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March 27, 2012 at 7:42 pm #752884
dyn99ParticipantJan,
With all due respect, no you don’t, or if you do, it’s such a nominal amount that it’s effectively nothing. What you do pay is self-employment tax – that is the same as the payroll tax, but you pay both sides of it – roughly 15-16%. Normally if you have a job, your employer pays half of this and the employee has the other half taken from their paycheck. Unfortunately, the government screws the self-employed by having this tax the way it is.
But for Federal income tax (what we’re referring to), an individual (head of household) with no kids has a $8500 standard deduction and a $3700 personal exemption. That brings your taxable income at a maximum to $2800, of which you’d owe $281 in income taxes on that. Even if you don’t itemize, you should qualify for some tax credits/deductions that get that down to effectively $0, and often times (since many credits are refundable), the government will actually give you money.
I’m ignoring things like food stamps, Medicare, SS, and other welfare-type benefits for the purposes of this conversation.
However, you pay payroll taxes (self-employment tax) of roughly 15-16% on that entire $15k/year, so that’s about $2300 +/- and that’s why you think you pay income tax. But it’s not income tax – it’s based only on wages and is directed for the government to spend “in theory” only on your Social Security and Medicare.
I don’t know the exact statistic, but something like 50% of all Americans don’t pay any Federal Income tax – their income is too low and credits/deductions are too high to be required to pay it.
Kootch –
I won’t comment on my income. But I will tell you that I don’t have a tax attorney. +/- 50% of my closest friends that I would discuss these things with make between $300k and $500k/year and none of them do either. And most of my clients that I talk to make > $200k/year and don’t hire tax attorneys either. They all have accountants, and attorneys, but not one of them hires a tax attorney to create SIV (special investment vehicles) or anything else like that to dodge Federal taxes. Trust me, you have to make WAY more than $300k/year to make that worth it.
They do have a lot of tax deductions though – mortgage interest, charitable contributions, non-reimbursed business expenses, etc. But they all pay an effective tax rate of between 20% and 30% for their Federal Income taxes. That excludes sales taxes, payroll taxes, property taxes, or anything other than Federal Income tax.
Dbsea –
Consumption taxes are inherently regressive – i.e. someone who makes $100,000/year pays a far greater share of his/her income in “consumption” taxes than someone who makes $1,000,000/year. This means that the middle-class get most of the burden relative to their earnings, as the very wealthy save/invest the majority of their income, and poor and working-class folks typically spend 100% of their money on housing/food/necessities, which are typically mostly not subject to consumption taxes.
So essentially you’re shifting the tax burden from those that make $100k+ (which is how the system is structured now) to those that make between $50 – $150k, and giving people that make over $150k a huge tax break. Then guys like Romney would pay an even smaller share of their income in taxes to what they do now. Bad idea for trying to create an economy that has upward mobility…
And…none of you answered my question – which would you pick? Higher taxes on the top 30%, cuts to entitlements (Medicare/SS) or both? In what proportion if both?
March 27, 2012 at 7:44 pm #752885
dyn99ParticipantMIWS – where did you feel my tone was condescending or disrespectful?
With all due respect, JV and I typically have a very different tone…
March 27, 2012 at 10:01 pm #752886
JVMemberHeyyyy! I’ve been a kinder, gentler JV for like 12 hours now!
March 27, 2012 at 10:21 pm #752887
dyn99ParticipantJV, note the word “typically”. I’ll let you infer whatever you want from that.
March 27, 2012 at 10:47 pm #752888
waterworldParticipantDyn99: I am willing answer your question. I pick door number 3, some of both. Even though I would likely feel it financially, I think the marginal tax rate on “high” incomes should be higher. I am not yet wedded to a definition of “high.” I would increase the capital gains tax, too.
On the spending side, I would like to see cuts in defense spending and changes to the social security system to reduce or eliminate benefits for the wealthy. I don’t know how best to restructure social security and I think it’s a non-trivial issue to sort out. As for medicare, I might be inclined to reduce or eliminate those benefits for the wealthy, also, but I have not thought through it enough to commit.
