Friday, May 12, 2017

Ignorance Overheard

I dislike helicopter parenting. We used to live next door to an extreme version and with four kids, that mother was in her car going in and out of her driveway all evening long and all week long. It wasn't unusual to see her drive by ten times in a few short hours spent enjoying the evening on our back deck. So when my wife wanted to sign up our kids for gymnastics without them every asking to join, I was against it. But my wife has a stubborn streak a mile wide, (slightly narrower than mine!) and went ahead and signed them up. However after seeing how much my daughters have enjoyed going there, I've softened up a bit on the decision and now think it was probably the right one despite it meaning one more trip downtown one evening a week.

I haven't grown to like being the only male person at practices. My wife and mother-in-law took turns for most of the winter but this spring my mother-in-law has been overseas and my wife can only take them two times a month. By default, I am left with the remaining times a month. The parents aren't allowed back in the practice areas and are forced to sit in a lobby waiting area. With one child practicing starting at six and the other starting at 6:45, I have to wait for an hour and a half until the second one finishes. It the younger one was a bit older, I could probably leave her to own devices but I think age four is too young for her to sit for forty-five minutes waiting for her class by herself in a waiting room. I generally bring a book to read but often times I find myself drawn into the conversation of the women all around me. You can tell they aren't used to a male being there and sometimes forget completely only to realize it belatedly and go back to censuring their conversations. However, sometimes I think they think I'm too engrossed it my book to overhear and resume.

I won't bore you with their talk because frankly, it bores me. I'm a guy I guess. But I did overhear one story that just struck me hard because it relates to politics and ignorance of our laws.

The lady sitting right next to me (I'll call Sarah) had been going on for quite awhile with the lady sitting next to her about how she is thinking about giving up on bringing her two kids to the activity center where they teach gymnastics, tumbling, cheer, dance and a multitude of other similar activities. Sarah said that between her two girls, they had 30 costumes this year that she had to buy for all their competitions and she couldn't afford it anymore.

Sarah took a pause to eat some of her takeout Chinese and then went off on a long tangent about crab rangoons with her neighbor for awhile and I started to fade back into my book when I heard the name Donald Trump which brought my ears back into the conversation.

Sarah was saying how much she likes Trump and how he is going to save the working people like herself. Case in point, she said, his new tax plan will reduce my taxes from 35% to 15%. She said that she and her husband had tried figuring out how much that would save them every year and figured up that she would be able to afford those 30 costumes.

It really irks me that people don't understand our tax system at all. I think that it largely why it is so broken to begin with. First of all, if she truly is paying 35% of her income in taxes, then she must be earning between $413,000 to $467,000 per year as a married person filing jointly. I'll go out on a limb and guess that she probably isn't earning anywhere near that amount if she is having trouble buying 30 costumes for her two children. I would go out farther on the limb and say she is probably one of the 45% of Americans who pay no taxes at all. (Roughly half of those have no income and the other half get more tax breaks than owed taxes.)

Secondly, part of the tax proposal is to eliminate almost all deductions so in her case, assuming she is among the crowd that earns money but gets all her taxes back as credits, she would probably go from not paying any federal taxes to owing 15% of her income (lowest proposed tax bracket) to the government making her less likely to afford those 30 costumes per year.

Partly why I say our tax system is broken is due to situations exactly like this, too many people I talk to have no clue what or how a progressive tax system works. The also don't understand the difference between income and investment taxes. They throw out catch phrases like Warren Buffet pays less taxes than his secretary which is blatantly false. What they don't understand is that Warren invests his money in the stock market like I do and ANYBODY can, which has risk involved. As a result, those gains are not taxed the same as regular income. Anyone can invest in the stock market including Warren Buffet's secretary and pay those same taxes but they don't. It isn't a loophole for the rich but is a loophole for the people educated in investing and taxes. Warren Buffet earned $487,000 as a salary last year which means not only did he pay more in taxes than his secretary, but he also paid a higher percentage on his salaried income. As you can see from the range listed above, his salary falls into the highest tax bracket which pays 39.6% in taxes. However, when you lump in Warren's salary to the rest of his long term gains from investing which was almost $11 million dollars in 2015, it is paltry which is why his effective (or average) tax RATE is less than his secretary. He still paid nearly $2 million dollars in taxes, several magnitudes more money than his secretary paid.

I hope one day our tax code will be simplified to the point that almost everyone understands how our tax system works. But until then, we are leaving ourselves open to people getting into office by leading people to believe something that simply isn't true. In this case, I'm guessing Sarah might not have been so favorable towards Trump if she knew that he was proposing to raise her taxes by 15% and not lower it by 20% at she thinks.


Vince said...

Yes, but people are actively bamboozled too. Again yes, those on low income aren't paying tax below certain amounts of income but they are paying cost of living taxes which on low incomes can actually mean they are paying a far greater proportion of income in taxes.
It isn't sufficient to say that a tax system is progressive when collection below certain amounts isn't cost effective and you devolve the collection to retail outlets.
Say you have a family of 5, normally speaking. Which means you'll have the basic costs for that number regardless of income. So, lets say you have 13% sales tax on toilet paper you and Buffet are using the same amount, and the same it valid with most families structured in that way. Babies are expensive, tots less so, early school less, then the trajectory is up.
So in effect at whatever the average shopping cart and general costs of living with the included taxes a person on low income will as a proportion of income be paying vastly more. And that isn't progressive, it's the opposite.
It's as a result of these anomalies in the data that they are changing how they collect it when they are speaking about the FED lifting interest rates.

Ed said...

Vince - The effects of every single tax is mind boggling to try and figure out which I why I limited my discussion to just federal income tax which is what most people are referring to when they throw out the Buffet quote or the lady I was sitting next to talking about Trump.

Personally, I've always thought just making everything a consumer tax would be my preferred taxation method. All taxes would be paid on anything purchased from houses, to stocks to toilet paper at a flat rate. It forces people to plan ahead a bit on purchases and makes it much easier to know when one has enough to retire on.

Kelly said...

Oh my. So many things I could comment on here, so I'll try to limit myself so as not to take over your comments section!

Extracurricular activities - we always limited ours to just a couple. Kids need time to just stay home and play. Part of the problems today is that need to feel every moment has to be scheduled.

Boring conversations - I don't think it's just a male thing since I would probably be bored senseless listening to them, too. To start with, I hate gossip and that's what half of that is. Also, I was never one to discuss my "personal life" to my fifty intimate friends (in a setting like that), so that doesn't leave much else to talk about.

Taxes - I've found most people don't really understand our overly complicated tax system, especially the (totally legal) loopholes that are available for those willing to look for them. Consumer tax does sound good in many ways. I've always been a proponent of a flat tax when it comes to federal income tax. Or better yet... let me just take the Libertarian Party's notion that (and I paraphrase here) taxes are just highway robbery.

I'll shut up now.

Bob said...

I'm mostly in agreement with Kelly, although I've been known to get drawn into a female conversation. When it's NOT gossip, which I also detest, I have often found the ladies to be better conversationalists!

As for the tax code, what a hellacious mess. Haven't the last several presidents promised change???