We can’t control what others do and we can’t stop misfortune from striking. But we can control our own actions. Those who are financially prudent will most likely enjoy success, even if events don’t always go their way.
Quinn ponders a taxing situation. Loopholes and such. Is there a better way?
I started listing the various taxes Americans pay, but gave up rather quickly. It’s a long list and some of them are a bit obscure like hotel room taxes, taxes on phone bills, a tax on scrapped tires and such. Of course there are Social Security and Medicare taxes as well. I paid $98,080 in Medicare taxes during my working life – one of those big scary numbers. 😎
What the US doesn’t have is Value Added Tax (VAT) – national sales tax – common in many other countries at 18% to 25%. Many Americans are surprised to learn the US is one of the lowest taxed countries in the world – and near the top in accumulated debt.
Few people like taxes, but most of us – far from all – understand the need for taxes and what they provide – it too is a long list. No doubt there could be a lengthy discussion on the fairness of taxes though.
Social media posts demonstrate interesting views at times.
“Why should I pay taxes on my home value? I’m 65, why do I pay school taxes? Why is any of my Social Security taxed? I heard billionaires pay less in taxes than teachers – yeah, I don’t think so. Taxes are a ripoff. Why is my 401k taxed as ordinary income – good question? I paid for Medicare in payroll taxes, why do I have to pay a premium?”
Here is a recent favorite of mine. “Making retired folks pay taxes while lazy college grads get free money is the most un-American thing imaginable!”
To muddy the waters, current rhetoric talks about not taxing certain income like tips and taxing what is earned but only on paper, not realized. When I hear that concept I wonder what happens when the market turns upside down.
Taxes create revenue for governments to provide the things we need and want. They sometimes are designed to motivate certain behaviors, to give more disposable income to lower income citizens.
Changing our behavior is a big part of what taxes do, but there are consequences. Sometimes that behavior can go astray – like buying homes we can’t really afford or even saving tax-free for college when our priority should be retirement.
I don’t buy the idea of tax “loopholes” though. The tax code allows certain things for specific reasons. You can debate the why of it all, but taking advantage of every possible legal way to lower taxes is not using loopholes in my opinion. It’s as American as apple pie.
Is keeping income low to avoid certain taxes or investing in tax-free municipal bonds a loophole or good strategy? What about Roth conversions or using Qualified Charitable Distributions (QCDs) from an IRA? How about using HSAs, FSAs, etc.?
Many employers allow workers to pay their share of benefit plan premiums on a pre-tax basis using a Section 125 of the IRC “cafeteria plan.” If that was changed and deductions were subject to payroll taxes, about 10% of the Social Security shortfall would be closed. Loophole or consequences?
In theory, a person could invest in Roth IRAs and a Roth 401k plus municipal bonds and have a virtually income tax free retirement. Hey, it’s the law.
The whole tax paying process should be simpler. If I were king, I’d do away with it all and replace the tax code with a graduated flat tax and VAT. Not sure that would go over well with the IRS, tax preparation services, lawyers and accountants.
I am pretty sure of one thing though. As the national credit card balance keeps rising and major social programs flounder, taxes must go up – or all the stuff we want and like must go down.
Good idea James–folks just want to buy votes–the solution of course is always tax someone else–which is the solution for taxes and just about everything else–don’t want my kids bussed but I want to feel good watching your kids sent to a new neighborhood–migrants are fine in Texas–Florida–AZ but not in Newark–NYC–Philly.
That the current tax code in this country is a Byzantine mess, there is no question. Was it created over time accidentally, no because the politicos operate hand in glove with lobbyists and special interest groups when they write tax code. The results look like what you describe. Can it be fixed or improved on, ask the politicos and lobbyists and special interest groups.
First things first though. Since half the budget or more is SS, Medicare and Medicaid, go ahead and set the payroll tax to cover those. That takes the discussion down to what to do about the rest of budget items.
Thinking of tax code changes is something I don’t do anymore. There is no interest at the top and a lot of folks spent years talking up the flat tax and it got nowhere. I won’t waste any more of my declining store of time on it.
QUINNSCOMMENTARY 
Good idea James–folks just want to buy votes–the solution of course is always tax someone else–which is the solution for taxes and just about everything else–don’t want my kids bussed but I want to feel good watching your kids sent to a new neighborhood–migrants are fine in Texas–Florida–AZ but not in Newark–NYC–Philly.
So many are so phony–I guess just human nature.
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That the current tax code in this country is a Byzantine mess, there is no question. Was it created over time accidentally, no because the politicos operate hand in glove with lobbyists and special interest groups when they write tax code. The results look like what you describe. Can it be fixed or improved on, ask the politicos and lobbyists and special interest groups.
First things first though. Since half the budget or more is SS, Medicare and Medicaid, go ahead and set the payroll tax to cover those. That takes the discussion down to what to do about the rest of budget items.
Thinking of tax code changes is something I don’t do anymore. There is no interest at the top and a lot of folks spent years talking up the flat tax and it got nowhere. I won’t waste any more of my declining store of time on it.
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