Effective Tax Rate (in General)


QBsutekh137 September 23 2012 4:33 PM EDT

I put this in General because I don't see any reason for it to turn into a Debate (and I have no "point/counterpoint" ideas/agenda to make it seem like a debate).

I was shooting my mouth off yesterday, as I am wont to do, talking politics with my wife while we were out driving around, and said something like, "If Mitt Romney thinks a 14% tax rate is fair, why don't we ALL pay only 14%!" Rah, rah, blah, blah.

So, I decided to calculate the effective tax rate for my family. (Not sure why I've never done it recently, I don't think I did it since getting married and buying a house...) It's pretty simple, and you can even go here if you want it REALLY simple:

http://online.wsj.com/article/SB10001424052970203718504577181593961027260.html

For me, that was taking line 61 and dividing it by line 22 on my form 1040 (as filled out by TaxAct.com).

No need to bury the lede: the effective Federal Income tax rate for my family is 6%.

I know, Ranger has been saying and saying how small the "middle class" tax burden actually is. And while there are some reasons for ours being that low, they aren't non-mainstream reasons.

Some points:

-- We are talking JUST Federal income tax. So, it does not cover stuff like Social Security taxes, health care deductions from take home pay, real estate taxes, state taxes, sales taxes, etc. What this basically means is that the starting gross wage is already knocked down by more than you might realize, especially if you, say, put a large chunk of cash into a before-tax retirement fund or a flex savings plan.
-- We are a one-income household. So, that just means less cash while still getting three exemptions: me, my wife, and our daughter. These exemptions are substantial when it comes time for itemized deductions.
-- We also pay quite a bit in mortgage interest, interest on a home equity loan, and husky real estate taxes. Let's just say the sum of all those deductions was in five figures last year. Another large deduction.
-- Finally, the child tax credit that takes a cool grand right off the top -- not as a deduction, as a CREDIT. For someone whose total income tax is only in the thousands to start with, this translates into a LARGE percentage reduction in effective rate. It also means kids double-dip (acting as an exemption deduction and a tax credit).

So, put it all together, and I effectively paid WAY less in taxes than Mitt Romney (as a percentage).

However, that makes Mitt's 47% comment even more baffling. Here's why: If I were to make just slightly less, really crank up my 401K, put the max amount possible into a flex plan, and have a couple more kids, _I_ could be paying darn close to zero taxes (especially if I had a personal stock portfolio and had losses to report...) I don't think Mitt is wrong about the tax code being pretty screwy. I'm not sure why he didn't emphasize THAT more and back away from the "victim" talk. Well, I think I know, but like I said: I'd rather this didn't turn into a debate. *smile*

Anyway, I was wondering if anyone else cared to post their effective tax rate, and also list some basic info like filing status, number of kids, and whether you rent or own (since those are the big deductions). I think it will generate quite a bit of food for thought. I do understand even those broad facts are still quite personal, so if no one responds, I won't take it personally. *smile*

Oh, and if Ranger is around and has worked more on his ideas for changes to the tax code, I'd love to talk over that again. Lots to think about!

QBsutekh137 September 23 2012 4:41 PM EDT

Sorry this thread is so USA-centric -- really not sure how to have folks from other lands show their "effective" rate, since it is fairly specific to the tax code and schedules in question.

The other rates which COULD be considered "effective" are:

-- Take taxes paid divided by ADJUSTED gross income. Adjusted gross already takes some money out of what is considered taxable, such as student loan interest (in other words, there are exemptions, adjustments, deductions, and credits in all of this, probably way more than that -- I'm not a tax attorney).
-- Take taxes paid divided by "taxable income". This would raise my rate considerably, since it already considers all the exemptions, adjustments, and deductions as being non-taxable. That's sort of where the rub is, though. It is those deductions, etc. that make me end up paying very little in taxes when you consider the gross income of our household.

Rubberduck[T] [Hell Blenders] September 23 2012 6:31 PM EDT

your property taxes are tax deductible?

Sickone September 23 2012 8:34 PM EDT

Well, over here, things are pretty ugly.

We pay a flat 16% profit/dividends tax (negligible deductions) whether we're a person or a company (for persons, raw salary goes into the calculation pool).
Most wage workers pay an extra 12% for the 401k-and-social-security equivalents out of the base and their employers must also separately pay an additional ~21% out of the same base, then another almost 6% of the base for medical and a bit over 5% of base for employers, and some other minor things.
Then you also get that pretty thing called value added tax, which is 24% for most goods (slightly lower rate for some of the base necessities), which is partially recoverable by companies only.

In other words, an employer needs to pay out about 130% of the listed gross wage, and the person gets home about 70% of the listed gross wage, which, when compared to a country with no VAT but with a 10% total sales tax, can buy stuff as if it was only about 60% of the listed gross wage.

Basically, most "usual" people are taxed at an effective rate of about 53% or thereabouts over here in Romania.

QBsutekh137 September 23 2012 8:56 PM EDT

RD, yeah, there is a fair amount of "not paying taxes on taxes" thinking, or should I say, not paying taxes on money that isn't "usable". Hence, the exemptions (I guess they figure it costs $3700 -- the deduction for each person in the family -- apiece just to survive?), deducting taxes paid elsewhere, and deducting mortgage interest. The way I see it, that money is ALREADY being used to pay off other taxes or interest, so it isn't considered "net" enough to tax further.

I'm not an economist though, so the whole "money cycle" is probably beyond me. But, as a simple example, we also don't pay sales tax on food. Food is considered a necessity, so if a gallon of milk is 4 bucks at 6 percent sales tax, that milk still costs four bucks. If a sixer of beer costs 10 bucks, that will run you 10.60 (beer may be "food", but it isn't considered a basic need).

