Most people like receiving a tax refund – it’s kind of like a windfall for many people, especially those for whom saving is a difficult discipline. However, getting a big tax refund from the IRS may not necessarily be the best thing for you in certain situations.
Try to think about your refund in a different way. Essentially, you are giving the government an interest-free loan, which they give back to you when you file your taxes. There’s really no reason to do that, other than you like the surprise surplus.
A lot of people don’t like the idea of owing the government, or are afraid they will not have the money available at tax time to pay the bill. That is a valid concern. However, if you adjust your withholding enough so that you owe on April 15th, that also means you have more money in your paycheck each month.
In reality, whether you owe the government or they owe you, the amount of tax collected is virtually the same. The difference is whether you have your taxes paid for you via your paycheck, and have a smaller paycheck because of it (and a refund in the spring), or whether you set the money aside on your own and have a little bit more to take home from work every pay period.
If you set your withholding so that you’ll owe at tax time, you are in essence holding your own money longer. This can be helpful in situations such as being in debt, where payments are due every month. By having extra in your paycheck due to having less money deducted for taxes, you could use the extra money to pay a little more on your debt, thereby reducing the amount of interest you pay in the long run. Some people prefer this approach.
Whether you like to keep your own money until tax time or whether you prefer the windfall method, you can achieve this your preference by going to visit your Human Resources administrator. If you want more money in your paycheck – and possibly owing the IRS, claim more dependents. If you prefer a refund, claim fewer dependents. The form to make changes on is called a W-4. It’s always good practice once a year to review your tax and financial situation and make adjustments as necessary.
You can also find this article over at my Examiner.com page — where you’ll be able to find other tax preparation advice from me.
Back in 2008 when Obama was debating Hillary Clinton on national TV, Obama noted that raising the capital gains rate would likely reduce federal revenue collections, but insisted it was good policy anyway — because it was a policy of “fairness”.
Why would raising the capital gains tax be a revenue loss? The effect of higher taxes on jobs and income would slow the economy. The two sides of the equation are the ones who think that a loss of jobs is worth the potential increased revenue, while others insist that the any positive revenue amounts would be fairly small and not worth the damage to jobs and the economy.
Certainly, at a time like this in our country when the economy is quite sluggish and unemployment is high, the last thing we need is a policy that hurts more jobs and income. Yet such a policy was just implemented. A hike in capital gains makes it more expensive for a business to raise the capital it needs to operate. What’s more, couple that with the new 3.8% surtax on investment income that begins here in 2013 (from the Obamacare legislation) and you have now an 8.8% tax hike for some people. Throw in the hike for those who make over $400k/$450K and you have even more taxes – on the very type of taxpayers who have money to create jobs and/or invest.
One has to wonder if the budget scoring being done by the Congressional Budget Office (CBO) on this tax will actually bill it as revenue collected, even though economists –and Obama — acknowledge it as a revenue loss.
The capital gains rate hike was a ruse, a shell game. Any revenue raised will be offset by slower economic growth. Is it worth it? Right now? It’s a shame for this country that Obama continued to push for a policy that would have a negative effect on jobs and the economy in an effort to promote “fairness through taxation” and try to level the field on his terms.
The American Complaint Department does just what they say — complain. They have a panel of moderators: liberal, conservative, and libertarian, so on the show and online, you’ll get views from all sides of the spectrum.
Tonight we’ll be discussing my views on the Fiscal Cliff. Enjoy!
The Democrats made the rounds over the weekend with their new talking point that they’ve already made substantial spending cuts. Here’s how it goes:
The Democrats are counting $917 billion from the Budget Control Act, passed in the summer of 2011, as proof that they’ve cut spending. By pitting it against the $620 billion in tax revenue hikes from the Fiscal Cliff deal last week, the Democrats are able to say that the ratio of spending cuts to tax hikes has been a 3:2 ratio so far.
The results of this math? The Democrats are poised to ask for further tax increases, because it’s “not enough”. Don’t forget, Obama said that the rich still weren’t paying their fair share in his January 3rd video.
