Financial Samurai

Sam,

Most deductions don’t make sense. Take the deduction of mortgage interest for example.

I didn’t understand what you mean when you wrote:

“Let’s say you are an Asian American restaurateur who welcomes every single ethnicity into your restaurant except for Caucasian Germans because they remind you of World War II. ”

Um, hate to say it but if any ethnicity reminds Asians of WW II, it would be the Japanese… After all the Japanese were the ones who made atrocities across Asia in the quest to conquer the land surrounding Japan.

Just sayin’

-Mike

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Financial Samurai Reply:
March 31st, 2011 at 6:02 am

You’re missing the point of the example. You can replace any race with any other race.

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Lysas Reply:
January 19th, 2012 at 3:06 am

Like I said what a low blow! Doesnt surprise me coming from a male… and your name, doesnt sound much better that the pathetic thought of a lousy gain of a grand to act on your horniness…..

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Hi Sam,

I’m a normal horny male, but I would never consider having a kid for $1000 a year. That’s a pittance for all the cost and hard work that is needed. Imagine too how you run the risk of resenting your kid once your $1000 is up. It’s not the kid’s fault.

Sorry, if this comments misses the point. Good stimulating stuff though.

Cheers,
Max

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Financial Samurai Reply:
March 31st, 2011 at 6:23 am

The point is the influence at the margin. The $1,000 is a sweetener, not the sole reason of course.

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Lysas Reply:
January 19th, 2012 at 3:00 am

wow with a name like mike hunt… (mycunt) i am not surprised that such a low blow would come out of such a male! Wow

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I am curious–is the credit limited to your tax liability or can you actually get a refund if it exceeds your total tax amount? The IRS website talks about an “additional child tax credit” provision, but it’s unclear who qualifies.

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Financial Samurai Reply:
March 31st, 2011 at 10:05 am

Wojo, I hope it doesn’t come down to this where you don’t have to pay any federal taxes AND you get a tax credit of $1,000. This is why my giving formula of avg effective tax rate – your effective tax rate = how much to give would be a good idea. We’ve got to all pitch in!

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With the child tax credit, supposedly the government is trying to help working class families with children. But what are the consequences? They are discriminating against any working family making above $110,000. So in essence, couples earning more than $110,000 are paying to raise not only their kids but the kids in the families getting the credit. You’ve written an article here that I can totally agree with. The government should not give any kind of tax break to ANY group. Everyone should pay the same percentage of tax on their income, no matter what they make. (With zero corporate income tax) Yes, even the low income should pay the same percentage as the wealthy. Everyone in the USA should have the same stake in the game. If you choose to have a kid, thats your choice…why should I have to help pay for it? A tax credit for this and a tax credit for that, whether its a kid or new energy efficient windows, the government should get out of the business of creating false demand. The child tax credit and the corresponding Earned Income Tax Credit should be done away with. The governnment is trying to have a societal influence with the tax code but with questionable results.

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Financial Samurai Reply:
April 16th, 2011 at 11:15 am

Norman, thank you for your thoughts. Tis true, why are childless people or couples supposed to fund those with kids? Shouldnt we pay for our own kids and not burden others? I think we should.

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I agree completely. It doesn’t make logical sense to create a new child when there are so many that already need homes. It would be like starting at a freshly cooked meal that no one is going to eat, and then going into the fridge to make your own.

Let’s give people who are adopting children more money.

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david M Reply:
April 1st, 2011 at 5:40 am

We are – I saw a story on the internet this morning about a family that adopted 7 children this year and they are getting a $54,000 tax refund.

I’m guessing that we will be giving them even more every year as they already had multiple children and with this large a family – I’m guessing they qualify for lots of government money.

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Financial Samurai Reply:
April 16th, 2011 at 11:16 am

That awesome couple should get $570,000 and not just 57k for that matter. This was the first year they ever got a credit for adoption, and they’ve had their adopted children for years.

Bless them!!

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Britters Reply:
May 2nd, 2011 at 6:19 pm

I agree that it’s a little late to start the adoption credit. People who adopt kids, no matter the reason, are taking it upon themselves to raise them, give them a home, and love and care for them like they are biological children of the adoptees. With this being said, I strongly think that whether adopting a child or having a child, either way the responsibility and money that’s being given towards the child’s life is the same. Therefore, the tax credit should be the same.

