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We Need a Fair Tax System

By JLP | April 8, 2010

Does this income tax example of a family of four making $50,000 per year seem fair to you?

Here’s how they did it, according to Deloitte Tax:

The family was entitled to a standard deduction of $11,400 and four personal exemptions of $3,650 apiece, leaving a taxable income of $24,000. The federal income tax on $24,000 is $2,769.

With two children younger than 17, the family qualified for two $1,000 child tax credits. Its Making Work Pay credit was $800 because the parents were married filing jointly.

The $2,800 in credits exceeds the $2,769 in taxes, so the family makes a $31 profit from the federal income tax. That ought to take the sting out of April 15.

I found that example in this article: Nearly Half of US Households Escape Fed Income Tax

Granted, $50,000 per year isn’t a lot of income for a family of four. Yet, I can’t help but think that this family should be paying at least some federal income taxes.

The startling part of that article is the fact that nearly 50% of U.S. households pay NO FEDERAL INCOME TAX.

Topics: Miscellaneous | 85 Comments »


85 Responses to “We Need a Fair Tax System”

  1. Paul Williams Says:
    April 8th, 2010 at 10:25 am

    Depends on where you live and how you spend. In my area of the country, $50k/year for a family of four is plenty. I know many who have lived just fine on less than that.

  2. Paul Williams Says:
    April 8th, 2010 at 10:29 am

    P.S. I do agree the Fair Tax would be great. And I make some of my money preparing taxes! I’d rather have the Fair Tax and find another way to make money than keep the current system. Our tax code is ridiculous.

  3. Traciatim Says:
    April 8th, 2010 at 10:37 am

    Instead of posting blindly that it’s unfair, why not post the value that you think is fair where taxes should no longer be owed by a family of four and make the argument why.

  4. Yana Says:
    April 8th, 2010 at 11:02 am

    I wonder what the difference in taxes collected would be if everyone were charged 7% of income, with no deductions or write-offs. Our aim throughout the year is to adjust withholding with the aim of owing a little, and not allowing the government to owe us our own money. As it turned out this year, because of the $800 per couple credit, we paid $225 to the state and got a refund from federal of $366. So I guess on my part I did well with adjustments, but it was a surprise since we never expect a refund.

  5. JLP Says:
    April 8th, 2010 at 11:15 am

    Okay…here are my thoughts:

    1. Figure out what “poverty level” is on a national level for both single and married households. Make those the threshold. Any income (no matter where you live) above those levels is subject to federal income taxes.

    2. Get rid of deductions except for retirement plans.

    3. Tax everything else at a flat rate of somewhere between 10 – 20%.

    The bottom line is that we all benefit from government services (like the article mentioned). Therefore, those of us living above poverty level should be paying something in the form of taxes to support those services.

  6. Ben Says:
    April 8th, 2010 at 11:20 am

    This is fair because everyone gets the standard deduction (or more for those who itemize).

    I don’t have this years final numbers but I didn’t pay taxes on $46K last year and I made many times more than your 50K.

    Since these deductions are available to everyone, doesn’t that make it fair?

    BUT I’m all for a VAT or more simple tax laws.

  7. Ben Says:
    April 8th, 2010 at 11:21 am

    I meant 50K in your example.

  8. Jon Says:
    April 8th, 2010 at 11:33 am

    I think we’re missing the main point. The only way to be fair about taxes is by abolishing income tax entirely for companies and individuals. There should be no sales tax either. The government is bloated and the only way to trim it would be to not give it money.

    Let the free market function and let the federal government only do what it was originally meant to, i.e., protect us from invasion (vs invade others), and a few other enumerated powers.

  9. Scott Says:
    April 8th, 2010 at 11:33 am

    I agree wholeheartedly that everyone should pay something in income taxes, for the very simple reason that it promotes responsible government. If half the people are paying 0 income tax, then there is no incentive to keep government spending under control…because someone else is paying for it.

    Same reason that I make my children pay for a portion of the car they drive. It isn’t because I can’t afford to buy them a car or that I’m trying to be unfair to them. It’s because if they have spent their own time/money investing in it, they will take care of it and use it responsibly. Same is true of government.

  10. Lucas Says:
    April 8th, 2010 at 11:52 am

    Of course you left out payroll taxes which are about $4000 for this couple. Almost $8000 if you count the employer portion. They are paying something. And it (mostly) phases out for those earning over $107,000.
    Is it fair? Sure. Unfair? How about hedge fund managers getting LT cap gains rates on their earned income. What a political rip off.

  11. Alison Says:
    April 8th, 2010 at 11:57 am

    We make a little more than the family in your example and have three children, so we did not have to pay any federal income tax and received a refund. Though I’ll gladly take my check, I do think it’s quite ridiculous that a relatively small portion of the country essentially pays for everything.

  12. Alison Says:
    April 8th, 2010 at 12:00 pm

    Lucas, our refund just about cancelled out any payroll taxes we paid in 2009. I’m guessing that’s probably the norm for many families in my same income bracket that have several children.

  13. JLP Says:
    April 8th, 2010 at 12:09 pm

    Lucas,

    I didn’t leave out social security because I was talking about federal income taxes. At least with social security, these people will receive some benefit or payback.

  14. Jeremy Says:
    April 8th, 2010 at 12:19 pm

    Love him or hate him, Rush has had this info out for years.
    http://www.rushlimbaugh.com/home/menu/cy2003.guest.html

  15. Jeremy Says:
    April 8th, 2010 at 12:42 pm

    Also dont forget that some tax credits are “refundable” such as the child tax credit. If you owe no taxes, and qualify for the child tax credit, you will get $1,000x# of children back even if you paid nothing.
    We used to be in that situation when we were first married with kids and me going through college. We always welcomed April, cause we were getting a boost in income, but many people don’t realize that not only do many not pay taxes, but they still get a refund through these types of credits.

