Tax-Time Q&A with Tom
The tax season is upon us. I’m no CPA, but let me offer advice and consolation to my fellow taxpayers. Q. Dear Tom: My CPA told me that a tax bracket is a heavy, metal object that the government uses to hit you over the head every time you succeed in pushing your income up. Can you elaborate? — Annoyed in Minnesota
A. Dear Annoyed: Your CPA is correct! There is one silver lining, however. The recent tax-reform bill includes six brackets that run between 10 percent and 37 percent, but there is no tax on the first $9,525 in income, and the standard deduction almost doubles, from $6,350 to $12,000 for single filers, and from $12,700 to $24,000 for married couples who file jointly. If you have a middle-class income, you’ve likely seen a nice little bump in take-home pay. But taxes are still high, as the next question will reveal!
Q. Dear Tom: Like you, I contracted my writing services to a big technology firm last year. Well, I received my first 1099 and the taxes I owe are way more than I planned for. Why are my taxes so high? — Desperate in Des Moines
A. Dear Desperate: The short answer is FICA, the Federal Insurance Contributions Act. It requires you to make contributions to Social Security and Medicare. The 7.65-percent contribution rate combines the rates for Social Security (6.2 percent) and Medicare (1.45 percent). When you were an employee, your employer paid half of your FICA bill. As a self-employed person, you must pay both halves on your first $127,000 in income - a whopping 15.3 percent, which is nearly $20,000!
Q. Dear Tom: Despite the considerable taxes we pay, why the heck does the federal government spend billions more than it takes in? — Concerned in Connecticut
A. Dear Concerned: Regrettably, there continues to be a lack of seriousness about budget deficits. According to usdebtclock.org , we have $21 trillion in debt right now. We are poised to resume trilliondollar deficits in a few years. That’s partly due to reckless spending, as demonstrated by the budget Republicans just pushed through. But as the Hoover Institution argued in a recent Washington Post op-ed, it also has to do with entitlement spending. As baby boomers retire, Medicare and Social Security are poised to explode. Hoover says we must reform and restrain the growth of entitlement spending.
Q. Dear Tom: I thought it was Republican tax cuts that are causing the deficit to worsen? — Tax the Rich
A. Dear Tax: Some argue that point. Former Federal Reserve chair Janet Yellen and four other economists penned a Washington Post op-ed in response to the Hoover Institution op-ed. They say tax cuts and unfunded wars, not entitlement spending, are the biggest culprits in our budget woes. However, the Congressional Budget Office says the tax cuts will boost economic growth and create 1.1 million jobs over the next decade, which will generate increased tax receipts. It’s a complicated matter.
Q. Dear Tom: Let me get this right. After Republicans cut taxes and increased spending, now they are trying to push through a balancedbudget amendment? — Incredulous in Indiana
A. Dear Incredulous: As of this writing, House Republicans planned to vote on a balanced-budget amendment. The Washington Post said it has no chance of passing because it would require Democratic support in the Senate, followed by ratification by three-fourths of the states within seven years.
Q. Dear Tom: All this talk about taxes, debts and deficits is making my head hurt. Can we change the subject to something less complex? — Hurting in Houston
A. Dear Houston: Absolutely. I will now accept questions about the many conflicts in the Middle East.