I tend to agree with others that we should close “loopholes” and simplify the tax system. Not that anyone has mentioned it, I will add that I am not in favor of de-regulating the financial sector. In particular, I would reinstate some form of Glass-Steagall, and I would more heavily regulate certain types so-called “investment” structures, namely the special purpose vehicles (SPVs or SIVs as dyn99 calls them) that allow very wealthy people, or their hedge funds, to dump massive sums of money into elaborate tax dodges, as opposed to actually investing those funds in something that could conceivably benefit the economy. Some forms of regulation could decrease tax avoidance among the wealthiest Americans and put more of their money into the economy.
March 27, 2012 at 10:48 pm #752889
JanSParticipantdyn…I file my taxes, including form 1040 every year. The amount owed at the bottom is over $1000 every year. Sometimes as high as $1500 ( but no often lately). It’s taxes that I owe on income…it’s on an income tax form…ya coulda fooled me that I only pay a nominal amount…
March 27, 2012 at 11:50 pm #752890
dyn99ParticipantJan – I would suggest you talk to a CPA then. You’re either understating your income for the purpose of this discussion or you’re overpaying in taxes and should re-file your returns and claim a refund.
Waterworld – thank you for answering my question!
I agree that SS and medicare need to be reformed, but I think the rub would be that if you just cut benefits for the wealthy, that they paid SS/Medicare taxes for all their working lives to see the government stiff them. That would be a non-starter for any politician.
I think the better thing to do would be to tie SS payments to inflation rather than wage growth (inflation has averaged about 3%/year vs. wage growth that was about 5%/year, up until the last 10 years where all bets are off). That should probably fix SS. For medicare, it’s going to need to be more radical.
One of two things should happen:
Option 1 – the government should redistribute the medicare taxes so that each person of a specific age group gets X amount of dollars, and allow them to buy private insurance of their choice with those dollars (Redblack will hate me for that one). Or…
Option 2 – keep the government as the insurer, and simply vary the amount of money that someone has to contribute toward their medicare premiums based on income. People that have high incomes may have to pay for 50% of their medicare premiums, where as people with low incomes will have the government paying for 100%.
I’d agree to Option 2 if I could opt-out and buy private insurance instead of the government managing my health plan choices. It wouldn’t cost the government any more, and would give me the choice I want.
March 27, 2012 at 11:56 pm #752891
dyn99ParticipantWaterworld – on the separate issue of taxation – it’s not just loopholes that are the problem. It’s tax treatment of different types of income and deductions. If we did the following, it would get us darn close to closing the budget hole:
-Eliminate the tax deduction for mortgages over $500k/year and limit it to a single primary residence only
-Tax health care benefits as ordinary income
-Tax capital gains, interest, and dividents at the ordinary income tax rates
-Modify the AMT to create specific threshholds base not on “taxable” income but “gross” income – i.e. 20% for incomes above $200k, 25% for incomes above $500k, and 30% for incomes above $1m/year.
That last one would also effectively kill most of the loopholes that allow millionaires to avoid income taxes altogether.
March 28, 2012 at 12:03 am #752892
JanSParticipantdyn… head of household…definition means that you have a dependent of some sort in your home for at least 6 months. I am categoried under “single”…that amount is a hair over $5k, , not the $8500 fro head of household..
http://taxes.about.com/od/filingstatus/qt/headofhousehold.htm
March 28, 2012 at 12:28 am #752893
dyn99ParticipantOkay, Jan. If that is the case, then your taxable income should rise by about $3000 and tax by $300, assuming no deductions/credits that I’m sure you qualify for.
In any case, you shouldn’t be paying that much in taxes, so go see a CPA and get the government to give you back your overpaid taxes.
March 28, 2012 at 12:42 am #752894
jamminjMemberdyn and waterworld, excellent discussion and ideas. the tax code has gotten ridiculous, no matter what tax bracket. But while you guys have been talking about individual taxes, there is also a large issue of corporate taxes. Since you guys are coming up with great ideas, any notion on what we should do with that political nightmare?
March 28, 2012 at 1:02 am #752895
dyn99ParticipantJJ – Corporate taxes need to be competitive with the rest of the world – probably one of the lower rates to attract international business to locate here instead of Bermuda.
I would say roughly 12-15% on all income – no deductions, loopholes, exemptions, exclusions or other BS. I think that makes us pretty competitive.
