Effective tax rate: What really matters

[Nate13]

I’m not dodging at all – i don’t believe you can interpret outcomes of an “unjust” system as being “just”, that seems a defunct conclusion. If a process is “unjust” then logically its results must be as well.

Haha in all honesty I was just playing by the rules of those out there criticizing the capital gains tax rate. It seems politicians are attempting to use people’s ignorance of the mess of a tax code (that they put into place) to pit the rich against the poor. I’m perfectly willing to concede the tax code is a mess and needs to be streamlined so the average person can see how it all works out, and that average person includes me. I can look at the outcomes like anyone else though and see that rich people are not paying a lower rate of federal income taxes on average though, and you have to at least acknowledge that fact in the debate.

I would also argue that the average results are just. I’m sure some people escape paying taxes, but that does not surprise me considering how inefficient the government is. The results are just in my opinion, we just need to work to make sure those averages have fewer outliers who are escaping paying what they should.

 

[Catholic90]

Someone sees a bigger picture. Now with our kids grown, I have to make a tough decision; should I pay twice as much on my income as most others? Or should I start this “hide the income” strategy? It is sad the system will more than double my taxes if I do not “find” new deductions or employ strategies to hide some of the income.

Does anyone want to vote? A) Pay the full high rates, B) Find new deductions, or C) Hide some income

Talk to your accountant and financial planner.

 

[Texas_Roofer]

Haha in all honesty I was just playing by the rules of those out there criticizing the capital gains tax rate. It seems politicians are attempting to use people’s ignorance of the mess of a tax code (that they put into place) to pit the rich against the poor. I’m perfectly willing to concede the tax code is a mess and needs to be streamlined so the average person can see how it all works out, and that average person includes me. I can look at the outcomes like anyone else though and see that rich people are not paying a lower rate of federal income taxes on average though, and you have to at least acknowledge that fact in the debate.

I would also argue that the average results are just. I’m sure some people escape paying taxes, but that does not surprise me considering how inefficient the government is. The results are just in my opinion, we just need to work to make sure those averages have fewer outliers who are escaping paying what they should.
Nate13

We need you to show us the problem with Scott Burn’s Table which indicated the rich do not pay more than others

informationliberation.com/files/taxrate40.JPG
http://www.informationliberation.com/files/taxrate40.JPG

 

[Nate13]

Nate13

We need you to show us the problem with Scott Burn’s Table which indicated the rich do not pay more than others

informationliberation.com/files/taxrate40.JPG
http://www.informationliberation.com/files/taxrate40.JPG

“All in marginal tax rates for couples”

Look at the top of your chart. No one cares about marginal tax rates. What matters is the rate your paying after all the deductions and such are taken out. I mean really? Just think about that table for a second. People making under $20,000 are paying 42% in taxes? They are paying zero in federal income tax, and probably not paying much of anything in state and local tax. The only thing they probably pay is payroll taxes if that and that equals about maybe 9%? They are probably on food stamps as well and are escaping a lot of sales tax as well. Taxes on gas and cigarettes would be inescapable though, though I don’t feel sorry for them in regards to the cigarette tax. You can thank environmentalists for the gas tax though, in their attempt to try to artificially raise the price of gas.

Your chart is a great example of why I started this thread. Effective tax rate i.e what people are actually paying is what matters.

 

[ComputerGeek25]

“All in marginal tax rates for couples”

Look at the top of your chart. No one cares about marginal tax rates. What matters is the rate your paying after all the deductions and such are taken out. I mean really? Just think about that table for a second. People making under $20,000 are paying 42% in taxes? They are paying zero in federal income tax, and probably not paying much of anything in state and local tax. The only thing they probably pay is payroll taxes if that and that equals about maybe 9%? They are probably on food stamps as well and are escaping a lot of sales tax as well. Taxes on gas and cigarettes would be inescapable though, though I don’t feel sorry for them in regards to the cigarette tax. You can thank environmentalists for the gas tax though, in their attempt to try to artificially raise the price of gas.

Your chart is a great example of why I started this thread. Effective tax rate i.e what people are actually paying is what matters.

This is the key here.

 

[Texas_Roofer]

“All in marginal tax rates for couples”

Look at the top of your chart. No one cares about marginal tax rates. What matters is the rate your paying after all the deductions and such are taken out. I mean really? Just think about that table for a second. People making under $20,000 are paying 42% in taxes? They are paying zero in federal income tax, and probably not paying much of anything in state and local tax. The only thing they probably pay is payroll taxes if that and that equals about maybe 9%? They are probably on food stamps as well and are escaping a lot of sales tax as well. Taxes on gas and cigarettes would be inescapable though, though I don’t feel sorry for them in regards to the cigarette tax. You can thank environmentalists for the gas tax though, in their attempt to try to artificially raise the price of gas.

