Tax Relief

How did you guys understand the Bush Tax relif plan? I got a $600 check in August thinking I was being refunded money that I previously paid in taxes. I just figured out my 2001 taxes and also figured out that the $600 that I recieved in August is coming right back out of my refund. I'm not sure how to feel about it. I haven't really lost anything. Actually I gained $4.15 in interest over the last 4 months. I read the notice that the IRS sent about the checks and all they talked about was tax relief. The income tax software I used called it something like a prepayment (I forget exactly what they called it). Anyways, it looks like that no good ape-like president of ours tried to pull a fast one. Should I go out and blow the 4 bucks on something special? Has anybody else run into this? How will it work for someone who owes money to the IRS? Will they owe that plus the money they recieved in this bogus tax relief scam?

I don't think they sent it to people who owe. Maybe I'm wrong, but if it's like ordinary refunds they shouldn't have. If you owe your refund goes to the balance. All I know is we pay and pay and pay and pay all year. Then we settle up and pay the big sum our accountant tells us to pay on April 15. Makes me sick but avoids jail. Then I have to see my tax dollars pay for the Olympics and the statue of Vulcan in someone's district.(Yeah I think he is a Republican) It's not tax relief until the top bracket is 10%, no capital gains and no death tax. Roads and cool weapons only. Even Andy Fox will agree with me on this moderate position.:-)

Confusing – You bet!


I am not a tax expert so I will divide the following into how I think it works (maybe others can correct if wrong) and politics and fall-out.


How it works:


After calculating your TAX , you then take any tax credits (subtractions). The result is the amount of TOTAL TAX.


What you PAY or get as a REFUND, is the difference between the TOTAL TAX (after credits) and what you already paid through withholding, estimated tax payments, etc.


I will only deal with a typical married couple filing jointly and assume that their calculations result in entitlment to the $600 credit.


There is a calculation form for the credit. Its on page 36 of 2001 1040 instructions. It has line 8 which subtracts from the calculated credit what the couple were actually paid. (Your August $600 payment should be subtracted from your entitlement amount of $600)


If you do in fact, subtract $600, because it was already paid to you, you can no longer take the credit on line 47. Therefore, you do not have this credit to reduce your TOTAL TAX (but you did get the credit)


However, you calculated a REFUND. If you do not take the credit because you already received it, you should get your full refund. Overall you get your refund plus keep the $600.


The net effect will be that most married couples will pay their TOTAL TAX, and not be able to take the $600 credit (they already received payment and they kept it). In reality they end up net $600ahead.


Politics and Fallout:


Bush wanted tax relief in the form of rate reductions. His opponents mostly argued that his plan favored the rich.


The credit process was part of the compromise. Rates were reduced but not as much.


There is some positive effect in favor of low-income earners. See next.


Low Income. If a married couple were paid the $600, they can no longer take the credit. What if their TOTAL TAX is less than $600 or zero. Well, they get to keep the full $600.


Obviously, that is no longer a credit. It is instead a payment by Uncle Sam to the less fortunate.


Since this aspect is a pure cost, it was probably financed by the compromise resulting in lesser rate reduction.


In other words, more fortunate married couples received $600 AND rate reductions and some less fortunate, received an outright gift.


[Single and other filers had similar impact]


Fall-out


Lots of people are not going to handle this correctly on their tax forms. They may end up feeling they got nothing, like you did!


They may feel that way even if they did net $600, just because the don’t understand it.


However, follow this example. I am sure it will happen to 100,000 or so filers:


A married couple pockets the $600. They take the credit on line 47, perhaps simply misunderstanding, even though they can’t. Later IRS sends them a bill, plus penalty, plus interest. They are not going to be happy campers!


I think Bush would have been wiser to have done all this without the credit and simply let people see it as a clear reduction in what they pay or added to their refund.


I am sure politicians (D and R), instead, wanted dramatic impact. They wanted an actual payment.


The overall impression may lean towards it being perceived as a flim flam.


It will probably do some damage to Bush, because it is labeled as his plan.

We owed $395 last year, but we knew our situation was going to be changing drasticly, so we marked the little box that indicated that, so maybe that's why we qualified for the $600. I think that when people start figuring out that the money they got last summer is gonna be deducted from their refunds--there's gonna be a lot of pissed off people running around. I didn't see this coming at all. I'm not totally pissed off, but I didn't see this one coming at all. I'm interested to see the fallout this April.

"It's not tax relief until the top bracket is 10%, no capital gains and no death tax. Roads and cool weapons only. Even Andy Fox will agree with me on this moderate position.:-)"


Well . . .


1) I'm in the top bracket. Plus we have a pretty big state income tax here in CA. I pay a helluva lot of taxes. I know a lot of people who pay a helluva lot of taxes. We all lead very nice lives. We could really afford to pay more and it wouldn't effect our lifestyle one bit, nor the amount of people we employ. The biggest complainers about taxes are the ones who make the most money [and the Idaho lawyers, but alas, I repeat myself /images/smile.gif].


2) Rather than worrying about capital gains, which are important for only those of us fortunate enough to have them, or the death tax, which those of us with money circumvent as much as possible with estate planning, living trusts, gifts, etc., I'd rather see us worry about the payroll tax. I paid the same absolute amount last year as someone who made 1/10 of my income, so he paid 1000% more as a percentage of his income than I did. This is a much more obscene situation than the 33% or 37% (or whatever it is) top income tax bracket.


3) Governments have always taxed their people to put up stupid statues, expecting the richest people to put up the most money. ( I was in Florence last year; geez, you wanna see statues. . .) As for cool weapons, well this of course is a non sequiter. A child doing better in school because of Head Start, now that's cool.


4) The tax system is inpentrably dense, no one understands it; it's sort of like the airlines' fare plans. Both are designed that way; obfuscation is the way of the world for big entities, be they governments or coporations. Thus the clamor for the so-called "flat" tax, this despite the fact that when all taxes (not just income taxes) are considered, we already have a system that approaches a flat tax (because of the influence of the regressive taxes, like the payroll tax).


I just re-read this post and find I must be in a particularly sour mood, probably caused by our brilliant bankruptcy laws which allowed K-mart to declare bankruptcy this week with assets totalling $6 billion more than their liabilities. I'm out $175,000. Talk about a bad beat. . .


As for ripdog's disappointment, what politician, Democratic or Republican, isn't a pathological liar? Always read the fine print; usually you'll find you ain't getting what they say you are.


Maybe there is a better case to be made for your semi-libertarianism than I had thought. Or maybe it's just the mood I'm in today.

Ouch on the K-Mart thing. I don't get bankruptcy court. I have done very little in it. Basically I file a motion and the opposing party would file a motion to make fun of me because I didn't use the word for something that is used in this district, but no other, and is listed in no rule of the court or case law. The judge then grants the motion to mock me and delay my obtaining the secret bankruptcy court decoder ring and continues the whole case another two months. Then a New York firm sends in a bill for $450,000 for their monthly fee during a month where there was only a motion to mock and a continuance. It is granted and the court pays the bill out of the assets of the bankrupt while unsecured small suppliers are told to come back in two months for another continuance. {This is a facetious compilation of my experience in bankruptcy court but is not exaggerated by much and is all based on fact.}


But you wouldn't be so sour if you didn't have to pay so many taxes.:-)