program that analyzes your tax situation and figures out how much tax you owe (or have overpaid), files the returns with the IRS for you, and provides you with documentation of the process. The expertise is built into the program, and you don’t have to do the calculations (e.g., subtract line 32 from line 24 or 26, whichever is greater).

    Yes, I’m sure you know this. But paying an accountant $800 to get you an $800 return when TurboTax would get you the same return for $50 is like going to the doctor to because you cut yourself shaving.

    If you understand your own finances well enough to enter the numbers into a computer program when it prompts you, then an accountant is not necessary for you.

  52. Todd:

    Also, if you want to post re: Professor Henderson’s points, this is the right thread for it, not this one.

    Kevin B:

    “If you understand your own finances well enough to enter the numbers into a computer program when it prompts you, then an accountant is not necessary for you.”

    I hope you feel the same way if you’re ever audited.

    Beyond that, if you want to use Turbo Tax, you go right ahead. I don’t recommend it for anyone with a complex tax situation, myself. My own experience and the experience of others I know is that it’s easy to miss things using it if your tax situation is not a simple one.

  53. John @59

    “You missed comment #7, which means the rest of your comment is a misapplied lecture. Try again.”

    Sorry, I based my comment on your multiple posts on Henderson’s essay (which did involve numerous Ayn Rand metaphors), and failed to read your strategic backpedal in comment#7.

    My bad.

  54. Actually, the government’s meddling in the housing market was one of the factors that led to the housing crash in the first place.

    In the same way as describing someone with a cold who was also run over by a bus as having their virus be “one of the factors” in their death, sure.

    The bubble of 2005-2008 when it was most extreme was driven largely by private money.

    Rather than letting the market decide who should be a homeowner, the Federal government bullied banks into underwriting low-income mortgages for years.

    The “market” was doing exciting things like not lending money to African-Americans, so, gee, no, I think I’d rather the “market” not decide who gets to be a homeowner, thanks.

  55. Todd @61, the banks didn’t issue subprime loans because the government bullied them into it. They issued them because they were hugely profitable. They were so profitable that banks often tried to steer even consumers with good credit, who qualified for traditional loans, into such subprime loans.

    re: someone else’s comment about the accountant saving them $800, and then charging them $800, hey! they saved money! After all, TurboTax would have cost $50 :)

  56. John:

    “Beyond that, if you want to use Turbo Tax, you go right ahead. I don’t recommend it for anyone with a complex tax situation, myself.”

    Thank you. I don’t either, and didn’t in my post. I only recommend it for those people like me who understand their own financial situations fairly well, where an accountant would be overkill.

    If I am ever audited, I will feel differently. I will hire an accountant, or possibly a tax lawyer at that time.

  57. Re: TurboTax and its kin:

    Honestly John, your disagreement with Charles depends on what level of accountant you’re talking about. If people think “going to H&R Block” when you say accountant, then they are not really getting much value over H&R Block’s own TaxCut software. I had a (more than usually) complicated tax situation last year, involving an estate and property over and above my norm, and I figured H&R Block would save me time and hassle as well as maybe some money.

    Instead it turns out the guy wasn’t able to handle the estate tax return anyway (I got a referral to their “Premium” service, and my attorney–someone who DID provide value for his fees–noted that he could do it as a very simple estate for a far fraction of what they would have charged me) AND I ended up having to file an amended return for the first time in my life because he (his software actually) screwed up some things that I only caught because I was double checking with…TaxCut.

    So the point being that if your income and its complexities justify an independent CPA as a tax accountant, then I agree with you, but if your income just happens to be in the low six figures WITHOUT a lot of complexities, it’s quite reasonable to say that TaxCut or TurboTax are just as good as the “tax professional” in the strip mall down the way, and doesn’t necessarily justify the step up to an independent CPA.

    I’m pretty sure that’s what Charles’ point was meant to be.

  58. My husband works in the tax field and would never do our taxes. If you own a business, own rental property, are self-employed, etc., an accountant is worth the money.

    $2,000 a month for childcare? Huh? I don’t even pay that in LA. Must be a nanny situation? Lots of preschools out there that charge less that are wonderful. I didn’t work for a while because I was only making around $27,000 a year before taxes and childcare would have eaten up most of my income. Luckily I could be a stay-at-home mom for that time.

  59. David@66:

    “The bubble of 2005-2008 when it was most extreme was driven largely by private money.”

    “Private money” in this case involved the securitizing of mortgages; and the securitization of debt (i.e., selling debt as a security in a secondary market) is a long-established practice. It usually works, as long as the debt is legitimate in the first place.

    What happened in this case was that investment banks securitized mortgage loans that should never have occurred in the first place, many of which were instigated by the Federal government pressuring lenders.

    Certainly private money was involved. Government manipulation of markets usually does create opportunities for unscrupulous individuals. Once again, the law of unintended consequences.

    As for the “market” not lending to African-Americans: I knew that the Race Card was coming, because it is the tool of last resort whenever one enters a venue dominated by leftwing individuals. When all else fails, say: “Yeah, dude, but it’s racist!” I was unaware that the loan officer’s handbook at Bank of America contains a clause saying: “If any African-American loan applicants enter the bank, don a white sheet and chase them out immediately.” (Perhaps you could find one posted at the Daily Kos.)

    Banks are motivated to lend to any borrower who looks like a good credit risk. If an African-American applicant looks like a good credit risk, he or she will get a loan. I am quite sure that my family doctor (who happens to be African-American) has no trouble securing credit, even in this economy. And he doesn’t need an army of sanctimonious Washington bureaucrats to do it.

  60. John@63: “My own experience and the experience of others I know is that it’s easy to miss things using it if your tax situation is not a simple one.” [Speaking about tax software.]

    I agree. I use TurboTax (I don’t have a terribly complex tax situation any more) but I always cringe a little bit when it asks something like, “Do you have any other taxable income?” It reminds me there are things I don’t know that I don’t know. Things that can be really inconvenient later.

  61. @Todd,

    Lots of, frankly, sloppy reasoning in your post but this bit leaped out and practically throttled me…

    I wasn’t happy when President Obama paid back his political debts to the UAW by bailing out General Motors

    What, pray tell, was your alternative, UAW or not. I’ve seen the cost of having GM fail completely is somewhere North of $100M – that’s the first one that came up on Google but there are a *lot* and they’re all a lot more in terms of impact on the total economy, plus unemployment payments than the money actually spent which, if memory serves, is being paid back with interest.

    Bit like that hienous bank bail out that’s a) in profit and b) probably saved western civilisation from the total collapse of the modern banking system.

    By all means worry about expenditure. I suggest you start with the US military budget – here’s a thought, get rid of one of the strategic nuclear defense lines? Submarines, missiles AND bombers? Pick two.

    Oh, and you can probably get by with a few less carrier fleets.

    Then come back to me about unwed mothers and healthcare.

    Besides, the overall tax burden on the American tax payer is still WAYYYYYYYYY too low.

  62. What happened in this case was that investment banks securitized mortgage loans that should never have occurred in the first place, many of which were instigated by the Federal government pressuring lenders.

    No, they weren’t. As someone above has pointed out, banks went into subprime mortgages because they were profitable, not because of government pressure.

    I was unaware that the loan officer’s handbook at Bank of America contains a clause saying: “If any African-American loan applicants enter the bank, don a white sheet and chase them out immediately.”

    Then perhaps you should pay better attention to the world around you. Try looking up “redlining” and you’ll have a bit of your ignorance remedied.

    Banks are motivated to lend to any borrower who looks like a good credit risk

    Banks are made up of people and those people are driven by all the motivations–good and bad–that people have.

    By your logic, segregated lunch counters could never have existed because, after all, restaurants are businesses and businesses will sell to anyone, as long their money is good.


  63. @Todd,

    Actually, the government’s meddling in the housing market was one of the factors that led to the housing crash in the first place. Rather than letting the market decide who should be a homeowner, the Federal government bullied banks into underwriting low-income mortgages for years.

    Go away and come back when you’ve done some research on this. The default rate on the under written sub-prime mortgages that were issued to people in the early stages have had pretty much the same historical default rate as more traditional mortgages.

    If the CRA loans had been the only problem, there wouldn’t have been a banking crisis.

    You might also want to look up where the real housing repossession crisis’s are happening, and it’s generally speaking not in CRA heavy areas. Unless they were lending money to people to buy second homes in Miami too…

  64. Daveon@73:

    The biggest problem with the GM bailout is that the government is forcing us to underwrite a business model that is likely to fail in the long run anyway.

    Companies have failed numerous times throughout U.S. history. That is the way the market works, and it is a good thing: because capital then gets reallocated to more efficient uses.

    If you have ever been in a UAW plant (and I have), you will have no trouble discerning why these facilities are inefficient. Since you obviously aren’t familiar with the auto industry, here is a sample, from a politically neutral source, USAToday:


    “Besides, the overall tax burden on the American tax payer is still WAYYYYYYYYY too low.”

    This tells me that you are still too young to have paid many taxes. All I can say here is, “you’ll understand when you’re older.”

  65. @Todd,

    This tells me that you are still too young to have paid many taxes. All I can say here is, “you’ll understand when you’re older.”

    40+ old enough for you? And I’ll raise you this: I moved to the USA 2 years ago from the UK where I was paying 40% on all income over $55,000(ish) – and it wasn’t tax that made me move, it was getting tired of flying 250,000+ miles a year for business.

    Anyway, you dodged the question – what would you have done about the cost of letting GM fail?

  66. @Todd – while you’re learning about redlining also take a look at the HMDA data through the years.

    As for the reasons behind the housing crash try reading Paul Muolo’s excellent book Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis. (Disclaimer, I copyedit and post his column What We’re Hearing that runs on the National Mortgage News website.)

  67. Having to use specialized software just to do taxes is bad enough. The fact that the tax code is so complicated that people must pay experts just to avoid breaking the law by underpaying their taxes (risking fines and jail time) is a sign that the tax code is in desperate need of revision and simplification – not just in terms of the wildly differing rates of taxation for different sources of income, but all the deductions, exemptions, “credits,” and other loopholes that keep getting shoehorned in.

  68. Daveon@77

    “40+ old enough for you? I moved to the USA 2 years ago from the UK where I was paying 40% on all income over $55,000(ish)”

    Sorry…Few Americans who are old enough to pay taxes would assert that our taxes are “WAYYY too low”. Americans take a different view on taxes. (You’ll remember that little tiff we had over the Stamp Act a few years ago.)

    You’ve had to suffer the effects of a century of Labour. You’re likely grateful if the government leaves you anything at the end of the year. Compared to what you’re used to, our taxes probably do seem WAYY too low.

    Anyway, I meant no offense on this point.


    “Anyway, you dodged the question – what would you have done about the cost of letting GM fail?”

    Your question presupposes that the government has an obligation to pick winners and losers in the marketplace. GM already *has* failed. Any corporation that cannot stay afloat without an an infusion of government money is a failure by definition.

    But anyway, what *should* the government do?

    1.) Accept a breakup or rapid scale-down of General Motors.
    2.) Facilitate a sale of GM business units to more competent owners.
    3.) Outlaw the closed union shop.

    What the Obama Administration has done is simply to delay the inevitable. Mark my words, GM will be back for more taxpayer money within a few years.

  69. Todd:

    Wait, so you had read the book? And found twenty years later you still largely agree with the ideology it advocates? And you clearly enjoy the pejorative labeling of people. I’m sure mr. too young and mr. snap-played-ever-predictable-race-card will agree. So, what’s with the criticism?

    So you’re not an Ayn Rand maniac. Sure, I know what you mean. But, you do support the ideology on display in the book. And poor people made bad decisions. And big governments, without even knowing better, pervert neutral (possible even good) corporations by forcing them to do naughty things.

    The distinction then is that you got your political positions through careful observation and calculation over a period years, not from some dimebook novel. Which I dig. But, that doesn’t exactly flow with “oh you’ll understand taxes when you’re older sonny jim. Ben Franklin said that.”

    Cryptic Mirror:

    “Real money is the amount you have to spend. Abstract money is the amount you don’t have to spend but like to think it is.”

    I understand what you’re saying and endorse the principle reflected. My objection is more OCD re the use of “abstract” and “real” to differentiate the necessarily identical items.

  70. @Todd,

    It’s really hard to take you too seriously when you bring out a Foxesque talking point like:

    You’ve had to suffer the effects of a century of Labour. You’re likely grateful if the government leaves you anything at the end of the year.

    Except that the Conservatives have been in power in the UK for most of that century, and Margaret Thatcher was the longest serving PM of the 20th century.

    This isn’t really a relative thing. When my effective tax rate at the end of the year on the kind of income my wife and I earn is 16%, we’re paying too little tax by a huge margin. It’s not a matter of opinion but rather of fact.

    And you also still dodge the point on GM. I can’t disagree with strategically what a government *should* do at a conceptual level but the theoretical operation of government and the real world are two different things. Letting GM fail catastrophically in the middle of the worse financial mess in almost a century would have been, well, catastrophic.

    And yes, GM possibly will fail long term. But on this occasion, the government made money on the deal and next time, with luck, they can perhaps afford to through thousands out of work and let thousands of supply chain related businesses fail.

    The Obama administration had no choice given the situation they found themselves in. Claiming otherwise makes no sense except if you’re trying to make political not practical points.

  71. Apologies for the double post:

    I saw John noted Michael Lewis’ “The Big Short” as a good read on the subject. I want to whole heartedly second that.

    This book is required reading for anyone interested in the subject. Reference: facts, opinion, entitlements.