Your chart is a great example of why I started this thread. Effective tax rate i.e what people are actually paying is what matters.

This is the key here.

Does that make sense to you, that a tax rate of zero is also a marginal rate of 42.5%? $20,000 of salary generates $2,500 in federal revenue, and about $1,600 in sales taxes. This alone shows in excess of 20% tax rate on a $20,000 salary. Scott’s work shows the rate at more than double the 20.5% displayed here. However it makes no sense to believe their actual rate is zero.

 

[Nate13]

Does that make sense to you, that a tax rate of zero is also a marginal rate of 42.5%? $20,000 of salary generates $2,500 in federal revenue, and about $1,600 in sales taxes. This alone shows in excess of 20% tax rate on a $20,000 salary. Scott’s work shows the rate at more than double the 20.5% displayed here. However it makes no sense to believe their actual rate is zero.

Haha they are including sales tax? Someone making under $20k a year is probably on food stamps or is at least eligible if they aren’t. You don’t pay taxes on food stamps. I’d also point out that a majority of a person’s income is probably going towards housing and they are not paying sales tax on that. Saying $1,600 dollars goes to sales tax out of $20k is excessive to say the least. I would bet its probably at max maybe a 1/4th of that number? That also yet again comes down to State taxes. If you have a problem with how your state is treating your poor people go bang their doors down. We are talking about federal taxes here.

Also here is what makes your numbers confusing. The marginal federal income tax rate on people making between $17,000 and $69,000 a year is 15% for a married couple filling jointly. At first that sounds really really high. Then you look at what they actually end up paying though after deductions and a couple who is making between $25k and $30k total that falls in that bracket only actually pays up on average 3% of their income in federal income taxes as you can see from the first chart I posted. Now you can see that the marginal rate that went into your calculations that you showed above, was 500% higher in the case of federal income taxes than the average percentage that was actually paid. I’m sure the state income tax rate that is in there would decrease similarly. Payroll taxes would remain the same as well as sales tax. Altogether, a person making $25k a year is probably paying a total effective rate between 15%-20% while the millionaire in his mansion is paying near or over 50% depending on the State they are in. Add the death tax to that where you wack off 50% of everything handed down after the first 5 million and you are talking about some serious tax burden in the long run.

The fact is that even if some millionare escapes paying his “fair share” during his lifetime somehow, the estate tax or death tax in place takes half of everything that he or she passes on over 5 million unless its to their spouse. The tax burden on millionaires in the long run is excessive, and I just don’t see the case for saying the government is not finding a way to always make sure they get their piece of the pie. They are in some cases taxing the same money 3 times if you include the death tax.

 

[ComputerGeek25]

Haha they are including sales tax? Someone making under $20k a year is probably on food stamps or is at least eligible if they aren’t. You don’t pay taxes on food stamps. I’d also point out that a majority of a person’s income is probably going towards housing and they are not paying sales tax on that. Saying $1,600 dollars goes to sales tax out of $20k is excessive to say the least. I would bet its probably at max maybe a 1/4th of that number? That also yet again comes down to State taxes. If you have a problem with how your state is treating your poor people go bang their doors down. We are talking about federal taxes here.

Also here is what makes your numbers confusing. The marginal federal income tax rate on people making between $17,000 and $69,000 a year is 15% for a married couple filling jointly. At first that sounds really really high. Then you look at what they actually end up paying though after deductions and a couple who is making between $25k and $30k total that falls in that bracket only actually pays up on average 3% of their income in federal income taxes as you can see from the first chart I posted. Now you can see that the marginal rate that went into your calculations that you showed above, was 500% higher in the case of federal income taxes than the average percentage that was actually paid. I’m sure the state income tax rate that is in there would decrease similarly. Payroll taxes would remain the same as well as sales tax. Altogether, a person making $25k a year is probably paying a total effective rate between 15%-20% while the millionaire in his mansion is paying near or over 50% depending on the State they are in. Add the death tax to that where you wack off 50% of everything handed down after the first 5 million and you are talking about some serious tax burden in the long run.

People seem to not understand that what’s “on the books” is not what actually gets paid.

There are many deductions that the average Joe can take adavantage of that lowers federal and state tax burdens. Have a mortgage? Home Equity Loan? Student Loan? Children? Give to charity? Did home improvements? Invest in a 401k? Have stocks? Invest in bonds/t-bills? Have health insurance? Have an FSA? Pay local property taxes?

