Lots of interesting Fed income tax data

[523HRR]

Gives perspective to fair share.

 

[donheff]

Thanks for the links. I had no clue how to find that info.
No wonder congress talks millions, billions etc. in spending.

”A billion here, a billion there, and pretty soon you’re talking about real money.” -Everett Dirksen

 

[Montecfo]

Look at the top tax rate before the 80s:



https://www.wolterskluwer.com/en/expert-insights/whole-ball-of-tax-historical-income-tax-rates



The Tax Foundation is a biased organization, as can be seen in the bullet points spelled out in the first post in this thread, which are designed to create an emotional reaction of "the rich are being taxed to death" and/or "the poor are a bunch of freeloaders".

The tax rate is not material to how progressive a tax system is.

You have to look at how much tax people *actually pay* relative to income. And that has gotten more progressive over time.

The tax foundation is described as nonpartisan or bipartisan.

I did not see a reason for anyone to react emotionally. But it is always good to gather factual info about our tax system, in my opinion.

 

[Montecfo]

Looks like the 1% make WAY too much money compared to the bottom income people.

Well that is the beauty of the capitalist system. Everyone has a chance to make more.

And no one gets to decide how much or little anyone wants to make.

And the income brackets are not static. People move in and out of them over time.

 

[SecondCor521]

The debt ceiling thread made it to 190 posts before being closed.

I bet this one doesn't last that long.

 

[pb4uski]

I think that income taxes these days are very reasonable.

A married couple filing jointly with $100k of ordinary income in 2023 would pay $8,236 of federal income tax, a modest IMO 8.24% and their marginal rate would be 12%.

Now if that $100k is preferenced income (qualified dividends and/or long-term capital gains) then the federal income tax is $0 and their marginal tax rate is 0%. And who says America isn't great!

Some may pick nits that I don't include SS or Medicare tax in the first example. I don't include them intentionally because the taxpayer will eventually get a return on those tax payments through SS survivor, disability or retirement benefits and Medicare so these are more forced savings than taxes.

Another thing to keep in mind is that "The average median household income in the United States was $67,521, but most states range between $50,000—$90,000, with few outliers." so the $100k household income used above covers more than half of US households... actually almost 2/3rds of US households... so about 2/3rds of US households pay 8.24% or less of their income in income tax.

 

[Qs Laptop]

The Treasury daily receipts show a much different set of numbers. Taxes collected fiscal YTD 2023 are higher compared with the same period ‘22, and taxes collected in the month of April are a bit lower. I don’t understand the numbers reported in the linked article but it looks like they may be referencing to taxes withheld on the on April 15 ‘22 vs April 17 ‘23

Yes, I found the endpoints in that article difficult to determine. I shall take a deeper dive into the Treasury report.

 

[arcyallen]

While I appreciate the gist of the original post, I'd be curious as to why 2020 was chosen as a year. It was an economic outlier, and despite personally thinking "the rich" pay plenty I'd bet that year they paid a higher than usual amount. I'm always suspicious of biased sources presenting facts, especially if they're facts I like.

 

[Koolau]

Until everyone agrees on the same operative definition of the word "fair" with regard to taxes, disagreements over the same data will persist.

Yeah, I personally find the use of "fair" and especially "fair share" when applied to taxation to be a cheap shot. The word(s) have little meaning yet perpetuate personal notions of greed and especially envy.

 

[Montecfo]

It really does provide context. And I would guess many of those who use those words have no idea the 1 percent pays more than 42% of federal income taxes.

Or that the bottom 40% pay zero.

 

[pjigar]

Look at the top tax rate before the 80s:

https://www.wolterskluwer.com/en/expert-insights/whole-ball-of-tax-historical-income-tax-rates

The Tax Foundation is a biased organization, as can be seen in the bullet points spelled out in the first post in this thread, which are designed to create an emotional reaction of "the rich are being taxed to death" and/or "the poor are a bunch of freeloaders".

Top rate doesn't mean much in a complex tax system with deductions and credits. I like to see the average rate of tax on the total income rather than marginal rate.

 

[USGrant1962]

While I appreciate the gist of the original post, I'd be curious as to why 2020 was chosen as a year. It was an economic outlier, and despite personally thinking "the rich" pay plenty I'd bet that year they paid a higher than usual amount. I'm always suspicious of biased sources presenting facts, especially if they're facts I like.

They didn't "choose" 2020. They analyzed IRS data which as of 2023 is only through 2020. I believe their data comes from:

https://www.irs.gov/statistics/soi-...-tax-returns-complete-report-publication-1304

But I agree, 2020 was a weird year to say the least.

 

[USGrant1962]

Top rate doesn't mean much in a complex tax system with deductions and credits. I like to see the average rate of tax on the total income rather than marginal rate.

You can download the data here:

https://taxfoundation.org/publications/latest-federal-income-tax-data/

Table 8 is Average Tax Rate, Table 6 is Total Income Tax Shares

 

[MichealKnight]

Shhhhh

And if they could learn to LBYM....

Some of have stock in anything from Apple to Chipotle.

And depend on rental income too.


So let's not go around telling people the virtues of LBYM.


Thanks

 

[COcheesehead]

Well that is the beauty of the capitalist system. Everyone has a chance to make more.

And no one gets to decide how much or little anyone wants to make.

And the income brackets are not static. People move in and out of them over time.

Yep, it’s America. I grew up lower middle class at best. Today we are in the top 2-3% and frankly proud to be there.

 

[pjigar]

Yep, it’s America. I grew up lower middle class at best. Today we are in the top 2-3% and frankly proud to be there.

