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Your real tax rate: 40%

articles.moneycentral.msn.com

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Re: Your real tax rate: 40%

#31

Post by waqf »

CWuestefeld wrote: post #12
dschobel wrote: post #6

Someone enlighten me, how can the author talk about a marginal tax rate for the entirety of ones income? Isn't a marginal rate by definition the rate which applies to earnings above a specific benchmark (thereby providing no disincentive to cross it)?

The "marginal" think really does throw this off. The "marginal rate" means the amount you'll be taxed for the next dollar you earn. So this tells us little about the rate that each person already paid for the amount below the margin, the "body" of earnings, if you will. Actually, the more I think about it, the more I think that the idea of a flat marginal rate is a good thing: that means there's little disincentive t…

A flat marginal rate with a curved average rate certainly is impossible:

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

Re: Your real tax rate: 40%

#32

Post by Retric »

nck4222 wrote: post #23
Retric wrote: post #20

Earlier quoted context omitted.

SS is 12.4% and it stops at ~120k / year.

Ah, that makes sense. Is that 120k/year for couples or just singles?

The cap is per person. However, payouts increase by 50% for married couples where only one person worked. This is then cut in half if the spouse who worked dies. If the non working spouse dies then the worker is left with their normal benefit.

Edit: Each benefit is considered independently, so if you both made the same amount then there is no increase in maximum payout, however you can take the spouses lower benefit early (62) and put off using your benefit till (67) which would increase your total payout assuming you lived to 85.

PS: http://en.wikipedia.org/wiki/Social_Security_Wage_Base

Ops, looks like they did not raise the cap so it's $106,800 in 2010.

Re: Your real tax rate: 40%

#33

Post by cperciva »

patrickgzill wrote: post #27
cperciva wrote: post #19

Earlier quoted context omitted.

Well, it depends in part on what you include. The 26% I mentioned is for income taxes, payroll taxes, and (income-based) sales tax credits; but Canadians also have to pay a federal sales tax of 5% and provincial sales taxes (typically around 7-8%) on most purchases. I believe the total tax burden ends up being fairly similar between the US and Canada -- while Canada spends far more (per capita) on social services and…

Canadians also pay much more for gasoline than Americans. Of course, not all of this is in taxes. To check this: find a "gas buddy" site for a place in Canada, then find one for the nearest US city/town close to it (to control for price disparity due to shipping). Multiply cost per liter by 3.6 to get equivalent US Gallon; then adjust it by current exchange rate. Example: lowest for Vancouver, BC: http://www.vancouve…

Canadians also pay much more for gasoline than Americans. Of course, not all of this is in taxes.

I think most of the difference is taxes -- unlike pretty much everything else, advertised gasoline prices include federal and provincial sales taxes. In Vancouver they also include a carbon tax (currently $0.048/L) and an additional fuel tax to fund mass transit (currently $0.12/L).

Re: Your real tax rate: 40%

#34

Post by randallsquared »

mcknz wrote: post #29

It's not like the entire tax goes into a black hole -- it would be interesting to see what the return is on the average tax rate: how much benefit is derived from state, federal, and city services (roads, water, security, libraries, parks) and benefits (unemployment, social security, disability).

It's not like the entire tax goes into a black hole

It's arguable that we'd be better off were that so... part of the tax burden is all the people employed by those taxes who don't actually contribute anything to society on net (that is, whose jobs wouldn't be done at all on the free market)... in this way, taxes can have something like double their cost in harm, potentially.

Re: Your real tax rate: 40%

#35

Post by [deleted] »

btilly wrote: post #7
dschobel wrote: post #6

Someone enlighten me, how can the author talk about a marginal tax rate for the entirety of ones income? Isn't a marginal rate by definition the rate which applies to earnings above a specific benchmark (thereby providing no disincentive to cross it)?

The author didn't do that. Instead he reported on research that found that the effective marginal tax rate across a broad range of incomes and life situations was generally close to 40%. So no matter what your income, your marginal tax rate is probably close to 40%.

[deleted]

Re: Your real tax rate: 40%

#36

Post by frankus »

patrickgzill wrote: post #27
cperciva wrote: post #19

Earlier quoted context omitted.

