Marriage penalty

[gwendally]

I just ran numbers again on the marriage penalty.

Scenario:

TP makes $30,000 at a wage job.
SP makes $15,000 at a wage job.

They have two children together who are under 17.

Comments

[gwendally]

Most is due to EITC.

But EITC is greatly expanded. The earnings limits in 2010 are:

$43,352 ($48,362 married filing jointly) with three or more qualifying children
$40,363 ($45,373 married filing jointly) with two qualifying children
$35,535 ($40,545 married filing jointly) with one qualifying child
$13,460 ($18,470 married filing jointly) with no qualifying children

For 2011 the earned income and adjusted gross income (AGI) must each be less than:

$43,998 ($49,078 married filing jointly) with three or more qualifying children
$40,964 ($46,044 married filing jointly) with two qualifying children
$36,052 ($41,132 married filing jointly) with one qualifying child
$13,660 ($18,740 married filing jointly) with no qualifying children

Tax Year 2011 maximum credit:

$5,751 with three or more qualifying children
$5,112 with two qualifying children
$3,094 with one qualifying child
$464 with no qualifying children

Do you see that? If you leave someone with a $15K salary off your combined income the higher earner can quite legally receive up to $5751.

I rarely see anyone hit that jackpot. But the ONLY ones I see hit that jackpot are when there are two earners in the family and they aren't married.

ETA: I'm sure there are single-family households with three kids. But in that case they're ALSO getting child support. My average family getting EITC has a household income of over $50K.

[coercedbynutmeg]

I don't get it. I thought the median household income in the US was around $49K. How is 40% of the population getting EIC? I thought it was supposed to be for the "working poor," not everyone earning below the median US income while having kids. That damned thing needs to go.

[gwendally]

Our country is bankrupt. It is mathematically eliminated. Unless we have unimaginable growth in the post-peak-oil world there is no way we can grow ourselves out of our debts, which now have a present value equal to the present value of all our future cash flows. Perhaps we'll see off assets (like mining rights to the Grand Canyon) but the MAIN plan is to spend until people stop loaning us money then default.

So, given that situation, who wants to stand up and vote for austerity? I mean, seriously, there is no UPSIDE to that position. Congress votes bigger and bigger deficit budgets each time and our unfunded liabiliites grow unabated.

This is because the only SANE thing to do in this situation is to get while the getting is good. If you listen to OWS the issue is NOT sustainability or fixing our deficit, it's trying to grab a piece from the people who grabbed first.

This is why we bought the island cottage this year. We are trying to get our money into tangibles with firm titles.

So, yeah. Tax cuts for all, even if that means refundable credits for the people for whom a tax cut won't help because they already don't pay taxes. Did you hear about the checks rich people were getting sent to help cover their pharmacy bills, too? Outright cash gifts just because.

Don't tell me you paid Federal income taxes? Hardly any young families do!

National Debt

[gwendally]

http://www.cato-at-liberty.org/the-debt-ceiling-and-the-balanced-budget-amendment/

I got outraged in 2007. The four years since then have just been a coming to terms with the implications.

[coercedbynutmeg]

Our federal tax liability last year (with one kid, not two) was around $4K. No itemizing. No tax liability to any state. I'd complain but our effective tax rate is actually only about 5%. There's easily a $20K difference between our AGI and our actual income.

[aloha_moira]

Don't tell me you paid Federal income taxes? Hardly any young families do!

I must be doing our taxes entirely wrong, then. Public school teacher plus grad student, and we paid something like $8 or 9k last year.

Federal income taxes

[gwendally]

The median income in the United States for a household is about $50,000. That's MEDIAN household. Households with small children tend to be young in their careers and fall heavily into the lower-income household demographic.

A married couple with 2 kids making $50,000 neither pays nor gets a refund, they come out even.

A married couple with 1 kid making $40,000 neither pays nor gets a refund, they come out even, too.

Student loan interest would be deductible as would childcare and I didn't include EITHER of these deductions or credits, so it's quite conceivable to earn more.

A family with one kid with $3000 in childcare, $500 in student loan interest, $250 in teacher deduction would have to have $100K in salaries, or DOUBLE the median household, to pay $9K in Federal income taxes, and that's assuming that couple takes the standard deduction, although they'd be likely to itemize at that income level.

Re: Federal income taxes

[aloha_moira]

We earned something between $70-80k (some "self employment" income from my editing gig, if that matters), student loan interest, no deductible childcare expenses. I guess maybe it's worth finding a CPA this year, especially because we'll have split state taxes (some CA and some NH)... how long is it possible to file retroactive amendments? :P

Re: Federal income taxes

[gwendally]

Self-employment makes a HUGE difference. HUMONGOUS difference. Because no one is taking out your social security and medicare from self-employment, it lands on the Federal INCOME tax return for self-employed people. It's a separate line item after the income tax is calculated, "SE tax". Roughly speaking it's 14% of whatever you made, although this year it's down to 12.3%.

It's easy to call that "federal income taxes" because it was paid to the Feds on your income. But it funds social security and medicare directly and immediately, going out to current payments as soon as it comes in. It is not the rest of the Federal budget. Typically we do not conflate those forms of taxes into one pile, although it's fine with me if you want to. I've always thought it was ridiculous that a person making $100K from self-employment pays tens of thousands of dollars more than a person making $100K from dividend income.

Re: Federal income taxes

[aloha_moira]

Only about $6k of our income last year fell under SE, so although that does make some difference it wasn't the bulk of the tax that we paid. This year it will be more substantial.

I do feel like payroll taxes should be considered federal taxes if SS and Medicare are considered federal programs... would put an end to a lot of that 53% nonsense too. ;)

Re: Federal income taxes

[gwendally]

You have three years from the due date of a return to file an amendment. That means that 2008, 2009 and 2010 are still open years.

If you had a part-year CA with self-employment I'd say this is a good year to find tax preparer, although look for Enrolled Agents first. (An enrolled agent is more the scale you need.)

New Hampshire quite famously doesn't have a state income tax, although they have a dividends tax. What they mostly have are huge real estate taxes and shitty public services, so poor people just move out of state (mostly to Maine, but some to Vermont.)

Re: Federal income taxes

[aloha_moira]

Thank you for the tips- know anyone good in Manchester? :)

Totally aware of NH's anti-tax leanings, although yeah the property taxes are pretty substantial (as are some fees... vehicle registration, eg.). The house we have been trying to buy for 3 months now has an annual bill of $4500 (on a ~$200k house), which is not so much less than we paid in CA income tax.

I always get defensive when people say the NH public services are crappy... honestly they seem fine to me. The streets are plowed and potholes are filled. Not a ton of crime. K-12 ed is generally good, although like everywhere else I think it suffers from too much focus on testing (higher ed is underfunded). I can get my kid's lead levels tested for free. It would be nice to have better public transit (light rail to Boston would be especially useful) but it's not like Manchester/Nashua/Concord are ever going to be candidates for a subway system and there are buses in areas where it makes sense to have buses. My experience with CJ's mom suggests that public assistance is reasonable or even overly generous (or perhaps just easily scammed), although I am sure some of her benefits are through the feds rather than the state. But there are a lot of immigrants/refugees in Manch. and some other cities, and they receive plenty of services.

You're probably right that the desperately poor move out of state. On the other hand, we are here because we're too poor to live in MA. ;)

[gwendally]

http://www.cato-at-liberty.org/the-biggest-budget-in-history/