“ Look-look-look-look-look, my first pay check! Look at the window, there’s my name! Hi, me!”
Rachel continued: “God, isn’t this exciting? I earned this. I wiped tables for it, I steamed milk for it, and it was totally—(opens envelope)—not worth it. Who’s FICA? Why’s he getting all my money? I mean, what- Chandler, look at that!”
I had my first job right around when the show “Friends” was at its zenith, and I remember the feeling of opening that first paycheck and staring at the sad little sum my fast food, minimum wage job had coughed up for me.
I remember a few more years down the road when I was working a temp job in between semesters and put in loads of overtime—only to find that that overtime bumped me into a new tax bracket.
Double reality check!
I’ve worked really hard to be where I am. Still, my husband and I combined aren’t even remotely close to the top 1%. We can’t even see the top 5% from our house. (See how I did that there? Get it? I’ve digressed…)
We’re regular Joes—average Americans—middle class 9-to-5ers. But that doesn’t exempt us from getting screwed when the tax man cometh. So here’s a few little nuggets I learned when we filed our taxes this last week.
- I learned that my freelance income makes me the employer and the employee in the eyes of the government. If I write something and am paid for it, I receive the check for that work but since I’m not a full-fledged employee, I have to take care of the taxes myself( meaning it’s not taken out of the check for me). Fair enough—I earned it; of course I still have to pay taxes. Here’s the thing: in addition to taking the applicable local, state, and federal income taxes out of our pay, our employers pay a payroll tax. Payroll tax goes to Social Security (which, if things go unchanged, I’ll see little of, if any) and Medicare (which I will—given the currently trajectory— similarly see little of). Since the government sees me as the employer and the employee when I freelance, I get to pay that too. That means I’ll owe the government just shy of 40% of whatever I earn in that way. Ouch.
- I learned that even though I have a child, I don’t get the Child Tax Credit. We got it last year, but since we both worked hard and worked up the pay ladder a little farther, we earned a little more this year, the government thinks we make too much money to receive that credit. That’s another $1,000 we forgo in tax savings because the government thinks I’m wealthy. (We’re not…not even remotely. Our bank’s down the street—not in the Caymans.)
- I learned that if I work hard and earn just a little more this year, the student loan interest deduction I’ve been using every year since graduation phases out. Because again, the government thinks we’re making too much money for that to be fair. You see, I worked very hard in school, did a semester of college while I was still living in Mexico, and got scholarships that covered about 50% of my tuition. I also took on double the class loads so I could graduate in 3.5 years, and not 4. Still—college is crazy, crazy expensive (and some would contend, unnecessarily so), even if you pinch as many pennies as you can. And because of that, most millennials like me are sitting on a hefty little pile of student loan debt which—up to a certain income point—you can use to your tax advantage by deducting the interest you pay. Adios to that, I guess.
- I learned that IRS compliance is insanely expensive. In 2016 alone, it cost the U.S. economy $409 billion dollars and 8.9 billion combined man hours. No wonder the tax prep tab for professional tax preparation averages in the hundreds of dollars. And, given the fact that there are 4 million words in the IRS code, 7.7 million words of tax regulations, and 60,000 pages of tax case law—yes my friend, you need a professional. And it’s not just helping people comply with the law; it’s looking out for those who try to skirt it. As our tax preparer pointed out to me, if his company files a return involving any kind of fraud of any kind (regardless of whether or not they are aware of it), the business and the preparer can be on the hook for thousands. So, the cost is essentially a pass-through of the government’s regulations.
- I learned that the top 10% of wage earners pay nearly 70% of all federal income taxes. (Ok this one I didn’t just learn—but it’s in here for good measure.) First, let’s start with what the top “10%” means. It’s hardly the private jet, million dollar home-owning extravaganza that the left in this country imagine. It’s income of $160,000 or above. Two married, working professionals with a decade of experience under their belts could earn that easy. Throw a few kids in there and you’re back to 2.5 bathroom homes and used minivans. I put this in here not to suggest that the very rich should pay more (the so-called “super rich” are already on the hook for more federal taxes than the other 90% of taxpayers COMBINED); rather, I included it to illustrate that reasonably successful working adults are on the hook for well over the majority of the federal taxes in this country. Because we’ve got a tax code that squeezes every possible dime out of anyone making a decent living—and in this country, that’s far from being a millionaire.
What did I really learn here?
Before that, let’s start with what I know. I know that we human beings tend to look at things through a cost/benefit analysis. Is XYZ worth my time? Is XYZ worth my effort? Is XYZ worth my investment?
I know that we humans tend towards the least difficult thing. (That’s “laziness.”)
I know that we humans have a sinful nature. (Just watch my 1.5 year old who flails on the floor in a fit because she didn’t get her way. I didn’t have to teach her that—that came natural.)
Ok, so let’s get back to what I learned.
I learned that working harder, spending more time away from my family, and more hours in front of a computer, doesn’t necessarily pay off. Since I know that most of us will analyze this in terms of cost/benefit, you tell me: does it make sense for me to work two jobs?
I learned that it’s better to make a little less money. Since I know that most of us humans tend towards what’s easier, and I know we all have a sinful nature, you tell me: what’s the temptation here?
Couple this with our country’s addiction to government handouts, and yikes.
No, this post isn’t intended to lambast welfare recipients. This isn’t to suggest that there aren’t plenty of single mothers or other struggling Americans who legitimately need the help.
But think about it on a broader scale—why work harder if a welfare payout is bigger than a minimum wage job; or in my case, why work harder if a larger income means losing the difference in effort to taxes?
My point is simply this: our society—namely the way we look at wealth—does not encourage success.
Instead of dreaming, we’re all scheming. How can we get the most out of XYZ government benefit? How can I pay the least towards my taxes? What’s the least amount of work I have to do for the greatest return?
When the human ambition to improve is squelched by just scheming how to get by and avoid the headache—we lose something incredibly precious: our drive to reach our full potential.
Think about that.
Mary Ramirez is a full-time writer, creator of www.afuturefree.com (a political commentary blog), and contributor to The Chris Salcedo Show (TheBlaze Radio Network, M-F, 3-5. ET). She can be reached at: email@example.com; or on Twitter: @AFutureFree