  16. John Says:
    April 8th, 2010 at 12:49 pm

    There is nothing fair about a Fair Tax. A person in the top bracket of 39.6%, after the repeal of the Bush tax cuts, will have a reduction to a fair tax rate of 17-20%, while a person in the 20% bracket will see little tax reduction at all. A flat tax always favors higher income people. When are the working people in this country going to realize this?

    When Reagan cut taxes in 1986, the top rate, on incomes over $3 million, went from 70% to 28%. This created a shift in wealth that is still going on today.

  17. Matt B Says:
    April 8th, 2010 at 1:10 pm

    A lot of times all we here about is the wealthy paying so much tax. Well now we see that many everyday American’s, actually 50% of them pay no income tax. While they should get great tax breaks, they should not completely benefit from the federal system and not pay anything for it.

  18. Lindsay Downs Says:
    April 8th, 2010 at 1:24 pm

    My question: if a family CAN take advantage of the tax credits, are you saying they SHOULDN’T? Or are you just pointing out that the system is unfair (which I agree with, by the way)?

  19. Cindy Says:
    April 8th, 2010 at 1:26 pm

    My family is that family in the scenario. Our single-income household earns exactly that, (and a few dollars I’m able to pick up on the side, but it doesn’t make much of a difference). We have 3 kids, though, so our profit was somewhat better. Not much, due to some taxes on things I earned doing what I do, but a little more than that. I hate it. Hate being a moocher. I’d rather pay a fair rate and know that everyone is paying that rate.

    As it is, as long as I tell the truth on my tax forms (which I do), I get back more than I should. I guess the only way for us to get around it would be to gift the money back to the govt. I haven’t done that. Wonder if I should do that. I doubt I’ll do that. :-)

  20. Lucas Says:
    April 8th, 2010 at 2:34 pm

    JLP,

    You seem to always be looking for an angle, where someone is getting over on you. Give me a break. You leave out payroll taxes because it helps your right “wing nut” myopic view. You are the classic victim (in your own mind), voting against your best interest.

    JLP kicks it off:” Therefore, those of us living above poverty level should be paying something in the form of taxes to support those services.”

    Matt B. bought thespin: “they should not completely benefit from the federal system and not pay anything for it.”

    Jeremy buys it: “but many people don’t realize that not only do many not pay taxes…”

    Alison too:” I do think it’s quite ridiculous that a relatively small portion of the country essentially pays for everything.”

    Scott chimes :”If half the people are paying 0 income tax, …because someone else is paying for it.

    The AP article headline could be that over 50% of Americans pay more in payroll taxes than income tax. A regressive scheme if I’ve ever heard of one.

    Your blog is full of political innuendo hiding as personal finance tips.

  21. JLP Says:
    April 8th, 2010 at 2:51 pm

    Explain to me how Social Security is regressive? It would only be regressive if those at lower income levels paid in and received no benefits. If anything, social security is progressive based on contributions/benefits.

  22. Yana Says:
    April 8th, 2010 at 3:33 pm

    I suspect that the meager sounding 7% would amount to a good amount of money if there were not standard deductions, write-offs and other games. Because the fact is that the better the game-player, the less tax dollars paid. And under this kind of system, it behooves any income earner to learn the game and pay as little as possible. Legally. I can’t imagine a smart high-income earner not doing this.

    Even so, the problem is not that the government does not collect enough in taxes. It is that priorities are wrong and money management skills are absent. And of course the medical industry, which we do not dare question as far as its “sky’s the limit” prices, will exploit us just as long as we allow it.

  23. Adam Says:
    April 8th, 2010 at 3:46 pm

    I don’t think anyone has pointed it out yet, but a family of 4 is probably not saving money on a plan of $50k, so every dollar they earn is going back into the economy in some fashion. Your plan is to make them give some to the government rather than private entities?

  24. Cindy Says:
    April 8th, 2010 at 4:00 pm

    Adam, we save a lot more money on our 50k/year than most people do on half again as much. Without telling you what we actually have, I can tell you that it would be surprising (maybe even shocking) to most people who make more than us. It really is a matter of living within your means. I’ve done it on even less. Saving is the first priority, not the last.

    Also, if we all paid a fair rate, it would lighten up the load on a lot of businesses, especially the small ones like the one that employs my husband. That, in turn, could result in better pay, better benefits, and better job security for us. So in the short term, yeah, we’d be out a couple thousand dollars, but in the long term, it would probably be better for everyone. Even if it wasn’t better for us, though, it’s wrong to make the rich pay the government so the government can give us more money.

  25. Courtney Says:
    April 8th, 2010 at 4:15 pm

    Social Security taxes are regressive because if my income is under the cap ($106,800 in 2010) I pay 6.2%. As my income increases above the cap, my effective percentage goes down – this is the opposite of the progressive income tax system where as my income increases so does my effective percentage. If my income is $200K, I pay 3.31% in total; if my income is $500K, I pay 1.32% in total.

    And calculating a national ‘poverty level’ is a useless benchmark. A family of 4 making $50K in places like Manhattan or L.A. IS at the poverty level. If they’re making $50K in rural Middle America, they’re living like kings.

  26. JLP Says:
    April 8th, 2010 at 6:24 pm

    Courtney,

    They aren’t regressive because the payout is supposed to be based on the amount paid in.

    Like I said earlier, the fact that a person who pays the maximum amount into social security WILL NOT receive benefits equal to the amount paid in, makes social security progressive. A lower income person will receive benefits more in line with what they pay in.