In regaurds to recieving less tax credit for making more income and visa versa, the amount of income made throughout the year infact should be this way. This is my personal opinion and is not ment to step on anyone’s toes, but the sole reason for the credit was ment to help families in poverty. The government is putting a dollar amount where the phase out begins simply to draw a line between middle/upper (mostly upper) class and lower/poverty class. If Americans making $110,000 + per year are hot headed about recieving $1,000, they need to consider the humanitarian aspect of their personality and examine the real reason for the credit. I’m sure if they were the ones living in poverty due to unfortunate events (because everyone is different and not everyone has the same advantages growing up) they would be looking forward to that time of the year simply so they could purchase a descent pair of shoes for their child or whatever the case may be. People making over $100k a year are fortunate and should be thankful they are instead of scrounging for even more money to put in their bank account.

It’s fat enough!

-britters

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I think the limits are there because the government wants to provide some help for families on the lower end – unfortunately though, the are discriminating against another group of people and handing money out to other so that they can further their agenda. They want stable “families” in this country, so they help out the people who are/have them. They also give tax credits for being married, but unfortunately if you’re gay, you cant get married (In most places) and in the few you could, I dont think you get the federal tax credit (But dont know for sure).
The government wants men + women to get married, so they give them money to do so. Sure, some may get married either way, but what about homosexuals? They dont deserve any money? It looks like the government is trying to engineer the society that they want with giveaways of money – to people with children and to those interested in getting married.
So, at this point if you want to be fair to other citizens, what do you do? Do you skip having kids and not take the tax break, or do you have kids and not claim them (totally foolish – if someone’s handing out 1,000 bills of course i’m going to take one).
The solution is to get the government out of the game.

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Financial Samurai Reply:
April 16th, 2011 at 11:17 am

Yes indeed! The government needs to stay out of our personal lives and stop trying to engineer ehat they want into us!

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I think another big gov’t hypocrisy is the making housing affordable program which combats falling house prices. Hello, doesn’t a falling price increase affordability.

What they really want is high housing prices and low monthly payments, in other words- to keep people to be debt slaves forever.

Don’t think too much about the tax code and the behavioral incentives, it will drive you nuts!

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Financial Samurai Reply:
April 3rd, 2011 at 7:07 am

Mike – Bingo, ain’t it odd? Yes, falling prices does help affordability if you ain’t an owner. Good point!

Writing things out in a sensible way helps me from going nuts! :)

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With your Austin/New York example, maybe the Child Tax Credit is incentive for rural areas to have children over urban areas, rather than a rich/poor policy? Although Austin isn’t exactly cheap. $110,000 doesn’t go as far as it used to!

So the real winners here are the South and Midwest, where there is a lower cost of living. The losers are SoCal, Bay Area, the Northwest, and New England.

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Financial Samurai Reply:
April 3rd, 2011 at 7:07 am

Yes, if only the Federal Gov’t could adjust for cost of living, that would be so much better.

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Britters Reply:
May 2nd, 2011 at 6:24 pm

hmm… interesting view of the situation, I just left a HUGE comment about people making over $100,000.. but I do live in the SOUTH, (deep south) so in essence my comment is shot to hell on account of not taking into considerationt he different costs of living throughout the country. Which now thinking about it has always plaqued my mind. Why would cost of living be considerably different in seperate parts of the U.S. BUT it’s all ran by the same government…

Im convinced…. this gov. is all nuts..

-britters

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CTC may be used for adopted children as well. The government is subsidizing lower income citizens because they think they should get some assistance. The message is have children and you get a tax break! I think most people do not think that way, but it is a bad message. Is it discriminating if something like 90% are eligible? A number of social programs are then discriminatory, because it is based on income. I guess the mortgage interest deduction is discriminatory, because there is a limit too! CTC and other social programs are supposed to raise their standard of living so the children can compete. I think the intention was to do good, but does it really help the children?

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Financial Samurai Reply:
March 31st, 2011 at 10:01 am

Limiting mortgage interest indebtness to $1.1 mil is arbitrary, and shows the government is sexist bc a couple can’t deduct $2.2 mil of mortgage indebtedness as it stays at $1.1! Pla read

http://www.financialsamurai.com/2010/02/22/the-marriage-penalty-tax-and-sexist-government/

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krantcents Reply:
March 31st, 2011 at 11:37 am

I agree there is a marriage penalty, but the limitation on mortgage interest is an unwillingness to subsidize the rich. Perhaps it should geographically adjusted for the high rent areas of the country, but you still need pretty good cash flow to afford that big of a mortgage.