I do think we should keep special tax treatment of S-Corporations (small businesses) and allow their owners to pay via their personal tax returns – but I will make one major distinction – S-Corps should pay taxes on their shareholder distributions rather than their profits. That would encourages businesses to retain capital and reinvest in their businesses, which would encourage economic growth. Healthy businesses with cash on hand invest the money which creates jobs and growth.
And then all of us small business owners would stop bitching about the tax code screwing us, as, like many small business owners, I pay tax on 20-30% more than I actually distribute to myself in earnings. The rest is retained in the business to re-invest. That reinvestment is key to growth and business health. If we encourage small business owners to keep money in their businesses and re-invest it, we will create one of the biggest drivers of economic growth ever.
March 28, 2012 at 1:20 am #752896
jamminjMember” lower rates to attract international business to locate here instead of Bermuda.”
but what i imagine is those countries lower their taxes to even lower rates than ours, it can go back and forth.
I don’t know if its feasible, but I had thought about tax breaks depending on how many jobs are created/moved to the US. Ultimately garnering a very low corporate tax rate for those that create tens of thousand of US jobs (not part time wal mart jobs, but above poverty level with benefits).
March 28, 2012 at 1:25 am #752897
dyn99ParticipantJJ,
As soon as you start manipulating the tax code beyond something very simple, then corporations start coming up with ways to qualify jobs as US based living wage jobs when they aren’t really. Or they start bribing senators to change the way the law is written to give them a sweetheart deal.
Just come up with a simple, low rate that makes us competitive. Our exceptional labor force and best post-secondary education system in the world will do the rest.
March 28, 2012 at 3:40 am #752898
kootchmanMemberBeen to the watershed many times… No we don’t have the safest, most modern infrastructure in the world. A two inch tree branch in Ohio wipe out the entire NE power gtrid from Phil, NYC, Montreal, Toronto… what I said was… those grids are for the most part, private. To bring them up to world standards, rates will have to rise. Re: roads… that is a game. It’s the same old same old every major project. Same contractors share the same pie. Over and over again. It now costs $7 to round trip the floating bridge. Good or bad? Don’t know but it sure is a tough nut to crack… that’s and extra $250 per month if you travel to and from the east side .. jamminj.. why move back? They have better options now. It’s all about productivity. There are lots of manufacturers who relocate to USA.. Hyundai, BMW, Mercedes, Toyota…. etc… it’s all about the unit cost of production, With the right tools, in the hands of flexible unionized labor force, whose income is tied to profitability with the requisite skill set,,.. we can manufacture here. But that capital for that degree of productivity comes from earnings… and investors, the evil 1% The lowest cost assembly plant for BMW? South Carolina. That’s why Boeing is expanding in SC… high productivity, right to work state with a stable work force that doesn’t go on strike every contract negotiation. Want jobs here? Capital goes where it gets the best return. Money isn’t patriotic. Funny thing.. for all that stimulus money… how much wqas directed towards the engine of growth? Small business? Nothing. It went to government workers, union bail outs, non competitive, not viable.. unable to attract private investor dogs. Government has got to stop picking winners and losers… they suck at it.
March 28, 2012 at 3:49 am #752899
waterworldParticipantDyn99 and Jamminj: First, back to post 32, regarding SS and medicare: If merely tying benefits to inflation rather than wage growth will solve the problem, then I could probably agree with your approach on that. Frankly, I didn’t know that would suffice. Also, I might need reassurance that adjusting payments according to inflation will protect the people who need SS the most.
On Medicare, I think the problem with option 1 is that a direct subsidy may prove insufficient for a large percentage of people to get or keep decent coverage. If so, I would not agree with that approach. I prefer the idea behind option 2, adjusting contributions or premiums according to income. My concern with the opt-out provision, as with opt-out options in other proposals, is that it may leave us with an insufficient contribution base to cover the cost of the program. If I can be convinced that allowing people to opt-out and buy private insurance will not ruin the government plan that everyone else has, then I probably don’t object.
It may be that my underlying aim for financing these programs is different from some people’s. I am not uncomfortable with deploying benefit programs in which an individual’s contribution during employment far exceeds the benefits received in retirement. Suppose, for example, that SS or Medicare or both, were structured in a way that required me to contribute a share of my income during my years of employment, and yet restricted or eliminated my benefits in retirement because I don’t financially need it. I am not offended by that and I don’t see it as unfair. Nor do I think I would choose to structure my finances to maximize my draw from SS or Medicare, as opposed having sufficient wealth to pay my own way. There’s two reasons for that: (1) Those of us who make significantly more money than others are already subsidizing in various ways programs that assist those who make less and I think that’s the way it should be. And (2) I tend to believe that whatever I could purchase for myself in retirement, such as private health insurance, will likely provide better coverage and services than the government-sponsored program. (I could be totally wrong about that, but that’s my suspicion.)
