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Friday, March 14, 2008

Personal Finance QuickTake: Congress Sets the Stage for a $683MM Tax Increase

Congress set the stage for a massive $683 Million tax increase for next year. Basically this is a 100% roll back of all of the Bush Tax cuts that are set to expire as he leaves office.

Each Presidential candidate interrupted their campaigns in order to vote on this important declaration. The declaration is a non-binding document that does however declare intent in order to begin the planning of future budgets. Final vote on the actual budget will be for the new congress that is elected in November.

These cuts would be backed by large domestic increases in spending, while still returning government ledgers to black within five years. In other words...tax and spend.

In today's vote John McCain voted to keep the current tax structure in place while both Senators Obama and Clinton voted in favor of the repeal. This is sure to be a hot button issues with Democrats and Republicans alike as the country is already experiencing cost increases in most day-to-day items.

Also up for vote today was a one year moratorium on "pork barrel" spending. This is the practice of adding additional spending bills to another bill. This practice is a Congress favorite way to spend money as it means positive good bills have to be vetoed in their entirety as the President cannot line item veto portion of a bill. It is all or nothing. This practice has led to projects such as the infamous "Bridge to nowhere" in Alaska. This bill was unfortunately crushed, and realistically never had a chance.

Whether you are a Republican or a Democrat, you just cannot continue to spend more than you bring in. Ultimately it leads to two tough decisions; cut spending or raise taxes. McCain's tax cuts would require deep cut to spending, while the Democrats promise spending that would enlarge the deficit or require too-large tax increases.

As the country's economic issues worsen we need everyone rowing the same way. This will mean that we cannot do everything, and that we will need to live below our means to pay back the deficit. If we don't we are dooming our children to ever-lowering standards. of living.


Sharon said...

I agree that we can not continue to spend more than we have, however, Obama's tax structure would cost our family a decrease in salary 15-20% thanks to the democratics economic policy. Hillary's plan is not much better. Usuary laws don't seem to affect the democratic party? Be aware, I don't belong to either party, however this makes my presidential vote a bit easier to make. :(

RacerX said...

Beyond everything else going on I just couldn't take that sort of Tax increase right now. That would nearly wipe out all extra that I am putting towards debt and investment.

Horrible timing.

Anonymous said...

I'm so confused over this election? It seems like it is probably one of the most important elections so far in my lifetime - and I just don't know? Definitely interesting times we live in...

RacerX said...

It is interesting...People want a change, but they don't really like the alternative either. it is going to be a wild election cycle.

Funny about Money said...

Take a look at the "tax and spend" cliche: If you tax and spend, then you have some money TO spend. Bush has been a cut-taxes-(for his friends)-and-spend president: the result is that he has spent trillions and trillions of dollars that he didn't have. He financed his war by borrowing from foreign powers. The United States now owes trillions and trillions of dollars to China and to Middle Eastern states, some of whom are our enemies!

What's wiping out all you and I put to debt and investment is the loss of value in our homes, the loss of value in our stock investments, and the rising cost of gasoline and food. For sure, the soaring national debt and the plummeting dollar aren't helping.

Meanwhile, have YOUR taxes gone down over the past eight years? Mine haven't. I'm still paying out a huge chunk of my income, and my tax refunds at the end of the year are about the same, sometimes a little less, than they were before the Bush-Cheney presidency. Meanwhile, the state, the city, and the county have had to increase taxes and cut services to take up the slack where the federal government has stopped doing its job.

These alleged tax cuts benefited the wealthy but did not do much for the middle class, IMHO. To the contrary: the policies we've seen over the past decade have served to crush the middle class, many of whose members are joining the ranks of the working poor.

Check out the history of the middle class in this country. It's an artifact of government spending: it came into being largely because of federal programs such as the New Deal and has been supported directly through various tax-and-spend programs such as the GI Bill (and many others in housing, health, and education) and indirectly through tax-and-spend corporate welfare programs that helped provide jobs.

RacerX said...


Don't want to debate Bush...but..

Spending is way out of control...period. Has been for the past 12+ years. No defending that.

I don't agree with all of the tax changes during the last 8, but I agree with some.

However the middle class is less taxed federally, then in the past, especially when you look at all of the current available tax-credits. Marginal tax rates are well down and the new lower brackets have effectively taken millions from the tax roll.

You correctly identify the big three hits to the middle class: fuel, housing and stock (401k) losses. But I would add two things to that, Property taxes and Inflation.

Property Taxes have not only risen in proportion to house prices, but much faster. City and State Goverment have gorged themselves on new spending. This has been a real burden to the middle class.

On the inflation side, most has been driven by fuel cost, but the ripple effect in food, has been tremendous and is getting worse. I believe that fuel-based inflation hits the middle-class the hardest.

Now on to Tax and Spend...There are MANY wonderful government programs, a few that you have highlighted. I would also add Social Security to that (even though Congress uses this as a piggy bank!). Medicare, Schools, Police, Fire. All basic services are good and should be fully supported and funded.

Where I get hussy, is with the Pork-barrel spending. Bridges and roads that aren't needed, but the Congressman is pulling in funds to HIS state even though the money could be used better elsewhere...In other words, waste. Or Government intrusion into areas of our life that they don't need to be.

The last point is that if there is a choice between a tax paid program and consumer spending, the consumer is always more efficant. This is why tax cuts work, money in the pocket of the American people is a good investment. However the wrong tax cuts aren't as effective either. You have to be carefully with the mantra: tax the rich. You will end up like Europe in the '70s with money flight of the highest order!

Sharon said...

I couldn't have said it better! Good response, with one caveat...I don't consider our family "rich", but if the democratic candidate gets chosen and follows through on the tax plan...I believe Obama wants to slam any couple making over $75000 (which he considers "rich") with the highest tax bracket, and will raise the tax brackets to boot. YIKES!!!

RacerX said...

Sharon - It is one area where people have a clear choice this year which is great. I think it is going to be a wild November!

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