RSS 2.0 FeedCut Withholding To Create Libertarians
by Brad WarbianyTonight, the wife and I were working out our taxes using TurboTax. Our taxes aren’t very complex, so I don’t feel the need to employ too much help to understand the byzantine tax code we live under.
Well, I am usually not very good at saving money for rainy days, so I tend to manage my finances to ensure a refund at the end of the year. I still check each time to see how much ends up getting paid to the government. This year, adding in the employer contribution to SS and Medicare, it works out to a pretty sizable 5-figure number. Now, I’m not a rich man. While I make a pretty decent income, my net worth is barely positive. Yet I pay taxes like a rich man, and it makes me angry every year.
My wife, on the other hand, doesn’t have the same level of anger. She looks at our refund (about $2K this year), and thinks “oh well, at least we didn’t have to pay!” We’re planning a trip to Mexico, and she sees this refund as the quick and easy way to pay for the trip. We get $2K back on a total payment of $25K+, and she’s happy about it.
So here’s an idea for all of you readers, or at least those who are married folks who don’t have spouses of libertarian bent. Start claiming too many dependents on your W-4. Work it out so you owe every year. It won’t take long before your spouse is complaining about taxes, when he/she is scrambling to find $2K instead of trying to figure out how to spend the $2K the benevolent government is sending you.
We do out best with our accountant to get the refund/payment as close to zero. We try to anticipate what next year’s tax bill will be and adjust our withholding accordingly.
Comment by Stephen Macklin — February 4, 2007 @ 10:04 amThe financial planner says to the following:
Brad: Oh my.
Stephen: Nice work.
As to the whole system of taxation and fairness, etc. Turbo Tax has joined the government in making you feel better about your level of taxation. Just look at the summary page turbo tax produces for you. It says something like “your effective tax rate was…”
What they’re doing is taking the total tax bill and dividing it by your adjusted gross income to give you that percentage. When looking at your “effective tax rate” it sounds a lot less offensive than whatever tax bracket you happen to reside in at that moment, e.g. – each new dollar taxed at 25%-33%.
See the subtlety? It’s happening on all fronts and the average joe usually walks away from tax season happy in the knowledge that there were no surprises and that they got some of their own money back.
Comment by Uncle Jack — February 4, 2007 @ 11:01 amWhy not simply work through the actual amounts you paid together? Then divide by 12. Compare that number with your gross monthly pay. That’s always an eye opener.
Comment by Adam Selene — February 4, 2007 @ 12:11 pmAnd, lest I forget, in the eyes of the envious left you’re most certainly “rich” and should pay more.
Comment by Adam Selene — February 4, 2007 @ 12:11 pmJack,
Yeah… Tax season shouldn’t be happy. But they do everything they can to make it a positive event. I just hope to do everything I can to make people look behind the “refund”…
Adam,
That’s a good idea. Right now, with a baby coming, we’re looking at the idea of selling my wife’s car in order to buy a much cheaper one outright, or at least get a much cheaper payment. When I show her that our government payment is probably quintuple her car payment every month, it might sink in…
Oh, and those folks on the left are idiots. “Rich” is wealth, not income. In fact, if they’d get their damn taxes off my back, I might be able to use my income to become rich. I think it was last year that I finally got a net worth in the black. There are a lot of people with much lower incomes than I have with a much higher net worth, because they’ve had more time to build equity in houses and let investments mature.
Comment by Brad Warbiany — February 4, 2007 @ 12:20 pmBrad, you make a fantastic point that most people don’t understand. The truly wealthy have low incomes compared to their worth. Why? Because almost all of their income comes from assets and occurs prior to expenses and taxes. Raising taxes on those with high incomes hurts the middle class, not the wealthy.
Comment by Adam Selene — February 4, 2007 @ 12:27 pmAdam,
You could make a nice post about that :-)
And I just ran the numbers. Not counting employer matching on SS and Medicare, our taxes are higher than our mortgage payment, and somewhere between quadruple and quintuple my wife’s car payment. Counting the employer matching (as I do, for obvious reasons), it’s almost sextuple her car payment.
And that doesn’t include sales taxes, government fees, and all the other stuff. Insane.
Comment by Brad Warbiany — February 4, 2007 @ 12:30 pmYou should definitely show the employer contributions in the discussion and point out that your employer could either pay you more, or employ more people, with that money. It is, in effect, a tax on us, not the employer. I know you understand that, but most people don’t understand that taxing a corporation means that you are taxing the citizens indirectly.
Comment by Adam Selene — February 4, 2007 @ 12:37 pmFYI, you might want to be careful about claiming an excessive number of dependents on your W-4.
Not only do the Feds want your money, but they want it as soon as possible, and underpayment during the year *might* lead to penalties.
Note: I’m not an accountant, and far from an expert in these matters. But when I was self-employed, it was a tricky thing to make sure that my quarterly tax payments were not too high, but yet high enough to avoid underpayment penalties at the end of the year.
Comment by Steve S. — February 4, 2007 @ 3:07 pmThanks, Steve. I cross-posted this at my personal blog, and someone pointed that out there as well.
Gotta love it. If I overpay my taxes by $10K, the government will gladly take their interest-free loan before sending me my refund. But if I underpay, they’ll charge me interest and possibly penalties.
If private entities operated this way, they’d be illegal…
Comment by Brad Warbiany — February 4, 2007 @ 3:17 pm[...] Brad Warbiany’s post about income tax withholding reminded me that, while the income tax came about in 1913, payroll withholding did not come into existence until the Second World War. Ironically, one of the people who came up with the idea was Milton Friedman, as Linda Chavez learned when she visited with him several years ago: “I have to write a check every quarter to pay my taxes because I’m self-employed,” I said. “If more Americans had to do that instead of having the money automatically deducted from their paychecks, people would quit thinking of taxes as the government’s money rather than their own. We’d have a huge tax revolt,” I asserted. [...]
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