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One More Time on Taxes - a Summary

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In a recent thread on the Republican tax cut proposal for Kansas some confusion seems to have arisen as to my position as reflected in my many blog posts on taxes. I will attempt to clarify.

For the record, I do not support what Mr. Brownback is doing and I actually testified in opposition a few years ago. This approach is a continuing Republican canard. That said, I automatically attack what I consider hyperbole. The Kansas budget just passed actually contains increases for social services (see Ms Francisco report to her constituents). The problem is in the out years. A rational response is to make sure there are no out years for this tax profile. Yelping about devastating consequences before they come to pass or are unavoidable just aggravates me - personal belief. Since there is little likelihood the composition of the legislature will change significantly in the next year it would seem prudent to not unduly disparage those whose help we will need to fix it all next session.

I have been a strong proponent of a progressive tax system in this forum. I have been critical of a distorted tax system where about half the people pay the vast majority of the federal bill. The inexcusable tax policy for the really rich that leads to a lower proportional tax then people earning one tenth their income sickens me. I believe all should pay something based on ability to pay. I am a student of human nature. People like pleasure and avoid pain. Taxes for most people are pain. If too many people can have pleasure without pain (more government support while paying no taxes) they will do so until the fewer and fewer people paying for all of this revolt or leave.

I am completely floored by recent attacks singling out seniors as receiving inappropriate tax credits/deduction. The data in the recently referenced study: http://www.urban.org/uploadedpdf/1001... clearly reflects that the credit/deductions causing so many to owe no federal income tax overwhelming go to the poor and near poor (to include seniors). The issue is income not age. Now I am on record as favoring the elimination of all deductions and credits so that the tax system is used only to obtain revenue. If we want to provide assistance to seniors, parents, single moms or for that matter cows the expense should be on budget. So I agree with the urban institute’s study ideas of ending these credits/deductions – all of them.

Now as for Social Security it is clear that some of you apparently have a fundamental disagreement with me as to what it is. I believe it is a well intentioned government program that forces people to save money in return for a retirement annuity. The government treats the return from that annuity differently depending on whether it is derived from money paid into the program or from an implied return on that money. The latter is taxed while the former was taxed before it was taken. Some of you seem to be advocating taxing the former twice (as the urban institute study seems to do) while redefining social security as government largess and all payments made into the program as simply another form of income tax??

Comments

Katara 3 years ago

Moderate says..."I am completely floored by recent attacks singling out seniors as receiving inappropriate tax credits/deduction. The data in the recently referenced study: http://www.urban.org/uploadedpdf/1001... clearly reflects that the credit/deductions causing so many to owe no federal income tax overwhelming go to the poor and near poor (to include seniors). The issue is income not age. Now I am on record as favoring the elimination of all deductions and credits so that the tax system is used only to obtain revenue. If we want to provide assistance to seniors, parents, single moms or for that matter cows the expense should be on budget. So I agree with the urban institute’s study ideas of ending these credits/deductions – all of them."

And once again you set up a strawman to knock down. No one has once said seniors are receiving inappropriate tax credits/deductions.

What was said is that they are the largest group out the 46% of households who pay no Federal Income tax.

And the study points out that there is a whole category of age-related tax benefits. There is the extra standard deduction for the elderly (you must be 65+), the exclusion of a portion of SS benefits (you have to be 65+ to collect that) and the credit for the elderly. In case you hadn't noticed there is a recurring theme in those specific tax benefits - they are age-related.

Those age-related tax benefits can reduce the Federal Income tax down to $0 based on income but those age-related tax benefits all people 65 and older. Those age-related tax benefits are not based on income. Without those tax benefits, most of those folks would be paying taxes because those tax benefits are what brings their income down to no tax liability.

Anyhow this is most likely a waste of my time. You are simply going to put words into my mouth and spin out into bizarroland from there as is your M.O.

