Being Real on Taxes

[Geo]

I am not an economics or tax guru. But I do know that the tax bracket you fall in means nothing with respect to what percentage you actually end up paying...

When I got my first job fresh out of grad school I fell into a lower tax bracket than I do now. Back then I had no deductions, qualified for no loopholes, had nothing for a creative accountant to work with and I paid almost exactly what the bracket said I would...

Ten years later I make much more money. I bought properties since then. Wife has a business. We have kids, yada yada. I am in a higher tax bracket which should mean I pay more. After deductions, loopholes and all the legal magic the taxman does for us-
I pay less than I did then...

Where am I heading with this?

There is a lot of talk about tax cuts for the middle class equating to redistribution of wealth. You hear-
"If you pay no taxes then a tax cut is really a check in your pocket- you took what I worked for and gave it to someone who doesn't deserve it. "

I am not above the $250K mark (not close yet either) but I earn more than 90% of the households in the US. I got a refund 10 years ago when I earned a third of what I do now. Despite the fact that I withhold about the same dollar amount each paycheck now as I did then (percentage wise I withhold much less now)- my refund is about the same now as it was then. If I get a tax cut I get a bigger refund. But we don't call it wealth redistribution...

 

[30ashopper]

I am not an economics or tax guru. But I do know that the tax bracket you fall in means nothing with respect to what percentage you actually end up paying...

When I got my first job fresh out of grad school I fell into a lower tax bracket than I do now. Back then I had no deductions, qualified for no loopholes, had nothing for a creative accountant to work with and I paid almost exactly what the bracket said I would...

Ten years later I make much more money. I bought properties since then. Wife has a business. We have kids, yada yada. I am in a higher tax bracket which should mean I pay more. After deductions, loopholes and all the legal magic the taxman does for us-
I pay less than I did then...

Where am I heading with this?

There is a lot of talk about tax cuts for the middle class equating to redistribution of wealth. You hear-

"If you pay no taxes then a tax cut is really a check in your pocket- you took what I worked for and gave it to someone who doesn't deserve it. "

I am not above the $250K mark (not close yet either) but I earn more than 90% of the households in the US. I got a refund 10 years ago when I earned a third of what I do now. Despite the fact that I withhold about the same dollar amount each paycheck now as I did then (percentage wise I withhold much less now)- my refund is about the same now as it was then. If I get a tax cut I get a bigger refund. But we don't call it wealth redistribution...

Your refund has nothing to do with this. Dig out your return from last year, and dig out your return from ten years ago under Clinton's tax rates. Compare the total rate at which you were taxed. (e.g. (tax payed / taxable income) * 100)

 

[Geo]

Your refund has nothing to do with this. Dig out your return from last year, and dig out your return from ten years ago under Clinton's tax rates. Compare the total rate at which you were taxed. (e.g. (tax payed / taxable income) * 100)

My point doesn't rest on my refund. It rests on how much I actually paid compared to what tax bracket I fall into...

It's just like when McCain says that US businesses have a higher tax burden than businesses overseas. This is just a tax bracket on paper and the reality is that after deductions businesses pay far less...

My point is also about the term "redistribution of wealth"...

It is just a scary Halloween word...

 

[30ashopper]

My point doesn't rest on my refund or lack thereof. It rests on how much I actually paid...

It's just like when McCain says that US businesses have a higher tax burden than businesses overseas. This is just a tax bracket on paper and the reality is that after deductions businesses pay far less...

My point is also about the term "redistribution of wealth"...

It is just a scary Halloween word...

No it's not Geo. It's very very real. Effective tax rates in this country are progressive - on the lower scale your tax rate is negative, the Federal Government pays you, giving you a motivational reason to stay in a lower tax bracket. On the upper scale effective tax rates approach 40%. Think about that, 40% of all the money you make goes to the Federal Government. Is that 'fair'?

