Massive...Believe Me

One of the selling points of the new tax reform law that just passed was that the standard deduction would be doubled, which would eliminate the need for many people to itemize, supposedly making filing your taxes simpler. There's a few problems with this.

One problem is that it hasn't quite doubled. $6350 to $12,000 for singles and $12,700 to $24,000 for marrieds filing jointly. Perhaps this is nit-picking. For a married couple filing jointly this is still a reduction of $11,300 in taxable income. But one of the ways that this was paid for was by eliminating the personal exemption, which was $4050 per person for marrieds, for a total of $8100 lost. So now that $11,300 is only a taxable income reduction of $3,200. If this hypothetical family has one child, then the taxable income actually increases by $850. Two children, it increases by $4,900. To be fair, the child tax credit increased by $1000 per child, so with one child the decrease in taxable income is $150 while the increase for two children is "only" $3,900.

What about the people who will still itemize? For a married couple filing jointly they would have been itemizing over $24,000 in deductions to make it worth their while to pass up the standard deduction. These people are not getting double the deductions, but are still losing their personal exemptions. And if they're over 65 they're losing the over-65 exemptions as well. So add another $4050 increase in taxable income for each person over 65.

The actual tax paid will vary depending on income level. The first $19,050 of taxable income is still taxed at 10%; 19,050 - 77,400 decreases from 15% - 12%; the next bracket drops from 25% to 22% and expands from a ceiling of 156,150 to 165,000. Do the math yourself, but for anyone with a household income of $59,000, the median US household income, people with no children will see a modest reduction in taxes, while people with two or more children will see increases.

But on the bright side, you can deduct the cost of your private plane

The Tax Bill..."Massive" Tax Cuts

The House of Representatives passed the once-in-a-lifetime tax reform bill today and it looks like the Senate will by tomorrow. The numbers are finalized, so I was able to apply the new brackets and rates to my own situation. We're at about 80% of US Median Income, so we're not outliers high or low. After plugging in the new rates to our 2016 income figures I calculate that I will see a lower tax bill and a "raise", i.e. more after tax income. My tax bill would have been $652 less, increasing my after tax income by 1.4%. Don't get me wrong, I can certainly use an extra $652, but viewed another way, it's less than $13 a week. Hardly the "massive" cut, or the $4000/year "raise" that Sarah Sanders suggested that I might see.

Social Security Trust Fund

The other day Senator Lindsey Graham made a remark about the possibility of social security benefits coming out of the general fund (he was against it). His following remarks and the Twitter storm that followed betrayed an ignorance of how Social Security operates, in particular, what precisely the Social Security Trust Fund is and how it works, as well as whose money it is after you "pay into it".

Two of the more common remarks that one hears when complaining about Social Security is "I paid into it, it's my money",  and "Social Security is in trouble because Congress (or Obama, or Bush, take your pick) borrowed (or stole) from it...when are they going to pay it back?".

Before I get into dispelling, or at least addressing, the myths and misinformation that give rise to those questions, let's address the term "entitlement". Occasionally there appears a Facebook meme that expresses outrage that Social Security benefits are called (or going to be called) an entitlement, assuming that an entitlement is welfare and welfare is bad. According the the Glossary of Political Terms published by Auburn University, an entitlement is a financial benefit that an indefinite number of people have a legal right to, provided that they meet the eligibility requirements set by law. In the case of Social Security the broad requirements are that you have made payments into the system (typically by way of payroll deductions) and have reached a certain age. Without taking into account survivors or disability benefits, you can't receive benefits if you've never worked or if you aren't old enough.  Social Security benefits are an entitlement because you are entitled by law to receive them.

So, whose money is it anyway? Most people think that it's theirs. They "paid into it", they get it when they retire. Yes and no. The fact that in order to receive benefits one would have had to have paid Social Security taxes throughout their working life confuses some people. They imagine that it works like a bank account: you put money in, and when you retire, you take it out. In reality, it's simply a tax, like any other tax. The main difference is that, like say a local wheel tax, it's earmarked for a specific program. The other difference is that it's a pay-as-you-go program. The payroll tax collected from today's workers pays the benefits of today's retirees. When today's workers retire, if all goes well, their benefits will be paid by tomorrow's workers.

But it's still my money, right? I paid into it, so I get it...right? Yes and no. If you reach retirement age and meet any other requirements, you will receive benefits. But what if you die before reaching retirement age? (There is such a thing as spousal and survivors' benefits, but for the sake of simplicity I will not factor them in to this example). If you die before reaching retirement age, your bank account, stocks, etc does not evaporate, but will be distributed to your heirs. It doesn't work that way with Social Security benefits. Firstly, the benefits, despite having had Social Security taxes taken out of your paychecks over decades, is in no real sense "yours" until you meet the requirements. That money is not set aside for your future use. There is no special fund earmarked for your use that "disappears" if you die early. Remember pay-as-you-go? The money that you would have received would have come out of the payroll deductions of the people working when you retired. If you die, or otherwise do not meet the requirements those funds are not yours.

