I have spreadsheets calculating my personal budgets, including income, taxes, withholding, monthly expenditures, rent versus own, etc.

In my post, How To Calculate The Cost Of A Home Quickly Without A Calculator, I showed the simple way of doing so in your head. The math is very easy to follow, and in the end, calculating the cost of any house is super fast, easy and practical.

Another point, to calculating what you can afford, or not is considering taxes. In my spreadsheets, I have take home pay calculated for me. I’ll show you in just a minute how easy it is to figure as well.

The biggest portions of taxes are income and Medicare coming out of a paycheck. The problem with income taxes is it is not a flat rate like Medicare. The tax rates are graduated. With the Bush tax cuts set to expire, and we hear about only taxing the rich; however, there is a little misinformation and hype about them.

The rich won’t pay the top rate across the board as many people think; rather the tax rate is a graduated rate meaning they pay a percentage on a set dollar amount and when dollar amount exceeds the limit, the portion above the limit is taxed at the next level. And so on.

Everyone pays the lowest tax on the bottom portion of money and then taxed at higher rates as more income is produced creating a cumulative, net amount to be determined. The total amount paid divided by the income shows the real tax percentage.

The U.S. tax system is a progressive tax structure, meaning people are penalized for doing well.

On the contrary to raising taxes on only the rich, the lowest level of taxes will increase from 10% to 15% when the tax laws expires – which is a 50% increase on everyone – including the lowest wage earners!

You can see what I mean by viewing an excerpt below from Barking With The Big Dogs on qualifying for a home, and I’ve included income taxes as a consideration for determining what a person can realistically afford…

” The payment may be within the qualifying percentages, such as 28% for the house (principal, interest, taxes [property], insurance – a.k.a. front-end ratio). In reality though, one might also factor income and Medicare taxes (approximately 25%: A net amount of 15% for income taxes based upon a gross income of $102,000 minus standard deductions and exemptions for a married, jointly-filing, family of four, creating a taxable income of $76,000; Social Security and Medicare at 7.65%; and other possible taxes such as unemployment).”

Right now, it’s easy to see that approximately, 25%, or $1 for every $4 earned goes to only two personal taxes! We have so many other taxes.

In the case of income and Medicare taxes, being #1 in the world is not such a good spot. I don’t mind being behind China, Japan, Germany and even Croatia as shown here from the Economist. I think Washington has their priorities backwards on what categories we should lead and follow.

About a week and a half ago, Friday the 25th I believe or Saturday, I was listening to Barney Frank give some quick responses to a Q&A session on the steps in Washington regarding recent financial legislation.

A couple comments Mr. Frank made referenced banks which would require them to hold more loans versus selling them on the secondary market. Another topic referred to YSP and mortgage brokers.

I’ll leave the second topic to be discussed in the chapter “The Banker’s Secret” in my book, “Barking With The Big Dogs”, but for now, let’s see if the new legislation is really good for you and me and America as a whole.

When I heard his comments, I immediately thought the comments are good talking points, but more to the story exists which probably won’t be heard on CNN or Fox.

So, here is my take on just parts of the recent financial overhaul.

The new recent proposed legislation requires banks to hold more cash on hand, and is not a bad idea. However, new changes may require banks to hold more mortgages too thus affecting the transfer of loans to the secondary market. (The secondary market is where mortgages are in investments such as mutual funds for example which the Average Joe may own.)

The secondary market helps the big banks and small banks and individuals too regarding the flow of money and money earned. However, small and regional banks may not have the ability to sell as many loans or do as much business, thus potentially hurting the local banking community.

If banking laws require lenders to hold loans and keep larger deposits, the changes could be a huge benefit to the largest banks since smaller institutions may not have the balance sheet requirements to compete. Holding loans also reduces liquidity, the free flow of markets and the ability to loan money to more people can diminish.

With Obama’s enormous requests for spending and the Congress willing to oblige and write the checks, Volker feels we need a new tax to pay for the expenses.

Spending is at 25% of GDP and the new taxes will come from income taxes, a VAT (value added tax), energy tax, carbon tax or whatever. These taxes seem to be a “good idea”. Corporate taxes are already among the highest in the world. No wonder why companies move overseas.

Speaking of oversea, I have a relative who lives in Sweden and when they came to America, I was told he and his wife are required to put their kids in daycare at the age of three. The income taxes are 50%; therefore, both spouses have to work. I don’t know about you, but I enjoyed playing with the kids when they were three versus letting someone else raise them.

But back to needing a new tax; in my opinion, cutting out the waste and backdoor deals, such as buying votes in Louisiana to get the health care bill passed, cutting out spending for free education and health care for illegal aliens, etc. seems to be a better idea.

If strategies such as the VAT are “poison” in the U.S. because they are a bad idea, and all of the European and Mexican ways of running a country do not work, why try it here? Why not fix the problems there instead of having the U.S. taxpayers bailout out everyone.

Unfortunately, what the American people want is not the agenda of Washington – redistribution is.