  27. Courtney Says:
    April 8th, 2010 at 8:28 pm

    JLP, I don’t think income has anything to do with it, because your calculated benefit is directly correlated with your income (up to the cap). If you live to an ‘average’ lifespan, then you will get out what you paid in (at least for previous generations – not so for mine!) If you live longer, you will get more than you paid in; if you die early you won’t. The income cap is also a benefits cap.

    Regressive and progressive taxes have nothing to do with ultimate benefits. By definition, a regressive tax is one where the rate decreases as income increases (and vice versa for a progressive tax).

  28. Courtney Says:
    April 8th, 2010 at 8:43 pm

    Would you also call our income tax ‘regressive’? By your definition it is, because the people who are paying the least (or at all) are getting the most tangible benefits.

  29. JLP Says:
    April 8th, 2010 at 9:15 pm

    Courtney,

    No. Federal Income Tax is progressive.

  30. Courtney Says:
    April 8th, 2010 at 9:43 pm

    Exactly.

  31. Courtney Says:
    April 8th, 2010 at 10:09 pm

    I like graphs as much as you, JLP, so I made you one: Federal Income Tax Rates vs. Social Security

    The red line is federal income tax – for simplicity’s sake I assumed a single filer taking the standard deduction and personal exemption. The effective tax rate increases as income increases. It’s a progressive tax.

    The green line is social security taxes. It’s a flat line until you hit the income cap; after that, the effective rate decreases as income increases. It’s a regressive tax.

  32. Oscar At Real Life Money Management Says:
    April 8th, 2010 at 10:14 pm

    The problem with the income tax is that for it to operate there has to be an assumption that the Government owns 100% of your labor and tells you what you can keep. With the fair tax, sales tax, you decide how much tax you want to contribute to the government. The government should then be required to live within the means of the money the people decide to give it to operate. Right now the government decides how much government we get and how much of our money we can keep.

  33. JLP Says:
    April 8th, 2010 at 10:21 pm

    Courtney,

    YES…I will admit that the amount taken out for social security as a percentage of income REGRESSES once you pass the threshold. BUT, the benefits are also capped. It’s not like those who max out social security are going to reap massive benefits compared to those who will never max out.

  34. JLP Says:
    April 8th, 2010 at 10:24 pm

    Oscar,

    Though I’m not against a sales tax, it would be considered regressive since those who make smaller incomes would have to spend a larger percentage of their income in taxes.

  35. Courtney Says:
    April 8th, 2010 at 10:29 pm

    Progressive vs. flat vs. regressive tax doesn’t tell you anything about benefits received. It’s just describing the relationship between tax rate and income.

  36. JLP Says:
    April 8th, 2010 at 11:26 pm

    BTW Courtney…

    Did you see how I gave your link a nice pretty title? See, I’m not all bad.

  37. JLP Says:
    April 8th, 2010 at 11:29 pm

    Yana (#22),

    AMEN!

  38. Courtney Says:
    April 9th, 2010 at 6:14 am

    JLP – Yes I saw the pretty link title, thanks :-)

  39. Adam Says:
    April 9th, 2010 at 6:27 am

    Cindy, your logic could be turned on its head pretty easily. How does you paying more in taxes lighten the load on businesses? One could just as easily say that someone making $50k is going to spend money at those businesses that stimulates growth and allows them to hire more workers, etc. What if that person now has $45k? That cuts down on shopping, businesses don’t thrive, etc. It can cut both ways.

  40. Don Says:
    April 9th, 2010 at 8:14 am

    I don’t know how fair a “fair” tax would be. I do agree that a simpler tax system would be nice.

    I would start by eliminating the child tax credits and the mortgage interest credit.

    I would also unify “unearned” income. If you earn a long-term capital gain or qualified dividend, but I earn interest on a 15 month CD, why should one kind of income be favored by the tax system? Neither of us labored for that income. Either my interest income should be favored or your gains should be like other income.

    I would tax all health benefits (i.e. the health care plan I get through work). If you don’t get benefits through your employer you don’t get a break, so I don’t see why people like me should. I would give everyone HSA though of modest size, without phase-out for income.

    I’m glad to get my retirement savers credit, etc. But in truth, I think that’s probably wrong too. Better to structure the tax system to encourage saving than to tack on some credit.

    I expect we will see some kind of VAT in the near future (less than 10 years from now). I’m already seeing news articles softening us up on the topic. But we’ll continue to have income tax, inheritance tax, and property tax, as well I’m sure.

    For the record, I like the idea of a (simpler) progressive income tax, and I’d even not be opposed to pretty high marginal rates on income over $1 million or so (to be adjusted for inflation of course). That’s because I am very skeptical that a person’s labor can be worth what the most highly-compensated people get paid.

    But I also think that VAT taxes make sense. They don’t discourage work the way an income tax does, and that is the the worst part of an income tax. So a future that has both… I guess that doesn’t really disturb me.

  41. HisMoney Says:
    April 9th, 2010 at 10:07 am

    The upshot of all this was already stated, but if that many people are not paying federal income taxes but are using services, they’ll continue to vote in politicians that don’t control spending. This IS political.

    The amount of money saved by the federal government if they went to a flat tax (and yes there has to be some kind of minimum income) or sales taxes only would be huge. Yes there would be a lot of people from the IRS, H&R Block, etc… out of work but we cannot keep some of these poor ways of running government around just to keep employment numbers up.

    Yes my wife and I are high earners so a flat-tax would benefit us. But the fact remains that I paid almost as much in income taxes this year as the $50k couple made. Sure I used services my tax dollars paid for but was I able to get full value?

