Interesting Federal Income Tax Info

[mickeyd]

Got this from an NPR link and thought this group would like it as much as I. I'm very happy to see that our actual taxes paid are much less than the average for my income group.

Here's how federal taxes fall on households across the income spectrum.

Source: Tax Policy Center
Credit: Lam Thuy Vo / NPR

What America Pays In Taxes : Planet Money : NPR

 

[gerntz]

Listening to political commentary, hard to believe that the more you make the more & higher rate you pay. I'd have thought secretaries pay the highest rate. Thanks.

 

[marko]

So, according to this chart, Buffett's secretary pays over $844K in taxes? Or am I missing something?

They keep telling me that she pays more in taxes than Warren does. Tha'ts not 'fair'!

 

[Gone4Good]

So, according to this chart, Buffett's secretary pays over $844K in taxes? Or am I missing something?

They keep telling me that she pays more in taxes than Warren does. Tha'ts not 'fair'!

What you're missing is that capital gains and dividend rates are capped at 15% and that there is a lot of dispersion within averages.

 

[ziggy29]

For a statistic like this, I think medians would be more useful and indicative of what's happening than averages, as averages can be skewed hard by outliers.

 

[Gone4Good]

Something else that is missing from the graph that is explained in the article:

Taxes paid combines income, payroll, estate and corporate taxes. It assumes that corporate taxes come out of profits that would otherwise have gone to shareholders.

If you leave out corporate taxes, the rate paid by top earners falls significantly.

Important note: It isn't clear who actually pays corporate taxes; shareholders, employees, or customers?

 

[marko]

What you're missing is that capital gains and dividend rates are capped at 15% and that there is a lot of dispersion within averages.

Uhhhh...my post was (now obviously) a poor attempt at sarcasm.

 

[jebmke]

See the table, footnote (5). I'm not sure what it means when you mix all those types of taxes and then divide by income.

 

[Independent]

The CBO used to do similar tables. This is the most recent I could find: http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/100xx/doc10068/effective_tax_rates_2006.pdf *

Similarly, the TPC has more data here: http://www.taxpolicycenter.org/UploadedPDF/1001189_federal_taxes.pdf
which shows the breakdown by type of tax.

Our total federal tax burden is below average for our income category because we no longer pay SS or Medicare taxes. It looks like we pay average FIT rates.

Both sources say that the incidence of the corporate income tax is frequently debated by economists, but that they allocate it in proportion to all capital income.

This means that they assume the top 1% of families pay 57% of the CIT, because those families get 57% of all capital income. I don't believe that, so I'm not trying to compare our CIT share.


* Maybe someone here knows whether similar CBO data is available for later years.

 

[Gatordoc50]

Uhhhh...my post was (now obviously) a poor attempt at sarcasm.

Lol. It was obvious to me but fifty percent plus of the electorate is easily fooled by the rhetoric. The one I enjoy the most is that ending the temporary decrease in social security tax withholding is a " tax increase".

 

[2B]

Our tax code is a mess and I doubt anyone will disagree. We have (compared to the rest of the developed world) a lower average personal tax rate until you throw in SS/Medicare which isn't separated in other countries. When you include SS/Medicare we have a very regressive tax rate on low incomes which was the reason EIC was created which partially addresses this. Of course, our taxes don't cover heath care like most other countries. We have the highest corporate tax rate in the world and we are the only country that taxes non-US income for both individuals and corporations (I think). I keep wondering why any corporation remains "headquartered" in the US if they don't do an immense part of their business with the US government.

Bottom line - Tax whatever you want less of. Taxes in the US make doing business in this country more expensive than almost anywhere else. This is especially true when it comes to activities that use semi-skilled or low skilled workers.

The "debate" on tax reform is currently being conducted on a totally emotional level for political gain. We won't "fix" anything until agreement can be reached on the role of government in people's lives and the level of GDP we are willing to commit to pay for it. In other words - never. So from a retirement cost standpoint we can look forward to massive uncertainty and changes in our tax rates for the rest of our lives.

