Tax Rates Based On Work Ethic Shall Fix The World

Light Bulb FluroescentI want to fix America and make things better for our children.  We cannot fix anything through complaining.  Instead, solutions must be made and implemented.  Of course no solution will be perfect, as there will always be a group of people who feel unduly hurt by new proposals.  That said, during tough times, tough choices must be made!

One of the best ideas proposed to help improve our country’s fiscal health and our personal finances is limiting what consumers can buy based on their high school grades.  Since high school is mandatory, we use high school as a barometer.

Let’s use the car as an example of how we can use grades as a way of controlling consumption to protect our fiscal health.  The car is one of the great personal finance killers of our generation and our attitude towards what our car spending habits needs to change!

The assumptions in this article are namely: 1) Big government is good, otherwise, we would not allow such massive federal government spending and ballooning budget deficit, 2) We are all patriots and want to help America, and 3) Despite allowing big government, we are still a meritocracy.

Please keep an open mind while reading as we look towards controlling our overconsumption habits and healing our nation!

THE “GRADES AND CONSUMPTION PLAN”

Is Discrimination OK If You Aren’t Being Discriminated Against?

Iguana In TijuanaOn Wednesday, January 18th large internet companies such as Wikipedia blacked out their sites in protest of the Stop Piracy Act Bill (SOPA).  The nice-sounding bill threatens to destroy creativity and freedom of speech on the Internet by allowing the US Department of Justice and copyright holders authority to attack sites who enable or facilitate copyright infringement.

Imagine Financial Samurai sharing a piece of useful information on how to prevent credit card theft online, and the original creator is from some giant corporation who has a propensity to sue despite linking back and giving credit.  I will probably never bother to share this useful content in fear of having some overly paranoid lawyer sue me for SOPA infringement if this bill passes.  Our society is already litigious enough!

I’m proud of the Internet community for speaking out against SOPA.  The government, despite all its “good intentions” should not be in the business of regulating what we can share and say online.  Sure, there is a limit to what we can and should do, especially if someone is being untruthful, but for the government to get involved with what I can and cannot say on my own site is wrong and I am fiercely against SOPA and more government regulation!

You would think that those who are against big government would also be against big government who discriminates based on income, gender, and sexual preference, but you’d be mistaken.  To many, discrimination is OK, so long as they aren’t being discriminated against.

THE HYPOCRISY OF INCONSISTENCY

No New Taxes Before Pension Reform Dumbass

Wages And Pensions Public vs. PrivateIn my fiscally irresponsible state of California, Governor Jerry Brown (D) is proposing raising taxes on people making over $250,000 a year.  According to the SF Chronicle, 65% of those polled believe this is a great idea.  Well No Duh useless poll and uninsightful newspaper.  Most people or households don’t make more than $250,000 a year so of course they’d be for raising taxes on those income earners!

In fact, less than 5% of the population makes more than $250,000 a year, so why don’t 95%+ believe this is a great idea?  The reason is because Jerry Brown has also proposed raising the sales tax by another 0.5%!  Uh oh, suddenly since everybody has to pay for an increased sales tax, not everybody is for it!

Hey, what’s a 10.5% sales tax rate from the 10% now?  At least you have a choice in paying taxes, whereas if you are making above a certain income level, you don’t.  Let’s just raise sales taxes to 20% since rich people have a lot of money and buy way more things they don’t need anyway!

WHY ISN’T THERE PENSION REFORM?

Understand Why A Temporary Payroll Tax Cut Extension Is A Mistake

A temporary payroll tax cut extension or a temporary tax cut anything is a mistake.  The important issue to understand is what people do with their money during a temporary tax cut. If you know that a tax cut is temporary, you aren’t going to spend your tax savings because you know a tax hike is coming.

Given you aren’t spending your extra income, you are doing nothing to stimulate the economy. In fact, not spending your income is hurting the economy more than if there were no tax cut since we are robbing from Social Security in the future.  Giving tax revenue to the government would at least be wasted on some social programs.

A non-reaction to temporary benefits is as clear as day. We are taught this phenomena in high school economics, college economics, business school economics and observe our own actions in the work force.  Here are some examples to help illustrate:

Example 1: You won’t stop training your hardest if your next opponent after Peewee Herman is Mike Tyson.

Example 2: You won’t stop studying after your open book mid-term if your final exam is closed-book and accounts for 30% of your grade.

Example 3: Samsung Electronics won’t stop innovating its smartphones just because Apple didn’t release its iPhone 5.

Given you agree with the three examples, why would you ever spend your payroll tax cut income when you know you’ll have to pay more payroll taxes in 2013?

WHAT ABOUT THE REALLY POOR?

Are The Top 1% Getting Screwed The Most?

Chopped Off CockThe debate rages on whether the top income earners who pay most of the federal taxes or the bottom 47% who pay little-to-none of the federal taxes, should pay more taxes and help our country.  Clearly, the answer is that everybody should pay some federal taxes, since everybody is benefiting from the federal government.