    Second, FYI Todd and Mallet of Loving Correction:

    noting John’s concern over personal snipage that popped up while I lazed through my comment, I’d like to preemptively note that the criticism is more tongue in cheek than serious.

  72. Todd:

    “Few Americans who are old enough to pay taxes would assert that our taxes are ‘WAYYY too low’.”

    Whether Americans would assert such a thing is an entirely separate discussion from whether, given the level of service Americans expect from their government, their taxes are too low. Let’s not confuse the two, or attempt to use the assertion of one to wave away the other.

    “You’ve had to suffer the effects of a century of Labour.”

    In point of fact the Conservative Party has held Parliament more and for longer periods of time, than Labour has since 1900.

    “What the Obama Administration has done is simply to delay the inevitable.”

    It’s worth remembering that the initial loans to GM were provided to it by President Bush.

    Todd, I understand you’re enjoying playing with rhetoric, but try to have some facts in there, and some logic as well.

  73. You’ve had to suffer the effects of a century of Labour

    Sigh. Start with Orwell’s _The Road to Wigan Pier_, understand what (not-privileged) British life was like in the pre-1945 era (short answer: awful), and then get back to us.

  74. I have been scared to hire an accountant after years of writing checks to my Mom’s CPA – $1700 each for her and my deceased Dad’s trusts. This was in Grand Rapids, MI. I never understood why it cost so much. I didn’t see anything particularly complex about them.

    Sorry to be nosy, but could you give some idea about what a CPA costs? CPA’s are risk mitigation, it would be nice to add some cost versus benefit to the equation

  75. Are we sure that accountants aren’t the ones spreading hysteria about taxes, so as to encourage people to seek and retain their services?

    (Similarly, I’m pretty sure that financial advisors are responsible for the popular “you won’t see a dime from Social Security” meme.)

  76. Matt McIrvin:

    I’m not being paid by the accountants to recommend people with complex tax profiles retain their services. I just think it’s a sensible course of action.

  77. Two off-topic things:

    1. The free market is an inherently horrid way to set policy because, unlike a constitutional representative republic, it doesn’t guarantee to protect the rights of minority populations. It’s pure mob-rule democracy (and the bigger your wallet, the bigger stick you get to wield in that mob.)

    2. Todd, USA Today is not an unbiased resource.

    /actual journalist

    Now, as to topic…

    I will agree that the tax code is unnecessarily complicated as it stands.

    However, progressive taxation in and of itself is hardly a burden on anyone, and is in fact extremely more fair than flat taxes, for instance.

    The reason for this is something I mentioned a few posts ago: Relative cost of living. People in the lower tax brackets pay significantly higher percentages of their gross income to basic living costs, and paying less of a percentage in taxes helps balance that out.

    I have no problem whatsoever paying higher rates on the portion of my income that goes above various points, because I know very well that some poor schmuck who’s making less than half of what I do is still paying that same $3/gallon for gas that I do, and that cost is a far bigger hit to his wallet than it is to mine.

    (I also have no problem with my tax dollars going to help folks who are disadvantaged for some reason or another. Kinda wish less of it went for military spending, but welfare? I have no problem with that. Cutting welfare doesn’t solve the problem of people having kids they can’t afford. It only punishes the innocent kids it helps to feed.)

  78. I HAVE worked for $10,000 a year, gross, and been damn glad to have the job. And $2000/month for daycare is $500 a week, which is absurdly high, even for a place like San Francisco.

  79. Make that $10,000 a year, NET…and I was actually scraping by until the energy companies decided that Hurricane Katrina was a great excuse to raise the cost of energy to the point where my bill went from $220 to $600 a month. And no, I don’t heat with oil, coal, or natural gas. My house is all-electric, with most of the local grid powered by Vermont Yankee or Hydro Quebec.

    I’m doing better these days, but I’ve always used either an accountant or gone to a tax preparation place like H&R Block. If I’d tried to do my taxes myself last year I would have completely missed the stimulus-induced tax credit I got for putting on a new roof, which gave me the largest tax refund I’ve ever had in my life…..

  80. I love this thread.

    * Mr. Scalzi notes that many rich Americans are upset about their tax burden.
    * Mr. Scalzi notes that many of these same rich Americans don’t demonstrate an understanding the US tax code.
    * Mr. Scalzi notes that many of the above rich Americans believe the problem lies with the US tax code and not their ignorance, and that they use Objectivist philosophy to buttress their beliefs.
    * Mr. Scalzi offers a perfectly good solution, Objectively-speaking; that tax-averse Objectivist-Americans hire private-sector tax code navigators (or accountants) to engineer compliance with the law so as to minimize their clients’ final tax burden.
    * Many rich Americans proceed to exhibit in this thread something I like to call “willful ignorance.”

    When my income situation changed a few years ago, I hired an accountant and a financial planner, because what I am skilled at doing is not quite the same as what needed to be done in order for my family and I to meet our goals. Our skilled knowledge workers do their thing, which lets my wife and me do our thing.

    Charles’s anecdote in comment #44 “Guess how much it cost? What he saved in taxes” is at best, well, anecdotal. Certainly my account and financial planner save me much, much more than they cost me. Of course, I did do my homework before I hired them, and they were kind and professional enough to enumerate their fees up front.

    tl;dr Tax protestors are unintentionally hilarious. Accountants are good for lots of folks, but do your homework before you hire one.

  81. I’m not being paid by the accountants to recommend people with complex tax profiles retain their services.

    Oh, of course not; I’m just spouting about politics. It sounds like you’ve got a good, competent one; your previous writings suggest that you are in fact pretty damn wise about money; and the post may actually spur me to get an accountant, since I suspect my own tax profile will pass the too-complex-for-TurboTax horizon sometime soon if it hasn’t already.

    But… my impression is that people in the financial-services sector do tend to lean right politically, and that they sometimes pass the associated lore on to their customers. More financial planners than accountants.

  82. Todd@82: You are under the common misapprehension that what the colonies were objecting to with the “Stamp Act” because it was a financially oppressive burden. It wasn’t. The objection to the tax was not its size, but the fact that it was levied by a parliament with no colonial input.

    The people then weren’t against taxes per se, just taxes levied undemocratically. The the battle cry was “taxation without representation”, not “taxation is theft”.

    The idea that the founding fathers were generically anti-tax is a bit amusing given that George Washington took the army into the field and put down a tax revolt in the first year of his presidency. (Look up “The Whiskey Rebellion”.)

    Back to the topic: personal tax programs are fine if you have simple taxes. I’ve used them for the last 3-4 years and have had no troubles. (My wife and I are both salaried and our main deductions are mortgage interest and charity.) Years before that, I was a contractor, she had a personal business and we owned stock. There’s no way I’d have done taxes then without an accountant.

  83. [Deleted because this particular “I’m leaving in a self-righteous snit and never coming back, so there” comment was especially boring — JS]

  84. A search on “AMT” found only one comment on this thread.

    Beyond the basics of taxation you mention, most people over 250k family income per year are paying AMT.

    So any kind of “here’s how the marginal rate” works level discussion for the wealthy poor needs to include an AMT orientation.

    Bush raised the AMT cutoff to 250/family, and that’s way Obama says taxes won’t rise for persons making under 250 — he’ll keep the Bush AMT cutoff.

    I don’t think Bush actually lowered the AMT rates btw, just the cutoff, so I’m not sure how Mr H ends up paying much more in taxes. He must pay AMT now anyway.

  85. I loved the bit about the “Taxation = Theft” crowd winding up as Objectivist jerky. Their philosophy is one that could only arise in a landscape in which the state-supplied infrastructure is so ubiquitous and the state-supplied military and law enforcement so effective — that is, the suburbs — that it’s possible for them to lose track of the fact that life as they know it bears no resemblance to a state of nature.

    Or, as I said sometime around 1977 or so, when I was deciding that Obectivism was silly and Libertarianism unreliable, I keep thinking about what happens if I have a run-in in a dark alley with a seven-foot-tall sociopath who hasn’t read Lysander Spooner.

  86. PClark@89, I have my taxes done by an excellent CPA who charges me $300-400 depending on the complexity of the return. I was a little surprised by the person who reported $800, and I wonder if they might have overpaid, but it’s hard to say because it all boils down to how complicated your tax situation is. Mine is moderately complicated (post-divorce, dependents, self-employed, investment income, quarterly payments)–but I get the impression it’s relatively simple compared to that of many of her other clients. Also, there is no state income tax where I live.

    When my taxes were simpler, I remember paying under $200 (same CPA), but that was a while ago.

    Some tax preparation services are kind of a scam. They prepare your tax return for free or at very low cost, and make their money by issuing you an “instant tax refund,” a high-interest loan of your tax refund (no risk and very high profits for them) and this is where they actually make their money. The free or cheap tax preparation is the lure to bring you in so they can give you the high-pressure sales pitch for the loan. I doubt the people who prepare returns in houses like that are very qualified–it is not their core competency.

  87. Self v. Accountant: One year I filled out the tax forms and was worried about it enough to bring it all to an accountant. He looked it over said he couldn’t do better and handed it back to me without charge.

    If you REALLY understand your finances then sometimes the accountant can’t do better, especially if your income comes completely from salary and you don’t have complicated deduction opportunities. But it also doesn’t hurt to check with an accountant periodically to see if you are missing something.

    Also: Do you know your actual tax rate? Turbo tax tells you and it can be surprisingly low when all is said and done.

    Finally, Marriage penalty: I make more than 2X more money than my husband. Yet we never find ourselves discussing if he should quit his job due to taxes. I don’t get the bitching about the “marriage penalty.” Why is the woman’s salary always the one that is on the chopping block?

    Is it because the marriage penalty people are starting from some weird “women working outside the home is new and different” attitude? Not in my family. All the women in my family have always worked – farmer, doctor, lawyer, librarian, etc. My mom also made more than my dad so I totally do not get the starting point of the marriage penalty complaints.

    If one spouse doesn’t work then you are spreading one salary over two people — the tax code as it is written is a huge marriage give away to the folks who want one spouse to stay home. Why is this called a marriage penalty when it is actually a give away to the stay at home spouse model?

    Which might lead to the second point — the marriage penalty people are ALWAYS throwing in childcare costs. This discussion has been refreshing to see people pointing out that taxes and childcare costs are actually not the same thing. But the marriage penalty discussions that I’ve seen simply consider childcare costs a tax on women’s work. And that view has a lot of built in assumptions. I just want to speak up and tell people that those assumptions are not universally valid or shared.

  88. After my husband and I moved to the Bay Area, we were able to do our own taxes for about two years until we hit that inevitable wall of “holy crap our taxes have gotten complicated” that comes with living in California. It also occurred at the same time we bought our condo. Home owning instead of renting meant more things to figure out tax wise.

    We asked our friends and co-workers for accountant referrals and to this day when tax time comes around I am so glad we did. We have a fabulous accountant. She answers our questions by phone or email, meets with us in person when we’ve needed to and has made our lives much easier when tax time rolls around.

    I am going to give our accountant a box of good chocolates and champagne when we hit our fifteenth year with her next year.

    I’m serious. She has saved us a lot of money over the years–even when we’ve owed money. She’s been worth every dollar we have paid for her expertise.

    I shudder to think of how we could have wasted weeks of our time and royally screwed ourselves up every year if we hadn’t looked at our situation honestly and said “We are smart, educated people who have no clue how to do this the right way. We need help and we are going to get it.”

  89. As a CPA, I thought I should chime in. However, as an attendee next week at the VP Workshop, I find myself hesitating, not wanting to set myself up for a public evisceration at the hands of Mr. Scalzi.

    What the hell…

    The tax system is a hodge-podge of rules and regulations that have been layered one on top of another for decades. Some areas of the tax code are horribly unfair and/or make no sense (AMT, Marriage Penalty, Student Loan Interest Deduction), while other areas have helped nudge the tax code in the proper direction (529s, retirement plan enhancements.)

    The tax code is confusing, often complicated, and so voluminous that it takes a ridiculous amount of time to get a definite answer to a simple question. (Go to and give it a whirl.)

    That being said, is everyone on this board intelligent enough to do their own taxes? Of course – even the numberphobes. The real question is, are you willing?

    Could I, a novice when it comes to all things mechanical, crawl up on the roof and fix our recently broken air conditioner. Yes, I’d like to think so. Do I have the twenty hours, the special tools and various instructions and schematics that it would take for me to accomplish the job? No. Would I rather pay someone (a professional) to come out and have it done correctly (with a guarantee) in a couple of hours? Absolutely.

    At some point, benefits outweigh costs. Where those two lines intersect depends on your income level, your financial acumen, and your availability.

    Bill – Even factoring in your $2,000/month child care number, the $10,000 net seems a little thin.

    Catherine S – You’re right. You would be amazed how many people don’t get beyond page 2 of their 1040 . Refund or amount due is all they care about.

    Crayonbaby – This may be off topic, but $1,500 to $2,000 a month for child care doesn’t seem that out of whack. You get what you pay for. $2,000/mo divided by 4.333 weeks per month divided by 50 hrs/week (for a full time employee who also commutes a fair amount each way) is only $9.23 per hour. That doesn’t seem like an excessive amount.

    John Gordon – AMT is one of the top areas of the tax code that produces the most ANGER and confusion. People who simply pay state taxes and property taxes now get “ensnared” in AMT. This was never the intent. Unfortunately, it produces far too much revenue for Congress to simply do away with it entirely.

  90. Paying taxes for social programs for everyone is very much along the lines of enlightened self interest, at the very least, without having to care about anyone beyond yourself, it’s avoiding putting someone else in the position where they need to take what they need from you by force or die.

