Thursday, May 10, 2012
Stealth (personal) Austerity...
OK, in the previous post I covered how my employer is trying keep us under budget by ending international trips and limiting my office's overtime. I'm assuming that the end of international trips is directly budget related, and I can't think of any other reason. Overtime will be available come August, though I will probably nursing my newly repaired shoulder by then. This was framed by my continuing efforts to lower my debt, and how these changes would affect that goal.
As mentioned, these changes affect me a little, but not so severely that I can't pay off the final retirement loan by the end of the summer. Valid as that is, the more I though about the subject, the more I realized I was missing the forest for the trees. Although it isn't discussed much in the press or popular culture, there is a mile marker to EVERY ONE'S financial goals: Dec. 31st, 2012.
James Howard Kunstler refers to this date as taxegeddon, and while the changes to the tax codes are always myriad, the two most germane to the average American are the following: 1) The tax holiday for social security tax will end. This will mean all paychecks across the board will lose 2%. 2) The Bush tax cuts will also disappear. I can only speak for my situation, and through the magic of the Internet, I can estimate I'll have an increase of 4%, but the IRS will deduct an additional 7% As such, I'll lose 9% of my take-home pay just by the turning of the calendar page. The tax rates are progressive, so the increase is disproportional, but after some quick number crunching, 4 and 7% are about correct.
Assuming I do pay off my debts as planned, the smaller paycheck will sting, but it won't break me. It will cripple many others, however. If you have kids, and a mortgage, and your wife or husband is out of work, while gas is $4 a gallon, and food prices go through the roof, etc. can you really afford to lose 6, 7, 8, etc. % of your take home pay? I doubt it.
Now some will say that the Bust tax cuts could be extended, and I don't deny the possibility. I was sure they'd be extended in 2010, just as I was similarly convinced the Social Security tax holiday (note to self: stop gagging when you type that) would continue. I'm sure the desire is there to maintain the status quo, but I'm no longer sure the ability to compromise is. The GOP in the House has promised to vote on the tax cuts prior to the election, and the tax cuts will be extended to all, which means it is dead on arrival in the Senate, which will pass its own version only to die in the House. As for the Social Security tax hike, I believe there's no way to avoid it. It was always a bad policy anyway.
If you buy into the notion that tax increases are always deflationary (as is the common wisdom), then I did the best possible thing by using the extra income to attack the mountain of debt and make it a slightly smaller mountain of debt. At least the remaining payments are affordable, even if my income took a staggering turn for the worse.
As mentioned, these changes affect me a little, but not so severely that I can't pay off the final retirement loan by the end of the summer. Valid as that is, the more I though about the subject, the more I realized I was missing the forest for the trees. Although it isn't discussed much in the press or popular culture, there is a mile marker to EVERY ONE'S financial goals: Dec. 31st, 2012.
James Howard Kunstler refers to this date as taxegeddon, and while the changes to the tax codes are always myriad, the two most germane to the average American are the following: 1) The tax holiday for social security tax will end. This will mean all paychecks across the board will lose 2%. 2) The Bush tax cuts will also disappear. I can only speak for my situation, and through the magic of the Internet, I can estimate I'll have an increase of 4%, but the IRS will deduct an additional 7% As such, I'll lose 9% of my take-home pay just by the turning of the calendar page. The tax rates are progressive, so the increase is disproportional, but after some quick number crunching, 4 and 7% are about correct.
Assuming I do pay off my debts as planned, the smaller paycheck will sting, but it won't break me. It will cripple many others, however. If you have kids, and a mortgage, and your wife or husband is out of work, while gas is $4 a gallon, and food prices go through the roof, etc. can you really afford to lose 6, 7, 8, etc. % of your take home pay? I doubt it.
Now some will say that the Bust tax cuts could be extended, and I don't deny the possibility. I was sure they'd be extended in 2010, just as I was similarly convinced the Social Security tax holiday (note to self: stop gagging when you type that) would continue. I'm sure the desire is there to maintain the status quo, but I'm no longer sure the ability to compromise is. The GOP in the House has promised to vote on the tax cuts prior to the election, and the tax cuts will be extended to all, which means it is dead on arrival in the Senate, which will pass its own version only to die in the House. As for the Social Security tax hike, I believe there's no way to avoid it. It was always a bad policy anyway.
If you buy into the notion that tax increases are always deflationary (as is the common wisdom), then I did the best possible thing by using the extra income to attack the mountain of debt and make it a slightly smaller mountain of debt. At least the remaining payments are affordable, even if my income took a staggering turn for the worse.