The fact is that even if some millionare escapes paying his “fair share” during his lifetime somehow, the estate tax or death tax in place takes half of everything that he or she passes on over 5 million unless its to their spouse. The tax burden on millionaires in the long run is excessive, and I just don’t see the case for saying the government is not finding a way to always make sure they get their piece of the pie. They are in some cases taxing the same money 3 times if you include the death tax.

I think I may have heard that some of the bishops and/or pope may be against a severe estate tax.

 

[ComputerGeek25]

Does that make sense to you, that a tax rate of zero is also a marginal rate of 42.5%? $20,000 of salary generates $2,500 in federal revenue, and about $1,600 in sales taxes. This alone shows in excess of 20% tax rate on a $20,000 salary. Scott’s work shows the rate at more than double the 20.5% displayed here. However it makes no sense to believe their actual rate is zero.

Everyone pays into SS and everyone pays sales tax. If you think this is unfair, do away with them.

 

[Texas_Roofer]

Everyone pays into SS and everyone pays sales tax. If you think this is unfair, do away with them.

That would be equal to saying all people pay taxes

 

[manualman]

The income from buying and selling stock though is a much more risky venture and requires more incentive to get people to go in a buy it. The income earned from this is taxed at a the rate it is because if it were taxed higher, people would hesitate to invest because the reward from investing would drop and no longer outweigh the risk that was being taken.

This part of the argument is utter horse deposit. Drop the smokescreen and double talk for a second. Capital gains is NOTHING other than a clever dodge the rich have devised to be able to tell the smelly masses that we have a graduated tax system and that the richest bracket pays, what, 35%? It’s plain old fashioned deceit.

Nobody is buying that assertion that Bill Gate might put his money in a mattress instead of making capital investments if this sort of income were treated the same as wages and dividends. That’s just a dishonest assertion. The fact is that money only makes money if it is invested. Banks are only insured up to the FDIC limit and inflation sees to it that nobody packs cash away in safety deposit boxes. There is no need to have a rax rate carrot to entice people to invest. The stick looming out there for those who don’t is plenty incentive enough.

 

[Nate13]

This part of the argument is utter horse deposit. Drop the smokescreen and double talk for a second. Capital gains is NOTHING other than a clever dodge the rich have devised to be able to tell the smelly masses that we have a graduated tax system and that the richest bracket pays, what, 35%? It’s plain old fashioned deceit.

Nobody is buying that assertion that Bill Gate might put his money in a mattress instead of making capital investments if this sort of income were treated the same as wages and dividends. That’s just a dishonest assertion. The fact is that money only makes money if it is invested. Banks are only insured up to the FDIC limit and inflation sees to it that nobody packs cash away in safety deposit boxes. There is no need to have a rax rate carrot to entice people to invest. The stick looming out there for those who don’t is plenty incentive enough.

Actually I was talking with someone who handles investments not too long ago at a local bank and he was saying an increase in the capital gains tax would hurt small business owners most. If I start a local business from scratch and work my butt off paying my high bracket personal and business taxes for 20 years as I grow the business with my sweat equity and then decide to sell it, I have to pay capital gains on that sale. In other words the business I have been sweating over for 20 years and paying my taxes on all of my profits is then going to get a second bite taken out of it and a huge bite at that if you want the capital gains to be 30%.

On what basis can you in good faith say that the extra 30% should be taken away from that owner when he sells his business he has built up from the ground?

Also your right its not Bill Gates your going to scare away, its your guy with maybe only a couple million to play with that you will scare off. You are going to scare off investors though.

 

[manualman]

The fact is that even if some millionare escapes paying his “fair share” during his lifetime somehow, the estate tax or death tax in place takes half of everything that he or she passes on over 5 million unless its to their spouse. The tax burden on millionaires in the long run is excessive, and I just don’t see the case for saying the government is not finding a way to always make sure they get their piece of the pie. They are in some cases taxing the same money 3 times if you include the death tax.

Please. Have you ever met a multimillionaire? They don’t will their estate to their kids, they put it into a trust and avoid the estate tax altogether. The kids become the trustees upon death of the rich guy and effectively gain control of the fortune while paying no taxes except on the payout (which is year by year to keep the rate low).

 

[Nate13]

Please. Have you ever met a multimillionaire? They don’t will their estate to their kids, they put it into a trust and avoid the estate tax altogether. The kids become the trustees upon death of the rich guy and effectively gain control of the fortune while paying no taxes except on the payout (which is year by year to keep the rate low).

So the Democrats are stupid to even try to have an estate tax? I give them more credit than that. Go do some quick research. Having a trust does not protect the money completely, although it might help dodge some tax here and there.

 

[manualman]

On what basis can you in good faith say that the extra 30% should be taken away from that owner when he sells his business he has built up from the ground?