    The income tax system isn’t complex at all until you get into deductions (whose complexity I have efficiency, ambiguity and enforcement gripes about but that is not germane to this conversation) and AMT, in fact, lets take the single 70k taking the standard deduction. Federal income tax next year? Around 11k (~15% effective) with a 25% marginal rate.

    That isn’t much, that isn’t much at all. 150k is still down at ~22% effective with a 28% marginal rate.

    Disclaimer: My state (WA) doesn’t have an income tax yet, hopefully we will soon, but we don’t at the moment.

  91. I’ve been fortunate to have had quite a few years of six and even seven figure income before I retired. My tax returns were always fairly simple–mostly regular income, some stock option transactions and some charitable deductions.

    [I used Turbo Tax ’cause I like to look behind the curtain and see how the tax code works–if I hand it off to an accountant I learn nothing. I have never been audited in 30 years of filing the full 1040 form.]

    I don’t have a problem paying my taxes because I like having a nearby fire station with paramedics and police officers to keep me safe. I enjoy national parks, museums and, while I wish we were doing more in space, I even like NASA. I like driving my car on paved roads and riding my bike on public bike trails. My tax dollars provide many wonderful things that I enjoy and appreciate (and some I really, really don’t like too).

    Our tax system is far from perfect (I agree it’s too complex for most to understand as stated in this comment thread), but we do get a lot for our $$ whether we are able to see that or not.

  92. JS and all others who are “rich” (according to guidelines) and do not want to keep the tax cuts:

    As I understand, there is nothing preventing you from paying more that what the IRS tells you that you owe. If the tax cuts are extended for the rich, will you be paying the difference, or more?

  93. I work for H&R Block every year … I have several clients who own their own businesses (I’ve taken the optional corporate return classes), and since we charge per form, they’re not paying significantly less that what my roommate pays his CPA. Certainly interview a few before you hire one!

    I’m in the middle of my refresher courses right now. Yes, we do use software – but software is not infallible. If I think that the client should have gotten a certain credit and didn’t, I can enter the info manually.

    Plus, there’s such a huge list of allowable deductions, most people miss things. Almost everyone I talked to last year didn’t realize that prescription eye glasses are valid medical deductions. Every single nurse forgot to count her work shoes into her uniform expenses.

    I agree with the man who spoke about hiring someone to fix his air conditioner … I recently stopped doing my own website, because I was spending more time looking up how to do things than I was posting products. The technology is moving too fast, and it’s worth it for me to pay someone else to do the coding.

    However, sitting down WITH your CPA or tax preparer is essential! You *can* just drop off your paperwork and leave it to them, but another commenter pointed out that you know your financial situation better than they do. Also, if you’re there, I can ask “Does this amount include your shoes?” :D

  94. @LeftField: I have thought a lot about that, actually. My short answer is, I can also help out by not leading my family into a situation where they must use extra social service resources–so no, I don’t plan on donating extra tax money to the government above what is currently expected. But as our income goes up, we can afford to donate more to specific non-profits whose missions I admire and want to support. (I also recognize that some of these non-profits would be offensive to others, and so I don’t expect my tax money to be used–but I am grateful for both government-funded services and NGOs…)

  95. I recall listening to a speech given by Rick Steves (the travel guy). I remember him talking about the cost of being the richest nation on a hungry planet, and at a smaller level (and more relevant to this discussion) he talked about a phenomenon in Mexico. If you’re riding down the street in a car, and you suddenly run into several speed bumps in a row, you know that if you look out the window you’ll see a high wall with a very big house behind it. The speed bumps are there so that when someone tries to throw a molotov cocktail through your window they can’t speed off quickly, and the wall is there for similar reasons. These are what the nice houses look like, and it’s one of the effects of being affluent in a context where poverty is the norm. Could our taxes be lower? Sure, but I get the feeling that there are a lot of “fringe services” that aren’t readily visible that our social programs buy us, even if we might not benefit directly ourselves.

    That’s a long argument to make, but it’s one of the ones I like when discussing “is our taxes too onerous?”

  96. I think LeftField has a point. After all, we are free to pay extra money to the IRS if we wish. In fact, I think we should adopt this policy even more. There has always been a big push from conservatives to fight wars in Iraq and Afghanistan that I don’t believe in, so I don’t see anything preventing them from buying their own AR-15 and heading over there themselves. All of that corporate welfare? How about if those who think that’s a good idea send the money to BP and Exxon themselves. And, here’s a thought: All of the rich people who want that tax cut so much, how about if you assume some of that debt it will entail, so I don’t have to.

    I think all of the Bush tax cuts were a bad idea. Yes, I’ve benefited from them personally, as have most everyone. I opposed them because I think we would all be so much better off today had they not occurred. I advocate for a tax policy I think is better for the country even though it will cost me money. Many people who care about this country feel that way. Others feel what is important is that they get theirs. But, they sure do want that massive military budget.

    The funny thing is that those so in favor of tax cuts don’t realize that those cuts probably cost them money. At the end of the Clinton administration we were on track to pay off the public held debt in about 10 years. Had we not had one bungled war and one totally unnecessary war, a new massive entitlement program, and huge unfunded tax cuts, that might very well have happened. And, that 10 years would be right about NOW! The interest on the national debt is a huge expenditure (and it’s going to get much, much larger when interest rates rebound). Just a few years ago it was approaching $250 billion. It’s the third largest line item in the federal budget and could have been gone by now. Then what tax cuts would have been possible?

  97. Excellent advice. I use tax Cut myself, but I have a pretty simple return. The software helps me to make sure everything is entered on the right line. If I had investment income, became a landlord, or ever collected book royalties, I’d call an accountant in a New York minute.

    Your post also reminds me of my pet peeve about the tax system: taxes aren’t too high; they’re too complicated. Any system where your tax obligation depends in large part on how good you are at filling out the form (or how much you can afford to pay someone else to do it) is inherently unfair.

  98. John@110 “I’m not sure how what I do voluntarily with any of my money is any of your business, actually.”

    You talk about your paycheck as though it’s rightfully yours. How quaint.

  99. The answer to LeftField’s question is no, I wouldn’t pay the IRS because I’m not in that income tax bracket. If I were in the bracket, I still wouldn’t because if the tax cuts are extended, the economy is going to go into the toilet again, the investments I have are going to drop in value, my home is going to drop in value, the costs of everything are going to go up, we’re probably going to be losing income, etc. and dropping back out of the bracket anyway, so it wouldn’t probably matter. Then again, I might do it in a futile gesture as I watch the .01 millionaires turn us further into Mexico.

  100. @John It would seem that the taking of what is rightfully yours should be called theft. Since you seem to treat those who see taxation as theft with derision, I can only assume that you give what is rightfully yours willingly to the government for the furtherance of a greater good.

    But is this not the case only up to a certain point? You may be fine with the government taking something around 30% of your paycheck to do with as it pleases but what about 50%? 75%? Is there a point beyond which you view taxation as theft? Or is it the case that the money you earn is not yours by right but only by the benevolence of our leaders?

  101. On the issue of voluntarily paying more than one owes in taxes, a couple of points:

    1) Let’s suppose that the suggestion was taken to heart, a miracle occurred, and a million people each decided to pay $1,000 each in excess taxes to help bring down the national debt. Wow! But that’s a billion dollars, just enough to pay for what–one or two weeks in Iraq and Afghanistan? Under the best of conditions, volunteer payments are, well, bupkis.

    2) The suggestion arises in part out of the mistaken assumption that those proposing higher taxes do so out of some crazy love for paying taxes, and not a recognition of necessity, i.e., the government has to pay its bills. The inevitable rejoinder to such proposals–wow, you Democrats/Liberals/Infidels must love paying taxes–makes no sense to me. I get a colonoscopy every few years, but no one has ever said to me, “Wow, you must love getting a cable shoved up your butt,” probably because it would make the speaker sound like an idiot.

  102. This might be only tangentially related, but all this tax-talk made me wonder about writers and taxation. I know you have to cover the SE tax (i.e. both halves of social security and medicare tax), but do you have to register as a business entity to file the Schedule C? When I ran a cafe, it was as a sole proprietorship with a dba, and the tax ID was my own ss#. So that has me wondering how it works when you’re an author or musician or working artist… (thanks in advance to anyone who knows the answer).

  103. I realize that you Americans (howdy from Canuckistan!) have an oppressively more complicated set of tax regulations than ours…

    It troubles me, John, that you *need* to recommend that people behave as if the tax code is a set of incomprehensible magic.

    There’s a bit of a SF-versus-Fantasy thing here; the effects of tax policies *ought* to be scientific, predictable, things that we can reason about and discuss based on the facts.

    It is really troubling when the discussion heads over to the “fantasy” end of things, where it is apparently not possible to know, understand, or predict the effects of the regulations. If they’re “magic,” then there’s no gainsaying what people might say, and that’s incredibly corrosive for public debate.

    I’m familiar with how Canada dealt with things similar to the tax reductions that are the root of the present controversy, and while the calculations were pretty weird (see, it wasn’t *such* black magic that “mere mortals” couldn’t possibly reason about it.

    For my small “scientific contribution,” let me observe that I have encoded a portion of the Canadian tax regulations in Prolog. I’m not sure if I got our “T691” fully done; I’m sure it doesn’t apply to me, so validating it perfectly didn’t worry me terribly much :-).

  104. Kat @120, great article, thanks for posting.

    Re: an earlier comment about just dropping off one’s paperwork with the CPA, does anyone actually do that? I sit down with my CPA and go over everything in detail. Then, when she delivers the return, I’m required to go over it in detail and check for errors before I sign it. (Once I did find an error.) Even if I didn’t find it worthwhile to double-check my return, it’s worth going over just so I understand my taxes and where my deductions are coming from. With that knowledge, I adjust my financial behavior to minimize my tax burden.

    Another nice thing about my CPA is she nags me about doing those financial chores I know I should do but that I tend to put off until it’s too late, like setting up 529 plans for my kids. She mentioned it every year until finally I got it done.

  105. Getting an accountant is one of those things a responsible adult should do. Filing every year costs us less than $200, and the accountant always finds an extra deduction or two we didn’t know about, thus paying for himself.

    As soon as I got married, I stopped doing my own taxes and hired a professional. I don’t want to be the idiot who messes up the family finances because I was too cheap to know I need someone to assist us.

  106. Adam:

    “Is there a point beyond which you view taxation as theft?”

    In a democratic society, where the tax rates are decided upon (or at least ratified) by a legislature directly elected by the people? No. This is not to say that there isn’t a level after which I might feel my level of taxation is too high. But that’s a separate discussion from whether I consider it theft, given the governmental system we have.

  107. @John In that case, your money is not yours by right but is only yours, for now, because the government (and the people, by extension) allow you to keep it. So your original response to LeftField seems off base. You refer to your money as “my money” (it seems that it isn’t really…what does it mean to own something that can be rightfully taken from you without your direct consent at any time?) and you say that it’s none of his business what you do with it (it’s very much his business, as it is the business of every voting age member of this democracy, since it would seem to be our job to decide how much of your paycheck you get to keep).

  108. Or is it the case that the money you earn is not yours by right but only by the benevolence of our leaders?

    Adam, serious question – do you view, say, home owner association fees in the same way?

    Taxes are a fee to live in a society that provides you with all those wonderful things like Pools, BBQ decks, 24 hour concierge’s who’ll sign for parcels and pick up dry cleaning and so on.

    You have plenty of options for paying less tax (moving to a more tax friendly state) or going off grid and leaving the US and living somewhere with no tax and giving up your US citizenship.

    If you want to be a member of the US of A home owners association and enjoy a standard of living like you do, then there will be a fee associated with it, whether you live in a socialist society, like, say, Germany, or a Libertarian one, like… hmmm… I wonder why there aren’t any out and out Libertarian societies in the world?

  109. Adam:

    “In that case, your money is not yours by right but is only yours, for now, because the government (and the people, by extension) allow you to keep it.”

    Eh. Leaving aside the fact that money is fundamentally an abstract intellectual concept, and so speaking of having a right to it requires an entire suite of basic assumptions that people can argue about until the cows come home, even if one is to accept this particular postulation, whether my income, less taxes, is mine by “right” or by the sufferance of hoi polloi does not change that it is, in fact, mine; the government does not have a claim on it. Whether it may in the future is irrelevant supposition. And what I do with it is neither LeftField’s business nor anyone else’s, if I choose it not to be.

    Shorter version: Your attempted intellectual gymnastics to suggest my money isn’t actually mine leave me less than satisfied.

  110. Daveon @129

    Well said.

    Adam @128
    I feel like you’re trying to skew a nuanced conversation into one of two extremes, and equivocate any position between those extremes as one or the other. That’s kind of a “high school debate club” way of looking at it, and I don’t think it serves your argument.

  111. @Daveon Actually I don’t view homeowner’s associations in the same way for a couple of reasons:

    1) With a homeowners association I have an actual contract with terms that are explicitly spelled out which I can choose to accept or not. The homeowner’s association has authority over me because I explicitly give it such authority if I find their terms reasonable. Without my explicit consent the association has no authority.

    In the case of society, I have given no explicit consent. The argument may be made that my decision to live in a geographic region controlled by some government implies my consent to whatever actions the government may choose to take on my behalf. However, this assumes that the government can legitimately enforce this social contract by removing me from this region if I choose not to live by their terms. You are assuming that the government is legitimate to prove it’s legitimacy.