But that's why the kid thing is odd. My daughter already counts as an exemption for the household, an additional 3700 standard deduction from adjusted gross wages. And then, after all deductions are calc'd, I get an extra 1000 straight off my tax bill (a credit). If I had 5 kids, that would be 5x3700 = $18,500 off my adjusted gross wages, and an additional 5x1000 = $5000 tax credit (up to reducing my tax burden to zero -- you don't ever get paid in this, I don't think).

I'm not a tax lawyer, like I said, so maybe there are caps here and there I am not aware of.

Sickone, that VAT sounds crazy. So the VAT makes it all the way to point-of sale? So, in the US, I would basically pay it on everything Made In China? I'm not sure I am quite understanding that (sounds unpleasant, though, to be sure...)

Sickone September 23 2012 9:20 PM EDT

More or less.
For imports from outside the EU, resellers get no VAT deduction, have to pay import duties, then tack on the VAT, so for stuff "Made in China" (or any other non-eurozone country) we actually pay more like 24-40% extra (depending on what it is, and where it's from; most of the stuff FROM China is actually not customs-taxed, it just gets the VAT applied as-is).
For stuff made inside the EU, you still pay extra, but only 24%, since any VAT on materials purchased by the producer to make the end product (or retailer to buy the product in bulk) gets refunded (the VAT is an end-user-only consumer tax).

For most intents and purposes, for the end user, the VAT acts almost exactly like a sales tax of that precise value.
It's only better than sales taxes for some people who both buy and sell stuff.

Sickone September 23 2012 9:23 PM EDT

P.S. The value of the VAT varies from country to country within the EU.
The import duties (from outside the EU to any country inside the EU) however are the same for any particular product coming from a particular country.

GethPrime September 23 2012 11:28 PM EDT

Single male living in PA, 24 years old, working in NJ, 23%.

Yeah, I wish I was stupid enough to not use a condom.

QBsutekh137 September 23 2012 11:44 PM EDT

Hey, GP, if you do the right thing and marry the woman, it's not stupid at all.

(And you get another exemption on the form, man! *smile*)

Rubberduck[T] [Hell Blenders] September 24 2012 1:01 PM EDT

After having a glance at US taxation it seems you also get tax relief for 2nd home mortgages, this seems like a recipe for state subsidized speculation.

QBsutekh137 September 24 2012 5:26 PM EDT

Not sure about that, RD -- I believe there are rules about the home you deduct for being your "living" home. You can't just keep buying houses and keep deducting interest, especially if you are making other income off the home (like renting it out). Otherwise we would just all become landlords, letting renters pay the principal and deducting mortgage interest on house after house...

Is there a specific link you saw? Maybe the rules on a second home have changed and I need to get into the renting biz. *smile*

Rubberduck[T] [Hell Blenders] September 24 2012 6:52 PM EDT

http://en.wikipedia.org/wiki/Home_mortgage_interest_deduction

Mikel September 24 2012 10:32 PM EDT

Pretty sure you are supposed to use Line 60, not 61.
Either way I am just over 4% in federal taxes paid.

We know that the US is setup as a Progressive Tax.

The Fed also establishes the Annual Poverty Levels.
http://aspe.hhs.gov/poverty/12poverty.shtml/
In the 48 states and DC. Alaska and HI have their own levels established.


Soooo...Let's take it straight from that (we will use the levels from the 48 States).

Figure up which group you belong to (including dependents if any):
So a single person would only have 1 income and fall under the 1 in the # in Family bracket meaning that it's Total Income/Poverty Level/100 to get your the % you will need to pay in Total Taxes.

So 1 person making $60k/$11,170/100 = 5.37%
$60k*5.37%=$3,222.92 owed in Taxes.

$750k/$11,170/100=35%
$750k*35%=$262.5k


Now a Family of 4 with total income = $60k (all Civil Union/Marriage incomes are added together along with wages from dependents (if your kids work)).
$60k/$23,050/100=2.6%
$60k*2.6%=$1,561.82

$750k/$23,050/100=32.54%
$750k*32.54%=$244,034.71

Oh and a note. the cap is 35% of your total income, income includes: Anything that gives you money (Wages, Capital Gains, Dividends), only exceptions: Unemployment, SS, Food Stamps, and Government Aid.

Of course some tweaking might be needed but I'm going to start with no deductions, the deductions are already on the Federal Poverty levels chart.

I like this method cause it gives you a very big tax base.

I had done this a while back in another forum that I frequently visit where we talk about Politics and how to solve the many problems of the world from your couch lol.

QBsutekh137 September 24 2012 11:52 PM EDT

Mikel, Line 61 is what my PDF shows as the "total tax". Line 60 is a random "other tax" line. But that's why you have to go by the words, not the number -- your form may differ from mine.

Couches are comfy. *smile*

RD, I will check out than link...

QBsutekh137 September 24 2012 11:56 PM EDT

RD, that didn't take long -- Wikipedia (like any vague encyclopedia) isn't going to be strong on details. The definition of "second home" and what constitutes interest thereupon isn't as simply as that. I think if you live six months in one house and six months in another (some people really need to do that), then yeah -- you could deduct both. But that isn't standard. And if you push the standard, it is all the more likely you will get audited.

So, by and large I am going to say a second house won't count. And anything beyond that surely won't. Still, more loopholes to consider, and again, all the more reason to wonder why Romney wouldn't just say his ideas (unless they are REALLY political TNT, like he wants do away with all deductions...)

Sickone September 25 2012 2:06 AM EDT

Set a minimum wage.
Do not tax anything at all below or at minimum wage.
Tax everything above that at 50%.
Done :p

QBRanger September 25 2012 11:34 AM EDT

1. We already discussed my ideal tax structure Sut. No need to rehash that discussion as my thinking on it has not changed.