What’s more, both Ben Cardin of the Senate Finance Committee and Chuck Schumer want to include interest savings in calculations, suggesting that the spending cuts are somewhere between $1.1 trillion and $2 trillion — making the ratio sound even larger.
The narrative is shaping up for a new tax fight with the impending debt ceiling debate. The Democrats are going to repeat this “talking point” as a justification for new taxes — saying that the past deals have been tilted toward cuts. Get ready to hear the Democrats repeat these numbers ad nauseum.
Rep. Jose Serrano, the Democrat from NY who proposed H.J. Res 15, also put forth another bill — H.R. 211 — on Friday.
This bill proposes “To amend title XIX of the Social Security Act to waive the requirement for proof of citizenship during the first year of life for children born in the United States to a Medicaid-eligible mother”.
Govtrack notes, “This bill was assigned to a congressional committee on January 4, 2013, which will consider it before possibly sending it on to the House or Senate as a whole”.
So the longtime Congressman who introduced the legislation to amend the Constitution and repeal term limits for President also wants to amend the Social Security Act with regard to citizenship.
What is the point of this legislation? Why is proof of citizenship in this situation not a positive thing? Thoughts?
Imagine an employer gives a turkey to his employees each year for Thanksgiving. Then one year, the cost of the turkey doubles, but he still gives everyone a turkey anyway. That year, the employee is getting an increase in the value of their pay (the extra cost of the turkey).
The same logic applies to a person getting insurance with their job. If a person gets a 2% pay increase, but the medical benefits costs for the employer also increases $30 more a month then the employee pay goes up 2% plus the $30.00. Many people don’t understand those “hidden” costs regarding benefits and compensation, but that’s how it works.
In the same way, if the cost of providing a defined benefit plan costs your employer now 25% more, or goes up by X dollars more, that X dollars is ultimately additional pay going to you, whether or not you tangibly see it. Nowadays, mainly government workers and some unions are typically the only ones who have defined benefit plans; most employers have moved away from them to a defined contribution plan because of the spiraling costs inherent in a defined benefit plan. A downside, however, is that regular people in private sector jobs with 401Ks critically need to put more of their own money away for retirement because their money investment is growing so slowly.
On the other hand, Obama’s administration is doing two thing that are directly and substantially increasing the cost of employers to maintain a defined benefit plan: 1) keeping interest rates so low that employers just have to invest more just to get a decent rate of return; and 2) increased regulations, which slow the growth of business and impede business gains, thereby slowing the rate of return. On top of this, the government is ignoring the huge increased cost of fringe benefits they provide (i.e, the turkeys) in their budgets – something a private company simply cannot ignore. If a private company were to do so, then it risks going out of business . Therefore, it must account accurately and completely for its costs.
The government however, won’t ever go out of business. It merely passes off these huge costs to the employee – or worse, to the taxpayer. Higher costs to the taxpayer means less money for you. Less money for you means harder savings for the future.
Overall, you will need to put away more for retirement. If you have a defined benefit plan, the long-term projections and promises may be scaled back at some point in the future once the plan proves to be unsustainable. In a defined contribution plan, continued sluggish growth for investments make it difficult for retirement plans. Whatever your strategy, know that you will definitely need more than you think you do right now.
So, in the cloak of night, while the rest of the nation celebrates the start of a new year, the Senate voted 89 to 9 in favor of the “American Taxpayer Relief Act” crafted by Biden and McConnell. The funny thing is, there is no “taxpayer relief” in the act.
The Congressional Budget Office has calculated that the bill includes $620 billion in revenue increases via tax hikes. Additionally, because the bill “kicks the can” on a myriad of spending programs, the actual spending cuts total a mere $15 billion. That’s 41 times more taxes than spending reduction — and it’s spending which is the root of the problem!
It is incomprehensible that McConnell was actually proud of this bill. He pointed out that now that the tax (revenue side) is settled, “now it’s time to get serious about reducing Washington’s out-of-control spending. That’s a debate the American people want. It’s the debate we’ll have next. And it’s a debate Republicans are ready for.”
Gimme a break. They’ve had plenty of time since Simpson-Bowles failed and the Super Committee failed to “get serious about reducing Washington’s out-of-control spending”.