 

[Gatordoc50]

Our tax code is a mess and I doubt anyone will disagree. We have (compared to the rest of the developed world) a lower average personal tax rate until you throw in SS/Medicare which isn't separated in other countries. When you include SS/Medicare we have a very regressive tax rate on low incomes which was the reason EIC was created which partially addresses this. Of course, our taxes don't cover heath care like most other countries. We have the highest corporate tax rate in the world and we are the only country that taxes non-US income for both individuals and corporations (I think). I keep wondering why any corporation remains "headquartered" in the US if they don't do an immense part of their business with the US government.

Bottom line - Tax whatever you want less of. Taxes in the US make doing business in this country more expensive than almost anywhere else. This is especially true when it comes to activities that use semi-skilled or low skilled workers.

The "debate" on tax reform is currently being conducted on a totally emotional level for political gain. We won't "fix" anything until agreement can be reached on the role of government in people's lives and the level of GDP we are willing to commit to pay for it. In other words - never. So from a retirement cost standpoint we can look forward to massive uncertainty and changes in our tax rates for the rest of our lives.

+1

 

[Gone4Good]

The "debate" on tax reform is currently being conducted on a totally emotional level for political gain.

That is because actual reform is hard. It means getting rid of tax breaks that are popular. When you ask people if they're in favor of tax reform, an overwhelming majority say "yes." But that support breaks down considerably when you start getting into the specifics. It's just like cutting government spending. Almost everyone agrees that we should do it, until people discover that means cutting actual programs they care about.

My bottom line is a little different than yours: In a democracy, we get the government we deserve. As long as the electorate continues to act like a group of infants, we'll get politicians who pander to infants.

 

[dmpi]

What about the 48% that's claimed to pay no federal income tax? I would think that that would cover at least everyone making under $30K/year.

 

[jebmke]

I keep wondering why any corporation remains "headquartered" in the US if they don't do an immense part of their business with the US government.

Setting aside the business complications of moving your headquarters (loss of staff etc.), if you move a substantial operation from one taxing jurisdiction (US) to another (say, Switzerland), the jurisdiction from which you are moving would probably declare that a sale of the business and require you to value the sale at FMV. The tax on the gain might not be worth the advantages of being in the new location.

Then you have the problem of paying US shareholders from a non-US entity. Doable but many of the shareholders may not want the foreign sourced income.

 

[samclem]

Another thing that's not clear: In the breakdown of taxes paid according to income level, are all the payroll taxes (paid by the employer and paid by the individual) included, or is it just the half paid by the employee? IMO the taxpayer should get "credit" for both halves, and this would change the size of the pie paid by lower income folks.

But, then the story still wouldn't be complete, as lower income folks get back a much higher percentage of those payroll taxes in later benefits. Is it a tax, or should we do a "net present value" computation?

It's hard to keep it simple--and whenever someone paints a simple picture it's important to see what shortcuts have been taken.

 

[Alan]

We have (compared to the rest of the developed world) a lower average personal tax rate until you throw in SS/Medicare which isn't separated in other countries.

I agree with the rest of your post, but this sentence is not true. For example, in the UK, SS/Medicare has always been a separate income tax. It is called National Insurance, and you can "opt out" and invest for your own retirement, thus paying less NI tax. Between ~$11k/yr and $64k/yr of earned income you pay 12%, and 2% above that. (ie there is no cut-off for high earners like there is for FICA tax in the USA)

How much National Insurance you pay

The amount and type of National Insurance contributions you pay depend on whether you're employed or self-employed and how much you earn. The rates shown below are for the 2012-13 tax year.
If you're employed

If you're employed you pay Class 1 National Insurance contributions. The rates are:

• if you earn more than £146 a week and up to £817 a week, you pay 12 per cent of the amount you earn between £146 and £817
• if you earn more than £817 a week, you also pay 2 per cent of all your earnings over £817

You pay a lower rate if you're a member of your employer's contracted-out pension scheme.
Your contributions are deducted from your wages by your employer.

 

[Alan]

What about the 48% that's claimed to pay no federal income tax? I would think that that would cover at least everyone making under $30K/year.

