With election season just over a week away (did three years just fly by?) the focus is on the economy. Everyone has his own idea what will revive it, from jobs plans to new tax plans, and so on. The recession was declared over, but main street sure thinks otherwise.
Flat Tax. Is it good or bad? Are we ready for it? Is it even possible that such a radical change in the current structure can be voted through?
When Steve Forbes ran for office he was an advocate of a flat tax. A 17% flat tax if I recall correctly. Now, Mr. Cain’s 9-9-9 plan takes the flat tax a step further, a very low 9% income tax along with a 9% sales tax.
At first blush, it looks like most of those who currently pay no federal tax at all will see an increase, but Cain points out that this covers the payroll tax as well, so even if you have no federal tax, you are paying 7.65% for social security and medicare. I think the idea of a tax like this might be appealing, after all, the simplicity alone is elegant, but the transition would be a tough hurdle.
What becomes of those who converted their IRAs to Roth IRAs to avoid higher future taxes? They paid 15,25, even 33%, and now would find that their rate is now 9%. Obama and others are currently on a “tax the rich” crusade, looking to bump their marginal rates further and remove their favorable cap gains rates. Cain’s plan has no cap gain at all. I can only wonder what the reaction would be from Main Street if the fat cats managed to keep their income treated at capital gains and reduced their tax burden even further. I know, this can be legislated, and treated as ordinary income. Still, it goes counter to the concept of the Buffet plan, that the fairest tax system is a progressive one and higher earners should pay a higher rate.
The interesting thing to me is that Cain has calculated that compliance, enforcement, and collection of taxes cost the US $430 billion per year more than his plan would. Sounds like the IRS would have to plan a large downsizing if this plan goes through. On the other hand it would sure make planning easier, removing all the variables that change every year, that patches, fixes, extensions, et cetera. Unintended consequences aside (and you know there will be some big ones) I’d like to see if Cain’s plan gains any traction.
What do you think? Would a 9% flat tax appeal to you? No itemizing, no deductions at all?
Each year the IRS updates some key numbers. Most are a product of the prior year’s inflation, all are near and dear to anyone having any interest in the tax process. Let’s look at what recently hit the wire from my friends at the IRS. (If I’ve not already made it clear, my use of the word friends is not sarcastic. The folk at the IRS do not create the tax code, they just enforce it. It’s congress that’s responsible for the tax regulations, as crazy as they appear.) Now, for the new numbers:
For greater details on 2012 tax brackets I recommend taking a peek at Revenue Procedure 2011-52. When these numbers appear at Fairmark.com, I’ll update here to advise.
That’s just the tax side, on the retirement side we have some changes as well:
This week, Jim Wang at Bargaineering got my attention by telling his readers about the coming Stamp Price Increase on Jan 22, 2012. It’s only going up a penny, from 44 cents to 45. I think it’s too low, actually. With more and more people banking on line, there are very few bills I pay by mail. I send out returned DVDs to Netflix (which are prepaid) and the occasional greeting card. The post office is having trouble balancing its budget, and a jump right to fifty cents would go a long way to fix this.
At Frugal Dad I read about What Durbin’s Amendment Means for Your Debit Card Use. I’m sticking with my 2% cash (into a 529 account) but if you use a debit card, be careful, you might start to see some unwelcome fees. Check out FD’s article and don’t get caught by surprise.
At families.com, Meal Planning for Savings. Some ideas here to save both money and time by a bit of planning ahead. We can all use a little more of both.
FreeMoneyFinance shared an article on How to Live Well on $40,000 a Year. With median family income just about $50K, a good number of us are living at $40K or less. For those making more, it’s never too late too learn to live beneath your means.
Emmie at Master Your Card offered 6 smart ways to use your credit card. I’m in the same camp as Emmie in that I believe that you have a choice, you can be a slave to your cards or you can master them. If you are disciplined and don’t spend money you don’t have, you should be able to use cards to your benefit.
And last this week – from Kevin at No Debt Plan – 3 Tactics to Pay Off Your Mortgage Faster. The article is great for those who want to be debt free faster. The warning I’d offer is to be sure (a) you have no credit card debt, and (b) you are depositing to your retirement account enough to get the match (if offered) from your employer. After that, pay that mortgage down if you wish.
I have to admit, I’m still not seeing a clear message from the folk protesting on Wall Street. The best I find is a list of proposed demands written by anonymous, and hoping for approval. What seems more pressing is our main street, the house next door, the strip mall a few miles away where three of four storefronts remain empty.
