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Tax Brackets and Standard Deduction

04.05.2012 by Matt Jabs //

Here we offer the tax brackets and standard deduction information for the tax years 2011 and 2012, along with a few “revolutionary” thoughts on the income tax.

Income tax history and philosophy

Thanks to the 16th Amendment the government can tax income:

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

The Bureau of Labor Statistics uses the inflation rates of the Consumer Price Index for All Urban Consumers (CPI-U), along with a host of other statistics, to calculate yearly tax brackets.

Income levels in tax brackets raise each year due to inflation, and inflation over the past year averaged 2.43%.

Inflation is a rise in the general level of prices of goods and services in an economy related to an increase in the volume of currency and resulting in the loss of purchasing power. The rate of decrease in the purchasing power of money is approximately equal to the rate of inflation.

Put another way, as inflation rises, purchasing power (a.k.a. wealth) decreases.

“1913 wasn’t a very good year. 1913 gave us the income tax, the 16th amendment and the IRS.” – Texas Congressman Ron Paul

Before revealing the modern income tax brackets, it’s worth noting that the Supreme Court ruled income taxation unconstitutional in 1895 before the Congress enacted it as law in 1913.

Federal Income Tax Brackets for 2012

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Federal Income Tax Brackets for 2011

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Note: Annual inflation is also used to calculate the standard deduction and personal exemptions.

Standard Deduction and Exemption for 2012

The value of each personal and dependent exemption, available to most taxpayers, is $3,800.

The standard deductions for 2012 are:

  • $5,950 for singles and married individuals filing separately
  • $8,700 for heads of household
  • $11,900 for married couples filing a joint return.

Standard Deduction and Exemption for 2011

The value of each personal and dependent exemption, available to most taxpayers, is $3,700.

The standard deductions for 2011 are:

  • $5,800 for singles and married individuals filing separately
  • $8,500 for heads of household
  • $11,600 for married couples filing a joint return.

Note: These numbers are projected and subject to new tax legislation therefore they could change so be sure to check www.IRS.gov for the latest information before filing taxes.

*******

References

  1. 2012 Consumer Price Index Summary by The Bureau of Labor Statistics
  2. Overview of BLS Statistics on Inflation and Prices by The Bureau of Labor Statistics
  3. Tax Foundation Projects 2012 Tax Parameters by The Tax Foundation
  4. 16th Amendment from The U.S. Government Printing Office
  5. Inflation on Wikipedia
  6. How To Calculate Inflation Rate on Inflationdata.com
  7. Pollock v. Farmers’ Loan & Trust Co. – 157 U.S. 429 (1895) on Justia.com U.S. Supreme Court Center
  8. Publication 501 Exemptions, Standard Deduction, and Filing Information on IRS.gov

Categories // Taxes Tags // economics, inflation, irs

A Proper Perspective of Industry Bailout

03.26.2012 by Matt Jabs //

I’m rereading Economics In One Lesson by Henry Hazlitt – an absolute must read.

I was compelled to share his explanation of industry bailouts to shed light on a topic that has stolen the wealth of the American people.

This is an excerpt from the book concerning the bailout of The X industry (any industry).

After showing how a bailout of The X industry can only be done at the expense of all other industries, Hazlitt goes on to say…

Similar results would follow any attempt to save the X industry by a direct subsidy out of the public till. This would be nothing more than a transfer of wealth or income to the X industry. The taxpayers would lose precisely as much as the people in the X industry gained. The great advantage of a subsidy, indeed, from the standpoint of the public, is that it makes this fact so clear. There is far less opportunity fro the intellectual obfuscation that accompanies arguments for tariffs, minimum-price fixing, or monopolistic exclusion.

It is obvious in the case of a subsidy that the taxpayers must lose precisely as much as the X industry gains. It should be equally clear that, as a consequence, other industries must lose what the X industry gains. They must pay part of the taxes that are used to support the X industry. And consumers, because they are taxed to support the X industry, will have that much less income left with which to buy other things. The result must be that other industries on the average must be smaller than otherwise in order that the X industry may be larger.

But the result of this subsidy is not merely that there has been a transfer of wealth or income, or that other industries have shrunk in the aggregate as much as the X industry has expanded. The result is also (and this is where the net loss comes in to the nation considered as a unit) that capital and labor are driven out of industries in which they are more efficiently employed to be diverted to an industry in which they are less efficiently employed. Less wealth is created. The average standard of living is lowered compared with what it would have been.

These results are virtually inherent, in fact, in the very arguments put forward to subsidize the X industry. The X industry is shrinking or dying by the contention of its friends. Why, it may be asked, should it be kept alive by artificial respiration? The idea that an expanding economy implies that all industries must be simultaneously expanding is a profound error. In order that new industries may grow fast enough it is necessary that some old industries should be allowed to shrink or die. They must do this in order to release the necessary capital and labor for the new industries. If we had tried to keep the horse-and-buggy trade artificially alive we should have slowed down the growth of the automobile industry and all the trades dependent on it. We should have lowered the production of wealth and retarded economic and scientific progress.