But what about the Trust Fund? The Government has been looting it to pay for their deficit spending, when are they going to pay it back? The question itself reflects a misunderstanding of how the Social Security Trust Fund works. As explained earlier, current benefits are paid out of payroll taxes collected from current wage earners. 50 years of accumulated payroll deductions aren't paying for today's retirees; that money has been spent on yesterday's retirees. What is accumulated is the surplus. Until 2009 the taxes collected exceeded the benefits paid, generating an annual surplus. So where is that money? Before I explain, let's look at what happens to your money when you deposit it in a bank. Even though there is a vault in every bank with cash in it, this does not represent all the bank's deposits. Once you put your money in a bank a percentage of it is loaned out, and some is invested in interest-bearing securities. Currently, banks are required to have a cash reserve of 12% of assets. That means that 80% of what has been deposited in a bank isn't physically there in the form of piles of cash. It's earning its keep. This is similar, but not identical, to what happens to the surpluses in the Trust Fund. The Social Security Administration is required by law to invest any surplus in US Treasury Securities. This is what is meant when you hear about "the government" borrowing money from the Trust Fund.  Similar to how a bank is putting the money on deposit to work, the Trust Fund, rather than sitting on a pile of cash, is freeing up the cash for current use. If, rather than investing in Treasury securities, the Trust Fund invested in private securities, it would be a similar situation, except that the cash would now be in the hands of private companies (or individuals), rather than the US Government. Having this cash in government hands, rather than private investors reduces the amount of borrowing needed to make up annual budget deficits.

One of the problems with this setup is that eventually this internal debt will have to be paid back, but the bigger problem is that, at some time in the near future, the deficits between collections and benefits will eat up the accumulated surpluses.  This has nothing to do with Congress or the President "raiding" the Trust Fund, but it has everything to do with demographics. There will, of course, still be money coming in from payroll taxes, but estimates project that by 2034 there will only be enough incoming revenue to pay for 79% of benefits, with the percentage shrinking to 73% by 2089. To repeat, this has nothing to do with anybody supposedly raiding the Trust Fund, but everything to do with demographics.

The way this is set up isn't what we generally see in our day-to-day household finances, and frankly, politicians over the years, either though ignorance or telling us what we want to hear, have misrepresented how Social Security works. However, in this day and age, with information at our fingertips though our computers and smart phones, there is no excuse to be ignorant.

Why is it...?

Why is it that when Black Lives matter activists or NFL players protest police acting inappropriately, they're called thugs and Un-American, but Trump criticizes law enforcement, there's no similar outrage?

Why is it that when Michelle Obama said that she finally proud to be an American when her husband was elected President she was excoriated as unpatriotic and worse, but Trump can characterize our nation as a violent wasteland in his inaugural speech and people applaud?

Why is it that President Obama was widely viewed with suspicion by the military and thought to be disrespectful of our service members for no discernible reason other than people thought a "liberal" must be against the military, but Trump can make multiple remarks deriding Senator McCain's time in a prison camp, saying that he knew more than "the generals" and many other disrespectful remarks, and he is thought to be a friend of the military?

Why is it that under Democratic Presidents pristine morality was considered a prerequisite for a President, and that Republicans were able to portray themselves as defenders of Christian values, but Trump, whose whole life is in opposition to any kind of morality, let alone Christian, can be championed by Evangelicals as their savior?

Why is it that those who claim to like and support Trump seem to like a fantasy version of Trump that bears little, if any, resemblance to the real Trump?

Trump's Campaign Promises

Trump likes to brag that he has accomplished more than any other President in his first year. He also makes a point when he does fullfil a campaign promise, that he keeps his word. But is that true? Has he done more than any other president?

It is true that he has eliminated many regulations that cost his billionaire cronies money, but no legislative achievements to speak of. Here's a list of promises not kept:

• Build a "Great, big, beautiful" wall on the border with Mexico: no wall has been built
• Balance the budget "fairly quickly": backs a budget that increases the deficit
• Stop all Muslim immigration: travel ban has encountered numerous legal hurdles
• Repeal "Obamacare" on Day One: we still have the ACA
• Push for a Constitutional Amendment to enact term limits on Congress: no sign of this happening
• Appoint a special prosecutor to investigate Hillary Clinton: someone else is being investigated
• Make no cuts to Social Security or Medicaid: Republicans are discussing doing this with no pushback from Trump
• Invest $1 Trillion in infrastructure: no sign of this happening
• Defund Planned Parenthood: Nope
•  Open up libel laws: that pesky constitution
• Develop a plan to defeat ISIS in 30 days: or maybe there was already a secret plan, we kicked them out of their territory, but they still exist
• Establish a commission on radical Islam: must be a secret commission
• Guarantee 6 week paid parental leave: hahahahaha
• Allow health insurance to be sold across state lines: was already legal
• Send back Syrian refugees: they're still here
• End birthright citizenship: there's that Constitution again
• label China a currency manipulator: Xi Jinping is now Trump's BFF after some delicious chocolate cake
• Save the Indiana Carrier plant: they're still sending jobs south of the border
• Take no vacations: I guess every weekend being a three-day golf outing doesn't count
• Release tax returns "after audit is completed": yeah, right
• A massive tax cut: he may get the Republican tax bill passed, but it's not done yet and it's hardly a tax cut for more than half of Americans