    2) The homeowner’s association contract cannot be used to justify anything and everything that the association does. The terms are explicitly spelled out. With the social contract, there is the assumption that anything a duly elected government does it does with the consent of the governed. Nobody actually believes this is true. Everybody has some concept of an unjust law. That is, a law which has been enacted by an elected government which does not conform to some standard of justice. If there is no standard higher than the government, how can any action of the government be criticized? Why criticize laws that discriminate against same sex couples, for example, if those laws represent the will of the people? You can try to convince others that the laws should be different, but you can’t call those laws unjust.

    3) The terms of the homeowner’s association contract cannot change at any time without my explicit consent. I think it follows closely from my last point that the terms of the social contract can not only be used to justify any government action but that they can justify any government action at any time.

  112. @Adam,

    Sorry but not one of those 3 arguments actually holds water in the context, without, effectively, ignoring the entire basis of modern western industrial democracy.

    I don’t want to go into a full deconstruction as I suspect John will object – but unless your argument is that government of any kind is an un-necessary burden on the individual then not one of the points you give makes any sense.

    If government is like that, why aren’t more people rushing to live where there isn’t government?

  113. @Daveon I’ll stop now since this is definitely getting off topic. I guess we can continue this if an appropriate topic presents itself.

  114. I bought a house recently, and didn’t know until I’d been living in it a month or two that the mortgage interest was tax deductible. This was about the time I started noticing people on the radio talking about how stupid this was, and how we should eliminate it. Gotta admit, I’m kinda torn. On one hand, it does sound like a bit of an excessive bonus for owning a home, on the other hand… yay excess?

  115. Here’s a question: in the midst of a tax code that most people would agree is mind-bogglingly complex, but that offers (to many) a simplified code for use….how does one determine if their tax situation is ‘complex enough’ for an accountant? I’m not being snarky; I’m unclear on the middle ground.

    Obviously, if you work a job with an odd pay-cycle like Scalzi or have spouses who work in multiple states or rent property and such, that’s complex and an accountant would generally be of benefit. But what if you have few investments, a simple mortgage and happen to earn a lot? What makes your tax burden cross that magical barrier between TurboTax to CPA?

  116. @Ben #18, John #22: It’s a real scenario, not a Fox dystopian nightmare. I’m glad that wherever you live, it doesn’t cost that much to raise a kid in a specific-language-speaking elite preschool, but their restrictions are their own: they won’t send their kid to a place where he’ll get a substantially worse education than if the mom stayed at home. And they are in an expensive part of the Bay Area (Mountain View, just north of San Jose).

    Again, I’m avoiding giving any personal information about them, but the woman is brilliant, and was one of three authors that discovered one of the major classes of internet computer vulnerabilities a couple years ago.

    Having her not working might be good for her family, but it’s not good from the point of view of the country. When you have high marginal tax rates, it creates too large a disincentive.

    Steve #46: They are renters, because on their six-digit salary, they can’t afford a house in Mt. View.

    Cryptic #48: $10,000 net a year doesn’t buy you much in the Bay Area. I’ve lived on $20k gross a year in San Diego, and it’s not fun. It becomes a serious question, after you run the numbers, how much spending time with your babies is worth to you. For her, it needs to be a lot more than 10k a year.

  117. “I’m glad that wherever you live, it doesn’t cost that much to raise a kid in a specific-language-speaking elite preschool, but their restrictions are their own: they won’t send their kid to a place where he’ll get a substantially worse education than if the mom stayed at home. ”

    And I won’t drive anything besides a (current model year, of course) Porsche Carrera to work and back. My restrictions are my own. I could drive something with under 350 horse power and poorer handling, but I refuse. And can you believe that after my car payments, I’m only pulling down -$30,000 a year? I swear, taxes around here…


  118. WizardDru:

    “What makes your tax burden cross that magical barrier between TurboTax to CPA?”

    For me, as I noted in the entry, I think when you pass from the 1040-A or 1040-EZ form into the longer form you should definitely consider it, or at least doing an initial consult. Others may find their mileage varies.

  119. Suffered under the effects of Labour here in the UK? I personally have lost more money and living standards under the Tories than Labour.

    So I’d say no. My living standards increased drastically and I had much greater liquidity under Blair/Brown than Thatcher/Major.

    I also love it when I read statements from the US about leaving kids a huge tax bill for #foo. Particularly when #foo=healthcare mainly because we had all those statements in the UK back in the late 40s and 50s and I’m one of those children that was left that tax bill.

    Money well spent. That tax bill, compared to the alternative, is gratefully paid. I’m glad the previous generation made the choice they did on those. And god bless Aneurin Bevan in particular. People in the US, consider this a message from your future kids.

  120. @Bill, how lucky for you that it can be a choice.

    Living with real money means the choice comes pre-made.

  121. I do not think tax is theft but I sure do think the tax code is moronic. Understanding how something works is orthogonal to whether it is stupid or not. Being for or against progressive taxation is one thing, recognizing a piss poor implementation of progressive taxation is something else.

    Your average third grader could come up with a better plan.

    It’s also obvious to me our tax dollars are being misspent. I cannot see how anyone can argue with that? Huge portions of the federal budget are defense spending (we spend more then the rest of the world combined) and health care (the evidence we are inefficient compared to other nations is overwhelming IMO).

    Defense spending alone is justification for “misspent”.

    So, we have a moronic implementation of something you may or may not believe in (progressive taxation) and then a lot of the money is pissed away. Why should not people be angry?

  122. @137. But turbo tax, do a dryrun of your return, then get a CPA and do the file. Diff the amounts.

    I did that, CPA came out ahead but not by a huge margin.

    Really is not a huge differnce from what I have seen when your situation is simple and your income is high, AMT dominates anyway.

    though based on some comments here I am going to try a different CPA next year.

  123. FWIW: Tim Geitner, Secretary of the Treasury used TurboTax to do his taxes. He still got them wrong and had to pay a penalty (albeit only after he was caught).

    I’m not saying that we should have a Secretary of the Treasury who is smart enough to do his own taxes. Rather I think the tax code should be simple enough that even an Ivy League educated Secretary of the Treasury should be able to do them without the aid of either an accountant or TurboTax.

  124. Scalzi: Good Point. Think I should do a consult, just to see if I could make things work more in my favor.

    Bill@138: Bill, that’s really not a statement on her taxes, either way. They have self-selected to choose a day-care situation that is pretty outside of the norm, as you specifically cite when you refer to it as a “specific-language-speaking elite preschool“. That she’s only pocketing a around $10K after expenses for working an additional job seems related more to the specific situation she’d like to choose than the actual taxation situation. She could choose a less expensive, less elite school or arrange for a less expensive commute and so on. She isn’t working for $10K, she’s working for $70K, but then paying expenses for the privilege of that job which mean that she’s not pocketing that much. That’s not the same as only getting $10K by itself…and most folks wouldn’t count a car payment, insurance and other proximate costs as tax costs.

  125. What you’re paying for with an accountant isn’t the ability to fill out Form X. The IRS’s forms are a little complicated, but you can fill out almost all of them given the instructions and a little care; they’re not rocket science.

    The accountant’s added value is knowing that you need to fill out Form X in the first place. The tax code is emphatically BAD at telling you “you have this particular type of income, or type of expense, or type of property, and thus are eligible for this rebate/required to fill out this form/subject to this extra tax.” A monkey can fill out 1040A, but I know several people who came back hundreds or even a few thousand shy because nobody ever told them about Form 8863…

    I think a lot of the attitudes that are causing the Tea Party swell aren’t strictly “my taxes are too high”, although certainly there’s that sort of person and they haven’t necessarily thought things through very well. More than that, though, it’s the feeling that the government’s disassociated income and expenses altogether. When the deficit’s 100 billion a year, you can say “well, we ought to tighten our belts a little, and carefully cut out waste, and then we’ll be able to get back to zero.” But if it’s five times that, or ten (!), you’re not talking about trimming the fat; you’re an unemployed guy eating at fancy restaurants every night, because the creditors haven’t caught up (yet) and why not live it up until then?

    I don’t think that some increases in taxation are a bad idea if the government’s got its fiscal house in order otherwise; I could afford it. But if we’re going to run a deficit the size of a prosperous European country’s entire GDP every year, why pretend that slightly more taxes are the solution to all our problems?

  126. Bill@138: The irony is that the mortgage interest tax break has the economic affect of propping up housing prices. (Because people can afford to make a higher mortgage payment than rental payment.)

  127. Others have said it, but I must thank you personally – ‘…turned into thin strips of Objectivist Jerky by the sort of pitiless sociopath who is actually prepped and ready to live in the world that logically follows these people’s fondest desires’ is the best one-sentence disassembly of Rand ever.

    In re all the “We make $150,000+ we don’t need a tax preparer” folks in this column: oh yes you do. Yes, the first time a professional preparer did our taxes, the tab was $1200. The savings was four times that *for a single deduction* we didn’t know we were eligible for. The suggestions she made and the changes we made grew that to $10,000 that first year, and $5000 per year afterwards. Every year. So even if your situation is similar and you spend $800 to reap $800 savings, well, *now you know how to do that yourself* and can save the $800 every year. Cheap education, I’d say. And for those of us whose situations remain complex, keep going to the specialist.

    As for the rest of this . . . yah, almost everything else I’d say would be off-topic. Not that paragraph 2 isn’t, but I’m noting it as (a) a public service and (b) a second anecdote that describes a much different outcome.

  128. On the one hand, people think they should get special tax breaks for doing The Right Things, whether that’s saving for retirement, owning a home, outsourcing childcare, investing in stocks, etc.

    On the other hand, people want a simple tax code.

    Well, you can’t have both. All those tax breaks are a large part of what makes the tax code complicated in the first place. And when push comes to shove, most people seem to prefer keeping the breaks– at least the ones they can take advantage of. (I recall a large chorus of howls the last time there was a proposal to eliminate the mortgage interest tax exemption, or to cut it back substantially.)

  129. @Ben and others – it’s worth remember that Tax Relief on Mortgage interest in the UK was done away with by that old lefty Margaret Thatcher in the belief that it was nothing more than a distortion of the housing market.

  130. Bill #138: First off, your friends are largely irrelevant to the tax cut debate as they only make potentially $140K gross, and much less taxable income, so they aren’t getting the tax cut that’s about to expire. So if Obama gets the middle class tax cut that the Republicans are holding hostage, their taxes will go down. Their taxes already went down last year when Obama gave most of us a big tax cut.

    But okay, I’ll bite on the other stuff: if she’s brilliant, why does she have to be the one who stays home with the kid? Why can’t the dad be the stay at home parent? Why is part time work out of the question? Why are they living in the most expensive area? Why not plan to move to an area that is less expensive with less expensive day care available? (I’m not talking downtown Oakland, but there are other suburbs in San Jose.) Why can’t they reduce their expenses to be able to afford the child they want to have? Have they decreased retirement savings? Are they prepared to sell things off? Have they gone to a financial planner? I have plenty of friends who live in New York, Boston, L.A. and San Diego who have kids, who earn much less gross and survive quite well. I lived in San Diego with my husband (sans child) on $22,000 gross income total before taxes — that’s two of us — and it was totally fun. It was also cheaper than where we live now. So I’m not really digging the whole you just don’t understand us folks in California stuff. It just sounds like these people are really inflexible and maybe not ready to have a kid.

    I mean, that’s $11,666 gross income a month. Not all of that income is taxed, and they can chose how much withholding to have taken out. Plus presumably they have some savings and investments putting out income. Let’s give them the mega day care of $2,000, that’s $9,666 gross. They’ve got rent, health insurance, tax. That will take a big chunk, but if it takes too big a chunk, then they definitely need to talk to accountants and financial planners and they definitely need to look at moving.

    They also need to look at the long term effects. Yes, if she goes back to work, they may need to cash in a good chunk of savings to pay for the daycare and put off buying a house for longer. But, she won’t be out of the market for five years, falling behind on her skills, and she’ll have the potential to make more than $70,000 as she progresses (teenagers are expensive.) Plus, as someone else noted, she’ll still be paying into Social Security and building credits there, and might be able to put a percentage into retirement savings that otherwise they lose (stock options!.) So that might be worth the sacrifice of $24,000 in extra expenses a year for a few years for the longer term financial gains.

    In other words, she has no disincentive to work because the government taxes her. In fact, taxes might not be her biggest expense. She has a disincentive to work because she wants to have a certain lifestyle, which is not the government’s problem.

    Again and again, the complaints we are getting are about people who have chosen particular careers and places to live, who insist on having children and private schools or expensive daycares, who insist on living a lifestyle they can’t actually afford and who seem to have no clue about how to manage taxes or investments to their advantage. And instead of dealing with their own chosen problems, they blame the government, even though we have one of the lowest tax rates, yes even local taxes, in the industrialized Western world. The tax code is complicated because it is full of deductions for people to reduce their tax burden. If she’s smart, she might be able to come up with home office, unreimbursed business expenses, and depreciation deductions, plus childcare and child tax credits, that might reduce her taxable income and tax to pay for a good chunk of the expensive daycare she wants. So an accountant would be worth the money.

  131. Adam

    I love all this talk about taxes being theft. And how homeowners associations have contracts with interactions with the governing council of like minded homeowners.

    It’s almost like a small scale version of how government and taxes work in a democracy. You know, with a constitution and popularly elected representatives.

    That said, if Imagination Land Galt Gulch has a realworld counterpart that’s functional, I’d love to hear about it and it’s immigration policy.

