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RETIREMENT: Don’t confuse deductions and subsidies

Letter by D. P. James, Lake Tapps on Dec. 22, 2010 at 2:09 pm with 12 Comments »
December 22, 2010 2:09 pm

Re: “Government should help poor to save for retirement” (Katie Baird column, 12-21).

Baird states that the wealthy receive hundreds of billions of dollars of subsidies in the form of home mortgage deductions, favorable taxation in capital gains, and tax breaks for contributions to retirement and college savings plans.

I think that Baird is confusing tax deductions with subsidies. The items she mentioned are deductions, which reduce an individual’s taxable income, whereas a subsidy is a payment by the government to an individual. Unless one assumes that all money belongs to the government, there is a clear distinction between the two.

She also states that it is possible to get low-income people to save through the use of tax credits. Tax credits reduce the amount of taxes owed to the government. Since most low-income people do not pay any income taxes, tax credits have no effect. However, if she is referring to a refund which exceeds the taxes paid, the term subsidy or payment, rather than tax credit, is appropriate.

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  1. Makes perfect sense to me Mr. James.

  2. the3rdpigshouse says:

    You can’t give enough of other peoples money to the gov’t dependent non-producers in our society!!!

  3. bobcat1a says:

    You can play word games all you want. The effect is the same. You end up with more money than you would have otherwise because you are in a special category that the government wants to encourage. It walks like a duck…

  4. No, Mr. James is spot on. A deduction means you get to MAYBE keep a little more (of your own money) than you would have with out it, depending if it puts you in a lower bracket.
    A subsidy is a payment to you. It wasn’t your money in the first place.

    Mr. Jame summed it up succinctly and there is a clear distinction. .

  5. Actually, in tax lingo/jargon, the proper term is a refundable tax credit. Most tax credits reduce “income” taxes to zero. Refundable tax credits reduce taxes to zero and refund the balance of the credit to the taxpayer. Check the instructions of your Form 1040 and page two of Form 1040. The application of various credits to reduce “income” tax are applied in order. The Form 1040, page 2 also shows which “additional taxes” are not reduced by certain federal tax credits.

    As to the column by Katie Baird, it is inconceivable to me that the federal government should or would be able to fund “personal” savings. I’m sure whatever personal savings accumulated over the years would be exhausted by an offset to already in place “safety nets.” Low income people are already rewarded by a safety net of supplemental security income, medicaid, subsidized housing, food stamps, etc. Add those entitlements up and it amounts to significant dollars. I’m more concerned about the government making social security and medicare means tested. That basically means persons who approach life with a positive attitude for education, gainful employment, reduced current consumption for long term savings and investments are to be short changed through increased taxes and reduced benefits earned through higher payroll taxes over the years.

    I’m also for a worker being paid an adequate wage to support themselves and their families, so the government does not have to ‘subsidize’ their wages to meet basic needs.

  6. villager98 says:

    A321196 is somewhat correct, but low income are not “rewarded” with anything and not all low income people get those “rewards”. Creating jobs that pay a living wage and making sure everyone is paid a living wage is the best thing the country could do for everyone, not just low income people.

  7. MadTaxpayer says:

    OMG! Here we go again, the lazy get our money! This person must have attended the University of Welfare?
    Since when are unproductive people rewarded? Oh, I forgot about our politicians!

  8. tree_guy says:

    “Creating jobs that pay a living wage and making sure everyone is paid a living wage is the best thing the country could do for everyone, not just low income people.” villiager

    Villager, how many of these “living wage” jobs have you personally created? The blogs are full of comments such as this from people who have never signed a payroll check in their lives.

  9. commoncents says:

    I’m all for getting everyone working again but I fail to see where living at poverty level or below is a reward for anything. Certainly they are being given something for nothing but so are a lot of my co-workers and many of you would call them productive members of society.

  10. Call it what you may! “Reward” or some other term. I see a lot of negativity concerning those that do not make a lot of money. Go to the earned income tax tables included in the instructions for Form 1040. The earned income tax credit at the ‘sweet spot’ (in tax lingo/jargon) is $3,034 (one child), $5,016 (2) and $5,657 (3) based on gross income (wages) of $12,500 to $21,450.

    So, every time you go into a business that pays the minimum wage of $9.00 per hour, the federal government is “subsidizing” that business. Do the math! If somebody is working full time (2,000 hours) the subsidy is over $2.50 per hour. Now, before everyone jumps on the low income worker (you call them non-producers), assume the worker is a male with a stay at home wife taking care of one, two or three kids, lost his high paying job, etc. Also, maybe the worker is a single parent who is divorced, abandoned, etc. Not just what is in your mind, the stereotype low income earner- whatever you believe that person to be, I’d like to hear it.

    Now, I know the customary comeback will be, the minimum wage is for the entry level worker, the student after school, etc. So, who is working behind the counter at the fast food restaurant when you drive up? Who is at the retailer at the mall during the day? The student?

    And, how many entry level positions are going to wait in line for the managerial position? Just look at the want ads and the type of jobs offering the minimum wage, even in non recession times. In my day, in days of full employment, kids had to fight over the scraps in the after school job market-for jobs as a box boy at the supermarket or a page in the library.

    The true cost of the products we buy includes the cost of subsidizing workers with the earner income tax credit, subsidized housing, medicaid, food stamps. If you do not want government to provide (reward?) the working poor with these basic costs associated with basic living, then the prices of goods and services will rise.

    If you want to complain about subsidizing the working poor, go to any tax library and review old copies of Publication 17 and check out the progression of increases in the earned income tax credit which started in the early 1970’s. Government is picking up the slack for what business use to routinely provide- a living wage and health care benefits.

    Our taxes would be less, if the same benefits were paid as “back in the day!”

  11. bobcat1a says:

    A321196, well said and actually logical. That’s why it will be attacked and scorned by the factless. Down south we used to call them “aginners.” They were “aginst” anything complicated.

  12. The fat cats will always find a way to reward themselves.

    Let’s just give them everything they want and maybe some of it will trickle down…………

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