I knew there were tax changes coming, barring anything done to avert them, and I just discovered one aspect I’d not know of before in the chart here. Child tax credit is going from $1000 back to $500 in 2013. That may not suddenly mean we owe more, or even that we get less back in earned income credit, but it may be a close thing, or may matter in a couple years.
Not that the child tax credit should even exist, but since it does, and it potentially affects our finances, why would we approve of an arbitrary drop? As such things go, it seems least worst, in the manner of the EIC if you’re really into evening things out. The trouble with the EIC is the donut hole dropoff, which we start to approach, in which your effective tax rate is staggering. Even now, I figured out last tax year that each dollar of self-employment income I might add means 47 cents in additional tax. If I charge you $40 to fix your computer because I figure that’s all you can afford, or all the market will bear, I make a tad over $20 of it in reality, and no matter that I spent three hours, for which I should have charged between $120 and $300. But this is not about pricing and marketing and even the effects of self-esteem on same.
Also, the more direct impact on us is the end of the payroll tax reduction, which arguably should never have been enacted anyway. But since it was, the end of it represents a substantial tax increase on people of modest income. We’re talking about eliminating what we saved by canceling our landline, to put it in real terms, or enough to get McDonald’s 2-3 times a month… except we don’t do that, because the money isn’t there! If it’s not there for things we want or need, how is it there for a tax increase? It’s not. Nor is it there to be a portion of the additional we’d need to spend on groceries in order to change my diet to comply with what the cardiologist wants to see to maximize my lifespan and minimize my chance of additional stents or worse. Not. There. For. Health. So it’s not there for taxes, either, and if you think Obamacare is going to help me afford to eat healthier, you’re delusional.
The thing is, again, the tax shouldn’t have been cut in the first place, so nobody would be able to miss it. Or it should have been eliminated 100% in a massive overhaul of everything. As long as you pay lip service to it being a retirement account, or even if you don’t, and instead recognize it as a wobbly pay-as-you-go Ponzi scheme, cutting that tax makes no sense, as it affects if either way.
The child tax credit, though… As a matter of social policy, what is it? It recognizes that people with children could use an added tax advantage because OMG expensive. By extension, it makes having children a prioriy of the government. New
subjects citizens to help keep the social security Ponzi scheme economy going in the future, replacing older workers as the retire, and some so the whole scheme economy doesn’t collapse.
Back to the donut hole. It’s more than the taxes. My 47% assumes self-employment, and would be lower otherwise, but if it’s employment or business income, if it takes time away from home, it means daycare. If I were to trade in my part-time job for full time, there would be an immediate daycare “tax” of $270 a week. Not even guessing at how much more that might be in summer or school vacation weeks. I have to account for that, elimination of the EIC, even though for us that has been on paper and being taken to cover old tax debt each year, incurring income tax on income that had none before as well as the added income, insurance costs that will change, and costs associated with commuting and having less “free” time. Working from home or doing business from home and flexibly/less than full time modifies that, but doesn’t avoid it entirely. For a specific potential job, I estimated needed $40,000 a year above the income I make part time just to stay even. Not compensating me at all for taking my time. That’s basically $43 an hour for each extra hour above what I work part time.
No wonder I still keep thinking what I have to do is make a living at self-employment and/or writing and/or part-time work from home.
Things have to change, in any event. My reaction to the election was a coldly furious resolution to be prepared to survive whatever happens. Ironically, that means improving my income. Expenses have nowhere to go but up, since we are about as to the bone as possible. I figure on being better able to cover living expenses, while continuing to keep them as low as possible, while preparing against disaster, disruption, lack of income in the future… all the things that can happen “unexpectedly” (if you have blinders on). It’s great to hope things go well and change for the better, but in reality it could take decades to recover from this depression and from four more years of fundamental transformation. If it happens at all. In the long view, the tax blip coming up is nothing, and could help things turn toward the saner sooner rather than later.