Also your right its not Bill Gates your going to scare away, its your guy with maybe only a couple million to play with that you will scare off. You are going to scare off investors though.

That’s what taxes are. Nobody likes them, but enough people keep voting for the big spenders that we have to have a system for paying for what they approve or we need to vote for people who will spend less. Since that hasn’t happened, we have to pay up. I’m not one who claims the poor pay too much and the rich pay nothing. I can do math. But I do think we’ve got a widening gap between the richest and the poorest in the country, which to me says the richest can pay more to fund what our pols have spent.

So it’s your assertion that the guy with “only” a couple million to “play with” is going to stuff it into a deposit box if the cap gains rate goes back to 25%? You selling bridges with that? So these guys would be happy with 100% of zero gain rather than 75% of their investment paper gain? I’m not seeing it.

 

[ComputerGeek25]

Please. Have you ever met a multimillionaire? They don’t will their estate to their kids, they put it into a trust and avoid the estate tax altogether. The kids become the trustees upon death of the rich guy and effectively gain control of the fortune while paying no taxes except on the payout (which is year by year to keep the rate low).

Who cares? This is classic class envy.

The rich guy can do whatever he wants with his money (as long as he morally earned it). If he wants to provide for his kids/grandkids/family upon his/her death, what’s the harm in that?

 

[manualman]

So the Democrats are stupid to even try to have an estate tax? I give them more credit than that. Go do some quick research. Having a trust does not protect the money completely, although it might help dodge some tax here and there.

No, the dems aren’t dumb. Some people like to claim that the Rs are the party of the rich and the Ds are for the poor. That’s naive. The Rs are the party of the new money rich and the Ds are the party of the old money rich. Trusts are ideal for old money. They are tougher to implement for active business owners than pure investors (as you possibly alluded to) which is why the Ds like the estate tax so much: hits the other guy harder than their guys.

Myself, I’m for closing the trust loophole and having a graduated estate tax for all inheritances.

 

[Nate13]

That’s what taxes are. Nobody likes them, but enough people keep voting for the big spenders that we have to have a system for paying for what they approve or we need to vote for people who will spend less. Since that hasn’t happened, we have to pay up. I’m not one who claims the poor pay too much and the rich pay nothing. I can do math. But I do think we’ve got a widening gap between the richest and the poorest in the country, which to me says the richest can pay more to fund what our pols have spent.

So it’s your assertion that the guy with “only” a couple million to “play with” is going to stuff it into a deposit box if the cap gains rate goes back to 25%? You selling bridges with that? So these guys would be happy with 100% of zero gain rather than 75% of their investment paper gain? I’m not seeing it.

Maybe you can answer this for me. Are people who earn money off long term investments and are taxed at the capital gains rate allowed to item deductions just like someone who is paying income tax? If the two taxes are not treated the same in that respect we can not compare then head to head.

 

[ComputerGeek25]

That’s what taxes are. Nobody likes them, but enough people keep voting for the big spenders that we have to have a system for paying for what they approve or we need to vote for people who will spend less. Since that hasn’t happened, we have to pay up. I’m not one who claims the poor pay too much and the rich pay nothing. I can do math. But I do think we’ve got a widening gap between the richest and the poorest in the country, which to me says the richest can pay more to fund what our pols have spent.

So it’s your assertion that the guy with “only” a couple million to “play with” is going to stuff it into a deposit box if the cap gains rate goes back to 25%? You selling bridges with that? So these guys would be happy with 100% of zero gain rather than 75% of their investment paper gain? I’m not seeing it.

Why the hostility?

The rich already pay more than than the “poor,” even though the current tax system is broken. That’s the point of this thread. You’re always going to have statistical outliers like Warren Buffet, Bill Gates and GE. Even so, we’re talking about percents - the rich will always pay more in dollar amount than the poor. But in general the “rich” pay more than the “poor.”

Also, simply taxing the “rich” more doesn’t fix the problems. We’d have to tax everyone who makes $70K or more at 100% to cover . $70K isn’t exactly rich and I don’t think the government has a right to 100% of income of anyone.

I’ve been on the record as saying the rich could afford to pay more (within reason) but the other issue is we need to reign in government spending and waste.

 

[manualman]

Who cares? This is classic class envy.

The rich guy can do whatever he wants with his money (as long as he morally earned it). If he wants to provide for his kids/grandkids/family upon his/her death, what’s the harm in that?

Hardly. It is not class envy to recognize that we have a government that spends drastically more than it takes in. We need to BOTH spend less and take in more. To take in more (outside of partisan fantasy worlds), you need to take - in - more. I can’t do whatever I want with my wages. I have to pay my taxes first. Why should somebody who inherits a windfall be any different? You’re simply proposing class priviledge.