Whew — that was too long! As for taxation, your post 33, dyn, I probably agree with much of what you are suggesting. I am not sure about the AMT modification, my concern there being the difference between gross and net income at the $200,000 level. For someone who is self-employed, not an S-corp, your approach could deliver a lethal blow to a sole-proprietor who suffered significant losses in a single year, or so it seems to me. You’ll tell me if I am missing something, I trust. I just wouldn’t want to see the AMT trotted out in a way that crushes high-earners who have big, legitimate, deductions to their gross.
JJ, your post 36: I agree there are big problems with corporate taxation. If corporations like Exxon are getting away with paying essentially nothing in taxes and benefiting from defacto subsidies from the U.S., there’s something very wrong going on. (Little wonder there’s been a dividend every quarter since 1882!) I understand the logic of the argument that excessive corporate taxation hurts the job market and the economy — but we are light-years away from that problem with the bigger companies. I think it would make sense to lower the tax rate and eliminate many of the types of write-off and accounting adjustments that make it possible for corporate entities to have virtually no taxable income while simultaneously reporting huge profits.
Coupled with that, I would support engaging in a systematic reevaluation of federal laws and policies that either directly or functionally create subsidies for various industries, such as mining, oil extraction, cattle grazing, and many others. Some industries, such as mining in particular, have benefited enormously from policies dating to the 1870s. I am not saying that every break should be eliminated. But I don’t think the sky will fall if mining leases were priced at above 1870 levels, either. I see this as one of those areas that has historically been hyper-politicized to the enduring benefit of corporate interests, at our expense.
Sorry, I’ll shut up now.
March 28, 2012 at 3:55 am #752900
jamminjMember“high productivity, right to work state with a stable work force that doesn’t go on strike every contract negotiation.”
yes, god forbid that the working class Americans deserve a piece of the pie, a piece of the profits. Instead you fight for the upper class bourgeoisie , hoping they can increase profits off the backs of middle and lower class Americans, decreasing wages while increasing profits.
South Carolina, red state who takes more in federal dollars than they give… go ahead and decrease their wages, the blue states will again save their asses and subsidize their lives.
Ironic that the red states that you love so much, will need so much help from the blue states by your desire to drive down wages.
March 28, 2012 at 4:02 am #752901
dyn99Participantwaterworld –
SS is fairly solvent as-is. It’s medicare that’s the problem.
For SS – if you just tie benefits to inflation, nobody’s buying power is reduced. It’s simply not increased over time so the poorest seniors don’t see an increase in standard of living.
For medicare, I would assume that the reason you would opt-out is to buy a superior private policy. Given that the people who would be opting out would be those that didn’t get full medicare coverage because of their income being too high, they would want to buy better coverage elsewhere. There’s still plenty of seniors so plenty of base to spread.
On the AMT issue – I’m not talking about gross vs. net income. I’m talking about AGI (Adjusted Gross Income) vs. Taxable income.
Business losses should reduce AGI preventing the AMT from hitting someone unfairly. The point of the modified AMT is to prevent someone who makes $500k/year from being able to write off $3 million/year in interest expenses on his 3 houses and get his income taxes down to nearly $0. That’s crap.
And lastly, I totally agree with your last paragraph. I really don’t think the government needs to subsidize any industry I can think of. Farming and energy production in particular. I am all for letting the market do what it will, and then letting the market innovate to create solutions to challenges presented.
Nice post – well thought out. I wish more people would post big ideas and less snarky comments.
March 28, 2012 at 4:05 am #752902
dyn99ParticipantJJ – stop letting Kootch bait you. It’s not worth your time.
He’ll just come up with another post with a whole bunch of random facts that are only somewhat related and throw…in…so…many…elipses… that…you…will…be…totally…confused…
March 28, 2012 at 4:17 am #752903
DBPMemberAnd…none of you answered my question – which would you pick? Higher taxes on the top 30%, cuts to entitlements (Medicare/SS) or both? In what proportion if both?