    Also, high earners are also just as likely to put that extra tax money back into the economy as well. It’s called discretionary spending that low earners usually don’t have. That’s why there are ridiculous things like gold iPhones and crap :)

  42. Lucas Says:
    April 9th, 2010 at 10:31 am

    JLP,

    Is it possible that the reason 47% of filers pay no income tax is that their income has failed to grow, keeping up with the indexed tax brackets?

    Yes, there are new credits but any objective analysis of income growth shows that since 1967 the bottom 80% have experienced virtually zero after-inflation income growth. Almost all of the gain went to those earning in the top quintile. Indeed, factor out the top 1% and income growth is flat.

    Hmmm. Doesn’t fit your right “wingnut” narrative does it? Perhaps you could address the hedge fund loophole. FYI: ZERO payroll taxes on the ‘carried interest’. So they ay LTCG rate of 15%, ZERO SS/Medicare tax. Who wouldn’t like to be a Hedgie? This is what you should be upset about.

    By the way, research the poverty line and you’ll see that many of those 47% that don’t pay income taxes (but do pay state, local, and federal payroll taxes) meet the definition.

    Your outrage is annoying and out of place sir.

  43. JLP Says:
    April 9th, 2010 at 10:53 am

    Outrage? I’m not outraged nor did I say I was outraged. I was just floored by the fact that nearly 50% of households pay no income tax. That’s crazy to me and should be to you too.

    FYI, the lower brackets were expanded and an even lower 10% bracket was added when Bush was in office.

    And please, quit using the term “wing nut.”

  44. Lucas Says:
    April 9th, 2010 at 11:27 am

    JLP said: “That’s crazy to me and should be to you too.”

    Why should I think it’s crazy?

    The median tax cut under the 2001-2006 Act(s) was $524. Indeed, 80% of all tax units got less than a $1200 annual cut. You should be outraged that the top .10% on average had a $500,000+ tax cut.
    (see taxpolicycenter.org)

    Trickle down economics? Isn’t that where you’re going?

    Do some leg work. Open your eyes. Think critically.

    The system is not fair, in any way, shape, or form, and it’s unlikely to change soon.

    A discussion of tax rates is inherently a political debate not a financial one.

  45. BG Says:
    April 9th, 2010 at 2:26 pm

    I haven’t read all the comments here, but remember that there are still paying SocialSecurity and Medicare taxes.

    Looking at the income-tax alone is not telling the entire story, so please always take into account the SocialSecurity tax (at least), especially when comparing across multiple income levels. (There is no SocialSecurity tax on income over the $106k limit — the tax rate is 12.4% on income below $106k).

  46. John Says:
    April 9th, 2010 at 2:27 pm

    Under the Bush tax cuts, the five heirs to the Walton fortune (WalMart) received more benefits than all the employees of WalMart, which is the largest private employer in the U.S. with over one million employees. Just imagine how much more they would benefit if we had a flat tax.

  47. BG Says:
    April 9th, 2010 at 2:42 pm

    #31 Courtney) Excellent graph! I have a request, could you add another line that represents the total (income+social security) effective tax rates?

    according to wikipedia, the government is collecting:

    $1.061 trillion in income taxes
    $940 billion in social security (and other payroll)
    $222 billion corporate
    etc, etc

    So, do not neglect the social security portion — it is nearly HALF of the taxes the government collects from individuals…

  48. JLP Says:
    April 9th, 2010 at 2:50 pm

    But is social security really a tax? It would only be a tax if we contributed and never got anything in return.

    People who complain that social security is regressive are ONLY looking at the contributions and IGNORING the payout during retirment.

  49. Mark Says:
    April 9th, 2010 at 3:13 pm

    We can argue about whether the system is fair or not, and whether or not to include Social Security. Personally, I think segregating out SS is pointless – even though I acknowldge JLP’s point that it pays for a pension. Some of my income pays for my share of the Customs Service, Border Patrol, the military, etc. Should I segregate out the ones I feel I am getting something back from, and treat the others as “tax”, because someone else benefits?

    However, I think that if people can pay nothing, or less than nothing (via refundable credits) then they are not motivated to elect politicians who will control the tax burden, limit spending and care about deficits. (Or maybe even those who do pay have decided it is in their self-interest to elect those who borrow.)

    I believe Tocqueville noted that American Democracy would fail when the people discovered they could tax “the other guy”. Now that we have reached the 50% level, and politics is governed by the majority (50%), we may have reached the tipping point. Perhaps that’s why deficits are out of control.

    Nero fiddled while Rome burned.

  50. Retiredat40 Says:
    April 9th, 2010 at 3:35 pm

    The flat tax is a scam to greatly reduce the taxes paid by the rich at the expense of the less well off. It’s a very Republican idea but another one that isn’t worth a darn and that the American people have showed no interest in whatsoever.

    Yes, 50% of people pay no taxes whatsover. Who cares.

    According to the Government Accountability Office, 70% of U.S. corporations pay no tax and they make billions. That was before the economy went down the tubes.

    I’ll worry about the guy at McDonald’s paying taxes when he pays less than his employer.

  51. BG Says:
    April 9th, 2010 at 4:28 pm

    #50 Retired@40) The only flat-tax I’ll ever agree to, is a flat-tax on net-worth — that is the truly fair way to tax people. Since that will never happen, a progressive tax on income is nearly equivalent: the higher your income, the higher your income tax-rate should be — because you have a higher net-worth.

    And of course, we should abolish the SS tax, and just pay for the program through the normal income tax channels (on all income — no caps).

    Since the republicans love Reagan so much, we should just get them to agree to go back to the tax-structure we had under Reagan (higher bracket was at 50% — lol).