 

[Geo]

No it's not Geo. It's very very real. Effective tax rates in this country are progressive - on the lower scale your tax rate is negative, the Federal Government pays you, giving you a motivational reason to stay in a lower tax bracket. On the upper scale effective tax rates approach 40%. Think about that, 40% of all the money you make goes to the Federal Government. Is that 'fair'?

You're still talking about tax rates rather than what you really end up paying so I think you are missing my point...

I enjoyed your quote referring to people who don't earn a lot of money as having a "motivational reason to stay in a lower tax bracket".


I hear this a lot from folks who are in your demographic (or mine) but I have never once heard it from the folks to whom you are referring.

"Joe, why do you earn so little? Why do you keep struggling?"

"Because by earning so little I get a great tax break"...

 

[30ashopper]

You're still talking about tax rates rather than what you really end up paying so I think you are missing my point...

I enjoyed your quote referring to people who don't earn a lot of money as having a "motivational reason to stay in a lower tax bracket".


I hear this a lot from folks who are in your demographic but I have never once heard it from the folks to whom you are referring.

"Joe, why do you earn so little? Why do you keep struggling?"

"Because by earning so little I get a great tax break"...

I'm talking about effective tax rates - the rate you actually end up paying. Do the math on your most recent return, it's easy.

 

[TooFarTampa]

No it's not Geo. It's very very real. Effective tax rates in this country are progressive - on the lower scale your tax rate is negative, the Federal Government pays you, giving you a motivational reason to stay in a lower tax bracket. On the upper scale effective tax rates approach 40%. Think about that, 40% of all the money you make goes to the Federal Government. Is that 'fair'?

But that's not true. It would be 40 percent (39.6 percent) of all the money earned over a certain level. Not all the money made during the year.

The following tax tables applied last year:

$0-$7,825...............................10% of the amt over $0
$7,825-$31,850.....................$782.50 plus 15% of the amt over 7,825
$31,850-$77,100...................$4,386.25 plus 25% of the amt over 31,850
$77,100-$160,850.................$15,698.75 plus 28% of the amt over 77,100
$160,850 -$349,700..............$39,148.75 plus 33% of the amt over 160,850
$349,700+ ..............................$101,469.25 plus 35% of the amt over 349,700

Someone who made $349,700 last year (taxable -- which means income was probably a good bit higher), would have paid taxes of $101,469.25. That's 29 percent.

If you pay, say, the maximum $15.5K into your 401(k), and have mortgage interest of $30,000 (might be low for that income bracket), the taxable rate would be closer to 25 percent, without counting exemptions, charitable giving, capital gains income, and not taking into account the AMT (which might balance out the exemptions/charity at that income level).

I am not clear with Obama's plan if he is talking about $250,000 of taxable income as the threshold. That usually a totally different number than earned income, especially at that level.

 

[30ashopper]

TFT, I'm talking about effective tax rates on taxable income. If you want Geo you can also do the same calculation on gross income which is what TFT is looking at. You'll still see a sizable difference between your Clinton years and your Bush years.

 

[TooFarTampa]

TFT, I'm talking about effective tax rates on taxable income. If you want Geo you can also do the same calculation on gross income which is what TFT is looking at. You'll still see a sizable difference between your Clinton years and your Bush years.

Are you including FICA and SS also? What else would be included? Gas taxes? The wikipedia definition:

The effective tax rate is the amount of tax an individual or firm pays when all other government tax offsets or payments are applied, divided by the tax base (total income or spending).[2] If certain groups have high degrees of tax offsets compared to other groups, their effective tax rate will be lower, even where their official tax rates and marginal tax rates will be equal. The effective rate of tax can often be discussed in terms of the effective marginal rate of tax - namely the amount of effective tax paid as a percentage of the last dollar earned or spent.

Also, the above table is for single filers. At that top bracket, married filing jointly would pay $7,000 less. And of course SS contributions top out at about $100K of initial earned income (can't remember exact figure).

I can't go back to our taxes during the Clinton years for comparison, since our lives and taxes in no way resemble today's. I'm really trying to understand your meaning.

 

[Cheering472]

This is making my head ache. I haven't had this much fun since April 15th.