# US Income Tax

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Gold Member
I think the non-payment of tax is a separate issue. How many people are non-taxpayers? Of more concern to me (going off topic a second) is this, care of our friends in the European Court:

http://www.bbc.co.uk/news/uk-12022013

Staff Emeritus

I think the non-payment of tax is a separate issue. How many people are non-taxpayers?

Gold Member

How do 40% get off paying any tax? I tried to find some figures for the U.K., the best I could come up with was a site stating that we have 33 million people of working age, 2 million of which are unemployed which gives about 6% of non-taxpayers. Does anyone have more accurate figures? I don't know the reasons, but rather than taking away the vote, I'd be finding ways of getting them to pay tax.

turbo
Gold Member

How do 40% get off paying any tax? I tried to find some figures for the U.K., the best I could come up with was a site stating that we have 33 million people of working age, 2 million of which are unemployed which gives about 6% of non-taxpayers. Does anyone have more accurate figures? I don't know the reasons, but rather than taking away the vote, I'd be finding ways of getting them to pay tax.
In the US (and in the UK), there are regressive taxes added to anything of value, such that anybody who has to buy anything (apart from perhaps food) has to pay taxes every time they spend any money. Poor people in the US are already charged taxes (state and local) for most everything that they buy. That's not such a terrible thing, but it would be a good idea to raise the marginal rates on all forms of income - not just wages, but capital gains and other forms of income. It is very easy for wealthy people to shield income from taxation in the US.

Back to the original subject - would it be possible to get a majority of people to vote for real reform (electoral financing and taxation)? It seems like the wealthy and their minions have been able to get a large number of ordinary taxpayers to vote against their own interests in the name of "conservatism". Worse, since the SCOTUS ruled that corporations and un-named groups can dump unlimited money into political campaigns as "free speech" I fear that the rights of actual citizens and voters will be drowned out in perpetuity unless that ruling is overturned. The Right is building an oligarchy in the US, and they are relentless.

Staff Emeritus

How do 40% get off paying any tax?
It's up to 47%. This is federal income tax only - states can have their own income tax, their own sales tax, both or neither. Here is a http://www.cbsnews.com/stories/2010/04/07/national/main6372418.shtml" which discusses why.

The US Federal system is quite progressive. The top ~3% or so of taxpayers pay as much in income tax as the bottom 97% or so.

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Gold Member

It's up to 47%. This is federal income tax only - states can have their own income tax, their own sales tax, both or neither. Here is a http://www.cbsnews.com/stories/2010/04/07/national/main6372418.shtml" which discusses why.

The US Federal system is quite progressive. The top ~3% or so of taxpayers pay as much in income tax as the bottom 97% or so.
Thankyou for the link. I may be reading this wrong, but it looks to me that your tax system needs an overhaul. People should not make money off a tax system. Anybody who works should surely pay some tax. I'm all for tax rates to be linked to income, but this seems a bit out of balance. Is this tax system popular? You say it's quite progressive, so I'm probably not seeing the big picture here.

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Staff Emeritus
I've split this off to its own thread.

Is the tax system popular? It's fair to say its more popular with the 47% of the population that's paying no income tax than the 1% of the population that pays 35% of the income tax.

Mech_Engineer
Gold Member
Some facts about US federal income tax from 2005. Not sure what it is today, I poked around on the IRS website some and couldn't navigate the monstrosity.

