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What Effect Does the Government Have on Your Money?

by Shawanda Greene

Post image for What Effect Does the Government Have on Your Money?

As is often the case, a spark of inspiration ignited inside me when I heard something stupid. It’s no secret I’m socially liberal and fiscally conservative. There are times when the twain meet.

Tell a conservative these days you’re liberal, in any respect, and they immediately wax on about how Democrats are ruining this nation, President Obama is a socialist, and rising rich folks like myself are going to be taxed into obscurity 40 years from now.

Surely we should be concerned about the decisions our elected representatives allegedly make on our behalf. But some people are just ridiculous.

Allow me to paraphrase a recent exchange I had with an individual who’s aware of my political leanings.

Me: I’m not ready to buy a house yet.

Crazy Person: I dunno. Obama just spends, spends, spends. If you voted Republican they’d cut taxes, and you’d be able to afford a house.

You see what I’m talking about?

Never mind that I’m not ready to buy a house because I despise debt, and I’m seriously pondering a 100% down plan for my first home. The possibility I’m not in a place personally to commit to such a permanent decision also deserves no further consideration. Apparently, the gov’ment has its grubby little legislative hands in every aspect of my life.

Let’s all aimlessly run in circles, screaming and flapping our arms in the air while randomly setting stuff on fire.  All hope is lost.

After writing all that, I’m beginning to realize perhaps my reaction is a bit exaggerated. But to suggest the actions of Republicans, Democrats, Teabaggers, Libertarians, and the like, will somehow influence my decision to buy a home is absolutely absurd. Maybe the promises of our ever reliable leaders led many people to buy an asset as expensive, illiquid, and risky as a piece of real property, but dis chick ain’t one of ‘em.

Besides, tax cuts in the foreseeable future are extreeeeeeeemely unlikely. There are times in our personal lives where cutting spending isn’t enough to pay off debt. Sometimes you have to increase income. That’s the case for our nation as well. Taxes must be raised to pay off the national debt.

And even if by some miracle Republicans find a way to reduce tax rates, there wouldn’t be enough extra coins in my current paycheck to justify a decision to move from renter to owner. I’d be too afraid Democrats would regain control of the legislature and raise taxes again. I’m just kidding…sorta. :)

Don’t get me wrong. There are times when government regulations can directly impact our lives. They’ve directly impacted my life, but let’s not give them too much credit. We still exercise a great deal of control.

What do you think? What impact does the government have on your financial life?

Photo Credit: Gawnesco

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{ 15 comments… read them below or add one }

me in millions February 26, 2010 at 3:37 PM

I know what you mean. I hate when people are jumping to buy their first house because of the tax credit. It's a good deal, but it's not a good deal if you're not really ready to buy!

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Shawanda February 27, 2010 at 10:50 PM

What I found most interesting was that, initially, the tax credit began to phase out at $75K. There are certain parts of the country where you can buy a decent home on that salary, but D.C. isn't such a place. Even with an $8K tax credit, I'd find it hard to believe someone making $75K in the higher cost of living cities could afford to own without a gimongous down payment.

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Marie February 26, 2010 at 4:53 PM

This is why became an Independant. Politics are becoming laughable– from cash for clunkers to tax credits

Protect your own economy!

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Shawanda February 27, 2010 at 10:52 PM

Hear, hear.

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ctreit February 26, 2010 at 5:29 PM

In some European countries women can take a year off on paid maternity leave and an additional two years on unpaid leave, the government provides for childcare/kindergarten at age 3 until the kids go to school, and higher education is practically free. In the US parents don't enjoy such government support. Yet, the birthrate is a lot higher here than in Europe. This tells me that you and I are not the only ones who make decisions based on our personal convictions and not on government programs.

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Shawanda March 3, 2010 at 4:06 AM

That's interesting. You'd think the birthrate would be lower here. I wonder why that is.

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Barb February 27, 2010 at 10:41 PM

First off….GO SOCIAL LIBERAL-FISCAL CONSERVATIVES!!!
The government has quite an influence on your money. For example, dividends and capital gains are taxed at lower rates than in decades!!!! That's really good for investors!! Fed income tax rates are also at an historic low. (both set to expire at the end of this year).
The reality is … we have only a very indirect amount of control over the government. So whatever the effect of government, it is incumbent on us to make the best financial decisions we can in order to maximize our wealth. Barb PS The gov also treated us to several awesome tax credits this year: making work pay credit, and American Opportunity Credit among others!

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Shawanda March 3, 2010 at 4:15 AM

I think the making work pay credit added about $10 to my monthly paycheck and I remember hearing grumblings early in 2009 about how many Americans might end up not paying enough taxes because of problems with how payroll providers were calculating it.

Currently, 0% of my income is derived from long-term capital gains or qualified dividends, but I'll still invest like some day a decent portion of it will be. Here's to favorable tax rates on these products for the next 70+ years.

