Very intentionally, I avoid politics and political issues as best I can in writing this blog. The big reason is because it’s a nightmare to track through my Facebook timeline on most days-forget when hot button issues like guns, abortion or finance are in the news. I really don’t want to manage political commentary in the comments on this blog.
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Now that said, every now and then an issue to me transcends my stated avoidance of political commentary and forces me to share. The complete inability of our collective (and cross party and ideology) elected body in Washington though prompts this.
Think back for a moment to the waning days of 2012. Many were planning parties or excursions. I was getting ready for a second knee surgery, and we were all inundated with musing of the “fiscal cliff.” This in essence was the making of bad congressional policy of not dealing with real fiscal management in real-time and “kicking the can” down stream to a date way off in the future. That future date for fiscal comeuppance was in January 2013. Without a deal, bipartisan in nature, there would be dire fiscal consequence not to the top 5% wage earners in the country and not to the bottom 20% who need help. No, the issue would be solved by the many-the folks below the 95th percentile and above the 21st.
With great fanfare, our leaders in Washington crafted a cure to big, bad fiscal cliff by simply taking a bunch of money none of us had already, but many of us worked hard for. At stake was the very corporate STI (short-term incentive). For many of us, we simply call it our bonus.
Often this is payable not in the year earned, but in Q1 of the following year. Since the fiscal cliff of 2013 was solved in early January, STI earned in 2012 but paid in 2013 would be the saving grace of the financially mis-managed country we live in. On this money we had earned but had not seen yet, withholding tax would increase and new rules were created to drop STI to the gross in the year earned.
Take this use case…say you earned $100,000 in STI (using $100k makes the math easy). A bonus paid out in 2012 would face withholding of around 33% or $33,000 with $67,000 going to the earner to do crazy things like pay bills and buy a new car. A lot of money, but in 2013, that 33% became 42%. So that same $100,000 bonus now becomes $58,000 banked.
So in 2013, my net is down almost $10,000 by simply working hard. But wait, there’s still more hands trying to touch my money. Under 2013 rules, that $100,000 also counts as part of my gross earnings, eligible for income tax. Not the $58,000 I actually banked mind you, but the 42% the government already taxed.
There is no incentive to work hard for my bonus, after all by the time the bipartisan elected government is done, I’ll owe them money on the money I worked hard to earn….
Now enter the sequester. So, my tax rate, already taking more money from me pays for less, because once again the people elected from both parties and all branches of government to govern-can’t. So services face automatic cuts, people lose jobs, industry suffers-and I pay them more for that.
So, I’ll take my wallet and sequester it, before throwing it over the cliff, because I am already bent over and frankly my ankles are pretty sore….