The tax hikes include:
— An increase from 35% to 39.6% for individuals above $400K and couples above $450K. Way to punish families!
— Itemized deductions and personal exemptions and will be limited once individuals meet the $200K threshold and couples meet the $250K threshold.
— The Estate Tax (Death Tax) increases from 35% to 40% on all individual estates above $5 million and family estates above $10 million.
— Dividends and Capital Gains rates increased from 15% to 20%.
— There will be a permanent AMT “patch” as well, finally indexing it to inflation.
What about the spending cuts side? Here’s what they did:
— A $30B one-year extension of 73 week unemployment insurance, — which effects about 2 million people.
— A $30B one-year extension of the Medicare “doc fix”
— A 5 Year Extension of 2009 Stimulus tax credits aimed at college students and low-income workers.
— An extension on the Wind Production Tax Credit (the 2.2 cent per kilowatt/hour credit) that gives a refund to a wind company if it doesn’t turn a profit.
Additionally, Sequestration was delayed for two months –right about the time that the debt ceiling will reach its limit.
So many questions swirling around at this point. Do the Republicans actually think this is a good thing? That there won’t be factions at negotiation time in a couple months (defense/fiscal, etc). Why are we supposed to consider accepting more taxes now with the “promise” of spending cuts later? How is this better than Simpson-Bowles? (or even “Plan B” for that matter?) This is supposed to be an example of a “balanced approach”?
The two things to come out of this “package” are that 1) Obama was able to shape the narrative and make this about taxes, not spending; and 2) Obama was able to make Republicans break their pledge about not voting for new taxes. The damage has been done. The effects of these negotiations will be very long-term.
Let’s hope the House Republicans have the courage to do what it right. Chime in with your thoughts.
For those of you who have asked, I have produced an outline of my recent talk on the Fiscal Cliff: How We Got Here & Where Do We Go? This is a handy cheat sheet that outlines the problems that contributed to our current situation and what we can do to make long-lasting, systemic changes.
A. How Did We Get Here?
1. Spending
a) Spending up estimated 27% since 2008 (cite: Forbes)
b) Trillion dollar deficits each year since 2009 (cite: OMB)
c) Debt-GDP ratio up from just over half of GDP in 2009 to nearly three-fourths in 2012. (cite: Heritage)
2. Taxes
a) Bush “tax cuts”
b) Uncertainty with tax rates
c) New taxes slated for 2013
3. Entitlements
a) Social Security
b) Medicare/Medicaid
c) Food Stamps
d) Disability
4. Healthcare
a) Cost of Obamacare – $1.93 Trillion in first decade (cite: Weekly Standard)
b) Taxes associated with Obamacare
1. Health Insurers Tax
2. Surtax on Investment Income: (3.8%)
3. Health care deduction AGI haircut (from 7.5% – to 10%)
4. Hike in Medicare Payroll Tax: (.9%)
5. Medical Excise Tax
5. Regulations
a) Code of Federal Regulations has increased by 11,327 pages — a 7.4% increase since 2009
b) Examples
1. EPA
2. FDA
3. NRLB
4. IRS
B. Where Do We Go?
1. Cut Spending
a) First, go back to FY2008 spending levels
b) Cut Federal Workforce by at least 10%, which should be commensurate with spending cuts
c) Enact Spending Caps to 19%-20%
2. Tax Reform
a) Make “Bush Tax Cuts” Permanent
b) Lower corporate rate and all tax margins
c) Simplify the tax code
d) Eliminate AMT
3. Entitlement Reform
a) Social Security
1) Raise the retirement age
2) Privatization options
3) Change from current to straight inflation increase
b) Food Stamps/Disability Overhaul
1) Fraud and abuse
2) Stricter guidelines
4. Healthcare Reform
a) Repeal Obamacare
b) Tort Reform
c) Create system more like HSA
5. Regulation Reform
a) Repeal strangling regulations – is this possible?
Recently I gave a talk on the Fiscal Cliff — how we got here and where we are going. Since several people have asked, I posted the videos from the talk. For whatever reason, the last 2 minutes ended up a second separate video, but you can view them one after the other. Enjoy!
