You Just Had a 100% Tax Increase and Nobody Told You

So what is the government doing?  Well, I will make it simple, they are inflating the economy because they are out of money and need tax revenue.  You literally just had a 100% tax increase over the last 7-8 years or so right before your very eyes. Wala, watch it appear.  Ok, I know what you thinking, they didn't raise the percentage tax rates on me.  No, but what they effectively did is increase your paycheck (sounds good so far right so you're fat and happy), which pushes you up into higher tax brackets (a tax increase).  This really affects the dual income family (yes they middle class) significantly.

Tax day roles around, and let's face it last year was a very tough year for everyone.  Rising costs for food, energy, etc.  So what do you do, the worst thing possible.  Put less in your retirement plan, increase your exemptions on your W-2 so you would have more income.  Unfortunately, both these moves cost you dearly.  So let us break down this huge tax increase for you.  You make $85,000 and your spouse makes $80,000.  Your joint income is now $165,000.  You've made the big time.  No what you've really done is reduce the net amount against inflation that you are bringing in after taxes.  You have put yourself into the upper stratosphere as far as federal tax bracket at 31%, and many of you, depending on your personal deductions, will have now climbed into the AMT penalty tax rate.  So add it up, and you may be paying as much as 50% of your income to Uncle Sam and his cousins the state you live in. Just about everyone dual income family we know had a very heft tax bill due on April 15th. So here's where it really hurts.

You made $165,000 multiplied by lets say average rate of 40% taxes, your net income is $99,000. Still sounds OK, wait a minute we're not done yet.  If you subscribe to our inflation conspiracy that everything costs double what it did 7 or 8 years ago (at least the things that matter such as food, energy, housing) then your income is really only worth $49,000.  So you are paying more for everything, and paying pretty much double in taxes.  Not a very good formula for the success of the middle class.

You now ask what the heck?  What can I do?  We say run, it's only going to get worse.  The government is way over-bloated and out of money. Many state are flat broke. What's the easiest way to sneak in tax increases? Inflate the economy, and push everyone into higher tax brackets (and you didn't even notice). The government effectively doubled the money supply the last 3 years or so, so we are guessing that things may be in check for a bit, but the next round of inflation which includes paying for health care costs which are increasing at an alarming 15% per year rate (the social security and Medicare deficits that have now begun), and the 90 Million Baby boomers that will need taken care of over the next 10 to 15 years, will only fuel the fire. So I we are not sure that you should be just excited just yet when your pay breaks the 6 figure mark.  Uncle Sam and his cousin are gonna get half of it. 

Stay tuned for more.