Thursday, December 13, 2012

Irwin B. Goldstein, 1929-2012, R.I.P.

Last Friday night, at about 1:15 AM, my father, Irwin, suffered a major heart attack. My brother, Miles, had arrived for a visit with his wife and young daughter just a few hours earlier and was able to perform CPR till the paramedics came.

They were able to revive him and transport him to the hospital, but he was in a coma from that point on. 

Leslie and I were called at around 2:40 AM, washed up, threw a bag of clothes together, and drove all night, arriving at the hospital before 9 AM Saturday morning.

Once all the family was gathered at his bedside and had said our final goodbyes, ventilation and all support, other than a morphine drip for comfort, were removed at approximately 11:30 AM.
We were told that death would not come immediately. Maybe it would be a few minutes, maybe a few hours. As he hung on, that became "twelve hours, tops." Then, "by early Sunday morning." Despite all odds and expectations he held on another twenty-eight hours with family by his side. 
At 3:12 PM on Sunday, December 9, 2012, our father opened his eyes one last time and died looking into the eyes of our mother, his beloved Judi.
(What follows is a rough transcript of what I said Tuesday, in eulogy, at my father's funeral:)
In trying to decide what story to share with you all today, I wanted to share something that wasn't just personal, but a story that really explains who my father was; something to demonstrate his character. And what came to mind wasn't an early childhood memory, but something from just a couple of months ago.
As I'm sure you all know, Dad had been suffering from Alzheimer's for several years. Alzheimer's is heartless and relentless and was slowly taking him away from us.
It took away memories and details. It took away being able to have in-depth conversations and ask for advice. But it never took away the essence of who he was.
He was still overwhelmingly positive, happy, and loving life and his family. He was always pleased to see people he recognized and give a warm hello.
So the story:
The last time we went out to dinner was to a local place where my parents know the chef/owner and the chef's mother, Barbara, who is the hostess.
About a hundred times during the meal, Barbara would walk by our table to seat another group, and each time she'd pass, Dad would smile at her and say, "Hi! How are you doing?" to her like greeting a long lost friend. It was repetitive; but it was sincere. And she responded kindly each time because she knew he was sincere.
Some who only saw him at work might just say he was a good shmoozer, but he genuinely loved people, and everybody he met loved him.
At home he was still concerned for everybody else's comfort and happiness above his own, and making sure he was taking care of his family and any guests. "Can I get you something?" "Are you okay?" "Do you need anything?" ... Over and over again.
It's true, he wasn't the same as he was before Alzheimer's. But he was still Irwin. We may have already spent a couple of years mourning the decline, mourning the inevitable, and missing the details, but HE was still very much there, himself, with us, and taking care of us, till the very last.
... Okay... One personal childhood memory... One I don't even think my brothers know. A secret story...
Most of you know that Dad loved to play golf, and if you knew him long enough, that he played hockey as a kid. But we were not huge sports fans in our family. Still, when I was growing up, one of my favorite tv shows was ABCs Wide World of Sports.
I enjoyed Jim McCay, but more important was the ritual of how we watched it. Dad would lie down on the couch and I would lie down beside him, with his arm around me, enjoying the comforting aromas of Old Spice and Budweiser.
I have no idea where the rest of the family was on Saturday afternoons, but for me, "The thrill of victory and the agony of defeat" meant I would have ninety minutes alone with my Daddy.
Goodbye, Daddy. I love you.

Monday, December 03, 2012

Marginal Tax Rates 101

With all the current hysterical coverage of the impending "Fiscal Cliff" - or "Obama Tax Storm," depending on who you're listening to - and seeing what certain of my friends and associates are saying or posting online about it, it is unbearably clear that most Americans haven't the faintest idea of how marginal tax rates work.

It's not their fault. Politicians and the media have been talking down to us and "simplifying" the discussion for so long, that they'd have you believe things that simply are not true. For example, you may accept as "fact" that President Obama and Congressional Democrats want to raise the tax rate on those who earn more than $250,000 from 35% to 39.6%.

Using that statement and some basic arithmetic, you would assume that a family with $251,000 in income would see their taxes rise from $87,850 (35% of $251,000) to $99,396 (39.6% of $251,000) - a total tax increase of $11,546. You would also be wrong.

The statement "President Obama and Congressional Democrats want to raise the tax rate on those who earn more than $250,000 from 35% to 39.6%" contains three major "simplifications" that lead to these sloppy (and expensive) calcluations:
  1. Uses "earnings" (implying total gross salary) instead of "taxable income" (after all deductions, adjustments, and exemptions).
  2. Implies that you pay a single rate on all your earnings, instead of explaining how marginal rates apply.
  3. Uses a $250,000 figure that is two decades out of date. That figure for the 2012 tax year is actually $388,350.
Let's take these one at a time...

Earnings versus Taxable Income: Nobody, but Nobody, pays income tax on 100% of their income. Each version of the IRS form 1040, from the one-page EZ to the more complicated versions with dozens of attached schedules and sub-forms allows you to reduce the amount of income on which you owe taxes. Frankly, the more complicated a form you use, the more you are reducing your tax liability.