2. Mitt's real tax rate is 19% if you discount the massive contribution to charity. My accountant says that the typical person gives less than 3% to charity. Mitt gave over 20%. Therefore his tax rate was 14% due to the huge deduction has took. All entirely legal according to our convoluted tax system.

3. I pay 26% rate. I have a modest mortgage deduction, wife and 2 kids, and my job pays 90% of my medical.

4. I do not begrudge Mitt for paying a lower rate than me. My money is guaranteed each month via a salary. Mitt takes much more risk with capital gains.

5. There was 2 minutes of his 47% speech that was missed due to the audio device "shutting off by accident". Who knows what Mitt stated during that time?

6. The top 1% of income earners pay 38% of all federal income tax. The top 5% pay 58%. The top 10% pay 70%. The top 25% pay 87%.
http://www.ntu.org/tax-basics/who-pays-income-taxes.html
How much more do you want the top people to pay? I know the top 1% do not use 38% of federal highways, federal buildings, or get nearly that much in federal aid. It is not a revenue problem, it is a massive spending problem.

Gunny Pew Pew [Red Permanent Assurance] September 25 2012 12:16 PM EDT

but like I said: I'd rather this didn't turn into a debate. *smile*

Sickone September 25 2012 12:38 PM EDT

The top 1% of income earners pay 38% of all federal income tax. The top 5% pay 58%. The top 10% pay 70%. The top 25% pay 87%.

And the top 1% own up to almost 40% of the overall wealth.
Want to keep quoting statistics ?
Oh, by the way, just how much percentage of POLITICAL INFLUENCE do you think the top 1% have anyway ? I'm sort of betting close to or over 75% (as in, basically almost every republican and every other democrat or thereabouts).

QBsutekh137 September 25 2012 5:13 PM EDT

Hi Ranger!

(Guys, I don't see Ranger's points as turning anything into a debate...)

1. Tax ideas: I don't totally remember your idea, but probably do well enough. Where did you come down on the mortgage interest deduction?

2. Mitt's rate: True, but I read he could have also declared some other things as deductions (something about compensation from previous jobs), but didn't, just to keep the effective rate a little higher (because he said his effective rate never got below 13%, or somesuch). I don't really care, either way. This topic is about how screwy the code is such that _I_ can pay only 6%, and wondering why Mitt doesn't focus on the HOW of it rather than the WHY (more on that later).

3. Ranger's rate: Twenty-six percent... That's a lot! To be honest, I thought that is more like what my effective rate would be (just thinking back to when I was single and was in a higher bracket) but was off on so many things it wasn't even funny.

4. Stability vs. Risk: Yes, there are some risks to capital gains, but there is a huge caveat there: if you have enough wealth that the stocks in capital gains are essentially already "funny money" to you, there isn't much risk. If I am barely making ends meet, then yeah, volatile stocks are risky and could affect my very livelihood. If I am rich, and keep a large chunk of money in low/zero risk funds that is plenty to live on, there's a big difference there. And the difference is in implementation AND opportunity. There is simply no way a large portion of the population can have that sort of wealth, enough to live off interest/dividends. It's pay-to-play, and you have to have a LOT of money before you can play that game as casually as someone like Romney. Also, when one has a large enough bankroll or is pulling a salary in addition to stock portfolio, that mix can be very beneficial when stock losses are incurred. Those losses can come off of adjusted gross income so that the taxes on the salary portion are much smaller, perhaps even knocking someone down a bracket (depending on how the numbers work out). There are all kinds of ways to play the system -- If you have enough dispensable income to really get into it in more than just a 401K sort of way. Most folks do not have that opportunity, and realistically, might never have it, even with frugal spending and working hard.

5. Mitt's Speech: I don't have a problem with what Mitt said at that meeting (he is entitled to his opinion), so I don't really care what was missed. I was referring more to how he has had an opportunity in how he RESPONDS to that where he could make better points about the tax code. With a few simple examples he could show that the reason the middle class is in such an odd state right now is that someone on the low end of "middle class" might be paying zero taxes while someone on the higher end of "middle class" could be paying 15-20% (or more, depending on how you define "middle class"). What is the point of all the talk I hear about "expanding the middle class" when such a goofy tax disparity already exists within the middle class we have now? Why doesn't Mitt tell us his plan and show us his way of getting to a "fair share" system? I'd love to hear it, and I'm all open-ears and open-mind.

6. Those statistics don't really mean anything to me. If the upper percentages have such a huge amount of relative wealth, then there is no surprise that they bear more tax burden. What percentage of tax burden do you think the highest 10% SHOULD pay, and can you explain your reasoning on how you arrive at that number? Also, a historical comparison of that would make things clearer. Surely you don't think the top 10% should only pay 10% of the burden. So, what is it -- 25? 45? 60? If 70% is clearly an outrage to you as far as what the upper 10% pays, tell us what you think that percentage _should_ be, and how you came to that number (because I don't have an answer...)

And I agree we have spending problems (but still need revenue at this point to pay down debt, at least). I keep thinking of things like roads and the military. It is so very hard to rein things in. If you build a road during a boom, that's great, but then when the economy cycles down, you can't just turn that road off and save money (certainly not on a yearly budget cycle). To be honest, I don't think the "entitlement programs" are the biggest problem. I think it is bigger stuff that keeps ratcheting up, and then has no good way to ratchet back down when the economy tanks (larger military, bureaucracy, etc.)

QBRanger September 25 2012 6:21 PM EDT

Yes. I agree our tax code is messed up.

But in the thread where I proposed my flat tax idea, others liked the idea of government being able to steer policy using the tax code. And as a result this is the mess we have.

I proposed one flat rate with the only deduction being a standard deduction based upon poverty level with extra based on number of dependents.

I would get rid of the mortgage deduction but would of course have to keep it for those already getting it. If people have to buy smaller houses in the future so be it.