  132. Just wanted to say, contra Todd, that I think my taxes are too low, and I’m a well-off, middle-aged business owner.

    And before some jackass asks, the reason I’m not sending the surplus money in right now is that I see taxes as a collective effort, requiring fairness. An example:

    Suppose I go out to dinner as part a group of 10 friends. The bill, with tip, is about $250, and people throw in money. I put in $25, but somehow we only end up with $200. If I notice that first, should I just put in the extra $50? No, we should figure out why we’re short and what’s fair, which might include pressing a couple of cheapskates to pony up.

  133. @Steve Simmons: “The savings was four times that *for a single deduction* we didn’t know we were eligible for.”

    Okay, I’ll bite. What was the single deduction you didn’t know about that saved nearly $5000 in taxes? That deduction had to be like $20,000, right? I always hear these stories, but always want to know what tax loophole the CPA found that normal people don’t know about that was worth a massive deduction like this. And, what are the other deductions your CPA is finding that are worth so much?

  134. People keep sending me things on this topic now. Apparently, Quinnipiac University did a poll that had nearly two-thirds of those with household incomes of more than $250,000 a year supporting raising their own taxes to reduce the federal deficit, i.e. letting the tax cuts expire, which is estimated by the CBO to put $700 billion back into the budget over ten years. So, assuming that this poll is more or less on target, we are once again getting railroaded by that one third who leverage their billionaires and their politicians, and by Mr. Murdoch. But a whole bunch of other well off people have some long term perspective.

  135. @103 Mea: I believe there’s a marriage benefit and a marriage penalty; which you have depends on your relative salaries. According to (and this matches my vague recollection), you get a benefit if you make very different amounts of money, but are penalized if you have similar salaries . . . at least, depending on income level (they say it improved in 2003, but still exists).

    I know little about it, being federally single (half of a married-in-some-states same-sex couple), so if I and/or got some of it wrong–sorry.

  136. @Charles: I had recently gotten a book contract as part of my one-man consulting business. The book contract was to write about a then-uncommon operating system, UNIX. To write the book, I needed a UNIX system to verify everything on. At the time, the cheapest UNIX system you could get was about $5,000. The U.S. was in a bit of a recession at the time, so to stimulate the economy there was a one-year-only change to the tax code allowing businesses take a big chunk of any new capital expenditure as a credit – not a deduction, a credit. I’d heard of the credit, but didn’t think it applied to me. After going over the criteria, the accountant carefully explained what capital investment was and why I qualified. $5000 tax credit, on the spot.

  137. Oh, and about the difference between your own personal generosity as opposed to taxation: it’s sort of like the difference between your own personal courage and having a military establishment.

  138. And sorry, to answer the rest of your questions – a big chunk of the rest was due to the incredible amount of pre-tax income the self-employed can put retirement accounts – about 18% of overall income, if I recall the 1988 tax laws correctly. We promptly put every dollar into it. There were also the books – I’d been spending $2000 in a typical year on cutting-edge technical books. As a professional, I could deduct whatever cost of that exceeded 2% of my income. Most years, I got not credit from that. But as a business owner, if the *business* bought the books, they were 100% deductible as a business expense. They kept going onto the same shelf in the same room, but suddenly they were 100% deductible instead of 10 to 0%, depending on the year.

    Between all of these, they typically lowered our family income by a full tax bracket.

    My point here is that it took a smarter-than-me accountant to realize that when I changed from employed professional to business owner, the exact same pattern of expenditure had a completely different tax footprint.

  139. If you don’t know enough about money to know what Ricardo’s Law of Comparative Advantage is, you need an accountant.

    If you do, then you understand why you need one.

  140. Late to the party, just read through the thread. This just plain hit me over the head:

    @93 Tal

    “1. The free market is an inherently horrid way to set policy because, unlike a constitutional representative republic, it doesn’t guarantee to protect the rights of minority populations.”

    WTH? The point of the free market isn’t to set policy. The free market IS the whole point. It’s the freedom to spend your money the way you want to spend it. It has to do with living your life the way you think best. It’s the most basic of freedoms. Without that, freedom doesn’t really exist.

  141. There is a big disparity in the quality of accountants. My first business accountant (I have a small business) advertised as consultants for small business. They were terrible. Took 3 weeks to respond to emails, I had to do research for them. I switched to a new one. This guy cost about $800 more, BUT saved me atleast $15,000 in taxes the first year. I used him for 2 years.

    I saw what he did. I have my returns. Now I just do it my self with quickbooks and turbotax(need small business and personal).

  142. @Steve Simmons Thanks for this. I appreciate this becoming something more concrete. Though, my original comment said “anyone self-employed”. If you have a complicated situation, such as significant and non-obvious business expenses, by all means use a CPA. But, if you income is nearly all salary, there’s really not a lot of “loopholes” out there.

  143. John @153, I’d give up all the special tax breaks for Doing the Right Thing if I got a (vastly) simpler tax code in exchange. (Tax rates would have to be slightly lowered to compensate for loss of all the deductions.) Right now the tax code is so byzantine that I think the government’s attempts to encourage certain behaviors such as home ownership and charitable giving through tax breaks are undermined. If people don’t know what the tax breaks are–or under what circumstances they apply–they won’t change their behavior to take advantage of them.

    For example, I have yet to itemize deductions in a tax return, because every year in which my itemized deductions were higher than the standard deduction, either my income was too high that year and the deductions were phased out, or the AMT ate my lunch.

    What this means is that every year I have to document everything as if I were going to itemize deductions, then my CPA has to go through the exercise of itemizing deductions (at my expense), and then we throw it all out, because hello AMT.

    The other problem is that because the tax code is so ridiculously complicated, I go into the tax season having no idea what I will owe or be owed on my return. I may be due a refund of $5000. I may owe the IRS $5000. It all depends on what crazy deductions apply that year, whether I’ve crossed some magical AMT threshhold, etc. As someone who carefully budgets every dollar I spend throughout the year, I find the randomness of this part of my budget extremely frustrating.

    When this tax code is this complicated, I think it’s time to throw it out and start over. I know it’ll never happen. But a gal can dream.

  144. Let’s assume – correctly, as it happens – that I have a simple tax situation as far as I know, am getting hit slightly by AMT, and overall think that perhaps, sure, I should check whether a CPA will help.

    How do I pick one? [Albany, NY if it matters.] Word-of-mouth would be great if I knew anyone else using one; sadly not so. Advice sought..

  145. @Ewan Have you considered Angie’s List? I’ve not used it for accountants, but it’s one of their categories. We had great results when hiring a heating/air conditioning contractor.

  146. @Dave in Georgia,

    It’s the freedom to spend your money the way you want to spend it. It has to do with living your life the way you think best. It’s the most basic of freedoms. Without that, freedom doesn’t really exist.

    This statement caused me a degree of physical pain too. But John dealt with this in his opening statement. Freedom is an abstract concept at best. Without laws and systems to enforce those laws, even in a Libertarian Utopia, there wouldn’t be any freedom.

  147. @172 Daveon

    I absolutely agree that a framework of laws is necessary to support freedom and liberty.

    The federal tax code as written ain’t it. In fact, it’s not even in the same area code. The federal tax code is used as a hammer by legislators to get campaign contributions from those either threatened, or seeking favors. It has nothing to do with collecting revenue fairly.

    I keep seeing references to paying for roads and the like. That involves state and local taxes — not federal. And the money collected by the feds and given back to states isn’t exactly efficient. It has a finder’s fee taken and strings attached.

  148. “The free market IS the whole point.”

    No. The free market is a tool we use to achieve certain outcomes. Mistaking the mechanism for the meaning is one of the classic errors of fundamentalism. Marxists and class, Freudians and sex, Libertarians and free markets: many of each take a good point way too far.

  149. @Dave in Georgia,

    I don’t think you’re getting anybody here saying that the US tax code is perfect – running a business here makes me long for the warm and fluffy people at HM Revenue myself. But your specific issue seemed to be with the collection of taxes.

    I’d suggest that part of the problem the US has is in the way it tries to run as a collection of independent nations even when that’s directly again the interests of the citizens and the nation.

    Some things should be managed nationally and infrastructure, especially where it crosses states which just can’t afford it, is one of those things.

  150. @174 300baud

    “The free market is a tool we use to achieve certain outcomes.”

    The free market is an outgrowth of personal liberty. You know — the thing the Constitution was designed to protect from the newly formed federal government by limiting its powers.

    Not that they’re considered limited anymore. At least by some politicians. (Rep. Pete Stark, for instance.)

  151. @175 Daveon

    What you just described is the very basis of a federal system — a national government with limited powers, handling ONLY things that must be done as a nation. Everything else is supposed to be dealt with at the most localized level possible — or not handled by government at all, but by the citizens making their own individual choices in living their lives.

    The point was to keep the government from turning into a tyranny of some sort. We’re sliding down that slippery slope, and the speed of the descent is picking up geometrically.

  152. Bill @11: do I really need to go into my rant about people who want to have one parent stay home for personal reasons pull out the kind of Silly Math you present to pretend “no, really, we’re doing this for financial reasons”? Because I’m worried about getting the Mallet and not in a good way, but I’d suggest your friends need to own up that they want the wife to stay home with their child, instead of seizing on marginal take rates and claiming it’s forcing them into this terrible choice they wanted anyway.

    Re CPAs, lawyers have a saying about people who want to do self-help for all but the simplest issues: “You can pay me now, or pay me later.” I imagine CPAs are similar.

  153. The point was to keep the government from turning into a tyranny of some sort. We’re sliding down that slippery slope, and the speed of the descent is picking up geometrically.

    Please note that individuals are faced with a multitude of collectives that impinge on their freedom, and not all of them are governments. Failure to recognize that means you’re making yourself vulnerable.

    Pitting atomized individuals against collectives is a losing proposition. An individual is going to need to select the proper collective to team up with.

  154. @Dave in Georgia,

    We’re sliding down that slippery slope, and the speed of the descent is picking up geometrically.

    No, really it isn’t, that’s a great piece of hyperbole but it’s not remotely supported by any facts.

    Dealing with stuff locally is completely impractical in the 21st century. A rural part of Dakota isn’t going to have anything like the money required to maintain and run a 21st century infrastructure compared to say, Seattle, San Francisco, New York etc…

    What you’re advocating might have worked for a largely agrarian self sufficient population, but it doesn’t make a blind bit of sense for the modern world unless you want to create a huge underclass of poor regions without access to the cool stuff the people living in cities have.

    If you do that you’d end up with a perpetual split between people in the Coastal Cities with access to modern infrastructure and facilities and a bunch of people effectively stuck in the mid-20th century with no real prospects…

    Oh. Right.

  155. @ 179

    Most of them aren’t the government. While I skew slightly to the libertarian side, the libertarian concept generally fails to acknowledge that what threatens people is the accumulation of power and resources.

    I would also say that the end result of every free market is monopoly and cartels, which is not, in fact, the sort of thing that leads to people having greater choices.

    If you owe your butt to the company store, your freedoms are limited in the practical sense no matter who free you might be in a hypothetical sense.

  156. Most of the people I’ve come across who think that “taxes are theft” ARE the sort of “pitiless sociopath” you’re talking about.

    But then, I may have come across them because I’m a science fiction fan. These people just love their Heinlein and their Card; I was afraid to ask if they like Scalzi.

  157. @Dave in Georgia, 176:

    I think you’re mainly wrong there, but it doesn’t matter: the Constitution is *also* a tool created to achieve certain results. Treating it, or Adam Smith, or Ayn Rand as a religious document is just as idiotic as the Marxists and Das Kapital, or Maoists and their little red books.

    I get that the free market might be the whole point *for you*, but until you get that the rest of us are trying to run a society, you’re always going to end up frustrated in discussions like this. Arguing from axioms that others don’t share is a waste of everybody’s time.

  158. Kat Goodwin and mythago:

    (This thread is probably old and cold, but…) I think the point that both of you are making is that most people who claim taxes are keeping them from working are probably being disingenuous. I tend to agree. Nevertheless a tax, of any size, on any transction (including pay for services) creates a disincentive to entering into that transaction. The question is does that disincentive make a difference. The answer is, only at the margins. For every job there is threshold takehome wage one must earn for it to be worth giving up one’s liesure time. For every person and every job that threshold may be different.

    If you want me to mow your lawn I need at least $20 takehome. If you are willing to pay me $30, we’re in business, even if I pay 20% ($6) in taxes. If someone threatens to tax me at 30% ($9), that may make me sad, but it won’t keep me from mowing your lawn, because I’d still take home $21. However is someone treatens to tax me at 40% ($12), I’m not lying when I say I won’t take the job, because $18 takehome isn’t worth it to me to give up two hours of reading/video games/time with my kids/sleep/whatever.

    There is nothing special about taxes, other “but-for” costs create the same disincentive (e.g., gas prices, the babysitter I have to hire). There is nothing magic about my personal $20 threshold. Some might be willing to do it for $10, for others it may take $500 (and there may be some interesting and perhaps troubling differences in how these thresholds vary according to gender). Neverthelss, a tax, even a reasonable well-spent tax, is always a disincentive. But taxes only affect the decision to work for taxpayers at the margin where the incremental disincentive makes a difference.

  159. Well no, Blue Valentine, it doesn’t create a disincentive. It’s just that some people don’t like it more than others. And nobody is taxing you at 40% for mowing a lawn. That’s why we have progressive tax rates, with lower income earners sometimes not owing tax at all or only Social Security. Try not using fantasy math.