The Single Issue Voter

Zeroing in on a single issue sounds good in theory. Be passionate about something, something that you feel is more important than anything else in the whole wide world. Throw all of your support to a candidate that agrees with your issue and refuse to vote for anyone who disagrees. All you have to do is convince more than 50% of voters of the importance of your issue and we're on the road to utopia.

Not so fast, Skippy.

The problem wit being a single issue voter is that our lives are not single issue lives. What's the most important? Abortion rights? The ACA? The candidate's morality? Tax issues? Defense? Immigration? What if all these issues (and more) are equally important? Or even pretty darn important if not as important as issue #1? What if the available candidates include one who agrees with you on issue #1, but not on issues 2, 3, 4...10; and another who disagrees on #1, but agrees on all the others? Most single issue voters will choose the candidate who agrees with them on issue #1.

This is the problem that we are dealing with in the age of Trump. We had a candidate (and now a President) who ran an unquestionably hateful campaign; has been credibly accused of over a dozen women of sexual harassment, even caught on tape admitting to it; lied repeatedly and obviously during the campaign and still does as President; shows no aptitude or competence and makes many statements betraying his ignorance; undermines the press and law enforcement;  is reckless in his discussion of military options...I can go on and on. But what many, many people based their decision on is one issue: abortion. Now I'm not going to argue for or against abortion, choice or any associated issues. But for those who vehemently oppose abortion in all circumstances, nothing else matters.

This is what we are up against when we bring up sexual harassment allegations against Donald Trump and now Roy Moore. To the dyed-in-wool abortion opponents, none of that matters because the other candidate is an abortion supporter. Abortion is their single issue. Nothing else matters and nothing will sway them.  And frankly, we're wasting our time trying to change the minds of people like that. Work on the people who are open to changing their minds.

And get your ass out and vote so that there are more of us than there are of them.

Did Anyone Read This God Damn Bill?

Few would argue that the tax code in the United States isn't in need of reform. Every lobbying group that has a shred of influence has convinced Congress to include exemptions and loopholes. Many of you know that I work for my state's Department of Revenue. I work mainly with sales tax and tax incentives; when I started work there I was stunned at the number exemptions and exceptions and how often the answer to the questions "Is that taxable?" was "It depends". In principle I was for a change to the tax code, but was skeptical that Republicans would make any changes that were helpful to low- and middle-income Americans. I am deeply skeptical that giving tax breaks to the rich and to big corporations is going to translate to more money in the pockets of people like me, even though the Trumpists and the Republicans assure me that they passed a "massive" tax cut that will benefit working Americans. I call "bullshit".

There's a lot wrong with what was just passed:

• The Republicans used suspect math in order to claim that the increase to the deficit and national debt would be under the threshold that allowed them to pass the bill with 51 votes instead of 60. 
•  Any tax reductions will expire in seven years. (This is so the math in the previous bullet point works - they know full well that a future Congress will not want to implement what most Americans will view as a tax increase by letting cuts expire)
• While some middle-income Americans will see lower tax bills (early back-of-the-envelope calculations suggest that I am one of them) many more will see increases. 
• The biggest tax reductions affect the richest Americans as well as large corporations (the rationale is the big companies will use their tax windfall to increase wages and create jobs, ignoring the fact that most megacorps are sitting on huge piles of cash and not increasing wages. Wages increase due to market pressure and competition; jobs are created when demand increases)
• The Senate bill was rushed through with little debate and no time to read the bill, let alone understand what was in it (almost 500 pages) - handwritten changes appeared minutes before the vote and changes were made that lobbyists knew before the Democratic party Senators did. 
• Several non-tax related items appeared in the bill including drilling in the Arctic, classifying fetuses as "persons" in the tax code, ending the individual mandate's penalties, repealing the prohibition on non-profit groups from political activism and who the hell knows what else?
• Many Schedule A itemized deductions have been eliminated, while big ticket, 1%er deductions are retained or expanded
• Even though the standard deduction is doubled, personal exemptions are to be eliminated, hurting anyone with more than one child

It's pretty clear that this is not a middle/working class friendly bill, but mainly payback to the donor class.