Katara 3 years ago

Just so you can grasp that the tax benefits are age-related, I will point out that anyone who is 65+ is entitled to those tax benefits. It does not matter if you make $5000/yr or $50,000,000/yr. If you are 65+, you get those tax benefits.

In comparison, child-related tax benefits are phased out as the income goes up. Just because a person has children, does not mean that they will get those tax benefits. It is the combo of child + income that makes you qualify.

Additionally, there are income limitations on the EITC (which mainly benefits the working poor with children). You don't get that benefit if you make more than the qualifying amount.

Fossick 3 years ago

George, you've got so much going on here that it's hard to isolate anything that can be discussed. However, I do note one area where you seem to contradict yourself: "I have been a strong proponent of a progressive tax system in this forum. I have been critical of a distorted tax system where about half the people pay the vast majority of the federal bill."

Given that a progressive tax system presumes that those who earn higher incomes will pay a higher percentage of that higher income in taxes, is it not a mathematical certainty that, if we have differences in income, that the 'upper' half of income earners will pay the vast majority of the federal bill?

It seems to me that the only way that one can avoid the "distorted tax system" is through a head tax - where everyone pays the same regardless of income - or at least a flat-tax system where, the the rich pay more, they do not pay the vast majority of taxes, at least not in excess of the vast majority of the income they earn.

Help me out here, amigo. What am I missing?

George Lippencott 3 years ago

Hi

Typed a response and the machine ate it. Will retype aftre lunch. My age related shortcomings keep getting in my way - including fat fingers.

George Lippencott 3 years ago

Thank you for noticing that there is a tension in what I propose.

The answer is numbers. There are about 30 million tax payers that owe no federal income tax. If we eliminate all deductions/credits the identified IRS tax rate is 10%. Using an average income on the order of $20K per year for those who pay no income tax would yield about $60 billion in increased revenue – not exactly chump change. I might note it would be about nine times more then the Buffet tax would raise. But remember for me it is not about revenue it is about having a stake in the game. If you want more you have to pay more.

And yes the wealthy would also pay even more than they do now - a continuation of the progressive rate we dump on the upper half of the middle class Of course we could lower the slope of progressivity and not take as much from the middle (still a lot more per head from the really rich)

Flat taxes do not draw based on ability to pay. They are proportional. To maintain the historic level of government spending the tax rate would approach the mid twenties. That might be a bit steep for the poorer among us.

Kirk Larson 3 years ago

The rich benefit more from the government than the rest of us. Therefore, I have no qualms about progressive tax rates.

George Lippencott 3 years ago

Huh?? I can not dowload whatever you posted??!!

George Lippencott 3 years ago

I am old. The thing wanted me to download a reader. I am suspicious. What is a good reader for hulu

George Lippencott 3 years ago

Katara Says

And the study points out that there is a whole category of age-related tax benefits. There is the extra standard deduction for the elderly (you must be 65+), the exclusion of a portion of SS benefits (you have to be 65+ to collect that) and the credit for the elderly. In case you hadn't noticed there is a recurring theme in those specific tax benefits - they are age-related.

Actually they list three that are age related. All are income related once you meet the age criteria. Only poor or near poor seniors get the first two. Even SS is means tested with those earning more paying on more of the SS. Whether the age and income related credits/deductions for seniors are the majority contributor or not is debatable. The study compared by number not paying taxes and not by taxes avoided.

Sio you still want to tax seniors twice on their social security. Why.

So as I said we do not tax poor people even if they are old.

Of course we have no control over aging. We have control over the number of kids we bring into the world. I would write the headline that over 25% of those not paying income taxes are because they have chosen to have kids but really can not afford them. While the study did not factor in the cost of the EIC which returns taxes not paid I would speculate that on a monetary basis the kid related credits/deductions cost by far the most.

So bleeping what. We don't tax the poor no matter who they are.

