Gas station without pumps

2012 April 18

Taxes done

Filed under: Uncategorized — gasstationwithoutpumps @ 13:12
Tags: , ,

Yesterday was Tax Day in the US, and for the first time in about a decade, I got my tax forms filled out on time (well, almost, they’ll have today’s postmark instead of yesterday’s). My procrastination over filling out the forms got so bad that I did not get my 2010 forms done until January 2012 (resulting in some interest payments and penalties).

The problem is not that I object to taxes—I regard the payment of reasonable taxes an essential part of having a working community—but that the forms are so needlessly complex.  The complexity of the forms reflects the needles complexity of the tax law, which seems set up primarily to avoid taxing corporations or rich people—anyone who can afford high-priced tax accountants and lawyers to take advantage of the complexity.  I’d like to see a system that provides a simple tax, like 20% of income above $50,000 (so those with low incomes pay nothing or very little), with no distinction between capital gains and earned income, no adjustments, no deductions, no credits.  I want a system that takes 2 minutes to fill out a form, not the IRS’s estimated 22 hours.

My tax forms have gotten somewhat easier over the past couple of years, because I no longer itemize deductions and the interest rate on savings have dropped to essentially 0, so I no longer need Schedules A and B.  When I had a mortgage, itemizing deductions was essential to keeping the taxes down, but now that I’ve paid off the mortgage my itemized deductions (state tax, property tax, and charity) comes out almost exactly the same as the standard deduction.  I still check each year (which takes a lot of time to find all the receipts for charitable donations), but I may give up on that and just assume that the standard deduction is big enough.

I was going to get my taxes done in February this year, and I even collected most of the paperwork then and spread it out on my dining room table.  It sat there for 2 months before I finally got up the energy to do the paperwork.  I’m going to have to get better over the next 2 years about this, as I’ll have to fill out a FAFSA (Free Application for Federal Student Aid) form in 2014 for my son’s college applications. I’ve been told that it is best to do this in January, as some financial aid pools get depleted early.  I don’t know that we’ll get any financial aid, since I’ve been saving for college expenses since he was born, but you pretty much have to fill out the form anyway.

I was curious how much of my family’s income goes to taxes.   I’m paying about 21.4% of gross income (without the adjustments for tax-deferred retirement savings)—actually somewhat more, as I have no record of how much I pay in sales tax:

tax type percentage
US income 9.9%
Social Security 3.9%
State income 3.2%
Property tax 3.0%
Medicare 1.4%
Total 21.4%

Of course, my taxes would be much higher if I were not putting aside about 12.8% into tax-deferred retirement savings.  I’ll end up paying those taxes later on, when I start drawing down my retirement savings.  I’ve also been putting aside about 9% a year into my son’s college savings account.  After taxes (21.4%), required health insurance deductions (4.9%), and these savings (21.8%), our disposable income is about half our gross income, which is a little better than I thought.

Given that we live very modestly (about the same as when I was a grad student 30 years ago, except for eating out a little more often, and owning a house rather than renting a room), we have managed to save substantially more than most people—mostly as retirement savings.

4 Comments »

  1. Hi Kevin .. ignorant european here. We hear americans complaining about the introduction of medicare. Is the 1.4% medicare what Obama introduced? What do you get in return for that? Im just realizing that I have no idea how large a percentage of my taxes go to running hospitals and keeping doctors free.

    Comment by Rasmus — 2012 April 18 @ 21:45 | Reply

    • Nope, the 1.4% pays for my Dad’s health care (well, maybe about 1/2 of it—he has supplemental insurance for the rest). I’m too young to benefit from Medicare. The health care plan signed by Obama doesn’t actually provide much—its main effect is to require everyone to have health insurance, not to pay for that insurance. The Republican party would not allow anything in which the government actually provided a useful service—that would defeat their main goal of having the government be a conduit for transferring money from the middle class to the rich.

      Comment by gasstationwithoutpumps — 2012 April 18 @ 22:13 | Reply

      • I know its bad etiquette to use the name, sorry about that. I just did some quick research and apparently, out of my ~40% income tax ~4% goes to health care (hospitals etc.). More notably perhaps, 17% is for social security and 5.7% for our educational system. For people with high income the tax is higher though there are, of course, a vast set of deduction rules that primarily benefit people with high income.

        Comment by Rasmus — 2012 April 19 @ 01:57 | Reply

        • I wish I could tell you where my tax money goes, but our government is very good at disguising expenditures and publishing figures that only cover a fraction of the real expenditures, since so many things are not included in the “budget”. I believe that about about 60% of my federal income tax goes to military expenditures and that about 40% of the state expenditures are for prisons, but I could be way off on those figures. In any case, the amount spent on public education here is tiny—no where near the fraction that Denmark pays. I think that the Danish system (high taxes and high services) is ultimately a more sustainable model than the US system (fairly low taxes, but almost all spent on guns and people who carry guns).

          Comment by gasstationwithoutpumps — 2012 April 19 @ 08:14 | Reply


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