A few weeks ago I wrote a short piece explaining that while even if you think the “Making Work Pay” tax credit of $400 is a bad idea, at least we’re saving money this time by not sending out two letters and a check to every household in America. In short: the stimulus process could’ve been dumber.
In the comments of that article, Laura said:
Yes but now the government will have to reprint and mail out the employee withholding schedules that small employers use to figure up those weekly paychecks. This is why it will take a few months to see that $13. It goes both ways.
I wasn’t sure if Laura was correct about that. I work for a small company, so I figured I’d wait and see.
This morning, my co-workers and I saw our Federal Withholding decrease for the first time as a result of the “Making Work Pay” tax credit. My personal take-home pay is $33 more (we get paid twice a month).
So I asked our Accounting department about the process, and I got this in reply:
It’s actually a change in the Withholding Table. The Table is downloaded from the IRS electronically and then based on your W4 elections and pay scale, the amount will automatically adjust.
Granted, there are probably some companies who don’t do everything electronically, and as a result might need a paper form to be sent, but in our case, and I suspect most other companies, this process didn’t cost anything.
So, in short: the stimulus process could’ve been even yet still dumber.
(More about the Tax Credit from the IRS.)
We’re still waiting to hear the official proposal, but you’re bound to hear a lot of talk this week in the mainstream media about the U.S. budget, deficit, and the plan to let the “Bush tax cuts” expire. Reporters are going to use the phrase “people earning more than $250,000 a year” with respect to tax rates increasing.
You probably heard this phrase a lot during the campaign in 2008. It was misleading then, too.
To put things in perspective, from bloomberg.com:
Obama has proposed allowing the top two tax rates of 33 percent and 35 percent to revert to what they were during the Clinton administration, or 36 percent and 39.6 percent, respectively.
In other words, tax rates may go up between 2 and 4 percent for the country’s higher earners. So, who does this affect? It’s not “people earning more than $250,000 a year.”
The answer is: people with a taxable income of more than $250,000 a year. Taxable income is your adjusted gross income minus your exemptions and either itemized deductions or the standard deduction. And if you’re earning that much every year, you’re probably itemizing.
Is this a good plan? I can’t say. I do know that when the middle class does well, everybody else does well, too. I think we’ve proved under Reagan and George W. Bush that giving tax breaks to just the wealthy people doesn’t stimulate the economy like it’s supposed to, but if you’ve got statistics that prove otherwise, please tell me in the comments.
But more importantly, I wanted you to know that the “250,000″ number that you’re going to hear will affect a lot fewer people than the mainstream media would have you believe. There’s a definite difference between income and taxable income.
We reported earlier on some new regulations that attempt to curb “predatory” practices by credit card issuers, like an end to Universal Default and more accurate credit offers.
One of the interesting things about these new rules is that Congress didn’t vote on them, they were approved by a Federal Reserve committee, and they were set to go into effect in July 2010, or sooner, if a given individual company gets around to it.
The Dallas Examiner has a report out stating our incoming President’s support for such reforms, and saying that a similar bill might still go through Congress, which means the rules would have to be enacted within 90 days of the bill being signed into law.
One thing that didn’t make it through the recent Federal Reserve regulations was the idea of a Credit Card rating system, a proposal for which has been on Obama’s campaign Web site since the beginning, or at least since the first time I looked at it. Here’s the summary of the idea:
Obama and Biden will create a credit card rating system, modeled on five-star systems used for other consumer products, to provide consumers an easily identifiable ranking of credit cards, based on the card’s features. Credit card companies will be required to display the rating on all application and contract materials, enabling consumers to quickly understand all of the major provisions of a credit card without having to rely exclusively on fine print in lengthy documents.
We’ll keep you updated on future developments to this idea. In the meantime, welcome to the First 100 Days.
5 Money Mistakes in a Bad Economy. Here are the mistakes: continuing to use credit cards, withdrawing or taking a loan from your retirement funds, paying for college without loans, grants, or scholarships, neglecting to invest, and taking home-equity loans.
Bid to Ban Sale of Obama Tickets. Tickets to presidential inaugurations have always been free, but demand for the ability to attend Barack Obama’s ceremony early next year is so high that people are willing to pay tens of thousands of dollars for the opportunity to go. Congress is working to make the sale of these tickets illegal and to penalize those who attempt sell the tickets with a $100,000 fee or a year in jail. Those who live in the Washington, D.C. area stand to make more money by offering their homes and backyards to visitors in exchange for a rental fee.
Consumer Prices Fall Record 1% as Energy Plunges. Thanks to the sharp decline in gas prices, the overall CPI dropped the more in one month than it has since the data were recorded. That’s good news in the short term, resulting in lower expenses for consumers, but could be a problem for businesses when profit margins are already thin.
Last Minute Gift Ideas and Shopping Tips For Holiday Procrastinators. I find myself running around at the last minute as the holidays draw near. Here are some ideas for gifts for those people for whom you might not know how or what to buy. I would stay away from gift cards this year. There’s always a chance your favorite store could have a hard time this year. In the past, stores that enter bankruptcy have not always accepted gift cards.
Vanguard’s New Self-Employed 401(k) Plan – Roth Option Included. Here is a superficial review of this new offering from Vanguard. If I ever give up new contributions to my company 401(k) by leaving the corporate workforce, I’ll be taking advantage of this offering. This is worth more research when the time is right.
For the “News and Blogs” features, which I plan to run almost daily as long as I have additional articles to share, I select some of the most interesting posts from my RSS reader and from pfblogs.org. If you don’t believe you blog is included on my RSS reader, please let me know to so I can add it. Thanks!
American Presidential elections are a great big spectacle of promises, speeches, mud slinging, rumors, misinformation and debates. A lot of people make their decisions based on soft aspects like a candidate’s personality. I like to look for the hard numbers that you won’t find on the nightly news, and I found a good summary of the Republican and Democratic tax plans’ proposed effects at CNN Money.
The difference is noticeable mostly for people who earn ridiculous amounts of money: the Obama plan would increase their taxes dramatically. But for most people, it looks like either choice won’t make much of an impact. For my family, it means a difference of only a couple hundred dollars.
There are some important caveats in that CNN article that you should read in full in order to be properly informed if this issue is going to play an important part in helping you make your election decision.
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