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Scott Burns - The Truth about Income Taxes
Old 05-03-2008, 03:44 PM   #1
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Scott Burns - The Truth about Income Taxes

Comments on income taxes based on 2005 numbers, the latest available from the IRS:

"...for all the drama about the Bush tax cuts, the reality is that our tax burden is about the same today as it was before Bill Clinton was elected president. In the 7 years before B.C., our average tax rate was 13.86 percent. In 1992 we paid taxes at an average rate of 13.7 percent--- about the same as the 13.6 percent we are now paying.


During the eight years Bill Clinton was in office, the average tax rate rose from 14.1 percent (1993) to 16.1 percent (2000). In the Bush years since then, the average tax rate has declined from 15.2 percent to 13.6 percent."

------------

"Today, fewer people pay income taxes. In 1986 Americans filed 103 million federal income tax returns. Of those, 84 million had to pay some taxes. That’s 81.5 percent of all returns. By the time Bill Clinton took office, the percentage of filers paying taxes had declined to 75 percent. During the Bush years, the percentage of filers who paid taxes continued to decline. It fell to only 67.4 percent in 2005."

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"Today, the rich pay more; the poor pay less. Bush tax rate cuts notwithstanding, those with high incomes continue to pay at much higher tax rates than those with lower incomes. They also pay much more of the total tax bill, a reality that has escaped both Hillary Clinton and Barack Obama. Only 953,000 taxpayers--- about 1 percent of the total who paid taxes--- paid at the top 35 percent tax rate in 2005. They paid $315.4 billion in taxes on their $1,094 billion in income.

The most common marginal tax rate is 15 percent. That’s the rate paid by 54.4 million taxpayers. This means the typical taxpayer pays at less than half the tax rate of the top earners. The second most common marginal tax rate is 10 percent. About 25.5 million taxpayers pay taxes at that rate. This group pays taxes at one-third the rate paid by the highest-income taxpayers. So of the two-thirds of all households that pay anything in income taxes, about three-quarters pay at 15 percent or less.

Another 22 million, 3.7 million and 1.5 million households pay income taxes at marginal rates of 25, 28 and 33 percent, respectively. In the year 2000 this top 25 percent of all taxpaying filers paid a whopping 83.6 percent of all income taxes. By 2005 they paid 85.6 percent of all taxes. So in spite of tax rate cuts for the well-off, the share of taxes paid by the well-off has risen.

What does this all mean?

Simple. When political talk turns to tax “fairness,” none of the candidates mentions where a high income begins. So I thought you might want to know. You were in the top 25 percent of taxpayers in 2005 if your taxable income exceeded $61,055.

Millions of Americans have no idea what fat cats they are."

The Truth about Income Taxes
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Old 05-03-2008, 03:52 PM   #2
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There are many ways to reduce taxes if you can live below your income. I take full advantage of my HSA (~$6,700/yr), my 401k ($20,500/yr) and my current employer offers a SEP plan where I can put up to 50% of my salary. I'm not so frugal as to take full advantage of this but I'm working on it. The SEP money and 401k money will be exposed to income taxes someday but I will hopefully be able to tax manage my spending better with money from my Roth and after tax money.

Taxes are great when other people pay them. To a certain extent we are back to the early Roman approach of buying votes with "bread and the circus."
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Old 05-03-2008, 07:13 PM   #3
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Originally Posted by REWahoo View Post
When political talk turns to tax “fairness,” none of the candidates mentions where a high income begins. So I thought you might want to know. You were in the top 25 percent of taxpayers in 2005 if your taxable income exceeded $61,055.

Millions of Americans have no idea what fat cats they are."

