Pie in the Sky Thinking

Pie in the Sky

There’s no intellectual exercise quite so ethereal as listening to members of the Something For Nothing Crowd pontificate on the glories of Self Reliance, by which they often mean that what is their’s is theirs and what is yours is negotiable.  What they really don’t want to do is pay taxes, having been convinced that they are already burdened with excessive liability for the care and consideration of others.

Basic Numbers

Someone hasn’t told them the average annual federal income tax rate for 2011 was about 8.4% [TaxFound] Or, that the average payroll tax rate for the same year was 6.7% nationally. [TaxFound]  But, let’s assume that a working person earning about $50,000 is liable for about 15.4% in taxes, and 7% in payroll taxes.  We’ll not assume, as some have, that a working person is liable for both employer and employee taxes.  Let’s also assume that the family has two children – that would be about average.  What we don’t want to do is to be misled by the brackets because we haven’t considered the standard deductions.

If our “average” family in Nevada with a median household income of $52,800 has a standard deduction of $11,400 and four personal exemptions of $3,650 each.  (If the kids are under 17 years of age then there’s a another $1,000 exemption for each.) That leaves a total of $26,800 in taxable income for the Feds.  So, the family isn’t going to pay that 15.4% rate, instead they’ll probably pay something like 7.51%. [TaxCalc]

Nevada property tax rates range from 1.77 in Eureka County to 3.66 in Mineral and White Pine counties.  Remember that the tax rate is applied to the taxable value times 0.35 to get the assessed value, and the tax is that assessed value times the tax rate. [NVenergy]

If we take the Nevada average median household income ($52,800) and break out the taxation, the family isn’t paying any 15.4% it’s more like $12.6%. There’s no state income tax, and the “average” take home pay is approximately $42,342.05. [TaxCalc]  This assumes that the median household income is the adjusted gross income of $42,500.  Now we can start playing with our food – the pie in the sky.

The average interest rate on the average home mortgage in the western states is about 3.86% for a thirty year fixed rate home loan.  The median home value is $197,600 in Nevada. [Zillow]  Using a standard mortgage calculator this yields a monthly payment of $927.

The subtraction begins. Take home pay of $42,342 means a monthly income of $3,528.50; and if we subtract $927 in mortgage payments there’s $2,601 left for other household expenses.

For the sake of the argument let’s propose that the family has one car, which means  ownership costs of $517.00, and operating costs in the western region of $236.00 per month. [IRS] Subtract another $753 from the monthly budget. Now we have $1,848 left for the remaining expenses.

Basic utilities in Las Vegas run about $175.56, and in Reno about $130.00; let’s call it in the middle and estimate monthly utility bills of $150.00; now we have $1,698 in the check book.

Now for the groceries.  A family of four can just get by on about $146 per week and eat healthier on about $289 on the higher end. [USDA pdf] Let’s settle for the “moderate” plan which will cost our average family of four about $1,062 per month if the kids are over 6 years of age.  Now there’s $636.00 left.

There’s the health insurance costs, and we’ll assume that our average family is also among those for whom the employer sponsors the health insurance plan.  Employers sponsored insurance for some 149 million people in the U.S. and the average employee annual contribution was an annual $4823, or about $401. [Kaiser]  There’s $235 left over.  (Clothing, entertainment, restaurant meals, appliances, home insurance, books, toys, etc.) The average U.S. family spends about $1,604 for clothing or about $133 per month; and $2482 for “entertainment” which encompasses sporting events, recreation, television, radio, sound equipment, rentals, pets, toys, hobby and play equipment, … [BLS] for about $206.00 per month.  Our average family is now in the hole, to the tune of $104.00.

Here’s where the PIE IN THE SKY begins.

“People should pay for their own kids to go to college!” There should be College Savings Accounts. There are.  And the proceeds must cover:

“According to the College Board, the average cost of tuition and fees for the 2014–2015 school year was $31,231 at private colleges, $9,139 for state residents at public colleges, and $22,958 for out-of-state residents attending public universities.

The College Board reports that the average cost of room and board in 2014–2015 ranged from $9,804 at four-year public schools to $11,188 at private schools. Colleges also provide room and board estimates for living off campus based on typical student costs.”

So, the two children of our average family are to attend a public college, as in-state residents, and the bill will probably be $18,943 for one of them.  We’ll look at a “529 Plan.”  If our average parents started a savings account for a child aged 1, at a rate of $100.00 per month then the parent would be able to cover $37,087 out of a predicted $40,687 in expenses. [Putnam]  Our average family already has to be below average in the entertainment category in order to break even, and now the critics want the family to (a) go into more debt, or (b) shave the meals, the insurance, and other expenses to the minimum in order to save an amount per month necessary to pay for college (IF the interest on the savings account stays around 6%) for one child.

“And they should pay for their own retirement!..”  With these numbers there is nothing but Social Security into which the average person has already paid as a part of the Social Security and Medicare payroll taxes.  There certainly isn’t anything left over for “extras.”  Nor is there any comfort in letting any portion of the contributions fall into the hands of the operators of the Wall Street Casino – who have an interesting way of securing the profits from their Free Enterprise, and ditching their losses on the American public.

“And they should pay if they want to use the roads, a few toll roads would keep the taxes down…”

and we should add this to the transportation expenses

And they don’t need that big screen TV and cable…”  it’s looking like all those entertainment expenses are down to basic cable already.  As for the size of the screen, that depends on the family capacity to incur debt or whether they were able to find a big screen on which someone else couldn’t make the payments?

“And,  Health Savings Accounts?”  Great, if you happen to be unmarried, well to do, and very healthy.  Not so good if you happen to be our average married couple with two children, two children who are as good as the kids next door at getting sick from the latest pestilence they are shareing in the neighborhood. Not to mention their dental bills.

Not to put too fine a point to it, but all that Self Reliance, Rugged Individualism, Pure American Can Do Drivel, is just that Drivel. It sounds good over the loud speaker, sounds auspicious from the television pundits, and makes good high flying rhetoric from the politicians. There’s just one problem. IT DOESN’T WORK IN THE REAL WORLD.  Only in Pie In The Sky Place.

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