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Financial Samurai Reply:
March 31st, 2011 at 1:01 pm

Yes, but do you not believe everybody has the power to be wealthy if they wanted too? Study hard, work hard, build good relationships with everyone and that individual will likely be wealthy. More and more, I believe becoming wealthy is a choice.

I am pretty sure the $1,000 CTC will not influence couple who make over 110k. If that couple decide to have a child, 1k wouldn’t make any difference.
Maybe the gov’t should change the law to diminish return ie 2nd child gets $800, 3rd child gets $600. Poor people doesn’t need to have 5 kids, it’s way too expensive.

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Financial Samurai Reply:
March 31st, 2011 at 9:57 am

Agreed, but that’s not the argument. For someone making $20,000 a year, a $1000 credit is 5% of their income. That’s very good at the margin. If someone was making $300,000 a year and could get a 5% or $15,000 tax CREDIT every year, that is significant.

In other words, $1,000 to a $20,000/yr could very well be like $15,000 to a $300,000/yr and sway a decision.

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Britters Reply:
May 2nd, 2011 at 6:44 pm

The numbers and percentages add up but at the same time the REASON for the extra money for the ones making low income and some next to nothing is to help them out. People making a goos bit of money simply DO NOT NEED the extra money. That is dumb. It shouldnt be about if it’s fair all around, it’s helping out the less fortunate and helping the people in poverty give their children a descent life. Simple as that. It’s not about just giving money to random people just to do it.

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I think I agree with you on this point; the $1,000 tax deduction may be an incentive for a lower SES families to have lots of kids, which is completely ridiculous! In LA, the families with 4+ kids are normally the lower income families that really can’t afford them.

Yes, it could partly be due to culture, but I do wonder how much of the decision is based on monetary incentives. Heck, if you want a large family, why not just adopt – the tax credit for adoption is much more enticing!

P.S. I didn’t know there was a tax credit for adoption by the way. This is good news. Just started researching adopting from China (though it’s still a couple of years off).

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Financial Samurai Reply:
April 3rd, 2011 at 7:08 am

Yep, you get ~$13,000 for adoption. The only issue is that adoption usually costs $20,000-$30,000! And, the $13,000 is only one time, whereas the $1,000 is every year until the law changes.

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1) Is the CTC discriminatory?
Yes. It makes a distinction between higher income families and lower income families. It then provides a tax credit to lower income families with children to help with the costs.

2) Does the CTC discriminate upper income families from having children?
No. Upper income families have the financial means to meet the needs (and many wants) of that child. The family may need to reprioritize how money is spent, but the higher income family is more equipped to deal with financial woes than a lower income family is.

3) Does the CTC provide a great incentive for lower income families to deliberately have unwanted children?
I don’t think so. I’m sure that there are parents that will have children based on tax incentives, but I also believe that these people are a small minority. My sense is that an overwhelming majority of families that take the CTC for children they wanted or accidently had. In either case, financial resources are required to raise the child, and the CTC helps with that.

4) Should the CTC be removed?
I don’t think so. On the whole, my feeling is that it helps families raise children by providing families with some additional funds. If this can lead to a slight improvement in the quality of the newer generation (and less stress on the families), I think it’s good. Granted, I have no proof of this, but I haven’t seen evidence to the contrary, either.

5) What about adoption?
It’s a complicated, time-consuming process that generally requires thousands (or tens of thousands) of dollars. There’s also the emotional argument for a couple to have their own child. I’m mixed on this one.

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Financial Samurai Reply:
April 3rd, 2011 at 7:02 am

Hi Bob, thanks for your thoughts. Regarding point #3, I don’t think many children are accidents. How can you have 3,4, 5 “accidents”? Sex ed is pretty basic don’t you think?

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@Wojo

It is a refundable tax credit, meaning even if your tax liaiblity is $0, the goverment would pay you $1,000 in cash.

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“What happens if you are of very low income, say $15-$25,000 a year and see a government incentive of $1,000 per child dangling in front of you? If you a normal, horny, short-term focused person, you will likely at least consider having several kids. If you have five kids, you get $5,000, which is 20-33% of your entire annual income of $15-25,000! You’ll have a nice family, look for more ways to take advantage of the government…”

Right on the money.