    Stacey is gonna love this…

  52. DennyM Says:
    April 9th, 2010 at 4:40 pm

    [JLP Says: "But is social security really a tax? It would only be a tax if we contributed and never got anything in return."]

    ==

    YES it is purely a ‘TAX’.

    And Social Security ‘contributors’ have absolutely NO legal claim nor guarantee to any benefits/payouts.

    “Social Security” is NOT a legitimate insurance, annuity, or pension system…. in any legal or actuarial sense. It’s just another layer of taxation.

    The U.S. Supreme Court has repeatedly ruled that Social Security is merely a tax … and that any benefits are paid purely at the discretion of the current Congress; those who pay the SS taxes have no enforceable property right to any benefits (re: SCOTUS decisions– Helvering v. Davis, 1937 & Fleming v. Nestor, 1960).

    Social Security now forces Americans to pay 12.4 percent of their income into a vast Ponzi-scheme totally controlled by 535 sitting politicians.

    Americans have no legal right to that stolen money, cannot leave it to their loved ones — and what they might get back is entirely up to whatever current political whims drift on the Potomac.

    There is NO Social Security ‘trust fund’ … only special, non-negotiable IOU’s from the Treasury bureaucrats– all the previous SS contributions (real $$) have been spent by Congressional politicians. The cupboard is bare, except for current SS tax collections.

    The present SS system structure will go broke within 10 years. Congress will sharply raise SS taxes, cut benefits, and peg the retirement age at 72 years for any retirement payouts at all.

    SS last went broke in 1983 — President Reagan ‘saved’ the system ‘forever’ by raising SS taxes & taxing SS payouts. ‘Forever’ didn’t last long, but the same type ‘cure’ will soon be repeated … only much more painfully for average citizens.
    __________________

  53. BG Says:
    April 9th, 2010 at 5:51 pm

    #31 Courtney) also, on your graph, the SS-tax is really 12.4%, not the 6.2% you have listed. For company-employed people, you only see the 6.2% on your paystub, but your employer is deducting the other 6.2% from your salary already. Self-employed people pay both sides (all 12.4%) on their taxes.

    #14 Jeremy) and I’d bet that the bottom 50% pay 95% of the SS-tax. This is another reason why neither tax (ss or income) should be looked at in isolation — especially when considering fairtax, flattax, or any other schemes that would replace both of these…

    #52 DennyM) well said. The SS-tax is absolutely a ‘tax’ in every way shape and form.

  54. Mark Says:
    April 9th, 2010 at 11:13 pm

    @BG (and others): The tax system has two purposes – to raise revenue and to manipulate the public (oops – I mean to raise revenue and to promote socially positive bwhavior).

    A flat tax on net worth would discourage savings and encourage consumption. Since this is not socially positive (because everyone would aim for zero net worth, and would therefore require Medicaid, etc.) it should not happen. Instead we grant tax breaks for saving, buying houses, etc.

  55. BG Says:
    April 10th, 2010 at 12:10 pm

    #54 Mark) Most places already have a flat-tax on networth for property — property taxes. So, what I am aiming for already exists for wealth held in the form of real-estate in most states.

    And I disagree with your assumption that a flat-tax on networth discourages savings. It encourages _investment_ and discourages _hoarding_.

    There is a big difference.

  56. JLP Says:
    April 10th, 2010 at 12:21 pm

    I don’t like the word “hoarding.” Besides, INVESTMENT would still be part of net worth so it would still get taxed.

  57. Sue Says:
    April 10th, 2010 at 6:03 pm

    Just because one doesn’t pay more taxes on April 15 doesn’t mean they didn’t’ pay tax. presumably they would have had federal taxes withheld from their paychecks all year long.

  58. Courtney Says:
    April 10th, 2010 at 9:14 pm

    Sue, the example in the article means that they did not *pay* any federal tax. Their credits exceeded their tax liability, so all their withheld taxes were refunded.

  59. Mark Says:
    April 10th, 2010 at 9:33 pm

    @BG: You’re absolutely right that property tax is a tax on wealth. Older people have to sell their homes when they can’t afford the taxes. Or California protects homeowners by limiting property tax growth so your new neighbor might pay 5 times what you pay. And it seems to have left California unable to fund their education system.

    The estate tax is a wealth tax too – but only hits your wealth once.

    Wealth taxes are not logical. If I earn and save $100,000 in year 1, then I pay tax on it every year until I die. If I spend it on expensive vacations and meals in expensive restaurants, then I don’t pay tax on it. Sounds like a perverse incentive to me.

  60. Stacey Says:
    April 11th, 2010 at 1:03 am

    BG #51, my ranting days are over…until April 16.
    I am considering buying a gun, loading up on ammo and taking my chances w/bootlegging, drugs and prostitution. Cash business will be the only way to go from here on out.

  61. Kirk Kinder Says:
    April 11th, 2010 at 9:07 am

    We are suppose to be a nation of individual freedom. Freedom covers personal liberties and should embrace economic liberties as well. You can’t have freedom if you limit personal liberties like free speech, religious tolerance, etc. You don’t have freedom if you treat others differently on the economic front. How is it equal if one citizen pays 15% in taxes while others pay 40%? Just because one person chooses a different profession that provides a higher compensation doesn’t mean that he or she should pay a higher rate. Equality is a cornerstone of freedom.

    By implementing different rates and taxes, the government is choosing who benefits and who doesn’t. That is not freedom.

    For those who talk about social security being regressive or a large tax, you don’t understand taxation. Those taxes are more of a retirement plan. In theory, the government should be putting this money aside to provide a retirement benefit. So these are not taxes in that the government is not suppose to use these assets for defense or other government functions. So the amount someone pays in provides a similar benefit. The more they pay; the bigger their benefit.