In 2005:
Top 50% of earners (approx $45,000+) paid 97% of all taxes. Top 25% of earners (approx$80,000+) paid 86% of all taxes.
Top 1% of earners (approx $250,000+) paid 39% of all taxes. Household income in US: http://en.wikipedia.org/wiki/Household_income_in_the_United_States IRS data: http://www.irs.gov/pub/irs-soi/05in05tr.xls [PLAIN]http://www.rushlimbaugh.com/home/menu/irs_screen_grab.MainParTop.82655.ImageFile.jpg [Broken] Last edited by a moderator: Thankyou for the link. I may be reading this wrong, but it looks to me that your tax system needs an overhaul. People should not make money off a tax system. Anybody who works should surely pay some tax. I'm all for tax rates to be linked to income, but this seems a bit out of balance. Is this tax system popular? You say it's quite progressive, so I'm probably not seeing the big picture here. Anyone who works DOES pay some taxes. All workers, regardless of income, have to pay into medicaid and social security. They also have to pay federal income tax, but that is, in many cases, offset by tax credits for doing things the government likes (going to college, owning a house, having kids, etc). For example, if you make 8000 a year in income, you still technically owe 10%. But then there is the standard deduction of 5700, so your income was only 2300, so it's 10% of that. Most people in that situation will have some sort of tax credit they qualify for, so the net result is they don't pay any tax. One thing to keep in mind is that in some places, things like a college education and health care are free to the end-user. Here, we have to pay for health care, and a lot of college is subsidized through the tax code. For example, in the UK, a poor person might have to pay some income tax, but they get free health care. Here, they have to pay for health care, but they don't have to pay any net income tax. It balances out in the end. Gold Member In the U.K. we have income tax, a local tax and a "goods purchased tax". The U.S. system does seem to me to be overweighted towards the well off (I never thought I'd ever be saying that), and I don't understand why it is allowed for people to make money off it, though the system is going to be a lot more complicated than the U.K. one. Maybe I'm reading the numbers wrong. Anyway, at least I'm learning something about the U.S. tax system. Mech_Engineer Science Advisor Gold Member Another interesting fact from the Wall Street Journal: "In 1980 when the top icome tax rate was 70%, the richest 1% paid only 19% of all income taxes; now, with a top rate of 35%, they pay more than double that share." So when the top income tax bracket was cut in half, the contribution of the rich to the total amount of taxes coming in more than doubled! Counterintuitive, but true... Anyone who works DOES pay some taxes. All workers, regardless of income, have to pay into medicaid and social security. They also have to pay federal income tax, but that is, in many cases, offset by tax credits for doing things the government likes (going to college, owning a house, having kids, etc). For example, if you make 8000 a year in income, you still technically owe 10%. But then there is the standard deduction of 5700, so your income was only 2300, so it's 10% of that. Most people in that situation will have some sort of tax credit they qualify for, so the net result is they don't pay any tax. One thing to keep in mind is that in some places, things like a college education and health care are free to the end-user. Here, we have to pay for health care, and a lot of college is subsidized through the tax code. For example, in the UK, a poor person might have to pay some income tax, but they get free health care. Here, they have to pay for health care, but they don't have to pay any net income tax. It balances out in the end. The US system provides an Earned Income Tax Credit (EITC) that caps at approx$50,000 for a family of 4 - their eligibilty is roughly a $5,000 cash payout - it is NOT based on taxes paid in - it was designed to return Social Security contributions to low income people. Gold Member The US system provides an Earned Income Tax Credit (EITC) that caps at approx$50,000 for a family of 4 - their eligibilty is roughly a $5,000 cash payout - it is NOT based on taxes paid in - it was designed to return Social Security contributions to low income people. Are you saying that a family of four with an income of$50,000 or less is eligible to a $5,000 dollar payout, and that the system was not originally designed to do this? That does sound excessive, though I don't know the price of goods in the U.S. (but I always thought things were cheaper over there). russ_watters Mentor Anyone who works DOES pay some taxes. All workers, regardless of income, have to pay into medicaid and social security. You'll probably want to be careful how you characterize Social Security, lest you inadvertently characterize it in a way you don't want. The reason SS is treated differently in measuring taxes paid is that it is much different in how the money is used. With your other taxes, you pay with no expectation of getting the money back. The fact that I pay money toward the President's salary and 47% of the population doesn't, does not mean he works for me and not for them - he works for all of us equally. Even with the flat tax on state services, if I pay twice the taxes someone else does, that doesn't mean I'm granted twice the access to roads or police. The way SS has been sold to the public is that you pay in and you eventually get that money back, plus interest. So SS taxes and payments are based on your income and the cap on taxable income is also the cap on payments out. But if SS is restructured to divorce the payments in from the payments out, it becomes a simple redistribution scheme, taking from the rich and giving to the poor, but also taking from one generation and giving it to the next. So if you see SS as a forced retirement savings plan, it makes sense to treat the money separately in statistics like people have done above. If you want SS included because the logic behind the tax changes (say, welfare for the elderly), then you open a huge can of worms about the purpose of SS that I don't think you want to open.  Heck, since the SS fund was never meant to be self-sustaining based on each individual's contributions, eliminating it would still reduce the rich-poor divide in a pure$$measurement. One thing to keep in mind is that in some places, things like a college education and health care are free to the end-user. Here, we have to pay for health care, and a lot of college is subsidized through the tax code. For example, in the UK, a poor person might have to pay some income tax, but they get free health care. Here, they have to pay for health care, but they don't have to pay any net income tax. It balances out in the end. Um, well, no it most certainly does not balance out in the end. The whole reason we're having this discussion is too point out that the rich pay vastly more than the poor and middle classes for the same services. If you add-in enough services you'll eventually reach a level where the poor can't continue paying nothing otherwise the government won't have enough money to fund the services. So the poor would pay some small amount. That would eliminate the divide-by-zero error in the calculation, but the difference in burden in actual dollars would still increase. Last edited: Ygggdrasil Science Advisor Gold Member The US Federal system is quite progressive. The top ~3% or so of taxpayers pay as much in income tax as the bottom 97% or so. Note that it can be somewhat misleading to consider only the share of taxes contributed by each income bracket. For example, in the case of a flat tax system (one where everyone pays the same percentage of their income regardless of their earnings), the top 3% of taxpayers would pay as much in income tax as the bottom 97% if the top 3% of taxpayers earned as much as the bottom 97%. So, these numbers need to be taken into context with how income is distributed within the society. So, let's add the proper context to the numbers Mech_Engineer provided: In 2005: Top 50% of earners (approx$45,000+) accounted for 87% of income and paid 97% of income taxes.
Top 25% of earners (approx $80,000+) accounted for 68% of income and paid 86% of income taxes. Top 1% of earners (approx$250,000+) accounted for 21% of income and paid 39% of income taxes.
(income data from IRS link provided by Mech_Engineer)