My wife’s works in a lo wincome housing department in our city (section 8). Without fail, probably 95% of the people who receive this assistance are single mothers with 4+ children. They are also receiving a plethora of other governement benefits.

I think this tax credit does increase the cycle of poverty. Not only that, but it seems like poor people just aren’t smart when it comes to sex…they will usually have all the kids by a different dad. Did they not learn the first 3 times?

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Financial Samurai Reply:
April 3rd, 2011 at 7:03 am

Interesting viewpoint on one mother having each kid by a different dad. They can’t all be accidents right? That seems illogical. She must have wanted at least the majority of kids no? And the question is, why if they need to rely on Section 8 for housing?

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Why have a child tax credit at all?

I’d like someone to explain to me why parents – who use additional government services – get to pay LESS taxes than I do. Why don’t they pay additional taxes to support the schools, playgrounds, child protective services and so on that are necessary to raise their spawn?

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Financial Samurai Reply:
April 3rd, 2011 at 7:09 am

That’s what I’m thinking too. Either have a tax credit for EVERYONE, so it is non-discriminatory and available for anyone who wants it, or have a child tax credit for no one.

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I’d say its about time we get rid of all credits, and try some form of consumption tax. This credit, along with the goofy $7500 incentives to buy an electric car, have really shown how much of a politicized joke our tax code has become.

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Jonathan Reply:
March 31st, 2011 at 3:17 pm

I’d be all for this, but it can’t happen. Not because it’s a bad idea, but because congress uses tax incentives to try to engineer society. To switch to a straight consumption tax would be to give up one of their biggest sources (if not their biggest) of power and control over the taxpayers.

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JT McGee Reply:
March 31st, 2011 at 6:18 pm

High five! Agree entirely.

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I doubt we have the will to make this radical a change, but I support flat taxes with little to no deductions. This way, everyone is encouraged to earn more, and it puts pressure for higher output and simpler taxes.

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Sam,
I really don’t think that the government endorses the births of children in low income families by handing out tax credits. When you think about it, $1000 a year isn’t very much to provide for a child. I don’t think it’s correct to totally get rid of the credit, but it’s not doing much.

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Financial Samurai Reply:
April 3rd, 2011 at 7:10 am

If you make $18,000 a year, $1,000 at the margin sounds pretty good to me. If I make $500,000 a year, a $27,000 tax credit also sounds pretty good (same ratio).

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A person should think about the cost of children before having them. It discriminates against the childless by choice or infertile. Is it fair for a married couple with an income of $50000 get an extra $1000 for 4 kids while singles and childless are on unemployment/ ?

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Financial Samurai Reply:
March 31st, 2011 at 4:52 pm

The married couple with an income of $50,000 gets an extra $4,000 a year with 4 kids, not $1,000 I believe.

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A.Roddy Reply:
April 1st, 2011 at 10:08 pm

and while the elderly struggle on social security. Why not an elderly tax credit? I beleive the child tax needs a limit of two kids. Most have no more than that anyway. While the child tax is no way is able to cover all the expenses of child, but is still gov money. And guess who it comes from?

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Financial Samurai Reply:
April 2nd, 2011 at 5:51 am

Good point on an “elderly credit”. It never ends. But, that’s what Social Security and Medicare is for.

The government is all about lovely discrimination. The S-Chip tax is economic discrimination against cigar smokers in favor of the Children.

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Sadly there will always be people that have kids for selfish reasons and those who have children “by accident” who aren’t financially responsible enough to take care of them. So much of the tax code is irrational and beneficial for only a small group of people. Hopefully with more awareness and lobbying we’ll improve the system a little bit at a time.

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i have always been for adoption, with or without the tax credit. i don’t think much of the tax law in the way it is. it is what it is. it may have been implemented in a time that made sense then, and to encourage certain behavior(s), or with the legislator’s favoritism and biases. but do those reasons still apply today? i don’t know.

as evident in all preceding comments, i think anytime the government does something, whatever the intention may be, we (the people) will find a way to rationalize it, in both positive and negative forms, with our own personal agendas and biases in mind.