    I also think America needs to stop worrying about others wealth. We believe that the more the wealthy have the less we will have. The accumulation of wealth allows wealthy families to live an easy life compared to us. Both of these are fallacies. First, wealth is not a static amount. If you want more wealth, find another job; learn more about proper investment; open a side business; etc. The only thing stopping us from more wealth is us. Second, most wealth does not live on much past the person who earned it. Over 80% of inheritances are spent within 2 years of receiving it. This includes multi-million dollar inheritances. Certainly, some families protect their wealth for future generations. But, this is rare. Families are always rising and falling in America according to Hawthorne.

  62. Stacey Says:
    April 11th, 2010 at 12:42 pm

    Amen Kirk!

  63. BG Says:
    April 11th, 2010 at 1:48 pm

    #59 Mark) said: “..Older people have to sell their homes when they can’t afford the taxes..”

    And rightfully so. If we didn’t have the flat-taxes on property, then all the realestate in the country would quickly get consolidated in the hands of a few. The property tax (and flat wealth taxes) forces people (everyone, rich or poor) to invest and put the property to good use; instead of hoarding. If a farmer is inefficient and can’t produce enough profit off the land to pay the property taxes, then that land will eventually be bought by someone else who can.

    That is capitalism at its finest: the resources will tend to be owned by the people who can make best make use of them — the way it should be.

    #61 Kirk) You are looking at the percentage of taxes based on single yearly incomes. If you look at the taxes based on wealth/networth — then people are paying about the same percentage of taxes under our current income-taxation scheme.

    A very important point that you should try to understand: a progressive income tax is equivalent to a flat net-worth tax — which is fair. Rich & Poor are taxed the exact same with either a progressive income tax (what we have today), or a flat-wealth tax.

    Conversely, a flat income tax would be a hugely regressive tax, making the poor pay vastly more taxes relative to their wealth relative to someone who is richer.

  64. Courtney Says:
    April 11th, 2010 at 5:25 pm

    @ Mark: “If I earn and save $100,000 in year 1, then I pay tax on it every year until I die. If I spend it on expensive vacations and meals in expensive restaurants, then I don’t pay tax on it. Sounds like a perverse incentive to me.”

    It’s not perverse at all. Our economy has a strong incentive to encourage people to spend. If everyone were frugal savers, our economy would grind to a halt – thus the government provides a tax advantage to spend money instead of save it.

  65. Kathy Handyside Says:
    April 11th, 2010 at 9:32 pm

    There is something very wrong with a tax system that charges a multi-millionaire a lousy 15% income tax while his $25,000 a year secretary or receptionists pays at least 15% and sometimes more! I’m sick and tired of working class people carrying the entire country! The rich don’t pay because they are too greedy and stingy; the poor don’t pay because they don’t have the money. The working class of America pay for the rich, the poor, and themselves! I’m sick of it! We get absolutely NOWHERE in this country with this stupid tax system! And then the immigrants come in, live tax-free for 7 years, get housing and businesses for which they hire only their family members. Then, when the tax exemption on the business expires, they turn the business over to another family member and the tax exemption keeps going. This is so totally UNFAIR I can’t stand! And here I am, on unemployment, trying to scrape together what I owe in income taxes! Enough, already. When do we working-class people get a break?

  66. Mark Says:
    April 12th, 2010 at 8:45 am

    @Kathy: Where did you find out that immigrants live tax-free for seven years? I started here as an immigrant, and somehow I missed that party: I paid tax from day 1. I would like to get on the free-ride you know about.

    Also the tax rate: I must be doing my taxes wrong because I have never managed to pay as little as 15%, except when I was earning much less than I am now.

  67. BG Says:
    April 12th, 2010 at 9:46 am

    #66 Mark) Don’t know about the immigrant stuff, but I think Kathy is referring to the Qualified Dividend Income Tax rate — which is 15%.

    The ultra-rich guys have managed to ensure that the majority of their ‘income’ is coming in as dividend payments, instead of being treated as salaries, hence they only pay at the flat-rate of 15%.

    Granted, everyone who gets dividend payments are only taxed at 15% on that income. For those in the low/middle classes the vast percentage of our ‘income’ is not in the form of dividends so we are paying taxes at normal income tax rates. For the ultra-rich (think top 0.01% of earners) the vast majority of their ‘income’ is via these dividends…

    Google search for “Warren Buffet Taxes”, and you’ll see where he states that he only pays taxes at 17.7%, whereas his secretary (obviously still well-to-do) was around 32.9%.

  68. Stacey Says:
    April 12th, 2010 at 10:06 am

    Let’s just shoot all the captains of industry dead, have their estates pay their rightful estate taxes, and then we won’t have to have this “ultra rich” vs working class debate any longer.

    Better be careful tho’, as YOU might be the next high-income earner w/the bulleye on your back for Congress to take aim at.

    It’s always easy to b*^$h about how unfair something is. These folks went out and built something from nothing in many cases (or were the lucky offspring to inherit them), employed thousands, produced goods and services that employed people beyond their own employee base (truck drivers to drive the goods to Walmart, purchasing agents at Walmart, etc.) If they’re smart enough to work within the system and pay only “dividend” rates so be it. I’d rather have a captain of industry pay 15% on something s/he earned than handing refundable credits out to people who didn’t. Guess it’s the ol’ ‘teach a man to fish’ mantra that I honor…

    On the other hand, re: athletes and movies stars…

  69. BG Says:
    April 12th, 2010 at 10:17 am

    #68 Stacey) Why not give everyone the same tax-rate so we can all benefit from the low taxes that the ultra-rich get to enjoy? I’d love to have the vast majority of my income not taxed at all for Social Security, and I’d also love to have the vast majority of my income taxed only at a rate current reserved for income between $8k and $34k. Just like Warren Buffett.