Mitt's point was that there are a lot of people who pay no federal income tax who just love the idea of having the rich pay more so they can get more. What would they vote for a guy who wants to take away their "free" stuff with less taxes on the evil selfish greedy rich people who contribute nothing to society other than abusing their workers?
No matter what he says, they will never vote Republican.

I think he oversimplified things but I do understand his point of view. There are plenty of people who get help from the government who want to be self sufficient. But a large proportion do not understand or believe in the R economic model. Less taxes=more revenue. Laffler curve. Where the top peak has been shown by Romer to be 33%.

But these are points for other debate. Yes. Our tax code is stupid. In innumerable ways.

QBRanger September 25 2012 6:25 PM EDT

Sry

I do not direct address your question about how much I think the top should pay. Using the Itampon is hard to go back and forth.

In my ideal the top would pay the proportion of what they make.

If the top 10% make 50% of all income that is how much they should pay. Likely a bit more due to the deduction every has skewing things up a bit for the higher earners percentage wise. So in the 50% scenario I would gestimate they would be paying about 55-60% But that is a rough guess based upon my thinking.

QBsutekh137 September 25 2012 9:18 PM EDT

Thanks for the clarification.

That's all a bit too flat for me, though. You are basically saying the top would pay more because they make more. So if the top 1% has 25% of the wealth, they pay 25%. That's straight up flat, except the edge effect of letting a few folks off the hook down low, and letting kid exemptions mean more to those folks too (because they simply are dealing with smaller numbers).

I wholeheartedly disagree, and history shows that a progressive rate is what works. Sometimes REALLY progressive. Even Reagan agreed, raising taxes nine times during his terms. Not saying that was necessarily progressive, but revenue needs to be part of the game, and no, history has not shown that voodoo econ. works scientifically (because Reaganomics was NOT pure trickle-down).

We are at a point where the rich/poor disparity is larger than it has been in decades (centuries? ever?) Wouldn't your plan increase that gap? How would that help? We are already seeing it -- corporations DO have money. The stock market is still holding its own. Capital is available, and credit is sloooowly becoming moreso. So where are the jobs? And yes, if you say the word "uncertainty", then this will have to be moved to Debates. *smile* Because the world is ALWAYS uncertain. Today, in four years, in eight years. Always uncertain. So that's not an answer. What you do if you are a capitalist and need workers is you hire. That's what we do where I work, anyway, and I haven't heard any upper management saying, "Oh, dear, oh gee, I don't know...what about OBAMACARE! I'm so uncertain! Let's shrink operations even while orders are already exceeding our supply!"

But where is the demand for product? Hm. How does giving more money to the top, increasing the wealth gap, increase demand?

It's the same old discussion we've always had. The best shortcut is to agree to disagree. You think trickle-down is still the silver bullet (mostly), even though what Reagan did in the 80s wasn't even pure trickle down (because he did increase revenue by raising taxes). So I am not sure what historical model you are basing your ideas on. To boil it all down to one question: When, and where, has pure trickle-down (read: no increase in revenue at all, only cuts in taxes to the top end) turned an economy around after a near-Depression style trough?

Admindudemus [jabberwocky] September 25 2012 9:55 PM EDT

my tax rate is bigger than your tax rate! ; )

Effective Tax Rate: 9%

miteke [Superheros] September 25 2012 10:33 PM EDT

M 2 cents is that the tax rate is not really the issue. Spending is the issue. I've found that government is VERY creative in how they get money from us. Even if we dropped the tax rate, they would no something less obvious and more insidious like, say, monetary easement. Have you noticed inflation recently? We all got hit equally, rich or poor, on that one. Everyone short-sightedly focuses on the stupid income tax, an totally miss the 90 other ways we get taxed. If the income tax were lowered to 0%, government would still get their pound of flesh. My solution would be to cut it to ounces instead. But politicians don;t get votes by cutting spending, and frankly people just don't understand how government programs that help the poor on the surface, hurt the poor in far more dramatic and less obvious ways.

I remember an essay that was in one of my kids books, though for the life of me I can't remember it, featuring a farmer berating a congressman for a program to help some poor firemen or something because it was not governments business to be doing that sort of thing. It was an essay written over a hundred years ago and struck me profoundly. It has always been a struggle to remember exactly what government is for and what it should not be doing. It just seems so dang right to have government be benevolent, but it rarely works out in the end, and it runs counter to the philosophies of the founders.

I hope I don't spawn a huge debate and hijack this thread, but I really think taxes is just the outward manifestation of a spending problem.

QBsutekh137 September 25 2012 10:58 PM EDT

mit,

I don't see it as a hijack at all, but can you clarify what you are talking about?

I know the taxes I pay, and I don't see how the Federal Gov gets anything other than my Federal income tax. I'm not naive, I know they get taxes from corporations I spend into, various fees trickle up, sure. But what, exactly, are you talking about? You'll need to be specific, as, "Damn gubbmint!" sort of talk doesn't really get anyone anywhere, I don't think (though it is fun, I do it myself!)

The sales tax I pay is state. Wisconsin gets that. If I get pulled over for speeding, that's state, too. The city charges various fees, as does the county. And my hefty real estate taxes go local (there's a line for every addendum as to where things are going, even).

Gas tax trickles up, and the FedGov certainly exercises some muscle there (like cutting off highway spending back in the day for states that didn't raise the drinking age).

But I can't think of any other ways the government is taking my money. Liberty, sure. Get a nice firm pat-down from the TSA and you'll wonder when your body became a wonderland for some vacant-eyed drone. But my money? You'll have to clarify for me.

Can you describe some of the other ways the government takes our "pounds of flesh", and give some clear ideas on how to "turn that into ounces?"

QBsutekh137 September 25 2012 11:01 PM EDT

Sorry, mit, one more question... Who SHOULD help the fireman in book you are trying to remember? I'm interested in hearing your plan for how things should work.