But even a single guy, just starting out, with no dependents, educational expenses, mortgage, or anything else to deduct, just using little old form 1040EZ, will take a standard deduction of $5,950 for 2012. That means, if he earns $30,000, he'll only pay taxes on $24,050. That tax will come out to $3,173, or about 10.5% of his gross income, or 13.2% of his taxable income, even though he's in the 15% tax bracket.

What's that? You don't get how somebody in the 15% tax bracket only pays 10.5% in taxes? Let's move on to that second "simplification" ...

Marginal Rates apply to earnings above the margin: When politicians talk about raising the rate on "incomes above $250,000" (really: taxable income above $388,350), they only mean the increment, or margin, above that figure. It doesn't change the taxes paid on the first "$250,000" you earn ($388,350 taxable).

To explain, we'll build a more complicated example than our single guy above. Let's assume a couple with a nice home, two kids, and combined total salary income of $450,000. They're going to file jointly, so they'll look at Tax Rate Schedule Y-1. Their taxes will be:
  • 10% on taxable income from $0 to $17,400, +
  • 15% on income over $17,400 to $70,700, +
  • 25% on income over $70,700 to $142,700, +
  • 28% on income over $142,700 to $217,450, +
  • 33% on income over $217,450 to $388,350, +
  • 35% on taxable income over $388,350.
But, before they figure out their taxes, they'll itemize their deductions to reduce their gross actual income and find their net taxable income:
  • Mortgage Interest: $16,500
  • Two Kids ($3,800 each): $7,600
  • Charitable Giving (1.5% of their income): $6,750
  • Business Expenses: $7,500
  • Miscellaneous: $3,500
  • Total Deductions: $41,850
(This is a real simple example with modest deductions - I didn't include any medical expenses, educational expenses, deposits to retirement accounts, etc. - These are just a few of the ways to reduce your tax liability.)

So, using Schedule Y-1 above, here's what their federal income taxes will break down to:

 Earnings  Tax
Deductions  $41,850 $0
10%  $17,400  $1,740
15%  $53,300  $7,995
25%  $72,000  $18,000
28%  $74,750  $20,930
33%  $170,900  $56,397
35%  $19,800  $6,930
Totals:  $450,000  $111,992

Their bottom line is $111,992, or 24.9% of their total income of $450,000 ... even though they're in the top 35% bracket.

Using the media/political simplification of all things numerical, we would have thought they were paying $157,500 in taxes (35% of $450,000). We would also assume that the Democrats' proposal to let the top rate return to 39.6% would increase their taxes by $20,700 to $178,200 (39.6% of $450,000).

But, now that you know how real math works, you know that raising the top marginal rate on this well-to-do family will bring their total federal income tax burden to $112,903. An increase of only $911 (0.2% of their total income) - quite a bit less than the $20,700 certain politicians and journalists would suggest. Because, now you understand, the rate change from 35 to 39.6% only applies above the margin, to that last $19,800 of their taxable income.

So, where's  $250,000 in all this? When President Clinton's tax increases created the 39.6% rate twenty years ago, it was for taxable income over that figure. And, because politicians and journalists are lazy, they've just continued referring to that number ever since (if you don't like "lazy" please come up with a better explanation that doesn't include "lie"). But the cut-off point for each of the tax brackets actually adjusts each year for inflation.

By 2003, when the Bush tax cuts were going into effect, "$250,000" was $311,950, but we kept saying "$250,000" out of habit. During the 2010 "Fiscal Cliff" discussions, "$250,000" was $373,650. Today, it's $388,350. Is that really so hard for reporters and politicians to understand? Never mind...

But aren't we Taxed Enough Already? The Tea Partiers are both wrong and right on this. Regarding federal income tax rates they are completely wrong. Current federal income tax rates are at their lowest point in over 60 years. And, yes, because the base line for each marginal rate has gone up at least as fast as inflation (why $250,000 is now $388,350), that means this year's tax burden is less than last year's.

But, in part because federal income taxes have been held at historically low levels for a decade, other taxes and fees have gone up. States, not getting as much as they used to from the feds, may have increased their income, property, or sales taxes, as well as made cuts. Counties and cities, not getting what they used to from the states, may have raised local sales taxes or passed "special assessments" added on to property tax bills, and/or made cuts in services. Across the board, fees for everything from parking to getting married etc., may have increased to make up for shortfalls from another area.

Because sales taxes, use fees, etc., are not progressive, like the federal income tax (multi-tiered, the rich pay a higher rate), the burden of these taxes falls more on lower and middle income earners. So, depending on where you live, what you earn, and a few other factors, you may indeed feel as if you're paying more in taxes over-all, even with a smaller annual bill from the IRS.

Bottom Line: You probably know where I stand on this. I don't believe it's asking too much of a family that earns nearly half-a-million dollars annually to kick in another grand in taxes when the country faces a fiscal crisis. To insist on holding even this top rate down will only result in more cuts in services and/or increased taxes and fees elsewhere down the line.

But regardless of whether or not you agree with me on the politics, can we all at least agree to use real numbers and real math?

For more fun with tax brackets, this page on has an easy, interactive tax calculator that allows you to see how all of this works and check your tax rates across time and space.

Twitter Feed