The Truth about Income Taxes
Just to clarify: If by "taxable income", they mean Line 43 on the 1040, then that is after deductions and exemptions. That means your earned income was more likely 80,000, or could be 100,000 plus, depending on itemization, 401k, etc...
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Old 05-03-2008, 07:26 PM   #4
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Also, Burns does note that the picture he's painting doesn't include ALL taxes (to include payroll taxes, etc). Lower income individuals pay a disproportionately large portion of these taxes. On the other hand, lower income people derive a much larger benefit from each dollar paid in these taxes than do higher income individuals.
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Old 05-03-2008, 07:34 PM   #5
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Do the rich want some cheese with that? (
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Old 05-03-2008, 07:58 PM   #6
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Can they get the free government cheese? Nope--none of that, either.
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Old 05-03-2008, 08:08 PM   #7
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Can they get the free government cheese?
BTW, whatever happened to that G'ment cheese-o-rama that the feds produced in the 70's? Did all of the cheese get distributed? Is there no more cheese in G'ment warehouses?
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Old 05-03-2008, 08:11 PM   #8
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BTW, whatever happened to that G'ment cheese-o-rama that the feds produced in the 70's? Did all of the cheese get distributed? Is there no more cheese in G'ment warehouses?
It was shipped to Texas.

South Plains sees cotton rat population explosion
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Old 05-03-2008, 09:35 PM   #9
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"Today, the rich pay more; the poor pay less. Bush tax rate cuts notwithstanding, those with high incomes continue to pay at much higher tax rates than those with lower incomes. They also pay much more of the total tax bill, a reality that has escaped both Hillary Clinton and Barack Obama. Only 953,000 taxpayers--- about 1 percent of the total who paid taxes--- paid at the top 35 percent tax rate in 2005. They paid $315.4 billion in taxes on their $1,094 billion in income.

In the year 2000 this top 25 percent of all taxpaying filers paid a whopping 83.6 percent of all income taxes. By 2005 they paid 85.6 percent of all taxes. So in spite of tax rate cuts for the well-off, the share of taxes paid by the well-off has risen.


One thing that never changes is that people with a certain agenda are quick to talk about "shares of taxes" but never seem to include "shares of income".

I got some income numbers from the IRS reports.
I'll try to make them look like a table. The columns are the bottom 50% of taxpayers, then the next 25%, the next 15%, 5%, 4%, and finally the top 1%

Percentage Share of AGI
1986 - 17 24 24 11 13 11
2005 - 13 20 21 11 15 21

Average AGI in 2005 Dollars (in thousands)
1986 - 15 43 70 96 140 494
2005 - 15 45 80 121 206 1,200

Percent Gain in Real AGI, 1986 to 2005
0 5 14 26 47 143

Just to be clear about the columns, the 15% of taxpayers between the 75th and 90th percentiles, a clearly above average group, saw their share of total AGI drop from 24% to 21%, and their real AGI go up from $70,000 to $80,000, which was a total AGI gain of 14% over a 19 year period.

I think we have a problem, but it's not the tax law. We believe the FIT should be "progressive". As incomes spread out, the top end pays a higher percent of the total FIT.
The top feels put upon because they are paying such a large share of the taxes.
But the bottom 75% aren't happy either, because they see the rich getting richer while they're treading water.

I don't think this is healthy for a democracy.

I got the data here: http://www.irs.gov/pub/irs-soi/05in06tr.xls
Note that the columns show cumulative percentages, so I had to subtract to get the format above.
I also added a CPI adjustment. The CPI went up 77% between 1986 and 2005.
The trends aren't perfectly smooth over the 19 years. The highest 1% share had a local peak of 15% in 1988, then peaked again in 2000 at 21%, dipped for a few years, and recovered entirely by 2005. The other groups showed offsetting patterns.
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Old 05-03-2008, 10:05 PM   #10
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Independent,
Thanks. That was quite a bit of work. Now, some additional observations:
1. As you point out, the (apparent) problem isn't with the tax law. People who earn more money not only pay more tax than poor people, they pay proportionately a LOT more of their income in taxes.

