Sunday, June 24, 2007

Talkin' Tax Code...

Re(1): 'Trick question: "Did the tax cuts pay for themselves?"', The Skeptical Optimist, Steve Conover
Re(2): '2000 Tax Rate Schedules', IRS
Re(3): '2006 Tax Rate Schedules', IRS
Re(4): '2006 Alternative Minimum Tax Schedule', IRS

I am not rich. I am in the 25% tax bracket. Solidly middle class!!!

I am using 2006 inflation adjusted numbers and am increasing the 2000 tax brackets by the inflation adjustment. Adjusted the brackets look like the following:

2000 Federal Tax Schedule for Married Filing Jointly (Inflation adjusted to 2006) :

If taxable income is over-But not over-The tax is-
$51,336$124,039$7,700 + 28% of the amout over $51,336
$124,039$189,014.63$20,356 + 31% of the amount over $124,039

2006 Federal Tax Schedule for Married Filing Jointly:

If taxable income is over-But not over-The tax is-
$15,100$61,300$1,510 + 25% of the amount over $15,100
$61,300$123,700$8,440 + 25% of the amount over $61,300
$123,700$188,450$24,040 + 28% of the amount over $123,700

(Note: Higher brackets will end up in the AMT. A flat tax!!! Income is flat taxed at 26% or 28% with very restricted deductions - and, no, that hasn't been changed. Thus, higher income earners really don't get a 'tax break' and can't play with their taxes - but, inflation will soon bring the AMT flat tax to you!!!).

If the taxes revert to the pre-2003 code I will be in the 28% tax bracket. That difference does not sound like much, but the fact is that income from $0 - $51,336 is taxed at a higher effective tax rate of 15% rather than 13% (as a side note: why should we all want the bottom two brackets to pay more income tax?).

So, under pre-2003 tax code I would pay the Feds $14,045 for exactly the same service I currently pay the Feds $11,615. Thus, from a married chap firmly in the middle class, the BusHitler tax code nets little old me $2,430 in take home pay - or a little more than $200 bucks a month. Half a car payment, or perhaps paying down the old credit cards a bit faster, maybe investing more into my retirement fund, eh… Lots of options and the government is not there to tell me how to best deal with it. And, to top everything off, the Federal annual budget will be in surplus next year – while looking at $300 - $500 billion dollar annual surpluses for as long as the eye can see if the economy doesn’t tank

Now, more pertinent to the current post by Steve. Will I simply pay the $200 each month and be happy about it?


I will act aggressively, as I did in 2000, to reduce my tax burden. I will ‘hide’ more income from the tax man!!! I will be more aggressive in my deductions. I will stop funding a Roth IRA and increase my 401(k) contributions. And, RIGHT NOW, I will take my capital gains from investment growth and move to cash. (and, yes, Marmico that is what I am doing at the present. I want to beat the big time investors to the safety of cash and low tax rates before they act).

So, the increase in personal income tax rates will net the government $0 or maybe even a negative return as I start playing the tax game again. And, what happens to the economy as I move my resources from active assets to tax shelters?

Why should the Feds make me play the game?
Since I feel the taxes are fair I no longer play. I just pay!!!