Have you ever stopped to think who is really being screwed here?  If you are paying little-to-no federal taxes, is the government, rich people, and corporations really screwing you?  If you are in this situation, are you hoping to pay more taxes so you can get screwed more?  You can’t have it both ways now.

Perhaps the people really being screwed are the “HENRYS”, the Higher Earners Not Rich Yet folks who are in the top income tax brackets (33%/35%), and who don’t make the majority of their income from dividends and long term capital gains which are taxed at 15%?  This is something to really think about here, because for some reason, people equate the Top 1% with the Top 0.1% who are indeed like Warren Buffet paying a lower tax bracket than many of us middle class citizens.

Here’s a quote from Edward which sums up the point quite well:

Bar Stool Economics Show Why A Progressive Tax System Is Wrong

No matter how long it takes, I will fight for equality.  The best system for taxation equality is providing a flat tax above a certain poverty level or income level so that everybody pays something to support our country.  If the poverty level is $20,000 for a family of four, let’s keep federal taxes low to nothing since there are already state taxes, social security taxes, and medicare taxes to pay.  However, we should probably encourage further education on why it’s probably not a good idea to have any more children if one is having difficulty taking care of themselves, despite the misplaced policy of a $1,000 child tax credit for certain income earners and below.

Perhaps the flat tax income threshold is at $33,000, the halfway point between the top and bottom 50%.  After $33,000, everybody pays a flat tax rate of 20% on all income, which includes investment, dividend, and interest income.  No loopholes, no deductions, 20% is 20%.  If you’re making under $33,000, your tax rate is lower.

Or perhaps the income threshold is above $106,800, where social security and medicare taxes disappear.  We tax people progressively up to $106,800 and then a flat tax afterward.  One of the big arguments some have against a flat tax is that it’s regressive, since the rich don’t pay any more social security and medicare taxes after $106,800.  Well guess what?  Although you don’t have to pay those taxes above $106,800, you also don’t get any benefits either!  Do you really think there is a free ride with our government of waste?  Of course not.  Please understand this point.

With a flat tax system after a certain amount of minimum income, the person who makes 10X more, pays 10X more in absolute dollars.  Nobody can logically argue against equality.  But, for those of you who feel that discrimination is the way to go, here’s a story of Bar Stool Economics which I stumbled across on online that hopefully sheds some light.

BAR STOOL ECONOMICS

When It Comes To Money, Shouldn’t We Trust Rich People Who’ve Been Poor?

If you’re about to have heart surgery, you’d rather have an experienced surgeon operate rather than a first year resident wouldn’t you?  If you’re looking for some entrepreneurial advice, you’d rather pay $300 to listen to Ron Conway, the godfather of angel investing, rather than some 19 year old kid with a failed start-up correct?

Given you agree with me 100%, why on earth would you ever listen to someone who proposes tax policy on higher income earners if they don’t make much themselves?  If you make $60,000 a year, you have no business telling what someone who makes $200,000+ a year how they should spend their money, how they should feel about paying more taxes, how much they are paying in taxes and why they should pay even more taxes.  Why?  Because a $60,000 income earner has no idea!

If you are making hundreds of thousands of dollars or more a year and once made just $25,000 dollars, you have way more credibility talking about appropriate tax policy and how to make money, at the very least.  You might even be able to talk about the merits of education and work ethic.  But of course, those who make less will get all up in your face for saying work ethic, education, and tenacity aren’t correlated.  They aren’t if you don’t want to make money.  They are, if you do want to make money.

If you’re making a middle class salary, good for you!  America cannot prosper without a strong middle class.  But, if you are an honorable middle class citizen, you just don’t have a say on how to tax those who make more.  If you so happen to be one of the lucky tens of millions who don’t pay any net Federal taxes, you should consider not voting on candidates who want to tax the upper income earners more.  Just count your blessings that you don’t have to give money to a government that is skilled at wasting your money.  The more noise you make, the more you will draw attention to yourselves, and the Sentinels will find and destroy you.

No income earner is better than another.  Whether you make $50,000 a year or $500,000 a year, you have the same liberties.  There’s only a problem when someone who has no idea of what it takes to make over $200,000 complains that the “rich” should disproportionately pay even more of their income to taxes.

Readers, shouldn’t we trust all wealthy people who’ve been poor before instead of poor or middle class people who don’t know what it’s like to earn more and pay more taxes?

Why do people in the lower income tax bracket think they know what’s best for those in the highest income brackets?

* $200,000 is an arbitrary number since this is the income level that is considered rich by the current administration.  $60,000 is less of an arbitrary number as it is roughly 20% higher than the median per capita income.

Recommendation: I’ve been using H&R Block’s Premium Tax Software to do my own taxes for the past 11 years. It’s inexpensive and very easy to use for novice to advanced tax filers. The software always updates with the latest tax rules so you’re never behind. They also have audit protection service as well.

Updated 12/7/2014