    Childcare costs are a disincentive to working for lower income levels. The lack of affordable childcare can cause too large a chunk of income to have to go to childcare so that the parent can work. So what happens, usually, is that the women go to work anyway, if they can get a job, because the family needs food, and instead there is no childcare if the kids are 5 and up and if younger, they are often left in precarious childcare situations, rather than a nice $2,000 a month facility. There is occasionally government aid or charitable aid — public schools try to have low cost childcare programs, Boys and Girls Club of America, etc. If it weren’t for Objectivist Jerky, we would have more of that and our society would be in better shape. But the majority of Americans care about nobody else’s kids but their own, unfortunately, and refuse to understand the long term benefits that would accrue from doing so.

    But the people who are complaining about childcare costs here aren’t in that situation where it’s a choice between food, rent and childcare. They are in a situation where they don’t want to change their lifestyle to achieve their goals. They don’t want to manage their money to come up with a financial plan. They tend to ignore retirement savings they’ve gotten and work benefits when they are complaining about their expenses.

    I’ll give you a totally inane example that is nowhere as serious as childcare issues, but is nonetheless pertinent. When my husband and I were about to have a baby, we were in the process of moving up from working class to middle class and had bought our first home, but babies are expensive. At that time, we spent about $40 a month on comic books. Just a little recreational expense, something we liked to do (he liked Spiderman, I liked Sandman.) It had started out being a lot smaller an expense, but prices went up, Marvel started doing these massive crossover things, etc. So we stopped buying comic books because it was too much money to spend on that expense when we had a kid.

    The people who are making these complaints about taxes don’t want to stop buying comic books. I’ve been at several different income levels in my life, and I have family who are in nearly every different tax bracket and situation in life, so I don’t do fantasy math. I realize you’re saying people will have different views about what they are willing to do, but that’s not the same thing as tax being a disincentive burden.

    If you cannot manage your finances but you have enough income to swing $300-800 for a tax accountant or at least a financial planner, go do that. I agree with John on that. Because it isn’t the government’s job to teach you how to do that.

  160. Kat,

    I made up the numbers in my example to keep the math simple. I agree that most people who mow lawns for pay are not taxed at a 40% marginal rate. But none of that changes my basic point: even the smallest tax creates a (correspondingly small) disincentive.

    I think our disagrement, if any, is semantic. You wrote that “[taxes] don’t create a disincentive. It’s just that some people don’t like it more than others.” That’s what a disincentive is: something you don’t like.

    Most of us aren’t anywhere close to the margin when it comes to deciding whether or not we work or not. But plenty of people are, whether its deciding whether or not to take a second job, work an extra shift or whether to retire at 64 vs. 65. And when we make that decision we will weigh the benefits of that additional work (gross pay, benefits, job satisfaction) against the burdens (taxes, expenses (child care, wardrobe, commuting costs, loss of leisure time). Each of those burdens is a disensentive.

    For the record I am in favor of progressive taxation, believe we should return to Clinton era tax rates, and think most high-earners don’t so a good job of managing their finances.

  161. @Blue Valentine:

    You write: “There is nothing special about taxes, other “but-for” costs create the same disincentive (e.g., gas prices, the babysitter I have to hire).”

    I’m not so sure about that. I think taxes are importantly different in a couple of ways. One, everybody pays them. This changes the absolute prices, but not the relative ones, and I think people are much more sensitive to relative prices. Two, because they’re not optional, they tend to fade into the background. E.g., people tend to talk about gross salaries or gross prices, not net of tax.

    So I suspect taxes are special in that they don’t have as much behavior-distorting influence as other factors that affect pricing.

  162. I agree – we were arguing about the semantics.

    The CBO testified today in hearings that extending the tax cuts for the 2%, even for two years, would be disasterous. It will run up the debt and not stimulate enough jobs or consumer spending. Which we already knew from the oughts, but the numbers don’t get any prettier.

  163. 300baud:

    I agree that relative prices matter more when choosing between job A or job B and most income is taxed the same regardless of which job it is for. But you only pay income tax if and the extent that you earn income. Leisure time is not taxed. So if the decision is between working and not working then income taxes do effect the relative price difference between the two choices.

  164. I think some of you under estimate the amount of budgetary wiggle room present in the upper income brackets.

    Most of these people are locked into large mortgages that are not discretionary. In the current housing market, selling your house and downgrading, even if you want to, is a year long endeavor.

    Similarly, private school costs generally run yearly contracts with no real exit clause.

    When you are making $50K/year an important part of your budget is miscellaneous expenses (comic books and whatnot) however when you are making $200K you tend to be dominated by a couple large more or less fixed things.

    Another important thing to note is that the upper income brackets tend to receive a fair amount of their compensation in the form of optional year end bonus/andor equity grants. So how much money you make in given year is hard to predict and already feeling downward pressure from the economy.

    So, if you were to theoretically raise my tax rate 1% (not saying that is going to happen mind you) and require me to squeeze out another $3K/year from somewhere, in a year when my real income is already down 15% from bonus shrinkage, that is real pressure which is not easy to compensate for by not ordering as much pizza and things.

    For me, my day to day budget is dominated by 5 things (roughly 70% of our takehome)

    *Property Tax
    *Earthquake and other insurance
    *Student loan repayment

    Certainly this is all solveable. The fix is usually NOT to target the nickle and dime stuff but to go for the big ticket items. For us, that means moving to the burbs in a place where you can get into a good public school. THAT is the type of thinking that is going on in peoples heads. It’s a big project though, not something that you can do overnight by tightening belts.

  165. unholyguy: In other words, people who have big incomes live beyond their means, have no financial planning skills, and then get stuck when the economy goes in the dumpster because the really wealthy people got unpaid for tax cuts and corporate bailouts, (and non-performance bonuses that have to be paid to them contractually, meaning $50K salary employees below them get laid off.) And they don’t know how to handle tax deductions — the considerable ones that are available for upper income tax brackets that are not available for lower ones — to reduce their tax in other ways. Yeah, we got that. Which is why it’s a good idea for the well off to go to an accountant or financial planner who will tell them not to buy the big house and do the insanely costly private school and help them actually be able to survive an economic downturn and manage their taxes better. Essentially, we all could benefit from the $250K-600K people, and even the $100K-250K people whose taxes are not going up (and who are likely getting a tax cut,) getting a lot smarter financially.

    But as for belt tightening on the little things, yes, it is entirely possible to do it and come up with that $3K in tax money for the year (which you can have withdrawn in small amounts from your paycheck over the course of the year,) while you’re working on the longer term project of downsizing the big ticket items. Pizza, videos, art classes, coffee, groceries, sports equipment, clothes, magazine subscriptions — people who are living at those incomes have a lot of discretionary income, but they tend to view a lot of expenses as “necessary” that aren’t necessary at all when there’s a budget crunch. Trade in the expensive car and get a cheaper used one with a lower car payment. I’ve done the cutting back thing at $50K and I’ve done it at $100K, and it’s a lot easier at $100K. It’s called savings. It’s called a budget. It’s called being an adult.

    Meanwhile, my relative has no discretionary income. Everything in her life is a big ticket item — rent, food, medicine, clothes for her fast growing kids. She doesn’t have retirement savings. There are no bonuses or stock options she can exploit. And gas costs the same for her as it does for people with twenty times her income. (But she’s lucky, she’s got a roof and a truck.)

    This is about being realistic. Realistically, we could not afford the tax cuts when Bush handed them out, and we cannot afford to continue them. Your taxes will return to what they were in the 1990’s. Your taxable income (not gross income) will remain at the same rate up to $250K. Beyond that, it goes up a tiny bit. If you lived beyond your income means and got yourself in debt, then you have to get yourself out of debt, same as someone on a lower income, and you have far more resources and options for doing so. Including being able to afford going to a tax accountant.

    This well I’m trapped and there’s nothing I can do about it, poor me attitude is juvenile and isn’t going to wash. It’s like a teenager with a credit card who just learned that you actually have to pay the credit card company back and his parents aren’t going to do it for him. We’re trying to save the whole country here, and if we do, your house values rise again. So cowboy up. :)

  166. Most of the people I know who use accountants say that the money they spend on them is mostly made up on tax breaks/cuts/whatever that the accountant finds that they would have missed. That and the person in your corner come an audit warm fuzzies and few of them begrudge the cost at all.

    Also, isn’t tax prep itself tax deductible?

  167. @kat, not complaining about taxes, don’t mind paying more taxes. Even though most of the people that are saying “pony up” actually suck more down in federal largess every year then they pay. So it’s easy thing to say i suppose since it amounts to “give me more of your money”.

    I’m not trapped, there is plenty i could do about it, it just takes some time to maneuver.

    There are no magic “tax breaks for the upper income crowd” that is a total crock.

    I don’t think I spend money on ANYTHING in your discretionary list. Why would I?

    I have a budget, I have savings, I am actually not in any immediate trouble. Hell one of the reasons I have such a big mortgage is it’s still a smart investment long haul.

    However, I got this way by being good at anticipating and taking proactive action, and by maintaining a buffer between my expenses and my income. When something starts to eat into that buffer, I don’t passively wait around for things to get criitical.

    My spidey sense is tingling, as a whole lot of desperate clueless Americans continue to look for an easy wait out of an unsustainable lifestyle. I will be shocked if I am not paying 10% more in taxes before this whole thing finishes.

    The $250K set is not some magic pinata that the rest of the country can keep smacking and watching the money fall out to pay for this mess we have all gotten ourselves into together.

    Like I said my simplest way to cut down on my expenditure is to move to a burb with a good public school. That would do a million times more for me then any belt tightening, it would save my 10% of my take home income a year. That is a lotta pizza.

    It would effectively transfer a large chunk of my expenses onto the state. It would easily offset any tax the overall value of any increase I would have to pay since the government would be shelling out more to educate my kid then I would be paying in extra taxes.

    Don’t really want to move to a burb, think burbs are a big part of the reason why we are such a resourcing guzzling mess of a society, but if I am incented enogh, I will.

  168. “Why is it that the people freaking out the most about taxes on the rich are the ones who suspect they are going to end up doing most of the paying on this shiny new deficit?”

    The answer is in the question: Because they can do math. They can divide one trillion by 4 million


  169. unholy: “Even though most of the people that are saying “pony up” actually suck more down in federal largess every year then they pay. So it’s easy thing to say i suppose since it amounts to “give me more of your money”.

    Well thanks for insulting me, but as I see it, you took my money, not the other way around, and you use way more government resources than I do, and natural resources in general, even if you aren’t using the public schools. You got a tax cut for the 2% wealthiest that we couldn’t afford, that was designed specifically to expire in ten years so that Bush did not have to justify with the CBO how to pay for it. That tax break you got meant that I and others below you had to make up that revenue lost — we paid more, especially when Bush went into Iraq. Your tax break helped run up the deficit which has helped put the economy into the toilet and lost a lot of middle class people their jobs. So saying less well off people are trying to take your money — you’re just not going to get a lot of sympathy. The 2%, including the people who make $300K, cost us a lot for their tax break, whether or not they use public schools.

    Look, everyone is hurting. Some people lost jobs. Some people are now stuck with houses that lost worth, which drives up their debt. But these tax cuts the top 2% got are coming to their mandated end, and we cannot afford to continue them. You aren’t getting a tax increase. You’re just no longer getting a tax break — a deduction of your taxes that you got special for being in the top 2% (i.e. a tax break that others below you don’t get.) But you still have your large mortgage interest that you can deduct. If you have investments, your capital gains are taxed at a lesser rate. That’s another tax break that wealthier people get on their income. There are a lot more, which you may find if you go to an accountant.

    Some better news: – bailout

    And some logical news:

  170. I have a reasonably large income(97th percentile in 2009, 95th for 2010 due to across the board salary and bonus reductions), but a very simple tax situation. Simple enough to handle through TurboTax. However I have had a number of years (working abroad, multi-country, multi state taxes, LLC, etc) where I have used accountants, and felt happier doing so.

    I also trusted my accountant when she suggested to me that she was not really required the following year so long as things didn’t change (as my tax situation was greatly simplified: 1 house. 1 family. 1 state. 1 salary. No weird investments [independence rules makes them a pain in the ass]).

    Note that I do recognize that the responsibility for filing correctly is mine – not my old accountant’s!

    I’ll use an accountant again whenever my situation (personal, or externally imposed) changes.

    Oh, and to unholy guy@195: moving to another district so your kids can attend public school does not greatly increase the burden on the state (the marginal cost of another child in class is small). The revenue you bring to the area as a higher income, higher tax citizen means that area will benefit from your presence – as will your kids. It would also leave you more money to lavish on local enterprises, charities, and your personal future hedging, instead of simply spending it on already wealthy private schools.

  171. “This is a little like saying since you can buy the same surgical equipment as a doctor, you can do your own surgery out of a book. You’re paying for the expertise, not the tools.”


    That sword you bought in the dealer room does not make you a ninja.

  172. @kat again, I am not complaining about the tax hike. I don’t mind it. I’m just saying that if the country thinks they are getting out of this mess by taxing the upper incomes only, they are smoking crack.

    As far as resource utilization, I live in a dense city, take public transportation to work, don’t have to run either heat or air conditioning, don’t drive anywhere really, barely have a car.

    City living is about the lowest resource utilization lifestyle, suburban is about the highest. Here is a book.

    There is no way anyone can rationalize that the return you get from your tax dollars scales with your tax rate. The top 3% pay half the total taxes. It’s kind of the whole point of a progressive income tax that it doesn’t net out.

    @198: Tony, I already pay for public schools through property tax, I just don’t actually benefit from them at all. Just because my kid does not attend, I still get taxed. It’s not like they give it back. And you are wrong about incremental cost, state of California pays $8900/student.

