Let’s pretend for a moment that you’re a baker. I own the bakery, you work for me and I ask you to make a cake. I might say, “I need you to bake me a cake. Make it two layers, with frosting, sprinkles and pretty icing along the edges.”
You say, “OK! Great!” And you get to work. You get all of your ingredients ready and at arm’s reach. You have just enough to make what you need to make a really great cake. But just as you start to work I say, “Oh, but I’m going to need one of those eggs, half of your sprinkles, about a cup of sugar and half a pound of flour. I hope that’s okay. I need it so I can give some smaller cakes to some kids down the street.”
“Oh, okay.” You say. “But, that won’t make for a very good cake for them. And it means I won’t have enough for the cake you requested.”
“Hmm. Well. Just make a cake anyway.” I say. And so you do and it turns out like crap. And the smaller cupcakes I make for the other kids are crap, too.
Now you’re thinking, “Yeah, you’re insane. I can’t make a cake if you take away any of of my ingredients!” Maybe you can do without the sprinkles, but that’s hardly anything in the grand scheme of the cake.
But this is what the government does all the time with benefits and services — it looks at your “gross income”, as opposed to what you actually have to, you know, use. Things like health insurance and other non-government benefits even look at gross income for tax purposes. In this case, the baker had his gross, in that he did have all the ingredients he needed to make a really great cake. But I came by and took some for the benefit of others, a noble goal, but now we’re left with crap. Neither of us gets a good cake now.
Now you’re thinking, “Oh Justin, he wants to have his cake and eat it, too.” Well, yes, actually, I do. Shouldn’t everyone strive for that? I’ve not even been bitten by this problem, either, it just strikes me as dumb.
When I worked at the State and my boss told me I was getting a raise the first thing that popped in my mind was, “Great! Now how much do I really make?” I don’t give a shit if I make a $50,000 dollars a year if I only get to take $30,000 of it home with me to actually spend on food and rent.
Someone has to explain to me why gross income exists. It shouldn’t, because it adds confusion and obfuscation to already complicated matters, which is precisely how you trick people into doing the wrong thing (see: the phone companies).
I wish I could say I had a solution to this problem, but I don’t. My best idea is that you have to do away with tax withholding and send people a bill twice a year — like property taxes. They get their income and they can do whatever, but they have to be prepared. And they would know precisely how much they pay in taxes each year. You show me a guy who has tax withholding and I’ll show you a guy who has no clue how much he pays in income taxes each year.
The existing system is going nowhere positive, but again, this strikes me as dumb. I imagine gross income exists because politicians and companies needed a way to artificially inflate people’s earnings to make them sound like they make more than they really do.
I’m not even ranting about lowering or raising taxes. It’s just that one component to it seems designed from the very beginning to be a way to screw people.