Could't agree more. I was born in a poor family near the bottom 1% of the "world" and now we are in the top 5% of US households (which I would presume will put us in the top 1% of the world). And by the way, LBYM allowed us to invest and be part of the capitalistic system. It was painful to make the tough choices (especially when all our friends and associates were spending like there is no tomorrow) to save now and spend later. IMHO people underestimate/ignore the power of compounding and don't want to practice delayed gratification.

 

[Love This Community]

As our salaries keep going up so does the tax bite. We cringe at every bracket bump but say to ourselves that we’re blessed to be earning more to pay more into the system. As mentioned in my other three, I am working towards simplifying my portfolio and need to find ways to reduce the tax bite during retirement. Our options are limited with W-2 earnings. Even after maxing out 401k’s, contributing to back door Roth and HSA’s we end up paying significant $$ in taxes. As others mentioned, I’ll gladly be in the top 1% paying 30%.

I’ve experienced the power of compounding and seeing daily fluctuations in 4 digits. Can only imagine what this looks like when the daily fluctuations are in mid- high 5 digits.

 

[COcheesehead]

Could't agree more. I was born in a poor family near the bottom 1% of the "world" and now we are in the top 5% of US households (which I would presume will put us in the top 1% of the world). And by the way, LBYM allowed us to invest and be part of the capitalistic system. It was painful to make the tough choices (especially when all our friends and associates were spending like there is no tomorrow) to save now and spend later. IMHO people underestimate/ignore the power of compounding and don't want to practice delayed gratification.

Congratulations to you. That is what it is all about.

 

[COcheesehead]

As our salaries keep going up so does the tax bite. We cringe at every bracket bump but say to ourselves that we’re blessed to be earning more to pay more into the system. As mentioned in my other three, I am working towards simplifying my portfolio and need to find ways to reduce the tax bite during retirement. Our options are limited with W-2 earnings. Even after maxing out 401k’s, contributing to back door Roth and HSA’s we end up paying significant $$ in taxes. As others mentioned, I’ll gladly be in the top 1% paying 30%.

I’ve experienced the power of compounding and seeing daily fluctuations in 4 digits. Can only imagine what this looks like when the daily fluctuations are in mid- high 5 digits.

The fluctuations take some getting used. In the past on bad days or years, I would say to myself, wow we lost the value of a new car today or we lost the value of a new house this year. Now I just look at it as a percentage. It doesn’t feel so bad. It can also work in the opposite direction too.

 

[Koolau]

The fluctuations take some getting used. In the past on bad days or years, I would say to myself, wow we lost the value of a new car today or we lost the value of a new house this year. Now I just look at it as a percentage. It doesn’t feel so bad. It can also work in the opposite direction too.

Yeah, the first time my portfolio threw off more earnings than my salary was a "woo-hoo" experience. I didn't understand Financial Independence back then, but, looking back, I had achieved FI and only needed to RE some years later.

 

[pb4uski]

As our salaries keep going up so does the tax bite. We cringe at every bracket bump but say to ourselves that we’re blessed to be earning more to pay more into the system. As mentioned in my other three, I am working towards simplifying my portfolio and need to find ways to reduce the tax bite during retirement. Our options are limited with W-2 earnings. Even after maxing out 401k’s, contributing to back door Roth and HSA’s we end up paying significant $$ in taxes. As others mentioned, I’ll gladly be in the top 1% paying 30%.

I’ve experienced the power of compounding and seeing daily fluctuations in 4 digits. Can only imagine what this looks like when the daily fluctuations are in mid- high 5 digits.

Are you sure about that 30%?

For a married couple with $350k of ordinary income and $150k of preferenced income, federal income tax would only be 18.5%.

Even if you add Illinois state income tax of 4.9% that is 23.4%.

Add in SS taxes assuming ordinary income is wages and you get to 26.8%, still well short of 30%.

The only reason i mention it is because people quite frequently overestimate what they're paying for taxes.

 

[Love This Community]

Are you sure about that 30%?

For a married couple with $350k of ordinary income and $150k of preferenced income, federal income tax would only be 18.5%.

Even if you add Illinois state income tax of 4.9% that is 23.4%.

Add in SS taxes assuming ordinary income is wages and you get to 26.8%, still well short of 30%.

The only reason i mention it is because people quite frequently overestimate what they're paying for taxes.

I was referring to when W-2 income increases to more than $400K and the highest tax bracket not the effective tax rate. Happy to stand corrected. You’re the expert in this space and would rely on your numbers more than mine any day.

 

[SevenUp]

I was referring to when W-2 income increases to more than $400K and the highest tax bracket not the effective tax rate. Happy to stand corrected.

The chart below assumes MFJ both under age 63, one earner, no dependents, no 401k or IRA contributions, no state tax, and a fixed $150K of qualified dividends. SS and medicare payroll taxes included.

The case study spreadsheet (in Excel) used to generate the chart can generate similar charts with different assumptions.

 

[donheff]

The chart below assumes MFJ both under age 63, one earner, no dependents, no 401k or IRA contributions, no state tax, and a fixed $150K of qualified dividends. SS and medicare payroll taxes included.

The case study spreadsheet (in Excel) used to generate the chart can generate similar charts with different assumptions.

Nice chart SevenUp. It visually captures both the progressive and regressive aspects of the Federal tax system. I would like to see the same image decade by decade for the past 50 years. Couple those side by side by income distributions. Visuals are easier to grasp than lengthy descriptions.

 

[target2019]

Instead of reading articles and viewing charts, I've been watching Succession. It's the closest I've been to the Uber-rich.

According to real life (mine), you take the advantages and disadvantages that piled up throughout the years, use your "human capital", and find a path that lets you end up with more than enough.

Pay some tax? No problem.