    Also property taxes in the state of California are collected locally but distributed at the state level, so local communities would not benefit from me moving there.

  173. unholy guy: “I am not complaining about the tax hike.”

    Again, it isn’t a tax hike. It is the expiration of a tax break for that top 3%.

    “I’m just saying that if the country thinks they are getting out of this mess by taxing the upper incomes only, they are smoking crack.”

    I don’t think anyone has proposed that to be the case. This is about simply ending the tax break. And our economic situation is much more complicated than that. But the upper incomes are not the only ones taxed. The middle class are taxed as well. And because of the tax code and the greater ability of higher incomes to remove income from tax, they end up giving up more of their income to taxes, even if the sum of the revenue is smaller. And right now, they could use some tax relief or more and more of them are going to end up in the working class, sliding down the ladder, than they have already. And that isn’t going to be good for you either.

    “City living is about the lowest resource utilization lifestyle,”

    If you are counting the cost of one individual, then a suburban individual is more expensive than a city individual, and certainly takes up more space landwise. But there are millions of people in cities and so cities in aggregate are more expensive than suburbs. The sewer, sanitation, trash pick-up, road maintenance and repair, building maintenance and licensing, gas and electric, water treatment, pollution issues (big one,) police, counterterrorism and emergency services, public transport, railroad and shipping issues, erosion and soil issues, health control and pest control, park service, etc. for a city, all a huge drain. Electricity alone, really. It does make the suburbs cheaper to live in, or at least some of them.

    But that doesn’t really matter since incomes are spread out everywhere. Well off people use more resources, at least according to figures they give us such as California lawn watering. That doesn’t mean that all people who have high incomes are greedy pigs. But again in aggregate, it does mean that high income folk can’t claim their tax bracket is less of a drain on resources.

  174. Actually my last post is on point. If we didn’t have the bloated tax code we would not need accountants. You made the point after a household’s income reaches certain level of complexity where the 1040A/EZ no longer meets their needs get an accountant. My point was if we have a flat tax no one would need an accountant:)

    But I see your now drowning in other comments so you may of just been getting through the deluge and didn’t have time for a thoughtful response. Easier to say sorry but your off topic moving on.

  175. JR Kincaid: “My point was if we have a flat tax no one would need an accountant.”

    The goal is removing income from being taxable income. Even if you had a flat tax, that goal would still be in place, requiring accountants to help reduce the size of your total income declared. You would still have very wealthy people moving money into offshore accounts, tax free investments and paper companies so that it couldn’t be taxed at all. That needs accountants too.

    If we had a flat tax, revenues would flatline, more people would be laid off, wealthy people would have a massive, permanent tax break and the middle class and the working class would have a large, permanent tax increase, and we’d be further along to a banana republic. The math on a flat tax is quite clear — it’s only useful for the wealthy. And no, I’m not interested in you trying to convince me otherwise because I’ve seen the statistics on it.

    Regardless, a progressive tax system is what we have, and Scalzi said that is what this thread is supposed to focus on, not alternate tax systems.

  176. @Kat actually no.

    I was referring to my first post which mentioned Fair Tax. Fair tax is a sales tax that is a flat tax. More you buy the more your taxed. No accountants required for the tax payer.

    Fair Tax people have proven mathematically that the individual tax burden would be less not more because we could fire all the people who are making sure the convoluted system is somewhat enforced. (leaner IRS) Because there is less waste spent on enforcement the effective tax rate could be a smaller percentage for the same budget. I think this is something that could be bipartisan. It is smaller government and lifts the April 15th burden off the tax payers plate.

    Business all do state sale taxes so the infrastructure is already in place for collecting it. There are less businesses than people so it would be easier to enforce.

    You can put in the same incentives and make it progressive just like the current system through tax holidays and special programs for the poor who can’t afford to pay etc. All that would involve no where the number of accountants we need today.

  177. First off, not interested in fantasy math. Second, again, Scalzi said he’s not interested in discussion of alternative tax systems. Third, yes, I understand you were just clarifying.

    It’s been three threads of people feeling put upon and persecuted, and no reasonable argument seems to dissuade that notion, so I’m done.

  178. Excellent song on BBC FRIDAY NIGHT COMEDY (which I get via podcast) a few months ago about how we’ve already got a great example of a no-taxation, no-government paradise whose example we can learn from: Somalia.

  179. It seems like if you’re going to write an article about ignorance, and then make a list of people you think are ignorant (i.e. “people who don’t understand taxes are as stupid as people who think the Bible said…”) you’d maybe want to do at least a rudimentary Google search on the items in your list of things you think are ignorant.

    Darwin said in The Descent of Man, and Selection in Relation to Sex that we are descended from ‘Old World monkeys’. Specifically, he said: “The Simiadae then branched off into two great stems, the New World and Old World Monkeys; and from the latter at a remote period, Man, the wonder and glory of the universe, proceeded.”

    It sounds like you were at a dinner party where someone was clapping himself on the back for being smarter than everyone else and listing things people were commonly wrong about (like, the quote that you correctly stated is not in the Bible) and you just took for granted everything he said was true and repeated it here.

    You are definitely right, though, ignorance is easily correctable.

  180. Michael Davis:

    Your choice to confuse Darwin using the word “monkey” to describe a large swath of primates with the idea that Darwin suggested we are descended from currently extant species of monkeys rather than sharing a common ancestor does not invalidate the point. It merely suggests you like to argue just to argue.

  181. This is the thread that will not die. I quit commenting on it a while back, but when I see silliness like this, I’m almost forced to say something.

    @193 Kat Goodwin

    “Realistically, we could not afford the tax cuts when Bush handed them out, and we cannot afford to continue them. ”

    Each time there’s been a tax rate cut, the amount of revenue coming into the Federal Treasury increases. It’s simple — the cut stimulates economic activity, and although the Feds are be getting a smaller share of the pie, the pie is bigger so they actually get more pie. It’s not a revenue problem — it’s a spending problem.

    And saying that what’s coming is not a tax increase is bullshit semantics. The tax rates are going up, no matter how you want to spin it, and that’s going to depress the economy. The phraseology of “it’s not really a tax hike” has something to do with using makeup to disguise porcine qualities.

    As for the progressive tax system, its biggest downfall is the fact that there are people who don’t pay into the system. It’s easy to pass tax rate increases when you’re not the one paying the freight. At some point, the people paying the freight pick up their marbles and go home, since it’s not worth their time and effort any more. And when they reach the “why bother” point, businesses cut back on employees and purchases, if they don’t close entirely. The folks closing up shop aren’t hurt — they’ve got theirs. The only ones hurt are the people that lose their jobs or the business that was created by those that packed it in.

  182. I’m not going to get into JR’s taxtopia except to say that I once asked Mythagomom, who is a tax attorney and CPA, whether she wasn’t worried about job security if a flat tax was passed. When she stopped laughing long enough to breathe, she explained that there is no such thing as a real ‘flat tax’ because a) you have to define what’s taxed, b) people will find ways to try and evade those taxes, thus reducing revenue and enforcement and c) the very reason that we have a complex tax code is that people want to play around with exceptions and deductions, and there’s no reason at all to think that people (including the corporate kind) will suddenly change.

  183. Dave in Georgia:

    Again, I’m not interested in fantasy math and voodoo economics. The CBO has explained ad nauseum that the tax cuts are not stimulating the economy, that they’ve had a large impact on running up the deficit, and that wealthy people and corporations are saving and sitting on cash when they get tax breaks and loans, not putting it into the economy and not providing jobs. During the Bush years with his tax cuts, there was zero job growth and practically no growth in income. They are calling it the “lost decade.” Not extending the tax cuts for the 2% will help with the deficit, while trying to make them permanent will run it up further, exacerbating the conditions that led to the Great Recession in the first place.

    Your poor people should pay more while wealthy people pay less line is basic trickle down economics which has been proven over the last thirty years to be absolute bunk. And re your going Galt threat, I still think the phrase Objectivist Jerky is pertinent. Seriously, I agree with other posters earlier, if you want to leave, leave as soon as you like. The company store model of capitalism doesn’t help us; it just makes us a banana republic.

    But re the actual topic of this thread that will not die, here’s a tax shelter for the well-off:

  184. Kat, life insurance is primarily used as a way to get around estate taxes, not income tax. They really only help you when you die, it’s a way to leave more money to your kids.

    I agree that there are problems with some of loopholes in the death tax, but it doesn’t really have a lot to do with our income tax discussions

  185. Sure it does. It has to do with the financial planning that you do with a tax accountant or financial planner to minimize your overall taxes. It’s part of a person’s overall investment and tax strategy.

  186. I don’t think something you can only cash in after you die counts as an investment strategy. Or at least not a very good one. Any plan that has you dying in order to reap the benefit is not a good plan (-:

  187. Most “permananent” or “whole” life insurance policies will allow you to borrow against your cash balance before you die. Interest accrues and further reduces your cash balance, but so long as your cash balance is sufficient there is no requirement to repay the loan before you die. So certain life insurance policies can indeed be a good way to allow saving to compound tax free for your own use, not just that of your heirs (think of it like a Roth IRA).

  188. unholyguy – “The top 3% pay half the total taxes.”
    And the top 1% pay 40% of the total income taxes; coincidentally, they own 42% of the total wealth. What’s your point?

  189. @212 Kat

    The reason EVERYONE needs to pay something in terms of income taxes (if you insist on having the damned things) is that otherwise they have no skin in the game. It’s easy to raise taxes if you’re not the ones paying ’em.

    To paraphrase, once people realize they can vote themselves money out of the public treasury, the game is over. And income redistribution on this scale more than qualifies.

    And as for the income tax rates, I don’t have the figures on hand, but I recall the top 1% paid something like 35% percent of the income tax collected while making about 16% of the income. Remember, the tax isn’t on wealth — it’s on that year’s income.

    And who said I was Going Galt? I can’t afford to. I have a mortgage to pay, etc. I’m trapped in this cage with the rest of you while the political monkeys fling poo at us. I’m just trying to get through the day and pay the bills without getting ripped off any worse than I already am and keep the really big balls of poo from hitting my family.

  190. That’s not my point Kat.

    My point is that if you think rich people use an amount of social services commiserate with their tax rates you are kidding yourself.

    Social Services are for the most part funded by rich people and consumed by middle class and lower.

    That is the nature and design of a progressive tax. That is the ENTIRE point of it.

    You can agree or disagree with whether a progressive tax is the right method (I personally agree with progressive tax) but it is what it is.

    There is a break even point where everyone below that rate gets more out of the government then they pay in. In theory, anyone below that point is incented to see taxes increase since they get more out of the increase then they pay.

  191. Dave: You’re a libertarian spouting Objectivist philosophy, but you can’t leave for your island. Which means you’re screwed when corporations support that same philosophy and the politicians who espouse it and you vote for them. When poo gets thrown at other families, it gets thrown on yours because we are dependent on each other. It’s what is known in political science as a collective action problem. You can believe that or not, as you please.

    Unholy Guy: Like I said, I have relatives in all areas of income. I know what they use in government (not just social) services — and I know what they put back into the economy, not just in taxes but in spending and work productivity. Wealthy people take up more resources, which has made it a lot harder for the middle class. That doesn’t meant that the poor are not a burden — they are a large burden — but that doesn’t mean the wealthy are getting squeezed. Some wealthy people also bitch about freeloaders because of short term costs instead of seeing it as a collective action issue requiring long term investment in people. I also agree with a progressive tax.

    Put simply, if you have money, that’s your problem, not the poor people’s, not the government’s. Get an accountant and manage it, manage your tax liability. If you want to argue that going back to tax rates for the top 2% so that they have to pay 3% more will collapse the economy and lay off lots of people, well, 50 years of cutting those top tax rates under the same threat so that they are now less than half of what they were in the 1960’s failed to stop the wealthy and corporations from collapsing the economy and laying off lots of people. So I’m willing to risk it. :)

  192. Kat, what you’re talking about is also known as the Tragedy of the Commons. In a situation where there is collective ownership of something, it’s in the best interest of those sharing the resources to grab all they can before they’re used up.

    An individual that owns a resource has it in their interest to preserve and care for something so they’ll continue to reap the benefits of that resource.

    When you’re dependent on seizing wealth from others, that’s when it becomes a race to the bottom.

    Hmmm, using resources. That assumes that it’s all a zero-sum game. Those with money have to purchase things, which requires others to make those things or provide those services. They in turn need to purchase….etc. etc. etc.

    Last I heard, this was called the economy.

    And you’re assuming that everyone is totally dominated by economics. There’s also this little thing called quality of life, where decisions are made on factors other than pure economics.

    Americans give a pantload to charities to help their fellow man for this very reason. I’ve got a couple of area charities I give to each year.

    Yeah, if you’ve got money, that’s your problem. You have to hire accountants to keep folks from stealing from you, and in your description the group that you first have to defend yourself from is — the government.

    Son of a gun. I agree with you on something.

  193. Kat you are hearing arguments from me that are not actually coming from me, they are coming from inside your own head. All those things you think I am arguing have never actually said, I am mostly saying the opposite. I am quite willing to pay my share and tighten my belt.

    Do you actually read what I am writing, or do you just read the first sentence and then kind of make up the rest?

    I’ve never said there is any problem with raising the upper end of the tax bracket, I have said over and over that I agree with that and support it. I actually think it doesn’t go far enough. 10% is probably better at this stage.

    The thing that concerns me, is that we, as a nation, are living outside our means with regards to government spending and taxation. The long term fix for this is probably not raising taxes on the upper %1, 2%, 3% or 10%.

