So what is "Middle Income?"

With both parties talking about tax cuts for middle income taxpayers I thought they were talking about me.  Perhaps you did too.  I took a look at the definitions and was amazed to discover that "middle income" is very close to $50,000 annual HOUSEHOLD income. 

            Now it appears to me that Obama wants to increase taxes on the "rich" taxpayers (that's you and me) and cut taxes on the "middle income" taxpayers.  Romney wants to keep taxes at the same rate on "rich" taxpayers and cut taxes on "Middle income" taxpayers.  Now this is a major issue so I wanted to know what it meant in the real world.  How much income tax is the "middle income" taxpayer paying now?  That's the real surprise - nothing at all!  Here's how it works:  Assume you are a married taxpayer with three children and you earned $50k in 2011.  If you are married filing jointly you subtract $11,600 from your income for standard deduction assuming you have no mortgage or other deductions available.  That leaves $38,400 to pay taxes on.  Then you subtract $3700 for each person in the household, 5 in our case or a total of $18,500.  That leaves $19,900 to pay tax on.  Using the 2011 tables we pay 10% of the first $17000 or $1700 tax.  Then we pay 15% on the remaining $2900 or $435 for a total tax liability of  $2135.  Theoretically we have paid some withholding tax during the year so we don't actually owe any more, but wait.  You get Child Tax Credit of $1000 for each child you have  under 17 so that's $3000 free money from the government.  Now instead of owing $2135 taxes you get $865 in free money. 

            Notice we haven't mentioned Earned Income Credit.  Our hypothetical "taxpayer" made  $922 too much to qualify.  If he had managed to get laid off the last month of the year he would have probably wound up with more net income to spend because of the additional free money from the government. 

            Just to be fair, if the above case only had two children and no additional dependents or deductions he could owe up to $690 income tax that I suppose we could cut.  In other words, we are paying people who can't afford it to have children, in this case $1555 for the third child EVERY YEAR.  Over the 17 years of eligibility a child is worth $26435 in direct government subsidies.

            Median income is now $50,054.  Half of American households make less than that and half make more.  The top 10% of US households make $143,611 or more.  The top 5% make $186000 or more.  Now do you understand what they mean by "middle income?"  I'm sure I don't.

How to fix social security

How do we fix social security?  That seems to be one of this election year's most important recurring questions.   I've heard lots of crazy ideas about it including the republican idea to somehow replace it with a sort of 401k plan.  There doesn't seem to be any details about that idea out there that I can find, just something vague about "controlling one's own investments".  That doesn't sound bad, but I would like to hear more before we throw out a plan that has worked exceptionally well for something like 77 years. 

There seems to be some sort of a fog out there that obscures the real story.  I hear all the terrible stories about the social security trust fund.  There seems to be an implication that understanding social security, like understanding God is beyond the capability of ordinary man.  Well, I agree about God but the fact is that social security is a very simple thing in it's basic form.  Get comfortable and listen while I explain this horribly complicated thing:

Workers and employers pay a small payroll tax (generally about 6%) directly into the Social Security Administration's budget.  Then the SSA distributes that same money to the old folks and others who receive social security.  Prior to the current president, the amount of the tax was adjusted to fit the outgo.  That worked for over 70 years.  It's really that simple.  Social Security was never intended to be some sort of investment program, it was just a case of those with jobs partly supporting old folks.  It was never intended to be welfare, the concept was that you paid into it while you worked, and then other folks paid into it after you retired.  You earned the right to draw out by paying in to support those who went before you. 

Don't believe me?  Think it through, it's really that simple.  If the system runs short of money then we increase the payroll tax a half of a percent or so.  The "trust fund" concept was simply to keep from having to make annual adjustments to the tax rate. 

Now do you wonder why the main stream press or the major parties haven't told you all this before?  I do.

Can you really vote yourself free money and benefits?

Way over across the Atlantic, things are happening that are of interest to us for a change.   Voters in Greece are going to the polls for the second time in about 6 weeks to try and elect a government.  If, like most of us, you haven’t been paying any attention to the situation in Greece let me give you a brief recap.  Since the founding of the European Economic Community (United States of Europe) there has been a semi unified government and a central bank that administers the overall European economy.  For the past few years, Greece has been operating on funds borrowed from the EU central bank.  Now it has become obvious that Greece has no way to repay the loans or even to keep up with the interest.  (Sound familiar?) 

            When this became an obviously unsustainable situation, the Greek government attempted to cut spending and raise taxes which jointly are known as “austerity measures”.  To the Greek citizen, these are not popular measures.  It probably wouldn’t be popular here either.  So the public took the same tact as many voters here – they voted out the tax increases and spending cuts.  Well, they tried to anyway.  They have lots of political parties in Greece instead of just two like we do.  Therefore there is no majority party at any given time so two or more minority parties have to work together to govern.  After the election 6 weeks ago, no combination of parties was able to reach a majority coalition so no new government has been formed. 

            Today voters are deciding between two parties, neither of which will actually have a majority.  The “New Democracy” party wants to re-negotiate the bailout deals and continue “some” of the austerity measures.  The Syriza party wants to quit paying off any debt and give everyone anything they want like free medical, free income, free housing, electricity, telephone, etc.  They don’t want to raise taxes, in fact they plan to cut taxes.  They have some hazy idea about taxing other countries to provide this income.  If you’d like the details please take a look here: http://finance.yahoo.com/news/caution-greek-elections-could-spur-215700419.html 

According to most observers, after the election this weekend there will be a coalition that will not continue the tax increases and spending cuts and will default on the debt to the central bank.  When that happens, Greece will be expelled from the Eurozone and will have to come up with a new currency of its own.  The world will probably watch in considerable interest as the new country unfolds because this isn’t an isolated incident.  Several other European countries are in the same or similar situations.  Greece currently owes more than 500 billion euros to other countries – principally the Eurozone and eurosystem.  If it is expelled from the union it will still owe the money theoretically but I don’t see any way for it to be collected.  It is also likely that the new Drachma will be in a runaway inflation situation as soon as it is issued. 

            So when Greece is out of the EEC, what happens to the rest of the member countries?  I can’t wait to see.  Here’s my prediction, Greece will quickly convert to a dollar based economy and the EEC will completely fall apart over the next two years.  Meanwhile, I’m booking a trip to Greece for late summer/early fall.  See ya there.

That’s the way I see it, how about you?

Post Scrypt
Believe it or not, the Greek public actually voted to continue the austerity measures and attempt to pay back the money they had borrowed.  I could HOPE that we would have done the same.  Would we?

TSA Scores Again

TSA Scores again! “"Last year, TSA’s workforce screened more than 603 million passengers at 450 airports across the country and stopped more than 125,000 prohibited items at airport checkpoints," Riley said in a statement that was provided to The Hill. "Of those items, more than 1,300 were firearms."

  Let’s see now, if my arithmetic is accurate that means that one out of every 4824 passengers was carrying something that TSA called “prohibited”. Assuming that no one was carrying TWO bottles of perfume. Approximately one out of every 500,000 passengers was carrying a firearm. It doesn’t indicate how many of those were legal firearms and how many actual terrorists were arrested. I wonder why?

Many many years ago (in the early sixties I think) I came upon a hippy standing on a corner in New York City. He was standing there snapping his fingers and looked very occupied with it so I asked him what he was doing. He said he was keeping the elephants away. I said “There isn’t a wild elephant within 5000 miles of here.” He said, “Yeah, works great don’t it?”

That’s the way I see it.