This will be a short one because we’re on vacation in Mexico. It’s an exciting time in Washington DC. The House Republicans and our fearless leader are trying to push through a sweeping tax reform. I’ve been hearing a lot about this, but I don’t have time to dig into the details today. From what I understand, the tax reform will benefit the wealthy most and everyone else gets some crumbs. The national debt would balloon, but we’ll kick that ball down the road. Anyway, I heard on the radio that Americans pay more taxes than housing, food, and clothing combined. Let’s see if that’s true and which camp the RB40 household is in.
*Take my poll at the end of the post!
Americans pay more in taxes than housing, food, and clothing
This is from MarketWatch.
In 2016, Americans will likely spend roughly $1.6 trillion on food, $2.1 trillion on housing and $360 billion on clothing, totaling about $4.1 trillion. Meanwhile, their total tax bill will be about $4.9 trillion ($3.34 trillion in federal taxes and $1.6 trillion state and local taxes).
Collectively, we pay more in taxes than housing, food, and clothing combined. That is surprising to me. I know that tax is the biggest expenditure we have, but I didn’t think it eclipsed housing, food, and clothing. However, collective data can be misleading. After all, 45% of Americans pay no federal income tax. I’m pretty sure they spend more on housing, food, and clothing than tax. What about the RB40 household? Where do we fall?
Okay, let’s take a look at our data from 2016.
*We do not have sales tax in Oregon.
Right off the bat, our housing expense is already more than our taxes. We have a lot of deductions, though.
- In 2016, we saved $56,100 in our tax advantaged accounts. This includes maxing out our 401k, Roth IRA, and adding to RB40Jr’s college savings account.
- We got $1,000 child tax credit.
- The rentals had depreciation deduction and lowered our taxable income.
- We could deduct state and local taxes when we calculate the federal tax.
- Home mortgage interest deduction.
- Charitable donation.
We made good use of the deductions. Unfortunately, the tax reform will most likely kill some of these off. It would really suck for the middle class if they lower the 401k maximum contribution. That’s a huge deduction for us.
As for expenses, our housing costs about $1,575 every month. That’s just the mortgage and HOA fee. (Not including property tax.) That’s actually pretty reasonable for the West Coast. We could do a lot better if we move to a cheaper location, though.
So, it was a NO for us. We did not pay more in tax than housing, food, and clothing combined. Now that I think about it, our tax was actually very reasonable in 2016. I just don’t see how the tax reform would help us, but maybe we’ll be pleasantly surprised. You never know until you actually do taxes yourself. Oh yeah, business tax would be lower. That would be helpful for the blog income.
What about you? Take the poll below and let us know which camp you’re in. What’s your feeling about the sweeping tax reform?
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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