    Those tax brackets simply cannot pay for all the government expenditure no matter who we raise taxes on, or for how much. Even if you took their entire paycheck we still could not balance our books. It’s that bad. The money simply isn’t there.

    However, we have a large segment of the population that consumes government services and is pretty resistant to any attempt to decrease them. Hint. This is not the rich people I am talking about. This is the middle and lower classes.

    Everyone is going to have to learn to belt tighten quite a bit. This includes all you people out there making $40K/year who mostly are not paying enough in taxes to even pay for the public school your kid goes to, much less all the rest of it. If you are looking at people like me to keep you in the style to which you have become accustomed, good luck with that.

    I’m not talking about “putting back into the economy” I don’t know what that means to you, and if you are talking about “contributing value to society” it’s a huge kettle of fish to untangle.

  194. The people making $40K have been tightening their belts for the last 30 years, which is why so many of them are slipping into the working class and working two jobs, and why the working class can’t get ahead to make it into the middle class. And they’ve been doing it because the government has gone along with the demands of the 1% and the bigger corporations — tax cuts on the top brackets, deregulation, increases in spending on corporate pork and defense spending and continual spending cuts in social services and education, resulting in the trashing of our public school systems. The government did all that because of threats and influence from that top 1%, and by doing it, allowed the wealthy and corporations to close factories, move jobs overseas, lay people off to drive up stock prices and their compensation, and get corporate bailouts every ten years — the very things that they threatened.

    The rich spend, but they don’t spend enough. They sit on cash and save it, parking it in offshore accounts and tax free investments. It’s the middle class whose spending keeps the economy going. The wealthy also give less of their income to charity. It’s again the middle class who give more to charity, which is why the charities are also hurting. The recent poll of small businesses was not that they were worried about taxes, regulations or even employee benefits, but about increasing consumer demand and improving the economy — consumer demand comes mainly from the middle class, not the wealthy. But the wealthy have crippled the middle class. They are wealthier than they’ve ever been, while the middle class has shrunk. And that stops the heart of the economy. That gets you a banana republic.

    You’ve bought into the idea that it’s government that is the problem, and that it’s social services spending that is the main problem. Statistically, this is dead wrong. The stimulus worked, even though it was too small — and it went primarily to the middle class and working class, which corporations don’t like, and so there won’t be any more. Which is why they are pouring money into Meg Whitman’s and other libertarian Republican campaigns. And there will be more corporate welfare. They don’t give a hoot about the deficit. You’re being conned.

    Without a functioning middle class, there will be a greater increase on the tax burden on the wealthy and a government that goes greater into debt. To stop the cycle, the wealthy need to pay a little bit more now, to give up a tax break, to invest in the middle class and the working class and the poor, to practice competent, long-term strategic capitalism. And that means government aid, not dumping them further in the soup and claiming that the poor and middle class are just lazy and if the very wealthy all buy a limo each with their tax savings that it will save the economy. Groceries will save the economy.

    I’m sorry, unholy guy, but people in your tax bracket have squeezed all the blood you’re going to get out of the middle class. If you’re expecting them to step up and do their share, you’re going to be disappointed, because you already took their share and left them unemployed to boot. The wealthy cannot necessarily save the economy, but if they stopped killing it, that would at least help. However, the very wealthy and corporations have little incentive to stop as the U.S. market is just one part of the global market.

    The middle class and the lower classes are resistant to having decreases in government aid — because there’s been less and less of it over thirty years and because they are desperate. And that’s because the wealthy sunk them, and don’t care if the younger set produces skilled workers or not. So the middle class is further crippled from stepping up. And that’s had a negative impact on the wealthy as well, that’s soured their economy, for which they inaccurately blame Main Street, not Wall Street.

    The data is not something that some of the 2% wants to hear, apparently. And that’s unfortunately the part that is largely in charge. So even if we come out of this economic downfall, we’re going to have the same problem — corporations raiding at the top, then blaming the bottom that they’ve made bigger, claiming that if they just get even more breaks, that money will trickle down, really it will.

    We do need to trim spending, waste, earmarks. We need to invest in decaying infrastructure and education and healthcare. And luckily, the TARP bailout did stem the bleeding and we may even make money off of it, so we’re good until the next Wall Street disaster where they make more record profits and the middle class gets smaller. But I don’t know if what needs to be done is going to get done, because apparently I am a big crybaby over-entitled freeloader while you are a poor top tax bracket far more valuable person who can’t afford me. :)

  195. Kat, these things are not happening because of social services and government spending. fundamentally, i believe similar to you that the decline of the middle class in the US, and the US economy in general is due primarily to globalization and the loss of middle class jobs, especially in manufacturing sector.

    No jobs mean a crappy economy.

    People can argue whether or not it is an inevitable thing, coming from the shift to a global economy, but our government is certainly not doing a lot to slow it down or stop it.

    Where you are making your error is you are no aiming your anger high enough. The global power elite that make these decisions are so far above my income bracket that they basically live on another planet. They don’t hold jobs and they don’t pay income tax. Not to anyone, ever. Try to make them, they switch countries.

    Everyone has tightened their belts it is true. Everyone is going to have to tighten them that much more. There is no way around it, because we as a country have gotten poorer and are spending way more money then we have.

    It’s not just entitlements, or tax rates, though getting rid of all these stupid wars would help. Even if we were spending efficiently, we cannot afford what we used to be able to afford. There simply is not enough money, we need to start living within our budget.

  196. unholy guy: “Even if we were spending efficiently, we cannot afford what we used to be able to afford. There simply is not enough money, we need to start living within our budget.”

    Which is why extending the tax cut for the top 2% is not a good idea. It’s not living within our budget. It added to the deficit and it would continue to add to the deficit. We cannot afford it.

    And what you don’t understand is that I’m not angry. I want the U.S. to have as many millionaires as possible; I do not resent their wealth, or the under millionaires’ wealth, and I am well aware of the very elite — I’ve been talking about them, the ones who can go to their island. I have said that I’m for making more tax brackets at the top 2%.

    But I am exasperated with people who insist that they should keep having their 3% tax break, which they shouldn’t have gotten in the first place, while at the same time insisting that the rungs below them –98% of Americans — are all pikers who need to pay for the 2%’s pain; who disavow any involvement in how we got in this fix while working for the companies who largely did it and electing trickle down politicians who put the policies in place. Yes, we cannot sandbag the very elite and their islands or stem their political influence. Yes, we understand that the lower rungs of the upper 2% have some problems too.

    But you keep talking about how the lower brackets must deal with austerity as if they haven’t already been doing that. You keep saying that they have to tighten their belts as if they have a choice whether to do it or not. They don’t have a choice. They’ve never had a choice. But the upper middle class has some choice. And those in the lower part of the 2% have quite a few choices and options. And all people really want is for you to acknowledge that instead of just complaining about your mortgage. They don’t expect you to pay for everything. (That’s China’s job.) But a lot of you — Prof Henderson, etc. — are acting like Mr. Potter in the film It’s a Wonderful Life. (The fact that you keep using the term entitlements, for instance.) A portion of the 2% are being melodramatic about a slight tax correction at a time when we really can’t afford melodrama. And if that keeps up, then our kids are going to fall too far behind to ever catch up, and we’ll have a large underskilled labor pool, which would be great if we still had lots of factory jobs, but we don’t have them anymore. (That’s China’s job.)

    Just try to keep the self-pity in perspective, is all we’ve been saying for three bloody threads. (And I’ve been much nicer in saying it than Scalzi, frankly.)

  197. I agree. No one should be complaining about the end of the 3% tax break. Very few are, actually, and the ones that are seem hopeless disconnected from reality.

    One way or another it won’t really matter. The taxes will go up, the money raised will be a drop in a very large bucket.

    I disagree about the hopelessness of reining in the ultra rich, I think it’s a difficult task but not a hopeless one.

    About the belt tightening though. I have not seen any evidence that the government is spending less on anything, I think we are just borrowing more.

    I don’t think there have been any widespread cutbacks on government spending in the US, all I hear is a lot of talk, everyone wanting less taxes, from the tea party to the millionaires.

    When and if people talk about cutting spending or raising taxes, it is always NIMBY cuts or hikes for others. Every segment of the population has some plan for some other segment to assume the burden. No one wants to give up anything. Everyone wants someone else to pay.

    That kind of thinking has about run it’s inevitable course I think. Gotta pay the piper eventually.

  198. There have been spending cuts; it’s just the media doesn’t find them as much fun to report. And the government aid has to keep flowing because it’s working and because the corporations are either sitting on their cash or using it to buy back their stock instead of hire people. We can’t keep cutting education. We have to make more defense cuts, but it’s tricky and we don’t want to screw veterans. Obama can’t magically erase all the debt Bush piled up. But the TARP stuff is now turning around, there are anemic signs of improvement. We’re going to be limping for a long while and in debt and with high unemployment that strains social programs. But if we don’t invest in people, we’ll sink deeper, and that means aid, healthcare, education spending, infrastructure repair — all the bugaboos a third of the country hates. So it’s going to be a slog.

    Which means it is even more important, if you do have a decent sized income, to see an accountant and plan for the future, for emergencies that might occur, for taxes, for your heirs. That’s assuming we don’t all become Objectivist Jerky, of course.

  199. Your choice to confuse Darwin using the word “monkey” to describe a large swath of primates with the idea that Darwin suggested we are descended from currently extant species of monkeys rather than sharing a common ancestor does not invalidate the point. It merely suggests you like to argue just to argue.

    Nice ad hominem. The fact is that your OP doesn’t say anything about “extant” — the statement that you used there is factually correct, not analogous to ignorance about the tax code.

    Good work otherwise.

  200. MK:

    “Nice ad hominem.”

    It is in fact a nice ad hominem, as Mr. Davis made a bad argument that was either rooted in ignorance or a desire simply to argue to argue. As I like to assume a minimum standard of knowledge on the part of my commenters, I assume he was just attempting to troll. In which case, an ad hominem is perfectly reasonable.

    “The fact is that your OP doesn’t say anything about ‘extant'”

    That’s because it doesn’t need to, if one actually a) understands what Darwin was asserting, b) isn’t attempting to troll by irrelevant nitpick. I don’t write to the lowest common denominator; as noted, I like to assume a minimum standard of knowledge.

  201. “… trying to decide if she should work or stay at home.
    Child care at the place they’d want to send their kid to is $2,000/month, or $24,000 a year. Including Social Security, additional other expenses (especially gas), and the high marginal tax rate, if she works full time at $70,000/year, she’ll bring home around $10,000/year.”

    LOL! Someone had a kid, and is shocked – shocked! – that paying someone else to be mom for most of the day, most days a week is so expensive that they’d be better off doing it themselves.

    Please explain to this person that a baby is not a fashion accessory. If you have a kid, then *that* is what you will be doing with the next 20 years of your life. Why no: as a matter of fact you *can’t* “have it all”, in fact it *is* a commitment at just about every level, and why no: you *don’t* have a “right” to ignore reality and just do as you please – not even if you *are* a white and moderately wealthy woman.

    If anyone took this kind of attitude to a pet, or a garden, we’d happily call them a fool.

  202. @223 “However, we have a large segment of the population that consumes government services and is pretty resistant to any attempt to decrease them.”

    Oh! I know the answer to this one! The military. Nearly half your taxes goes on the most bloated military the planet has ever seen, a military larger than the militaries of the next 4 or so *combined*.

    “This is not the rich people I am talking about. This is the middle and lower classes.”

    Fail. Most of that money goes to companies, some of which is kicked back as bribes (Sorry! “Campaign contributions”) and most of which goes into the pockets of the executive class.

  203. Not much I can add to this conversation at this point, so I’ll just say:

    “Objectivist Jerky”/”That’ll be a fine last thought for you as the starving remnants of the society of takers closes in with their flensing tools.”

    New favorite blogger: Found.

    And relatively reasonable, intelligent responses in the comments section, with sharp wit besides, and not too much foaming at the mouth and flying spittle from either side. Color me impressed. I’ll definitely be back.

  204. Considering that taxes are intrinsically unfair

    (in the sense that they cover the same number of police callouts whether I need them once in a lifetime or once per year, I pay the same towards roads even if I live on a farm and never drive on public roads, they pay for schooling for my kids whether I have one, or seven, or none and never got US schooling myself because I’m a foreigner: we all pay taxes to have a functioning society because the other option is that there’s no government and we all live in walled compounds which we defend ourselves, nobody paves roads outside their own land, there’s nobody to call if someone kills all your family, and you have to educate your own children or pay someone else to do it)

    I repeat, intrinsically unfair in that sense – taxes therefore have to be about doing the most good and the least harm.
    If that means people who struggle to buy enough food every week pay a bit less, and those dudes making a million dollars per year pay a few percent more in tax, too bad. Hey you millionaires – if you ever find yourself owning NOTHING beside the clothes you wear, you won’t have to starve to death on the streets – because of taxpayers. Would you deny others who are poor today the right to not starve to death on the streets?
    (Anybody still reading?)

  205. You actually don’t need to know anything about the tax code. All you need to do is write down your gross income, draw a horizontal line above it, and above that, write down the total tax you owe. Then solve.

    I use an online tax filing program that calls this magical item the “effective tax rate.”

  206. Of course taxation is theft. And of course it’s also the price of civilization. And therefore civilization is based upon a giant hypocrisy. In other news, sun rises in East.

    Yet guess what? Most humans prefer civilized hypocrisy to honest savagery! For details, read “Leviathan”, by Thomas Hobbes.

%d bloggers like this: