Lady Madonna

Linking Paul McCartney singing about Lady Madonna and her kids and taxes because April 15th (acutally April 17th this year because the 15th is a Saturday) is coming soon is a bit of a stretch.  But Lady Madonna had a lot of kids and the Congress gives people with a lot of kids, a lot of tax breaks.  And I don't think that is fair, especially to young people.  At least, young people with no kids.  In fact, young people get basically no tax breaks at all.  Not that I can find anyway.

So if I were a young person I would revolt against the tax system and the Social Security system and the Medicare system as well.  Not sure what form the revolt would take but I would revolt because here is what a taxpayer with kids gets and you don't.  Note:  a taxpayer with kids may not qualify for the all the deductions and credits but since they have kids they at least have a chance.  Assuming you have no kids, you have no chance.

-A $3,200 deduction for each kid

-Credit for child and dependent care expenses

-Child tax credit

-Adoption credit

-Hope credit

-Lifetime learning credit

-Tuition credit

On the other end of the spectrum there are tax breaks for old people and blind people and disabled people.  All well and good if you have a lot of kids or are old or blind or disabled but not for you.

You don't get any of these and you pay for Social Security and Medicare which you may, emphasis on may, get some back in about 45 years.  That assumes the system is not bankrupt.  And most of you assume you will not see any Social Security money because, in a poll, the majority of 20 somethings thought they had a better chance of going to the moon then seeing any of their money from Social Security.   

And Social Security is projected to go bankrupt mid-century and the only way to avoid bankruptcy is to 1) reduce benefits or 2) raise Social Security taxes.  And go try and find a politician that is going to vote to reduce benefits.

But anyway, why belabor this stuff?  Only to illustrate that tax systems and government benefit programs are not run purely for financial reasons but also largely for political reasons.  Or more cynically, social reengineering purposes.

Take the tax system.  The purpose of the tax system is to raise funds to fund government so government can provide the services not provided by the private sector, primarily defense and interstate commerce, ie., roads.  But the tax system does more than that because the government, at the will of Congress, does a lot more than defense and roads and most of that badly. 

And who pays for it?  You do.  Which is the social engineering part.  Also, called income redistribution.  Or wealth transfer.  Or, more simply, take from the rich and, supposedly, give to the poor.  And you are the rich.  Don't think so?  The government does.  If you are single and make $29,050  you pay about 9% of that in federal taxes.  But if you make $29,051 you will pay 25% tax on that extra $1.  Along with Social Security taxes, Medicare taxes, state taxes, and local taxes, if any.   

Yeah, so what?  Most tax crusaders would now, here, go into an impassioned plea for a flat tax.  Good idea?  You bet.  Gonna happen?  No way.

Or an impassioned plea for Social Security reform.  Gonna happen?  George tried and look what happened.  Nothing thanks to a bunch of politicians on both sides scared to death of your grandparents. 

Or Medicare.  For reform, see Social Security reform above.

So what to do?  When faced with problems that are out of your hands, try and find things in your hands that you can control and they are:

Max out your 401(k) because if you're making over $29,050 and can shelter any of that you are immediately picking up 25% plus the return on the investment.  No 401(k)?  Do a traditional IRA or Roth IRA.

Buy a house.  Didn't I rail against that the other day?  Maybe in San Francisco but if you can find a deal, the IRS gives this subsidized industry a break by allowing you to deduct mortgage interest and property taxes.

But the big one is starting your own business, either full time or part time.  We will discuss those tax breaks tomorrow since we are closing in on April 17th.

Comments

[JB]

I'm a SINC by choice (single income no children) and frequently talk about this issue with other SINCs. We love having to pay for other folks choices!

In addition, most of us are rich independent minded voters.So during the last election when folks asked who I was voting for -- Kerry --- and most responses went something like --- YOU ARE A SOCIALIST --- I asked if they had any kids? The answer was always YES --- I told them to check the freakin' tax code and reevaluate their thinking on the name calling.

PS. Bush's social security planned failed because he did what he always does --- overstated the case, had a bad policy which wouldn't of worked, and tried to default on the American people. So he may be the party of ideas, but so far they have all been pretty bad ideas! God Bless!