Katara 3 years ago

facepalm

All those elderly tax benefits outlined in the study are not income based. They are all age-related. It does not matter how much income you make, if you 65+, you are eligible to utilize those tax benefits. For example, no one is taxed 100% on the SS income. All people who meet the age qualification and collect SS have 15% of that SS income not subject to Federal taxation. Some (and this is the part that probably confuses you) may have a larger % of the SS income not subject to Federal taxation due to their income. And of those, some may have no Federal Tax liability. But regardless, the tax benefit itself is age-related and not income based as you argue.

Whereas having a child/or children is does not automatically qualify you for children related tax benefits. Those are income based.

And again, you are making up strawmen to knock down. I've not once said that I support taxing seniors twice on their social security. You are being dishonest by making up that position and assigning it to me.

Frankly, I'm not getting your logic in going from this statement "Seniors are the largest group of those who pay no Federal Income tax" to wanting to tax seniors on their social security.

Additionally, the assumption that people who have children and don't pay Federal Income tax are making a conscience decision to have them despite not being able to afford them is a false one. Particularly, since the study is from 2011 and we been through this whole recession thing. Losing the job that has sufficiently supported your family tends to drop your income and those kids were already there.

Obviously you are suggesting that one should eliminate the children that are causing you to be poor and are causing more expense to the taxpayers. Why would you advocate child murder? Why do you support abortion on demand? (Wow. Making up crap and assigning those positions to people IS fun!)

George Lippencott 3 years ago

You just keep restating. A percent of your social security is exempt from taxation not because you are old but because it was already taxed (fifth time). The rest is taxed based on your income as normal income. No special treatment beyond that extended to low income citizens (old or young).

The other two credits/deductions are specifically income related. Go to IRS.gov, read and weep. The very table in the study shows that by the concentration of the numbers not paying ncome tax at the lower income levels.

Children are making us poor?? Children ARE causing expenses to taxpayers ranging from CHIPS to schools. We have chosen to share those costs. The rest is just wild.

Wow I hope you were out and about when you sent that so the BS can benfit the flowers.

Katara 3 years ago

I'm sorry that you simply just get the difference between age-related and income based. I would suggest that you go to the IRS website and actually read it. I'll even do the legwork for you.

http://www.irs.gov/individuals/retirees/article/0,,id=154021,00.html

Here is a highlight of one the age-related tax benefits both I and the study refer to.

"Standard Deduction for Seniors - If you do not itemize your deductions, you can get a higher standard deduction amount if you and/or your spouse are 65 years old or older. You can get an even higher standard deduction amount if either you or your spouse is blind. (See Form 1040 and Form 1040A instructions.)"

Yes, the rest is wild. Just like your bizarre assertions that you have made about me. Did the part about making up crap clue you in to that?

Again, you lack reading comprehension. I didn't say children are making us poor. You have claimed in you many posts and blogs that those who are not paying taxes are mainly families with children. You have even gone so far as to advocate eliminating any form of tax benefit for those with children.

Anyhow, I knew this was a waste of time. You are simply too dishonest to address what is actually said and prefer to make up something else instead.

George Lippencott 3 years ago

OK. Why do you think that? While theer is some redistribution in SS it is weak. Mostly you get back what you put in plus ROI.

Fossick 3 years ago

"Mostly you get back what you put in plus ROI."

Whence cometh the ROI? When you pay SocSec taxes, the money is spent just like any other dollar. The Treasury sends an IOU to the SocSec department. Sitting in that cabinet, those IOUs earn 'interest.' When it comes time for SocSec to cash in those IOUs, the Treasury will pay them and their interest out of incoming taxes (or borrowings) like any other expense. The "ROI" is simply interest charged to tomorrow's net taxpayers, whom, as you have noted, are not on the low end of the income scale.

George Lippencott 3 years ago

Well it kind of depends on how you interpret the money paid. If, as discussed on the social security web pages that money is deposited in the old age and survivors portion of the program followed by the treasury borrowing this real money to pay the governments debts elsewhere while issuing the bonds of which you speak then the ROI is the interest on those bonds. That was how the program was established.