—Both. Raise taxes on the top 30% AND cut Medicare/SS. Do it in phases, gradually raising taxes and cutting Medicare until the system becomes solvent.
Plus, I’d make SS and Medicare means-tested. The richer you are, the less benefit you get. (Why do you need the government to pay for your new hip if you’ve already got a couple mil?)
Yes, means testing is unfair: if you paid money into the system at the same rate as everyone, then you should be able to get money back out at the same rate. If there were no budget crisis, I wouldn’t even consider means testing. But there IS a budget crisis, so we’ve got to take drastic measures.
Real political leaders (leaders with guts) could get this done and get people to accept higher taxes and benefit cuts for the good of the nation. Unfortunately, we don’t have those kinds of leaders now.
March 28, 2012 at 4:34 am #752904
dyn99ParticipantDBP – if you raise taxes significantly on the top 30%, we’ll have a much bigger budget crisis due to the recession it would throw the country into.
Long term, raising taxes a bunch on the top 30% and dumping it into social programs and infrastructure spending makes us Europe. That hasn’t worked out that well for their economies in terms of debt.
If you follow the Canadian or German models, it might work, but Canada has way more natural resources per capita than we do, and Germany exports way more per capita than we do, so we’re talking about totally retooling the world’s largest economy in a way that may not actually be better.
Personally, I want to keep America what it has been – the freeist developed economy with the greatest chance of upward mobility in the world. But, in order to get that, we have to put up with more inequality than you would probably like. I’m okay with that as I want opportunity, but I suspect you guys may not be.
Unfortunately, I am concerned that what we will end up with is the most corrupt economy with the most political interference in the world.
I wish that the two sides could make some attempt to come together and create a new path.
I guess that makes me idealistic…
March 28, 2012 at 4:51 am #752905
miwsParticipantHi dyn, sorry it took me so long to reply, had a doctor’s appt this evening.
Anyway, maybe I’m just not remembering correctly, but I thought there had been instances of where you’d posted some condescending or snarky comments, directed to other posters.
I wasn’t trying to offend, or make false accusations, so I hope you didn’t take it as such, and I apologize if you did.
(It would ironically suck, that in an attempt to compliment you on not making offensive remarks, I offended you in the process!)
Mike
March 28, 2012 at 5:01 am #752906
dyn99ParticipantMike, thanks for your kind words.
I just like to consider myself a little more open minded than JV or Kootch and a lot less snarky than many people here. I know I was snarky with Jan a few posts back, but I apologized for that.
I’d like to be known for ideas instead of snarky rebuttals. You may not always agree with the ideas, but at least I am contributing positively rather than just negatively. Don’t get me wrong, there’s a place for snarkiness, but it kind of gets out of control here sometimes.
I am glad that JoB didn’t take my haiku comment as too snarky…she spun that quite nicely.
March 28, 2012 at 5:20 am #752907
DBPMemberPersonally, I want to keep America what it has been – the freeist developed economy with the greatest chance of upward mobility in the world. But, in order to get that, we have to put up with more inequality than you would probably like.
Well, maybe we can still find common ground, dyn99. In fact, I might be willing to tolerate a lot more inequality than you’d suppose.
For example, I am willing to tolerate the inequality between a person who owns a modest home and the one who owns a mansion, with all the trappings. However, I am not willing to tolerate the kind of inequality that ultimately results in some people living (and dying) on the streets.
If you can agree with me that everyone should have a roof over their head and food in their belly, then that would make a good starting point.
So . . . can we at least agree on that much?
March 28, 2012 at 6:07 am #752908
JVMemberDbp, I want that too, but it’s also important to make one distinguishing point (at the risk of being called closed minded or snarky for the 5th time today).
Let’s not confuse equality of opportunity with equality of results.
I want equal opportunity for everybody. But I understand that equal opportunity does not create equal results. Far from it. They are competing values.
We have to do everything we can to ensure that there is equal opportunity, and I think our country does a pretty good job of that, though I’m sure cynical peope will disagree.
What people choose to do with the opportunities and freedoms they have been given in this country is up to them. Some people choose to study medicine, while others choose to abuse drugs.
They had the same opportunity, but the outcome will be severely different. When we all understand that, we won’t get mad at the doctor because he has a nicer house than the rest of us.
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