Sickone September 26 2012 12:06 AM EDT

I proposed one flat rate with the only deduction being a standard deduction based upon poverty level with extra based on number of dependents.

Funny how for a person that allegedly claims diametrically opposed views you propose a nearly identical solution :)
I'm guessing your proposed flat tax rate is lower than 50% though :p

Gunny Pew Pew [Red Permanent Assurance] September 26 2012 12:49 AM EDT

miteke, the tax rate is an issue if there's cracks/holes/junk so don't push that off the table to make more room for the big spending pie.

QBRanger September 26 2012 3:57 AM EDT

Sut,

Sorry but I have to call you out on a very common liberal false talking point.

You stated even Reagen raised taxes multiple times. How about telling the whole story first. Reagan lowered income tax from 70% top rate to 28%. Then he realized that was too low and raised them minimally till he hit the sweet Laffler curve spot. But he also removed tons of deductions.

He also raised taxes in other areas such as gasoline but that was minimal compared to the income tax, cigarette tax and payroll taxes on high earners also went up.

Taken as a whole however taxes went way DOWN for businesses and individuals.

What you stated was technically true but it is similar to saying Michael Jordan sucked as a baseball player. He sure did but that is just a side note on the big picture.

And where do you prove as you stated that "history shows a progressive tax is what works". There are over 30 countries with a flat tax as well as Hong Kong. I think it all depends on your definition of what is fair. And we will not agree on that.

I would believe a rate of 20% would be sufficient to run the proper amount of government.

Gunny Pew Pew [Red Permanent Assurance] September 26 2012 6:44 AM EDT

I may not be affiliated with the Metaphor Institute of America, but that MJ line needs immediate rescue.

miteke [Superheros] September 26 2012 8:06 AM EDT

Ways that the feds fund programs and siphon from the economy:

Our brand new Health Care Fee
Estate taxes
Gift tax
Corporate Income Tax (because we get double taxed on that)
FICA (Medicare and Social Security)
FUCA (Unemployment taxes)
Customs
Fees for things like late taxes
Tons of targeted taxes like cigarette, gas, alcohol, and various luxury or vice taxes. If we were to break this out I could probably list a bunch.
Printing money or monetary easement
Borrowing money - though you might think of it as a deferred tax, it allows spending and this siphons spending away from more productive pursuits.

miteke [Superheros] September 26 2012 9:34 AM EDT

Gunham: miteke, the tax rate is an issue if there's cracks/holes/junk so don't push that off the table to make more room for the big spending pie.

I'm just expressing my opinion that I don't believe that if the income tax rate was decreased, the effective taxes government collects would decrease too. I think it is a valid contribution to the discussion to challenge the basic premise that the income tax rate is an issue. I believe that government will finance their operations in whatever way they need to, even if income tax is reduced. Also I don't put a lot of hope in changing the way government taxes or in closing loopholes. The rich have ways of avoiding abusive tax rates no matter how hard you try so, again, I don't think that by some bureaucratic wave of a pen you are going to right the fairness of the tax code if that is your goal. You will just add another rule to be avoided.

I have two issues with current taxes (income plus other taxes):

1) They are too high right now. I agree with Ranger that there is a sweet spot we need to aim for. I never heard of the curve he talks about, but it just makes sense that there is some point between 0 and 100% that works best. I just don't think that changing income tax alone will do the trick - again, you have to change government spending or government will find other ways to finance that do as much or more damage.

2) They are too complicated. It takes a team of 100K/year CPAs to work the taxes for some companies. Once, when I was momentarily seduced by the idea of creating my own water store, I quickly found out how complicated government made it and ran away. I'd like to see a flat tax, sales tax, a more simplified income tax, or anything that would simplify things. I think innovation and independence should somehow be encouraged and, at least for me, the current tax system (particularly for employers) is too complicated. Every time government tries to fix the tax code they seem to make it more complicated instead of more simple. I hate that.

QBsutekh137 September 26 2012 9:54 AM EDT

miteke,

Thanks for the follow-up. I'll address each piece in the list below.

Our brand new Health Care Fee:
I don't know about you, but I'm already paying a health care fee. Are you not currently insured, and were you planning on staying that way? If you ARE insured, you are already paying a fee, and now that fee will just go somewhere else. It intrigues me that so many folks consider this some sort of new fee when most of us are already paying for insurance, anyway. And the Supreme Court held up the individual mandate. So can we move on from this? I agree that it remains to be seen how the new laws affect health care costs, quality, flexibility, etc, but straight money-wise, what is the difference going to be as far as the premiums you are already paying to cover yourself and family? Yes, if you automatically assume costs are going to rise your argument holds water. But why do you assume that? More importantly, why do you assume costs wouldn't go up _anyway_? What would be your idea to reduce costs and pay less for health care as a nation?

Estate taxes:
This one always gets me, too. I'm not saying you are one of the folks I am about to describe, mit, but I hear a lot of angry voices (tea partiers, libertarians, Romney, Ryan...) talk about being "self-made", self-sufficient, and railing against Obama for saying "you didn't build that." (Incidentally, I thought that was a pretty stupid, thoughtless line myself). So, if there should be no bail-outs, no giveaways, no free lunches, no hand-outs, why is sucking from the family teat OK? In any case, this hasn't ever affected me and won't ever affect me. I don't expect dime one from my folks when they pass on, even though they are ostensibly loaded (land-owners). I guess I really DO believe in being self-made, and believe my offspring should do the same. My folks can slowly gift all their wealth to charity, for all I care. Anyway, with proper estate/trust planning, this is almost a non-starter in a lot of cases. Call an attorney and protect your assets if it is so important you keep them hoarded. (Generic "you", not YOU you).