Well, it depends in part on what you include. The 26% I mentioned is for income taxes, payroll taxes, and (income-based) sales tax credits; but Canadians also have to pay a federal sales tax of 5% and provincial sales taxes (typically around 7-8%) on most purchases. I believe the total tax burden ends up being fairly similar between the US and Canada -- while Canada spends far more (per capita) on social services and…

Canadians also pay much more for gasoline than Americans. Of course, not all of this is in taxes. To check this: find a "gas buddy" site for a place in Canada, then find one for the nearest US city/town close to it (to control for price disparity due to shipping). Multiply cost per liter by 3.6 to get equivalent US Gallon; then adjust it by current exchange rate. Example: lowest for Vancouver, BC: http://www.vancouve…

Go down to Seattle and it's probably $2.50. We Bellinghamsters have been getting screwed for years (at least relative to the Seattle metro area).

There's an odd effect where a high-price area spills over into the neighbo(u)ring areas. I haven't quite figured out an explanation.

Re: Your real tax rate: 40%

#37

Post by mattmcknight »

ojbyrne wrote: post #26
nck4222 wrote: post #16

Man, those percentages in the chart at the end are really whacky. Someone making $75,000/year pays a higher % tax their entire life than someone making $200,000/year? Someone making $20,000/year (at 30) pays almost twice the % as someone making $50,000/year (at 30)? That doesn't seem right.

SS and FICA are very regressive. It's interesting that the lowest rates roughly correspond with the median income - as if the rates were tailored to get the lowest rates to the majority of the voters, while screwing (relatively) much smaller groups at the ends of the scale.

It's not so much regressive as it is "supposed" to be a penion insurance plan separate from the rest of your taxes. There is a cap on benefits, so there's a cap on what you contribute to it, not unlike the cap on contributions to a 401(k) or IRA.

Of course, we never got our lockbox so the upcoming generation of retirees elected governments that spent that retirement money on other stuff now wants to raise taxes so that the current young folks can pay for their irresponsibility.

Re: Your real tax rate: 40%

#38

Post by buro9 »

Retric wrote: post #18
cullenking wrote: post #5

As a person who wants to pay as little tax as possible (until of course, they start spending the tax money in ways that I see fit, which don't include blowing things up), I have always been against the concept of a single national sales tax, or a flat tax. However, more and more I am realizing that the benefits of axing most of the IRS (wow, talk about administrative overhead) would actually effectively lower everyon…

wow, talk about administrative overhead) would actually effectively lower everyones tax burden by several percentage points. ??? Where is the savings? The IRS is a tiny fraction of US government spending. Edit: IRS $12.15 billion in 2010, total federal expenditures $3.552 trillion . So it's 1/3 of 1% of the federal budget.

You could always try the military... you've got one hell of an expensive lean, mean fighting machine there. I'm pretty sure it would still be as good for defence at a fraction of the cost.

Re: Your real tax rate: 40%

#39

Post by akikuchi »

This is one of the least enlightening articles I've seen in a long time. I understand that it's a challenge to succinctly summarize a 73 page paper in 300 words, but here the author seems to be happy to use the paper's "findings" to support a extremely simplified "fact" about the current tax system.

The numbers cited in the article are based on a wide collection of parameters/assumptions, but that is ignored in the summary.

Interestingly, the paper on which the article is based was directly supported by fairtax.org- an organization solely dedicated to a drastic restructuring of the tax system.

The all in tax burden at different levels of income is a very interesting concept to explore. But here it seems like both the journalist and the paper's authors have addressed the issue with a bias which takes away from what could otherwise be a very interesting subject.

Re: Your real tax rate: 40%

#40

Post by run4yourlives »

pragmatic wrote: post #30
run4yourlives wrote: post #28

The main issue is that we're still taxing income, instead of taxing consumption. We (no matter the country) could save billions in administrative costs simply by moving all tax to point of sale style VATs. (As a sidenote this does not mean that something like the FairTax proposal is a good example of this concept.)

Can you explain how this is different from the FairTax and why a sales tax style VAT would be better?

In all forms of sales tax, the devil is in the details. The differences are not in the concept but how one chooses to administer the particulars. Where and if you choose to credit low income, what "sales" you choose to tax or not, and the overall tax rates themselves.

FairTax, in my personal opinion isn't the best example of where to draw these lines. It is rightly criticized for that, but that says nothing about the fact that overall, taxing consumption is a better idea than taxing income - a move that was largely bred from the need to fund a massive increase in government spending.

A tax that allows for funding of government programs, encourages the creation of wealth and the growth of personal income and discourages rampant consumerism (as in buying things you can't afford - and having prices bubble accordingly) is a much "fairer" system in my books.

I discount a lot of the notions of this type of system being inherently regressive because that argument insinuates that the current system is not. I believe Mr. Buffet quite aptly supported this assertion with real numbers a few years back.

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