Debt Free

Hooray! Hooray! In one of their last acts of kindness, the outgoing Congress gave a Christmas present to members of 9 states in the form of one of those pesky tax cuts. But, just because they were passed by a Republican legislative body, don't think it was only for the wealthy. In fact, common taxpayers in states with sales tax, but no income taxes, were about to get royally screwed if the cuts weren't passed, due to their high sales taxes. So next time you think that the evil Republicans only pass tax cuts for the wealthy, take a look at this one, if you will.

Joe/sephene taxpayer in the following states: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming are burdened with state sales taxes. In case you've never taken the time to sit down and figure it out, sales taxes are regressive because lower income people spend a higher percentage of their money. The money they spend on essentials accounts for a great portion of their income. In some states, such as Washington, citizens are allowed to forgo paying sales tax on food (not restaurant meals), but even so, housing and other expenses chew up the lion's share of the family budget.

Paying 7% - 10% to the state before you chip in to the Federal coffers is quite a tax bite for lower income families. Income taxes can be adjusted to be disproportionately lower for those lower on the income ladder, while sales taxes can make no such distinctions. You just pay the man. So when you're enjoying the $300 - $700 tax exemption gift you received for Christmas this year as a present from the 109^th Congress, say a big “thank you.” to your legislators (for once).

Others will be receiving a bit of tax relief as well. If you're buying a new home, you get to share in the outgoing congressional generosity too. Beginning in the 2007 tax year, you will be able to deduct mortgage insurance (PMI) premiums before figuring your annual income. So before you get your equity to home debt past 20%, which in some areas of the country is about 45 minutes, but in others might be 10 years, you'll have a little tax deduction to help your financial picture a bit.

If you are instructing our nation's little ones, you no longer have to foot the entire bill yourself for out of pocket classroom expenses. It's sad that teachers must actually pay classroom expenses out of their pockets in the first place, but at least they can now get a little Federal tax break for doing so. Just don't spend over $250, that's the tax deduction limit for this expense. It's an “above the line” deduction, so even if you're young, idealistic, and don't yet itemize, you can still take advantage of it.

See ya' 109^th, we'll miss you (but not the massive level of spending to which you committed us).