2. Is there a problem? Looks like the lower 50% of taxpayers did not lose any ground at all--their income stayed steady in real terms. The income scale spread out farther to the right. It's hard to see how this is really unhealthy, except in an inter-class envy sense.

3. Sometimes we phrase these things as if people stay in the same categories--for instance that the wealthy people in 1986 grew wealthier through 2005. We are among the most economically mobile (up and down the scale) societies in the world. It's not always a case of "the rich getting richer" because it's often the formerly middle-class person getting richer than the wealthy people were 10 years ago. Different people.
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Old 05-04-2008, 01:30 AM   #11
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2. Is there a problem? Looks like the lower 50% of taxpayers did not lose any ground at all--their income stayed steady in real terms.
The bottom 50% is a huge number of people, there probably is quite a spread within it. I would guess that if that was broken down further, to reflect the bottom 25% or the bottom 10%(still a large number of people), you would see that that level did lose ground, but the remaining denizens of the bottom 50% did a little better, to make it average out to 0% gain in real AGI.
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Old 05-04-2008, 04:47 AM   #12
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the amount of money we can have at that 13% rate has increased over the years. each year 3% more is allowed to pass at lower rates.... it wont be long at the current 3% increase every year, that we have been seeing for almost 30 years now , that will allow 100,000 at that lower rate. so while that 13% rate may be the same, the amount of income that falls under it is way more. at one time alot of us would be paying almost 40-50% on our incomes today
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Old 05-04-2008, 09:54 AM   #13
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Funny how the people (ex-Hollywood activists) who most often call on the rich to contribute their "fair share" to society by paying higher taxes are often the ones who pay little or no taxes on the first place...
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Old 05-04-2008, 09:57 AM   #14
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Funny how the people (ex-Hollywood activists) who most often call on the rich to contribute their "fair share" to society by paying higher taxes are often the ones who pay little or no taxes on the first place...
But Blade didn't know he wasn't supposed to pay any taxes! Too busy saving us mortals from vampires.
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Old 05-04-2008, 10:40 AM   #15
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During the eight years Bill Clinton was in office, the average tax rate rose from 14.1 percent (1993) to 16.1 percent (2000). In the Bush years since then, the average tax rate has declined from 15.2 percent to 13.6 percent."
And, what happened to the deficit while Clinton was in office and since?

We wealthier members of society appear to be a short-sighted, greedy bunch. I agree with Independent, this isn't healthy for a democracy (or any society for that matter).
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Old 05-04-2008, 10:44 AM   #16
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All you people who like to pay more taxes. The government takes checks. Maybe even credit cards too! Knock yourself out
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Old 05-04-2008, 03:31 PM   #17
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And, what happened to the deficit while Clinton was in office and since?

We wealthier members of society appear to be a short-sighted, greedy bunch. I agree with Independent, this isn't healthy for a democracy (or any society for that matter).

Total tax receipts have soared under Bush II. Unfortunately, the repubs went on a spending spree that would make drunken sailors blush. The dems have the right idea while the repubs ran the show which is "pay as you go." They will probably become less deficit focused when they run the whole show starting in 2009.

As for being short-sighted and greedy, I'd like to cut the funds to stupid "ear marks" that are nothing more than useless pork for their districts. I believe the government has wandered too far into local issues in their effort to buy votes.
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Old 05-05-2008, 08:34 AM   #18
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Total tax receipts have soared under Bush II. Unfortunately, the repubs went on a spending spree that would make drunken sailors blush. The dems have the right idea while the repubs ran the show which is "pay as you go." They will probably become less deficit focused when they run the whole show starting in 2009.
That is a little presumptous..........
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Old 05-05-2008, 08:50 AM   #19
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Independent,
Thanks. That was quite a bit of work. Now, some additional observations:
1. As you point out, the (apparent) problem isn't with the tax law. People who earn more money not only pay more tax than poor people, they pay proportionately a LOT more of their income in taxes.