Gift tax:
Not sure what you are referring to. Last I heard, you could gift someone (annually) something like $10,000, tax free. Yes, some limitations on what is considered "income" can be annoying, but some of that is also kind of necessary. What if my employer said my salary was a "gift", or if I paid a consultant a one-time "gift"? It's already a shady area, with people using untraceable cash to make end runs and labeling transactions in a spurious fashion. Again, I can't say this tax has ever affected me -- has it affected you? This discussion was generally meant to discuss the bulk of people, not edge cases, and you sounded pretty adamant that the gov't was taking pounds of flesh off everyone. So, I assume you have been affected by this (or know people who have been...)?

Corporate Income Tax (because we get double taxed on that):
Yes, this is a sticky wicket. Though, the amount which we "double-pay" doesn't ALWAYS have to be passed on to us. What is supposed to happen is that competition still keeps prices down as businesses compete for customers. I know, I know, it is almost a rule these days that any monetary burden pushed on a corporation means immediate passing-on to the consumer. But think about that for a second -- why is that? It doesn't HAVE to be that way, and in a competitive market with any profit margins to speak of, the money _could_ come from elsewhere. But it doesn't. Folks like AT&T and Verizon (just to mention two behemoths) simply both decide to pass everything on. They don't care about being competitive to a degree where their prices are significantly lower to woo customers. So, I'll concede a half-point here, that we have to be careful with corporate taxes (but hey, they are the ones who want to be "people", so why shouldn't they be taxed?), but I believe the bigger problem here is lack of competition, vendor lock-in, barriers to entry for upstarts, and de facto price fixing (no one will ever get indicted, but you tell me why so many things across so many competitors have exactly the same prices?) As far as double-paying, part of that is just the money cycle. If I use my income to pay a roofer to put a new roof on my house, I pay tax on that, and then the roofer pays tax on that (because it is then his income). So, unless you are saying you think we should do away with the whole notion of income tax entirely, I'm not sure what you propose so that money isn't taxed over and over again. The roofer might be passing on those costs to me when he quotes the price for a new roof. Luckily, there is a roofer right behind him who will charge less to get my business. That's why I am saying competition is WAY more important than worrying about a double-tax scenario.

FICA (Medicare and Social Security):
Now we are getting into direct services/programs, so this seems a little different to me. If you think Medicare and SS are broken, inefficient, etc. then work on changing that. But these programs DO return value (people DO get SS checks, the money isn't just flushed down the drain). Even if I never use Medicare, for example, should I rail against it any more than a childless couple rails against taxes that go toward education? I am assuming you pretty much want to do away with ALL social programs, judging by the list. Privatize most everything? I am curious as to what you think about privatizing education (because taxes for it are unfair to folks without kids, no?)

FUCA (Unemployment taxes):
I don't know enough about this, and have never received unemployment checks (incredibly lucky in that regard...) I would put this up with SS -- at what point to you have ANY programs at all, or would you just do away with everything?

Customs:
Don't know enough about this, but customs have been around for a long time. I am sure things have gotten bogged down in red tape, but controlling things that move across borders doesn't seem completely unreasonable to me. Now, when it gets out of hand (with things like trade wars and tariffs), that can cause all sorts of woe.

Fees for things like late taxes:
Well, sure. But then you might as well say, "Loss of income when I get thrown in jail for committing a Federal crime". I'm not going to count things that simply would never affect me because I follow the laws/rules. Pay your taxes and pay them on time, and if you want taxes to disappear entirely, write your congress-person and start an organization.

Tons of targeted taxes like cigarette, gas, alcohol, and various luxury or vice taxes. If we were to break this out I could probably list a bunch:
I think it is OK to keep the buckets large... Yes, there are a lot of other taxes. Many of these are employed more at the state/local level. In my viewpoint, the more specific the tax, the more you should be FOR it. If a smoker wants cigs, they have to pay -- no skin off your nose. If a gambler wants to throw their money away on lottery tickets, no skin off your nose. And, as always, if you don't like these taxes, get involved in gov't and try to change things. Don't forget, this government you are railing against is supposed to be you (yeah, cue the apathetic voices calling me naive).

Printing money or monetary easement:
Now your getting into econ theory. How is this taking my "pounds of flesh"? What economic system are you in favor of, and how would you handle the ups and downs of an economy?

Borrowing money - though you might think of it as a deferred tax, it allows spending and this siphons spending away from more productive pursuits:
I'd love to have a balanced budget, and I say over and over again that we should make deep cuts -- across the board, including the military. Until war hawks agree to take a large hit on defense spending, then no. Screw a balanced budget. I'm tired of congress-folk whose definition of compromise is not to.

======================================================
That boils things down for me. Lots of good points here, and you are right -- there are lots of ways we pay into society around us. Whether you see that as "pounds of flesh" or "social responsibility" is the difference between us. To highlight some of my key points that appear to make me think less ominously than you about all this:

-- We are the government. Democracy isn't perfect, to be sure, but would you rather have all these taxes under a dictatorship?
-- At what point do you allow ANY programs? I will go back to my education question: if you didn't have any kids, would you feel angry that your tax monies went to schools? Alternately, if you are OK with that, why aren't you OK with other programs that use tax money to ostensibly keep society on its feet?
-- Planning. Many of the things you list can be overcome with simple planning and individual actions. Protect your wealth with a trust. Stop smoking. Drive less. If being "self-made" is the key here, then take control of these issues on your own and figure it out. (I mean the generic "you" there, that is not meant to imply you, miteke, are not in control...)

QBsutekh137 September 26 2012 10:58 AM EDT

Ranger,

Sorry but I have to call you out on a very common liberal false talking point.

