Archive | The Economy

World’s teeniest tax bracket

With the new tax bill passed by Congress in January 2013, there are now seven marginal tax brackets–10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. OK, no big problem there.

Here’s the stupid thing: The only single filers who fall into the 35% marginal bracket will be those with taxable income of $398,350 to $400,000.

That’s right–there is now a tax bracket with a range of $1,650. One Thousand, Six Hundred Fifty Dollars.

You can see the new 2013 tax brackets for yourself here, courtesy of The Tax Policy Center, which estimates that fewer than 500 singles nationwide will fall into this bracket in 2013. You can also find Forbes contributor Howard Gleckman, in primo head-shaking mode, weighing in here.

I can’t make this stuff up.

How the economy went bad, in one easy column

When someone asks if I can explain how the entire American economy fell into the dumper, I’ve typically tried to explain the phenomenon of collateralized debt obligations, or maybe recommended reading Michael Lewis’s The Big Short . (After you read it I guarantee that for at least 10 minutes you will understand exactly what a synthetic collateralized debt obligation is.)

No more. Now I’ll refer people to Paddy Hirsch and this excerpt from his book, Man vs. Markets . It’s a clear-language explanation of how the deeper in the banks got making potentially bad loans, the more money they made, and the more they had to make more potentially bad loans. Depressing but great reading.

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Yes, Virginia, you will have to pay sales tax on Internet purchases

If you’ve been a fan of buying stuff on the internet without having to pay sales tax in your state, happy days appear to be coming to an end, just in time for the holiday shopping season.

Internet sales have long been (mostly) sales-tax-free. If you live in a state with a sales tax, you’re supposed to pay the tax on any items that you’re going to use in the state, whether or not the retailer charges the tax–a law that millions of people have routinely ignored. But Amazon, which has long fought having to collect sales tax, in September started collecting the tax on sales to customers in California, as detailed by USA Today. (And as California goes, states in general often follow.)

Oh, and you know the Republican line about how that party is opposed to all taxes? Not when it comes to this: As The Wall Street Journal reports, Republican governors, including New Jersey’s Chris Christie, are also going after Amazon and others to start charging sales tax.

Amazon has long been a leader in fighting against collecting sales tax in states where it does not have a physical presence. That tactic will increasingly go by the boards if Amazon adopts a strategy it’s considering of offering same-day delivery in some areas, which would require more warehouses in more states. If you’re Amazon, if you see your financial advantage over bricks-and-mortar retailers disappearing as you’re obliged to collect sales tax, you may instead now want to see a nationwide standard allowing states to require online retailers to collect sales tax. Amazon already collects sales tax in New York, Pennsylvania, Texas, Washington, North Dakota, Kentucky, and Kansas.

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Congress’s “2% Solution” creates another mess for taxpayers

After some pathetic grandstanding by House Republicans, Congress passed an extension of the current Social Security tax break in December. Sounds good, right?

Get into the details and see how Congress can make the tax rules more complicated than ever — even when doing something as simple as this.

First off, the extension — reducing the withholding rate for Social Security taxes from 6.2% to 4.2% — is good for only two months. That means this issue is going to come up again during the winter.

Here’s the ridiculous part: If you earn more than $18,350 during the first two months of the year, you will have to pay a recapture tax on any earned income beyond that amount when you do your 2012 returns.

Doesn’t that sound like fun? If you have a job paying more than $110,100, do you like the idea of having to keep track of exactly how much you make before February 29? Does earning overtime in that case mean that you’ve inadvertently complicated your tax-filing life? And how are self-employed people supposed to track exactly when they earn or receive money during the year?

It’s very possible that Congress will eventually extend the tax break so it is good for all of 2012. But this is just one more reminder of how tax legislation is passed without any thought to how it complicates the lives of taxpayers.

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Lies, damned lies, and unemployment statistics

     The latest word from the federal number-crunchers says the November unemployment rate dropped to 8.6% from 9% the previous month.  So why doesn’t it feel like the job market is getting better?
     Simple reason:  The government does not include people whose unemployment benefits have run out in the official unemployment figures.  So while 120,000 new jobs were added to the economy in November, the more important number was 315,000–the number of people who dropped out of the work force.
     That is a distressing number.  As The New York Times pointed out, unemployment and underemployment is a problem that Congress continues to largely ignore at a time when government economic stimulus and programs to preserve some semblance of a social safety net are needed more than ever.
     As a tax pro, I look to government reports for a lot of reliable information.  But I hate it when the official statistics mask the reality of Americans’ daily lives.
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