Happy Thanksgiving… more like Happy “Spending Spree”

As I watch people shop for gifts, laugh and enjoy their time together, I cannot help but think how they will feel from now ’till the new year. Last year, people were returning their purchases in droves [1] as the need for cash rose. The year 2011 was hard year for many, and when Black Friday thrills left people’s wallets empty, Christmas gifts were returned to pay for November and December bills. This is often called  ”buyer’s remorse,” a realization that the “had to have item” was not so great or not what you expected later on. The eager shoppers get lost among signs of discounts, and “never before seen” prices, but really these prices aren’t so great [2]. During the rest of the year there are often better deals on name-brand items that disappear during the Black Friday rush as stores try to get rid of off-brand and old merchandise.

So, being a politics junkie, I keep thinking about how these people care more about the deals now than how they will pay for it later when taxes go up. The fiscal cliff is rapidly approaching, but few give it credence in planning out their lives. For myself, savings has become a huge part of my everyday life. My husband and I are even looking at gifting each other “savings” as a way of putting ourselves in a better place later, definitely a better place than a new sweater or game would. Republicans are holding out for spending cuts, specifically targeting welfare payouts, while Democrats are holding aloft their prized pig, the “rich.” My husband and I are not “rich”. We think of ourselves as “middle class,” since we both have good jobs, pay our bills and have some money to spare, and can enjoy eating out during the week at affordable restaurants if we want. But under Obama’s plan, we are the “slightly less than rich.” We do not make the $250,000 that is thrown around, but we are not protected from tax increases or inflation caused by tax increases that will hit the middle class. Don’t kid yourself, if you make less than $250,000, but are not eligible for subsidies from the government, you are going to see the costs of living increase [3], and that is according to an economist not a conspiracy theorist.

There is this idea of “fair share” being spoken about, but what percentage does that mean? Is 30%? 40%? 50%? When will the rich be told “you have paid enough” or is it never enough? In 2009, the top 1% paid almost 40% of the income taxes collected and the top 5% paid 64%. This analysis goes further, income tax is not paid by the lower earners, but payroll tax is. So if you take all taxes levied on the citizenry:

“…the top 1 percent still paid 22 percent of federal taxes while earning just 13.4 percent of household income. The top 5 percent paid 40 percent of all federal taxes, despite earning only 26 percent of all income.”

This means that only 60% of the taxes collected comes from 95% of the people. According to a study done by the Congressional Budget Office (CBO) [4], the bottom 20%  earners paid 0.3% of the total tax burden. The CBO also concluded that the top 20% pay nearly 70% of all taxes collected. The percentages of total tax paid are compared to income bracket percentages below. By looking at this chart, you can see how very little the bottom 20%  contributes.

It must be noted that the bottom 15% [5]of the population are below the poverty line, meaning they contribute even less than .3%. However, in 2012, they received 12% [6] of the total federal budget in just welfare benefits alone, which does not count the education and healthcare  costs provided under other programs. For instance, 28% of the federal budget is set aside for healthcare, but out of that 28%, 38% is dedicated to Vendor Spending (Welfare). The welfare budget alone is $431.5 billion, add the $333 billion from healthcare, and $764.5 billion was spent in 2012 alone on welfare recipients. Nowhere else in the budget is money set aside for a specific group based on income.

It must be considered, however, that people are taxed by percent income. This means that if you make $100 and you are taxed at 10%, you pay $10, but if you make $10 and are taxed 10%, you pay $1. So there is no way for those in poverty to ever pay the same amount as the rich. Depending on whether someone files single, married (jointly), married (separately), or head of household, the taxed income range changes [8]. According to the Department of Health and Human Services, the poverty lines are drawn based on number of people supported by family income [9]. By looking at the tax ranges and comparing them to the poverty lines,  most people are taxed 10% of their income with a portion taxed at 15%. If you are below the poverty threshold, or make less than $19k, you will receive most or all of the taxes back. This extends further if you have children, school cost writes-off, other entitlement write-offs, etc. This means the bottom 20%, which pays less than .3% of total taxes collected, pay next to nothing in income tax.

In contrast, if you make more than $19k you will be taxed by income bracket with percentages starting at 15% to 35% if you make more than %388k. The largest tax breakdown increase is 15% to 25%, the rest of the tax increases by bracket are less 5. This happens to be right after the poverty lines. The graph below shows the income ranges versus tax rate. The red portions at the lower left notate the regions below the poverty lines based on household.

As you can see, the tax rate changes significantly after the poverty lines have been crossed. Those below the red line have their taxes refunded, those above need to find loopholes and tax write-offs to receive money back. The fact that there is such a large jump in tax rates is a struggle for those on borderline poverty. Either they pay and receive little back, or drop down into poverty and receive all of their income taxes back, along with being eligible for welfare benefits. The idea of “fair share” is that everyone pays the same percentage towards the country’s needs. However, these graphs clearly demonstrate how very “unfair” the system is towards those above the poverty level and how beneficial it is towards those below. Raising taxes on the rich will not even the scales, or level the playing field, unless the goal is in fact re-distribution of wealth. Re-distribution is not “fair share,” its more closely related to Robin Hood Politics, theft from one group for charity towards another.

In conclusion, Washington is on a spending spree, paid for by those who receive little back. Unfortunately for Washington there is no Black Friday for them, but that doesn’t stop them from trying. The term “Black Friday,” comes from when businesses sell enough to finally be in the “black” (aka profit — as opposed to “in the red”) [7] for the year. Now, Washington is attempting to sell the idea of “fair share” to the American people and charging the “rich” to put themselves back in the black.

So Happy Thanksgiving, Black Friday, and the start of Spending Spree Season.

Sources:

[1] http://globaleconomicanalysis.blogspot.com/2011/12/buyers-remorse-record-volume-of-returns.html

[2] http://online.wsj.com/article/SB10001424127887324851704578133530559716180.html

[3] http://www.theblaze.com/stories/wsj-economist-brunt-of-obamacare-costs-will-be-shouldered-by-those-making-under-120k/

[4] http://www.washingtontimes.com/news/2012/jul/10/cbo-rich-pay-outsized-share-taxes/

[5] http://www.businessweek.com/articles/2012-09-12/record-u-dot-s-dot-poverty-rate-holds-as-inequality-grows

[6] http://www.usgovernmentspending.com/welfare_budget_2012_4.html

[7] http://www.investopedia.com/terms/b/blackfriday.asp#axzz2DCgBO1Ua

[8] http://www.moneychimp.com/features/tax_brackets.htm

[9] http://aspe.hhs.gov/poverty/12poverty.shtml

[10] http://taxfoundation.org/article/summary-latest-federal-individual-income-tax-data-0