Not sure how it is a false talking point if it has truth to it? Also not sure why you would call it a "liberal" false talking point. I've read many articles, often involving "old guard" GOPers who state that Reagan understood that striking a balance of revenue increase and spending cuts is what is essential, both pragmatically and politically, to turn an economy around. I would also point out that some prominent GOPers (like Bush the elder and Huntsman) are against this notion of things like signing Norquist's "no tax" pledge. What I am trying to focus on (at least what I was meaning to get across) is the notion of compromise: give and take from both sides.

You stated even Reagen raised taxes multiple times. How about telling the whole story first. Reagan lowered income tax from 70% top rate to 28%. Then he realized that was too low and raised them minimally till he hit the sweet Laffler curve spot. But he also removed tons of deductions.

He also raised taxes in other areas such as gasoline but that was minimal compared to the income tax, cigarette tax and payroll taxes on high earners also went up.

Taken as a whole however taxes went way DOWN for businesses and individuals.

And the gross national debt (as a percent of GDP) went from about 30% when Reagan started up to about 60%. How is hiding money in debt an economic solution? Obama (and Congress) are certainly being railed against for deficit spending and debt ceiling woes -- tell me again how Reagan gets to act like deficits don't even matter and is still canonized as a GOP saint?

Yes, you are right, Reagan made some cuts (at the expense of raising debt), and the nation's spending still increased, a lot (at the expense of raising debt). Not really a lot of magic to it -- he burned the candle at both ends and hid the smoke and ashes in a mountain of deficit over the course of 8 years. This is what you'd like a return to?

But to redirect: if I made it sound like Reagan was a crazy tax increaser and that is how he turned things around, then I apologize -- I didn't mean that. What I meant was that Reagan understood that working with the other side, tweaking both revenue and spending, was important. And judging by the deficit increase, he didn't _really_ strike much of a balance. The country was not bringing in enough cash, and spending wasn't exactly curbed. According to a "total outlays" spreadsheet from a Federal web site, outlays went from about 591 billion in 1980 to 1,382 billion in 1992 (end of Reagan/Bush terms). Revenue was also increasing, but not keeping pace, during that time.

What you stated was technically true but it is similar to saying Michael Jordan sucked as a baseball player. He sure did but that is just a side note on the big picture.

Heh, nice rehash of a remark a pundit made on some web site. An oldie but a goodie, I guess.

And where do you prove as you stated that "history shows a progressive tax is what works". There are over 30 countries with a flat tax as well as Hong Kong. I think it all depends on your definition of what is fair. And we will not agree on that.

I was stating that a progressive tax HAS worked in the past. No, that doesn't mean it is the only thing that could have worked. But to continue the revenue/spending discussion about the deficit, from 1992 to 2000, federal outlays went up to 1.79 trillion. However, revenue reached just beyond 2 trillion, and the deficit finally turned into a surplus. Not surprisingly, the marginal top tax rate in 1992 was 31%, and that was changed to 39.6% in 1993 (and apparently left there through 2000). So, revenue increased, spending increases slowed (percentage-wise), and the budget got back into balance. Could that have all been done with just a cleaner flat tax? I suppose. I don't know. Like I said, because things go well with a progressive tax doesn't mean that nothing else would work, and the whole point of this thread is to say "simplicity is good". I just don't agree with a flat tax, even if it does provide some exceptions at the low end (at least that makes it less REgressive).

Thirty countries with a flat tax... Might I ask why you are bringing other countries into this? America is exceptional, don't you know. We don't run things like other places. When I have mentioned other nations in regards to successful socialist policies and/or competent nationalized healthcare, you have summarily dismissed any and all discussions by saying "things aren't like that here." So how about we leave other countries out of this in the name of consistency?

I would believe a rate of 20% would be sufficient to run the proper amount of government.

I'd love to know how you arrived at that number, and what you consider the "proper amount" of Federal government (because that's the gist of this, of course). I would also expect that "proper amount" to include large cuts to defense spending -- lots of savings to be had there.

QBRanger September 26 2012 11:53 AM EDT

Sut,

I agree there is a sweet spot for tax rates. You can read my multiple references to the Laffler curve. A study by Romer and Romer, yes the same Romer who was part of Obama's economic brain trust, determined it to be 33%. Which is lower than the current highest tax rate.

So do we stick with proven economics and lower the rate or do we raise them for some nebulous thought of economic "fairness".

Yes. I took your Reagan statement as he was a tax increaser primarily. It was how I read it. Glad you qualified it better. But overall Reagan lowered taxes massively.

As to the progressive tax work, sure. But we never tried a flat tax here. Why would it not work? IDK.

As to corporate taxes, the US has now the highest rate. That put us at a huge disadvantage in the worldwide economy. And we are the only country that relaxes foreign profits if a company tries to bring them back to the US to reinvest here. Yet bother example of our messed up code.

QBsutekh137 September 26 2012 12:18 PM EDT

Ranger,

I am picking out just this one part because I think we are agreeing on most everything else, or just agreeing to disagree on some underlying philosophies (so, I'm not trying to dodge anything or take anything out of context):

Yes. I took your Reagan statement as he was a tax increaser primarily. It was how I read it. Glad you qualified it better. But overall Reagan lowered taxes massively.

At the expense of massively raising the yearly deficit and accumulating debt. I just want to make that clear because debt/deficit issues are what the current administration is being excoriated for. Why isn't/wasn't Reagan dressed down in similar fashion?

There is no magic (or voodoo in this case) in being able to lower taxes and increase spending at the same time -- he borrowed to do it. Yet at this point not a single voice raises to say, "Reagan borrowed against our next generation! Woe upon us all!" Yet read any tea-party diatribe, and I guarantee you will see such vocalizations in regard to Obama.

Thoughts on that?

QBRanger September 26 2012 12:52 PM EDT

Most of the increased deficit brought by Reagan was due to increased military spending brought by the Cold War. Which we won.

Tax revenues increased during his terms.

miteke [Superheros] September 26 2012 1:04 PM EDT

sut, I think you got my point.