    Give us all the same rates, then perhaps we can all make it to the top, eh? It’s easy to stay at the top when you pay an unfairly _small_ amount of taxes, and it’s hard to move up from the bottom when you are paying an unfaily _large_ amount of taxes…

  70. Mark Says:
    April 12th, 2010 at 10:28 am

    @Stacey: I’m with you on this one. We should go a little further and allow everyone to keep the same amount regardless of how much they make.

    Perhaps we could make an exception for those who earn it in a “worthy” manner. Obviously athletes, movie stars, captains of industry, etc. are not worthy, but auto assemblyline workers, truck drivers, plumbers and electricians are. Also farmers, except the corporate ones. After all, they actually do something worthwhile and valuable. I’m not sure about bank tellers or insurance agents – they are really just pushing paper all day.

    Anything earned over this amount should be taxed at a very high rate – how about 100%?

    The government could use all the money collected this way to provide free education, healthcare, housing, and all our other essential needs.

    This system of motivating people to work for the good of others has a fantastic track record in other countries such as Cuba and Russia. I really don’t see why it shouldn’t work even better in America.

    @BG: Did you calculate just how much 17.7% of Warren Buffet’s income is each year? I think this lazy Buffet guy is ripping off the poor by taking far more out of the system than he puts in. He is a clear candidate for the 100% tax bracket.

    Ok – I admit it. I’m being sarcastic.

  71. BG Says:
    April 12th, 2010 at 10:40 am

    LOL — I’m not worried, because the 15% Dividend Rate expires this year anyway, it’s going back to pre-Bush levels for 2011, so will be treated as normal income once again.

    The hedge-fund managers and others had a great handout there for awhile, but the changes that are in the pipeline are helping to level the playing field.

    I’m not scared of competing, but it is not fun to play when the deck is stacked against you.

  72. Stacey Says:
    April 12th, 2010 at 9:33 pm

    How’s the deck stacked against you BG? You, too, could have a 15% rate (or less based on income) on YOUR dividends. BTW, I’d be thrilled to have a tax rate of 15%, no amt, no phaseout of my itemized deductions, the ability to make a deductible IRA contribution, the ability to have child tax credits for my 3 kids, etc. But alas! I have been targeted by all those unjust and uncapitalistic oinkers in our legislative branch and have become their pawn in “leveling the playing field.” Damn our college educations and work ethic and 4-5 hours of sleep a night!! And the heartache will only continue. So I vow to NOT REST until I’m penniless and can suckle from the treasure provided by our nation’s ‘wealthy’ to put food in my children’s bellies and some refundable tax credits in my banking account. Then and only then will I live the good life…no stress, just do some day care out of the home, cash-based of course…and watch Jerry Springer when the kiddos are napping. Perhaps have a black-market cigarette business on the side–swap cigs for food stamps, etc. I always knew I’d grow and up be an entrepreneur!

    Apparently we want our citizens to succeed…but not by too much or we’ll take it away ’cause it ain’t nice to not share! Isn’t that what we learned in Kindergarten?

  73. BG Says:
    April 13th, 2010 at 9:27 am

    #72 Stacey) It’s not April 16th yet is it?

    The people on the bottom and the people on the very top of getting very nice handouts from the government in the form of welfare, huge tax loopholes, and other means.

    I don’t think its fair for people to be able to collect unemployment for two friggin years, collect food stamps & welfare while driving brand new cash-for-clunker cars. And I also don’t think it is fair for Buffett and others to have a dividend rate that is stupidly low compared to income tax rates, tax-payer bailouts of their banks, and government ownership of the crap ‘products’ that they created which caused this financial disaster — so the taxpayer takes on all the risk, and they keep all the rewards.

    It’s the people in the middle that are screwed.

    But for the life of me, I don’t understand why you would defend the poverty level tax rates that Buffett and the hedge fund managers have enjoyed since 2001.

    Perhaps you yourself are one of the recipients of this form of welfare yourself? Or perhaps you are one of the suckers that believes the republican BS that IF you just work hard enough (even though you are going to be taxed @ 35% until you are a billionaire) you might one day be ultra-rich enough to pay nearly nothing in SS taxes, and enjoy the stupidly tax rate of 15%, while everyone else is taxed to oblivion.

    LOL.

  74. Stacey Says:
    April 13th, 2010 at 11:08 am

    BG, Haven’t you read a (sarcastic) word I’ve written? I’m a Libertarian at heart and want the gov’t out of my life. I know we’re screwed for the rest of our working lives re: taxes. And no, the only 15% I pay is on my P&G dividends; unfortunately we’re now in the 30+% tax bracket, just for the record.

    I detest the milkers of the system who don’t raise themselves up by their own damn bootstraps. Of course I also recognize some people are in a bind and need a TEMPORARY helping hand.

    As for the rich folk (not me, I mean the ULTRA rich folk) as long as their income comes in forms other than W-2s and K-1s (subject to ordinary tax rates) ie. the dividends you so fervently believe they’re voluminously receiving, then yes, they will have a lower tax rate on them. So take heart in that that loophole will go away. In the meantime go enjoy the beautiful spring day whereever you live while I go off to tax hell…I mean work.

  75. BG Says:
    April 13th, 2010 at 12:13 pm

    #74 Stacey) Well said. The government (federal and state) needs to shake the leeches off, and everyone is a leech in one way or another. When no-one is able to _depend_ on the government for their welfare (poor people, hedge fund managers, gov employees, everyone) then they will be forced to start depending on themselves (personal responsibility and all that).

