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THE SUB-STANDARD DEDUCTION |
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Are there any taxpayers out there who aren’t familiar with the concept of the “standard deduction?” I thought not. We all know about it. In recent years with various limits imposed on itemized deductions more and more of us have been using it. It’s convenient and besides that, Uncle Sam likes it and encourages us to use it. For him it makes it easier to process millions of tax returns, and for the filer it’s a guarantee that he or she will never have to worry about having the return audited. How could it be when all that is being claimed on the return is a fixed amount not requiring justification as opposed to a lot of itemized deductions supported by wild claims of overwhelming generosity to charities and shocking losses in the market and elsewhere?
The concept of the “standard” is simple enough for anyone’s understanding. The Internal Revenue Service simply takes the whole multimillion volume of yearly returns received and derives from them a figure representing the average of all deductions made on all the returns. It derives four averages actually, one for the aged and/or handicapped, one for single people, one for married ones filing jointly and one for heads of households.
One class of people above all is affected by this system. They are the overwhelming majority of singles who don’t qualify as heads of households. Numerically the only class matching them are the married-filing-jointlys, but since millions of them are householders deducting their mortgage interest and real estate taxes, the standard deduction holds no interest for them. In fact I don’t know if they are in the mix from which the deduction is extracted by the IRS.
It hardly matters anyway. The numbers crunched may be skewed too high by the inclusion of relatively high earners, but what I’m interested in here is the average that emerges from the calculations and the peculiar situations that follow, particularly in my own state of New York. With all the background sketched out let’s look at a case in point.
This is a single woman, a middle-bracket earner, childless, renting an apartment in New York City, with a full-time job as an employee, not an independent contractor. No deductions, in other words. Sounds like a natural for the standard deduction, wouldn’t you say?
Well, no. Not in New York anyway. Why not? New York is the reason. New York politicians are the most ravenous to be found anywhere outside of a communist country, where the government lays claim to all the earnings of the citizens. So something happens in NY that is unknown anywhere else. The standard deduction, $5,350 for singles this year, is exactly equal to the sum of the state and city income tax withheld from this average worker. (That’s withholding; the actual tax is $37 higher). No wonder the late Senator Moynihan said that it’s like falling off a cliff to go from New York taxes to those of any other state.
Shocking, isn’t it? The exact amount that the federal government says is the average amount that could be claimed as a deduction by average taxpayers is only the beginning of deductions for the New Yorker. Those who take the standard deduction are debarred from going any further, but the New Yorker is not. He already has a deduction equal to the standard and he can go on from there. Uncle Sam’s nightmare now begins. An untamed taxpayer has been turned loose to rove in the fields of his imagination plucking up rare samples of deductions found growing wild in the underbrush. IRS can only handle this by examining returns, but it can’t hope to examine more than 2% of them. The rest are home free, like the TV herds escaping the crocodiles when crossing a river.
It’s an ill wind, etc. The downtrodden New Yorker ground to dust by the native scavengers, finds their impositions to be useful as claims against those of the national government. Years ago the IRS tried to revoke the federal deductibility of state and local taxes, but didn’t succeed. No state has yet defended its taxes as offsets against federal ones, but it might happen yet. Particularly in New York.
I hope I’ve made a discovery here that may be useful to other taxpayers. If they’re not in the habit of comparing their returns using the itemized method against the standard deduction method, they could miss out on the windfall.
How did New York taxes climb up so high? I’d like to know myself. In these pages I’ve dealt with some of the causes from time to time. There was for instance the $11,000,000 ripoff of the Roslyn school district by the superintendent and his accomplices, the gold-plating of the Long Island firehouses with hundreds of thousands of dollars laid out for luxury buildings, supersonic equipment, junkets for the staff and even fancy dress outfits for the officers to enable them to make a good appearance in society. Recently we’ve had the case of the Great Neck water supply board, which paid its assistant superintendent $140,000 a year while paying the super, who happened to be his father, $192,000 per year.
The most up-to-date ripoff report we’ve had concerns a lawyer working for five school districts here while retaining partnership in the law firm which provided his services and got paid separately. Mr. Reich, the attorney, also got paid separately from the districts for a total of $97,000 in 2006. He earned it, because each district carried him as a full-time employee, not a consultant, enabling him (a) to perform the miraculous total of 1,271 days work in 2006; and (b) to be rewarded with a lifetime pension of $62,000 yearly when he “retired” at the end of ‘06. Clearly he deserved a reward for working all those hours. But why wasn’t a shrine also erected to honor his achievements? Any man who can work 181 weeks in a 52-week year deserves an equestrian monument at least.
All this has been only a brief sketch of how New York politicians operate to milk the treasury of assets in the name of public service. Obviously I’ve only skimmed the surface. Oh, I forgot to say that the way Uncle Sam can get the standard deduction back on its feet in New York is to increase it here to a level that is higher than what we can deduct beginning with our state and local taxes. That will be higher than the rest of the country. They can’t start their deductions with the kind of taxes we start ours with. We must have our own standard deduction or else every New Yorker will start to itemize and, believe me, Sam will never be able to cope with that. |
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