I don't mind that there are numerous and creative ways that government extracts money. I don't even care if the tax/fee/whatever is targeted directly at me or not. I was just pointing out that the income tax is not the only way the government collects money and that government will always find a way to collect the money they want for the programs they run and find ways to target sectors of the economy for one reason or another and you agreed with me pretty much. Heck, even if we shut down ALL of the way to collect funds that I mentioned, they would just create a new one, say a Federal sales tax, and get the money that way. They do that you know, come up with new taxes. The government MUST tax in order to survive and to that extent taxes are a good thing. We both agree on that. Some targeted taxes I really like, like a gasoline tax that is used to build roads. That makes a heck of a lot of sense to me as long as the money is only spent on gasoline related infrastructure.

I think the thing we most disagree on is what constitutes a valid government program and what level of spending/taxation is enough, but the latter is really the subject of this thread. The former would just lead to HUGE sidetrack.

QBsutekh137 September 26 2012 1:06 PM EDT

So, because of the Cold War, all economic policies made by Reagan are automatically OK? Almost tripling outlays without an equal increase in revenue is sound policy? Sounds like a very convenient excuse.

Let's say I grant that the outlays were justified by the Cold War. How does that change the fact that what ended up being tax breaks put us further and further in the deficit hole? If the Cold War was deemed essential, and got results -- great. But why doesn't Reagan still have to _pay_ for it? Are you saying paying for it (meaning more revenue) would have changed the end result?

If Reagan doesn't have to pay for his war policies due to positive results, then Obama is off the hook, too. We're in a couple wars that were deemed entirely necessary due to a terrible terrorist attack, a horrible dictator, and finding the leader of al Qaeda. And we won (we got Hussein and bin Laden).

Great job, Obama. Deficits really don't matter because we got results -- no need to pay for all the spending.

QBsutekh137 September 26 2012 1:08 PM EDT

miteke,

You keep referring to the government as "they"... Who is "they"? That's kind of a big point here -- the "they" is "you", and the "they" is "me". If you take issue with certain programs and certain ways our government creates revenue, are you working to change that?

QBRanger September 27 2012 3:44 AM EDT

"Who decides that the work day is from 9 to 5 instead of 11 to 4? Who decides that the hemlines will be below the knee this year, and short again next year? Who draws up the borders, controls the currency, handles all the decisions that happen transparently around us?"

This is the "they" Mit is typing about :)

Adminedyit September 27 2012 7:02 AM EDT

"they" should make hemlines shorter every year :)

QBsutekh137 September 27 2012 9:23 PM EDT

Heh.

Sure. But the question: "who is they?" still stands, and here is why I ask it:

By continually talking about the "they" in life, one is exonerating oneself with a "that's the way it is" line of thinking. Which is fine. If you think that's the way it is, then there really is no need to even talk about. No need to try. No need to vote. Hell, no reason to get out of bed in the morning except for brute-force survival.

I realize it's pedantic, but I can actually answer all of these questions:

"Who decides that the work day is from 9 to 5 instead of 11 to 4? Who decides that the hemlines will be below the knee this year, and short again next year? Who draws up the borders, controls the currency, handles all the decisions that happen transparently around us?"

The work day is as long as it needs to be and no longer. A five hour day probably wouldn't quite get a GDP where we'd like it. So, that one is easy. Oh, and we're in control of that. If you don't like it, complain. If you REALLY don't like it, start your own business and set the work hours you want and see how it goes. Just be aware the 9 to 5 is roughly, and in most seasons and latitudes, daylight. Kind of a "duh" on that, really.

Hemlines? Absolutely don't give a frack, and no one should. People should wear what they want, and there will always be folks willing to give a peepshow (for you, edyit. *smile*)

As for the rest of it, first off, it is as transparent as you want it to be. As in, not really transparent at all (just pay attention), or completely crystal see-through (ignorance is bliss). That last bit is talking about governments, and supposedly democracy is the best thing we've got going. Funny how so many folks in this nation would rather say "they" and complain than say "us" and do something about it. Of course, I say it as an "us" and "I'm OK with things because I've been lucky so far..." So, I don't suppose it can be said that I'm actually following through here... *smile*

QBsutekh137 September 27 2012 9:27 PM EDT

And I think John Sheridan would agree with me on that. *smile* After all, he did take a literal leap of faith after that, sacrificing everything just to stick it to BOTH sides of "them".

miteke [Superheros] September 30 2012 9:52 AM EDT

To answer your question, I work to effect change the same way most of us do, by voting. Last presidential election I voted for the Constitutionalists candidate because McCain was just too big government for me.

I use the term 'they' because I do not feel that government reflects my principles. Too many other people have different ideas of what government should do. I started thinking of them as 'them' when Clinton got reelected after using an intern - I'm still in shock that the democrats gave him a bye on that. When 'they' start representing 'me' the way I want them to, it will become 'us'. Let's not go too deep into this one either as this would also be a hijack of the thread.

In fact, I should not have answered your questions - it was a bit of a trollish thing to ask :)

Lochnivar September 30 2012 1:32 PM EDT

Since I'm pretty deduction free mine is easy to do (though federal taxes and provincial taxes come out as one on payroll in Canuckistan).

About 17.5% ...

No wife, no kids, no property (Victoria's real estate market hasn't really declined like a lot of places)... ~sigh~, that's depressing.

Duke October 3 2012 3:23 PM EDT

I saw some stats showing that real estate sale and median sale price have in a steep decline in Vancouver. I would think that while not at the same level, price in Victoria island have atlease been neutral or in some decline.


FailBoat[SG] October 3 2012 11:02 PM EDT

Hey guys, so its been a while. But this thread caught my eye. I checked it out... My wife and I paid 19% taxs according to that site, last year. Which is amusing since we don't get a tax return due to student loans. Just my 2 cents.
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