We do the same thing, however, when we try to prevent any industry from dying in order to protect the labor already trained or the capital already invested in it. Paradoxical as it may seem to some, it is just as necessary to the health of a dynamic economy that dying industries be allowed to die as that growing industries be allowed to grow. The first process is essential to the second. It is as foolish to try to preserve obsolescent industries as to try to preserve obsolescent methods of production: this is often, in fact, merely two ways of describing the same thing. Improved methods of production must constantly supplant obsolete methods, if both old needs and new wants are to be filled by better commodities and better means.

Hazlitt goes on to explain how nearly all forms of government interference in the free markets are harmful, and he does so with such ease and clarity.

The book is easy to understand and fun to read; which is saying a lot for an economics book.

It’s a must read for anyone looking to understand the desperate situation our economy is in after a century of increased bureaucratic interference. It should also be required reading for anyone looking to serve in public office.

Check if your local library has a copy or buy it on Amazon.

*******

Resources and further reading

“I strongly recommend that every American acquire some basic knowledge of economics, monetary policy, and the intersection of politics with the economy. No formal classroom is required; a desire to read and learn will suffice. There are countless important books to consider, but the following are an excellent starting point: The Law by Frédéric Bastiat; Economics in One Lesson by Henry Hazlitt; What has Government Done to our Money? by Murray Rothbard; The Road to Serfdom by Friedrich Hayek; and Economics for Real People by Gene Callahan.

If you simply read and comprehend these relatively short texts, you will know far more than most educated people about economics and government. You certainly will develop a far greater understanding of how supposedly benevolent government policies destroy prosperity. If you care about the future of this country, arm yourself with knowledge and fight back against economic ignorance. We disregard economics and history at our own peril.”

– Ron Paul, Representative from Texas

Categories // Reviews Tags // books, economics, government

Disappearing Middle Class [An Analysis]

08.15.2011 by Jon the Saver //

Social structure in the United States is in the midst of vast changes. The lower, middle, and upper classes are shifting their lifestyles as the national wealth flows in new directions. Statistics abound suggesting the “middle class” is vanishing, never to return. The problem with statistics about the middle class is that the term itself is somewhat indefinable. In fact, according to FactCheck.org a majority of Americans identify themselves as “middle class” or “upper middle class” or “working class.”

The technical

For years, the most common way to define the middle class was to refer to a specific income bracket. Using data from the U.S. Census Bureau, it is possible to quantitatively measure increases and decreases in the numbers of people in that bracket. In 2008, this data split the earnings of all people in the United States into five quintiles. Many commentators and analysts identified the middle class as belonging in the third quintile. The lower limit of this quintile was $39,001 and the upper limit was $62,725. According to the Census data, the number of Americans within this income bracket is indeed declining.

Real median household income declined by 3.6 percent from 2007 to 2008, according to the Census Bureau. Changes in the composite structure of the middle class combined with other factors such as technological innovation and income growth have drastically shifted what it means to be a member of the middle class. Once, a family of four could afford a house, a car, education and entertainment on a single paycheck. Today, the same family of four needs two incomes and debt in order to stay on top of their finances.

To complicate matters further, data from the U.S. Treasury suggests that the middle class is declining, but the reason is the members of the middle class are experiencing upward mobility. An op-ed published in the Wall Street Journal reported on the results of a study that tracked tax filers aged 25 and up from 1995 to 2005. Controlling for inflation as measured by the Consumer Price Index, over 58 percent of the poorest income bracket in 1996 moved to a higher income bracket by 2005. Of those, over 26 percent made it into the middle class income bracket, and over five percent made it into the highest income bracket.

So what’s the truth?

So what is the real story about the declining middle class? The truth is undoubtedly somewhere in the middle. The obvious explanation is that the middle class is not a fixed group of people. Income brackets stay the same, but people change throughout their lives. The poor can become rich and the rich can become poor, often in a very short amount of time.

The economy is almost alive, adapting to internal and external changes organically. While the middle class is declining in absolute terms, overall more members are becoming richer than they are becoming poorer. The economic crisis of 2008 led to much ink being spilled about rising income inequality and the destruction of the middle class. Income mobility changes the entire picture about income inequality and changing class structure.

To be sure, not all of the developments have been positive. Local and regional real estate markets have become stratified with the wealthiest zip codes experiencing tremendous demand. To make matters more complicated, even the definition of middle class by income brackets is relative to where the hypothetical family of four is located. In Beverly Hills, even a six-figure salary may be considered middle class, thanks to the high prices for almost everything!

It’s all relative really

In the end, “middle class” is a term over which a lot of hullabaloo is raised but the truth is complex and hard to summarize in a few key talking points. Technology has increased productivity, and income growth has resulted in greater upward mobility. The middle class does appear to be declining, but all of the data seem to suggest that this is a good thing.

Categories // Housing Tags // economics

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Content on Debt Free Adventure is for entertainment purposes only. Rates & offers from advertisers shown on this website may change without notice: please visit referenced sites for current information. Per FTC guidelines, this website may be compensated by companies mentioned through advertising, affiliate programs or otherwise. We respect your privacy. Privacy policy.

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