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Financial Samurai Reply:
April 16th, 2011 at 11:19 am

I never knew there was a $13,000 adoption credit until I started doing research on this article. I’m very glad there is one! I plan to publicize this even more! Cheers

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I think there are many tax deductions are credits that don’t make since. The government has long used the code to induce citizens to take actions it felt are beneficial to society. Interest on mortgages is deductible to encourage people to purchase homes. While I think that a home-buyer credit may be a better way to influence behavior, I think that credit serves its purpose. I think that this credit helps to alleviate the cost of children, which is a desirable action within society. While the world definitely has many orphans, the U.S. should still give breaks to those who have children. The U.S. is currently below its replacement rate of 2.1, and more than 1/3 of the countries in the world have fertility rates below replacement rate. If it weren’t for the high population of Hispanics, the U.S. would be well below its replacement level.

I think what needs to be done is to encourage births for those families with the means to support them. For example, birth rates in New England are very low. I think there are also still too many people having unwanted childbirths. If you really want to work on resolving the issue of orphans around the world I think that starts with plugging the current flow. Each year there are over 70 million unintended pregnancies, with over 30 million of those being born (not aborted).

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A.Roddy Reply:
April 1st, 2011 at 10:17 pm

There was a time parents got not credit. As I say one should be prepared for the cost. It isn’t the taxpayers job to care for all of them. All citizen need breaks and not just those with kids. Some of us can’t help we are childless.

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Financial Samurai Reply:
April 3rd, 2011 at 7:12 am

Too much social engineering imo Will. Having children and the number of children is a very personal matter. IF we are talking about helping families and people out of POVERTY, that’s another matter. But, having many children if you are already in poverty does not help someone get out of poverty.

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The child tax credit should definitely be ended. Not every family that qualifies agrees with it. Making responsible choices is what needs to happen. If you cannot take care of your children… do not have them. So many young people that have “accidents” would stop at one if their families, instead of government, needed to bail them out, and pay to raise those children. I agree with the statement that children cost more and therefore you should probably pay in more… not less! It is a crazy system that we have. This also goes right in line with the current college financial aid rules. If you have been responsible, worked hard, and only had children you could afford, chances are you will be paying much, much more than those that have many children, work less, and make poor decisions. Yes, I want educated people in America, but the current system is broke and needs to be fixed. People need to be responsible for themselves and their families. Obviously the current systems are NOT working or else we would not be in the financial situation we are in.

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Financial Samurai Reply:
April 16th, 2011 at 11:21 am

Good point about getting screwed for financial aide as a responsible, middle class American! I remember that in high school and my family was scratching our heads when we discovered we did t qualify, yet we didn’t make so much!

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IMHO, I think that the government is meddling where it shouldn’t!

As a father that takes the child credit I do it with distaste ever year. Tax credits are not a reason to have children and the government made what I consider a stupid move on that front! Please note, that I’m not a fan of the adoption credit either though. I am a big fan of adopting kids though, but taxpayers should not be paying for this!

In a society where job loss is rampant and unemployment is still at high levels, why are the taxpayers putting up with paying taxes so others can have more kids? It doesn’t make sense now and it didn’t make sense then! Shame on the politicians for introducing this credit and letting it get into the system.

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Financial Samurai Reply:
April 8th, 2011 at 1:27 pm

Hi Don, it costs regularly $20-30,000 upfront to adopt a kid. A $13,300 credit to help out the magnanimous person/couple is a positive gesture IMO. The US could do more.

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I’m not sure why a credit is given for this at any income level. What exactly does the government get in return for the tax credit? I understand why the government would want to incentives home ownership or religious organizations but I have not clue by there is a credit for having qualifying children under 17. Now on to your comment concerning “Why do you think the government sets the $110,000 and $75,000 income limits for the CTC? What message is the government trying to telegraph?” I think the limits are so low because the government hasn’t recognized that we now live in a dual income society. Sometimes I think the government is anti-marriage.

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Financial Samurai Reply:
October 4th, 2011 at 4:39 pm

The government is anti marriage, this is why we have the marriage penalty and $250,000 tax assault on married couples not 200k+200k = 400k! Donno where they got 50k.

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Having children is a choice. So why do tax payers have to subsidize someolse’s choices?

Even if you support your children, children cost the government money – schools, medical care, etc.

This is simply pandering to people with children because they are the majority of voters.

I want a tax deduction for my dog!

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Financial Samurai Reply:
January 28th, 2012 at 3:44 pm

I want a tax deduction for my rabbit too! Others should support this!

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