2. Is there a problem? Looks like the lower 50% of taxpayers did not lose any ground at all--their income stayed steady in real terms. The income scale spread out farther to the right. It's hard to see how this is really unhealthy, except in an inter-class envy sense.

3. Sometimes we phrase these things as if people stay in the same categories--for instance that the wealthy people in 1986 grew wealthier through 2005. We are among the most economically mobile (up and down the scale) societies in the world. It's not always a case of "the rich getting richer" because it's often the formerly middle-class person getting richer than the wealthy people were 10 years ago. Different people.
My comments,

1. Yes, Scott Burns seems impressed by the fact that high income people pay a high share of the FIT. I think this is the obvious result of a progressive tax in a society with a wide (and growing) dispersion of income. Is he really so far out of touch that he doesn't understand this?

2. I think that "inter-class" envy is my issue with the article. Because it talks about tax shares without mentioning that this is the obvious result of income shares, I think it has an agenda. Most likely he's trying to tell the higher income people that they are being persecuted because they are paying too much tax. He's also telling the above average people that they are next (his last comment). I don't know if low income people read his columns.

3. We always think of ourselves as having more mobility than the Europeans. I'm not sure if that's still the case. But it has been one of the positive features of our society. People feel we have "income mobility" and hence aren't jealous of the rich, they figure they or their kids will be there someday. One reason people believe that is they can see that they are better off economically than their parents or grandparents. (i.e. he percieved relative mobility has been greater than the actual because of absolute improvements.) When absolute incomes are stagnant, it becomes harder to believe in a lot of mobility. Remember that when a large group is stagnant overall, some members are probably moving forward while others are moving back. The US hasn't had a lot of experience with large numbers of people who believe they are worse off than their parents.

(I should add that I've heard the name "Scott Burns" on this board, but I don't have much of an impression of him. Maybe this article isn't typical of what he writes, I'm just reacting to what's here.
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Old 05-06-2008, 02:46 PM   #20
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I have read Scott Burns before and he provides good info in his articles. I remember the trinity study- it was linked from articles he wrote when I first read about it.

Taxes will not make anyone happy.
If you raise them, everyone complains except the people writing the tax code and spending the money.
If you lower them, people might be happy, until they see how much they got back. The poor will complain because tax cuts generally are perceived to help the rich more than the poor. Haven't seen this e-mail around in a while, but an interesting discussion about tax cuts:

Quote:
Suppose that every day, ten men go out for dinner and the bill for all comes to $100.If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing like they do now with the present income tax structure.

The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59 of the bill.
So that is what the ten men decide to do.

The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. “Since you all are such good customers I am going to reduce the cost of your daily meal by $20”. Dinner for the 10 men now costs just $80...

The group still wanted to pay the bill the same way that they paid their taxes so the first four men were unaffected. They would still eat for free. But what about the other six men -- the Paying customers? How could they divide the $20 windfall so that everybody would get his “Fair Share”?

They realized that $20 divided by six is $3.33. But they subtracted that from everybody’s share, then the fifth and sixth man would each end up being paid to eat their meal…So, the restaurant owner suggested it would be fair to reduce each mans bill roughly the same amount; and proceeded to work out the amounts each man would pay.

The fifth, like the first four now paid nothing (100% savings).
The sixth man now paid $2 instead of $3 (33% savings)
The seventh man now paid $5 instead of $7 (28% savings)
The eight man now paid $9 instead of $12 (25% savings)
The ninth man now paid $14 instead of $18 (22% savings)
The tenth man now paid $49 instead of $59 (16% savings)

Each of the six was better off then before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings…

“I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man “but he got $10”…“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. Its unfair that he got ten times more than me!?”“That’s true”, shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!”“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploit’s the poor!”The nine men surrounded the tenth man and beat him up…

The next night the Tenth man did not show up for dinner, so the Nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half the bill!

And that Boys & Girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just might not show up anymore. In fact, they might start eating overseas where the atmosphere is somewhat friendlier…
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