The choice would have been to invest the incoming payroll deductions in some investment security and bank the return. For more than a few reasons our lawgivers chose to just spend the money in current accounts to save the government from paying the costs of borrowing while holding multiple billions in cash and securities. (I believe the Republicans suggested this a few years ago but it was not implemented)

In a year or two the annual surplus into that fund will be less than the obligations to pay SS. The treasury will redeem the securities in the draw using general revenue. That was the plan. Are you arguing that the full faith and credit of the US behind those securities should now be disregarded because the rising generations are fearful that they may not get theirs?

What strikes me as particularly galling about this dilemma is that this day has been predictable for years. Only now when faced with an immediate cost are we making noises. My money was spent on general government needs – and not for the purpose for which collected. I want it back.

Fossick 3 years ago

"I believe it is a well intentioned government program that forces people to save money in return for a retirement annuity."

Then we ought to count it as such. Every person's 'ownership' of this annuity (let's call it political capital) ought to be measured and included in every poverty statistic we have. If you have an annuity that pays you $10,000 a year over 30 years, actuaries can value it. If you have a political promise to receive the same money over the same period, then you have the same asset.

If you want to get a real grip on poverty in this country, measure it including political capital like SocSec and non-cash benefits like Section 8, WIC, and others. We'll find that actual, real poverty is as hard to find in America as is starvation.

George Lippencott 3 years ago

No argument here. All of the social safety net expenses should be counted as income. My study suggests that we identify at least $22K per poor person in our social safety net. Poverty for a family of four is - drum roll - a little over $22K. There is no poverty statistically. Now if there is perhaps we should examine where the money is going?

George Lippencott 2 years, 12 months ago

Katara wrote "Standard Deduction for Seniors - If you do not itemize your deductions, you can get a higher standard deduction amount if you and/or your spouse are 65 years old or older. You can get an even higher standard deduction amount if either you or your spouse is blind. (See Form 1040 and Form 1040A instructions.)" Moderat Responds: Katara I acknowledged from the get go that deductions and credits for the elderly exist but are means tested – some seniors get them – mostly low income. The quote you provided applies to the standard deduction only. In general that applies only to tax payers who do not have enough income to make itemizing deductions useful – i.e. the poor and near poor. IRS data and the urban institute study show that clearly.

If it makes you happy I will acknowledge that there may be a few higher income seniors who take the standard deduction and get a higher deduction for age. Otherwise it is income that drives the ability to use that deduction – as I have written repeatedly. The deduction for blindness is driven by blindness and if I read the instructions correctly it applies to all who file a standard deduction – not just seniors. The deduction for age is about $1500 if and only if you take the standard deduction.

I fail to understand your argument about deductions and credits for children. In general they apply to all taxpayers. For low income taxpayers there are additions. Most noteworthy is the EIC that for many returns money never paid. This tax expenditure along is estimated to cost the treasury somewhere between $30 and 50 billion a year. The cost of the increase in the standard deductions for taxpayers over 65 is difficult to determine but is somewhere between $500 million and a billion.

Taken in totality the urban institute inference is very misleading. Given that the majority of tax expenditures listed are for low income individuals it would appear the lions share is driven by child related tax expenditures on a ratio of about 25 to one with expenses related to seniors The numbers of tax payers not paying federal income tax may well be tipped to seniors but only in numbers. What matters are costs. Costs are overwhelmingly tipped the other way

George Lippencott 2 years, 12 months ago

LO I am not going to argue your points – they reflect a legitimate point of view

That said the program came about because most people were not as savvy as you and did not save for retirement. Since we long ago decided not to shoot the poor we were collectively left with a need to deal with the elderly poor (most at that time) and it cost a bunch. Creating a program to force people to do what you do voluntarily is a legitimate way to avoid that dilemma.

Once you cross that threshold the rest flows logically.

George Lippencott 2 years, 12 months ago

LO

That is one opinion. If the government is so good at misleading us then what hope is there?? Sit back and enjoy the ride.

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