    My effective tax rate is higher than good ‘ol Warren Buffet’s too: I’m at 24% or so. But hell, I guess he works harder than me so he deserves it. But since my effective rate is lower than yours then I guess that means I work harder than you… (*sarcasm*).

    Hopefully we can elect a Congress in Nov that’ll actually start fixing some things — fyi: I’m independent. I dropped party-affiliations 6-7 years ago once I started seeing through all the BS. I want drastic changes made quickly, so my kids don’t have to deal with this mess that we and our parents created.

  76. BG Says:
    April 14th, 2010 at 8:44 am

    Here’s a good article, published today, that shows the counter claims to the ’47% pay no taxes’ link:

    http://www.cnbc.com/id/36498521

  77. JLP Says:
    April 14th, 2010 at 9:03 am

    BG,

    Regarding your link…

    All he did was broaden the definition of taxes. You add those taxes to what “wealthier” people pay, and their tax rate increases too.

    I agree that it’s not right for dividends (which are predominantly owned by wealthier people) should be taxed at a lower rate than earned income. I think dividends should be lumped in with “earned income” and the taxes paid accordingly (at the same time, dividends should not be taxed at the corporate level).

  78. Mark Says:
    April 14th, 2010 at 1:58 pm

    @BG: I disagree that dividends should be taxed as any other income. There is a very good argument for not taxing dividends at all.

    Stockholders are owners of a portion of a company. The company profits were taxed and some of the leftovers were paid out as dividends. Then they are taxed again as income to the recipient. Double-taxation.

    Interest on the other hand was taken as a business expense and therefore not taxed. Bondholders pay tax on the interest they receive – but this is not double-taxation.

    The case of the hedge-fund managers is more about loopholes that enabled them to reclassify their salary, not an argument about taxing dividends in general. Of course I would also be happy if my company could classify my salary as dividends so I could escape at 15% too.

    You could also argue for not taxing passive income at all. The assets were bought with money which is already taxed. Ot maybe excluding inflationary effects. (Some countries only tax NET interest or NET Capital Gains. They don’t tax the part caused by inflation.)

    @BG: Good luck finding Congress to change things quickly. The quick change will only happen when the US hits a China-triggered crisis similar to Iceland or Greece. Given the various incentives at work, this may take a while.

  79. BG Says:
    April 14th, 2010 at 6:14 pm

    #78 Mark) That all sounds good and all (corporation paying taxes, etc): but you do realize that 66% of US corporation pay no taxes to the federal government: including some of the largest, GE & Exxon.

    Kinda blows your entire argument for lower taxes on dividends out of the water.

    I don’t think we are that far off from a Greece style crisis, especially now that SS payouts exceed SS collections — the growth rate on our debt is exponential now.

  80. Beeg Says:
    April 15th, 2010 at 3:09 pm

    #79). “that 66% of US corporation pay no taxes to the federal government: including some of the largest, GE & Exxon.”

    How do you figure that? The corporate tax rate for a company like Exxon is 37%, so when they were making $40 billion/yr they were really making $60 billion and giving $20 billion to the govt.

    Then all of their employees get taxed at nominally 25% in the USA, and dividend for the investors are taxed at 15%.

  81. BG Says:
    April 16th, 2010 at 10:43 am

    #80) Let me help you out:

    http://lmgtfy.com/?q=exxon+pays+no+taxes

  82. Mark Says:
    April 16th, 2010 at 2:14 pm

    @BG 79: I don’t think it blows my dividend argument out of the water. Company profitability vary from year to year. In both 2006 and 2007, Exxon paid approx $30 BILLION in taxes each year.
    In early 2008, their tax bill was $318 million PER DAY.

    Kinda makes double-taxation of dividends real.

  83. Mark Says:
    April 16th, 2010 at 2:49 pm

    Interesting report from the IRS: The top 400 U.S. individual taxpayers got 1.59% of the nation’s household income in 2007, and paid 2.05% of all individual income taxes in 2007.

    This implies that they paid a higher RATE of tax than average. If they had paid the average rate, the percent of tax paid would have matched the percent of household income.

    The same report gives their average tax rate, which is around 17%.

  84. BG Says:
    April 18th, 2010 at 10:55 am

    #83 Mark) There are income levels that pay vastly more effective tax rates than 17%. We’ve already established that the highest income people are around 17% (Warren Buffett, for example). Where-as his secretary is around 32%.

    The curve is tilted in favor of the poor and rich — it is really high in the middle. Our tax system absolutely is not the same across the spectrum.

    As for the comment: “… paid 2.05% of all individual income taxes in 2007″ — once again, that figure is ignoring the SS-income and payroll taxes [1 below] — which is about half of the rest of the taxes that the gov collects from individuals.

    The quote should really be:

    “The top 400 U.S. individual taxpayers got 1.59% of the nation’s household income in 2007, and paid ONLY 1.14% of all individual FEDERAL taxes in 2007.” — see how things change when you add in Social Security?

    [1] looking at the IRS report, total taxes is listed at $1.115 trillion — in 2007, total income tax and social security taxes was $1.96 trillion.

  85. BG Says:
    April 18th, 2010 at 11:05 am

    #83 Mark) Another way way to state your quote:

    “The top 400 U.S. individual taxpayers got 1.59% of the nation’s household income in 2007, and paid 0.0000267% of Social Security Taxes.”

    That is why is it not fair to say how much ‘income’ taxes the rich pay, while ignoring how infinitesimally small the SS-taxes they pay. In 2007, the government collected $1.1 trillion in income taxes, and also $0.8696 trillion in SS-taxes. The SS-tax was 44% of total FEDERAL taxes (income + social security) the gov collected from individuals.

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