Not so. If you have tax software try creating a return for a single person earning under $30k. A quick look back at my young son's tax returns and in 2009 he earned ~$28k and paid $2.5k in Fed Income tax.

 

[Alan]

I keep wondering why any corporation remains "headquartered" in the US if they don't do an immense part of their business with the US government.

Setting aside the business complications of moving your headquarters (loss of staff etc.), if you move a substantial operation from one taxing jurisdiction (US) to another (say, Switzerland), the jurisdiction from which you are moving would probably declare that a sale of the business and require you to value the sale at FMV. The tax on the gain might not be worth the advantages of being in the new location.

Then you have the problem of paying US shareholders from a non-US entity. Doable but many of the shareholders may not want the foreign sourced income.

Corporation tax rates may be high but that doesn't mean they pay high taxes. There are lots of loopholes that they may not have in countries with lower rates.

Report Says 26 U.S. Companies Have Negative Average Federal Income Tax Rate - ABC News

The latest update estimates that all but four of the 30 Fortune 500 companies that paid an average negative federal income tax rate from 2008 to 2010 continued to do so for 2011. Among the companies listed are Pepco Holdings and General Electric.

 

[Midpack]

That is because actual reform is hard. It means getting rid of tax breaks that are popular. When you ask people if they're in favor of tax reform, an overwhelming majority say "yes." But that support breaks down considerably when you start getting into the specifics. It's just like cutting government spending. Almost everyone agrees that we should do it, until people discover that means cutting actual programs they care about.

My bottom line is a little different than yours: In a democracy, we get the government we deserve. As long as the electorate continues to act like a group of infants, we'll get politicians who pander to infants.

+1, though more blatant denial/refusal to confront circumstances than infantile? They say politics is 'the art of bribing us with our own money' - we have been more than willing for decades if not generations.

 

[ziggy29]

My bottom line is a little different than yours: In a democracy, we get the government we deserve. As long as the electorate continues to act like a group of infants, we'll get politicians who pander to infants.

I tend to think of the H.L. Mencken quote here: "Under democracy one party always devotes its chief energies to trying to prove that the other party is unfit to rule—and both commonly succeed, and are right."

 

[packrat44]

I tend to think of the H.L. Mencken quote here: "Under democracy one party always devotes its chief energies to trying to prove that the other party is unfit to rule—and both commonly succeed, and are right."

+1

 

[Midpack]

CBS Sunday Morning had a story on tax cheating this morning. They said only 85% of taxes due are paid and that collecting the other 15% would help reduce the deficit. So far so good.

Then one of the experts concludes we should hire more IRS agents to collect the other 15%. How about we simplify the tax code so the average citizen can understand their taxes, and then use all the IRS agents who could be freed up from interpreting the current 5,300 pages, to spend time on more collections. Jeezzzzz...

 

[MichaelB]

CBS Sunday Morning had a story on tax cheating this morning. They said only 85% of taxes due are paid and that collecting the other 15% would help reduce the deficit. So far so good.

Then one of the experts concludes we should hire more IRS agents to collect the other 15%. How about we simplify the tax code so the average citizen can understand their taxes, and then use all the IRS agents who could be freed up from interpreting the current 5,300 pages, to spend time on more collections. Jeezzzzz...

Or, don't watch current event shows on tv.

Nice avatar...

 

[ERD50]

CBS Sunday Morning had a story on tax cheating this morning. They said only 85% of taxes due are paid and that collecting the other 15% would help reduce the deficit. So far so good.

Then one of the experts concludes we should hire more IRS agents to collect the other 15%. How about we simplify the tax code so the average citizen can understand their taxes, and then use all the IRS agents who could be freed up from interpreting the current 5,300 pages, to spend time on more collections. Jeezzzzz...

Agreed.

Or, don't watch current event shows on tv.

Yep, the 'head in the sand' approach is always a good one. I think Midpacks suggestion has a lot of merit, and the information appears to be factual, not just trumped up for excitement like so many news items.

Nice avatar...

Agreed.


-ERD50