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Leighann Marquiss February 27, 2010 at 7:05 PM

I came to see your weekly menu and saw this post. I too lean toward social liberalism but am a fiscal conservative. :) But I disagree that what the government legislates doesn’t affect our spending or daily lives. They decide how much is taken out of check for taxes, social security, and FICA. We have no control over that. They decide who is taxed (i.e., under a certain amount and you don’t pay taxes, over a certain amount and you can afford to pay a CPA to get your tax rate down to 10%; middle class…uh, you’re screwed); and I say that as the wife of someone who is a HENRY (high earner not rich yet).
They also make mandates on GSEs like Freddie and Fannie to get into buying subprime loans (“It is the right of every American to own a home! ~ Bill Clinton) and then blame Freddie and Fannie for not holding out on buying subprime loans. Additionally, they are on the brink of mandating we buy health coverage no matter what our circumstances or face jail time and monetary fine for not doing so (“It is the right of every American to have affordable health insurance. ~ Barack Obama). I’m not even against people owning homes or having affordable health insurance, I just don’t think the gov’ment should be the one telling businesses how they should go about doing things they cannot hedge themselves against and then having us pay trillions of dollars to bail them out (thank you Bush and Obama). So, yes I think they affect our bottom dollar.
The control we have and what you allude to is what to do with our bottom dollar. And no, you shouldn’t buy a house until you can afford it – something many Americans could learn a lesson from.
I sound negative, but I’m really not in real life! This is just such a hot topic. :)

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Shawanda March 3, 2010 at 5:02 AM

Of course the government's actions affect our money. But instead of focusing on how much control I don't have over my money, I focus on how much I do. I'm told by some of my European counterparts that we have far lower tax rates than they do. Thus, we have more money left to work with. The only thing is, many of them have government sponsored/mandated/provided health care, so getting sick probably doesn't bankrupt them like it does many Americans.

In regards to the current health care reform bill, I heard of a fine, but I wasn't aware of the jail time possibility for not paying the individual mandate for health insurance. Actually, that doesn't sound true.

Health care reform is far too complex a topic to address in a comment, but I will add that I believe every American should have access to affordable health care. I would NOT go so far as to say it's a right. It's no more a right than food, water, or utilities. Then again the argument can be made that these services are relatively affordable and widely available.

Something must be done. Health care is 17% of our GDP. How long can the upward trend continue? We're paying too much money just to stay alive, and we not have the best health care in the world.

I recently heard the first lady say 50% of African-American and Hispanic children are overweight. Can't remember what the rate was for children of other races, but I'm sure, regardless of race, the children of the U.S. are fatter than they were a generation ago. Who's going to pay for all the medical ailments that result as our children get older? Already, 30% of Americans are obese. Things aren't looking good for us as a nation. Although I wish private industry would fix this problem, it hasn't and it won't. If health care wasn't an essential service, it probably would have by now. Unfortunately, there's not a whole lot of room for negotiation when you're sick or dying.

As for subprime loans, I don't blame the government or Wall Street as much as I blame greedy, delusional Americans who bought a home they couldn't afford. Yes, some were swindled, but calling many of them "a bunch of criminals who committed mortgage fraud by lying about their income to qualify for a mortgage they couldn't repay" isn't too far off base either.

You do have control over what you pay in taxes, it just depends on how you make your money. Matter of fact, you don't have to pay Social Security taxes on amounts in excess of $106,800 in 2010. Barb even pointed out the favorable tax rates given on capital gains and dividends. You don't have to pay Social Security or Medicare taxes on those AND you pay a reduced income tax rate. Now, in order to live off the proceeds from those, you'll have to be pretty well off financially. But isn't the ability to generate massive amounts of income what makes this nation so wonderful? There are too many wealthy people in this country for me to accept we don't have control over our income.

Oh, and another fun fact – 47% of Americans don't pay ANY income taxes. I sincerely hope every person complaining about taxes at least pay some federal income tax.

And then, we can always leave this great nation. Should the tax rates increase to the point where I can no longer bear it (or Sarah Palin is elected president), I'll strongly consider this option.

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bloominglater February 28, 2010 at 1:13 AM

I think that people are just looking for another scapegoat to do or NOT to do what they want – the government. I would love to take advantage of the existing homeowner's tax credit, but with this market, it's difficult to sell the home I'm in. Thus, the government's incentive really doesn't affect me either way.

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TheyCallMeCheap March 3, 2010 at 5:11 AM

I'm too busy concocting a scheme to take over the world to blame the government or anyone else for my shortcomings. I used to date a guy who thought everything was conspiracy. Ugh! Shut up. I was like "work around it."

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LeanLifeCoach March 5, 2010 at 5:06 PM

The gov't has a HUGE impact on you and how you spend your money. After income tax and FICA you have state and sales then there are tolls and excise and let's not forget that part of every dollar you give every company in turn goes to the gov't too. In the end at least half of everything you touch is taken by them. How can that not affect you? It will, but it should never stop you from A) trying to improve your life and wealth and b) being engaged in politics to affect positive change for our country.

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Shawanda March 5, 2010 at 6:25 PM

Absolutely. It's like when private industry and individuals dump toxins and pollutions into the environment. Even though my health and everyone else's is negatively impacted by it, that's no excuse to embrace a completely sedentary lifestyle, litter, refuse to recycle, and waste as many of the earth's resources as possible. I refuse to accept powerlessness. It's un-American.

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rosied March 17, 2010 at 2:04 PM

Pah – wot you lot moaning about ;-) I'm a hard working, self-employed, tax paying, house owning, car owning individual of 51 years old who lives in London. I earn just enough per annum to make me a Tax Target. I pay more tax than God. I pay more types of tax than probably exist in law but as we've so many thousands of new criminal penalties here now I can't really tell. My savings aren't worth the paper they're printed on. Despite 'owning' all our woeful banks (apart from those clever sods Barclays), and after being mugged for my state pension years ago, I am broke. As is Britain. I read only today that our woeful govt. has overpaid £1.85 billion in benefits to the slack-jawed obese/feral arm-dragging legions of unemployed with little chance or the will to recover it. I can answer the question ''what impact does the government have on your financial life?' quite simply. I'm totally screwed.

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