Clearly the US income tax is progressive, but perhaps less progressive than it seems without considering the share of income generated by each group of earners.

Another interesting fact from the Wall Street Journal: "In 1980 when the top icome tax rate was 70%, the richest 1% paid only 19% of all income taxes; now, with a top rate of 35%, they pay more than double that share."

So when the top income tax bracket was cut in half, the contribution of the rich to the total amount of taxes coming in more than doubled! Counterintuitive, but true...
Therefore, data like these reflect the growing income inequality in the US. While the economy has grown significantly since the 1980s, most of the growth has gone to the top earners and comparatively little has gone to the lower and middle classes.

Mech_Engineer
Gold Member

So, these numbers need to be taken into context with how income is distributed within the society. So, let's add the proper context to the numbers Mech_Engineer provided:

In 2005:
Top 50% of earners (approx $45,000+) accounted for 87% of income and paid 97% of income taxes. Top 25% of earners (approx$80,000+) accounted for 68% of income and paid 86% of income taxes.
Top 1% of earners (approx $250,000+) accounted for 21% of income and paid 39% of income taxes. (income data from IRS link provided by Mech_Engineer) ... Therefore, data like these reflect the growing income inequality in the US. While the economy has grown significantly since the 1980s, most of the growth has gone to the top earners and comparatively little has gone to the lower and middle classes. Thanks for the extra context. Even with it though, it's important to note that it isn't the job of taxes to narrow the income disparity in the country! The rich get richer because they have good fiscal practices; the poor get poorer because they have poor fiscal practices. This can be seen in the bankruptcy rate in lottery winners and professional athletes for example: even when given ridiculous amounts of money, a person with poor fiscal responsibility will blow it away no problem. Clearly the US income tax is progressive, but perhaps less progressive than it seems without considering the share of income generated by each group of earners. Be that as it may, it really puts calls to "make the rich pay their fair share of taxes" into perspective... they already pay out the nose! Last edited: Another interesting fact from the Wall Street Journal: "In 1980 when the top icome tax rate was 70%, the richest 1% paid only 19% of all income taxes; now, with a top rate of 35%, they pay more than double that share." So when the top income tax bracket was cut in half, the contribution of the rich to the total amount of taxes coming in more than doubled! Counterintuitive, but true... Ahh, the good old days of tax shelters. Your post should be mandatory reading for all politicians (IMO). Raising the top tax rate does not work . Rich people find ways to protect themselves - even if it means leaving the US (financially). Also IMO/observation, most working people are willing to pay a fair amount of taxes and most people (the bottom 50%) are typically not subject to "Capital Gains". At the same time, it's generally accepted that unemployment (lack of jobs) and reduced tax revenues (deficit spending) are current (2010) problems. Given these variables, how should elected representatives address the problem - raise rates/lower rates, cut spending/increase spending, or maybe engage in class warfare and contiue the "shell game"? IMO, this would be a logical path to follow: 1.) Raise the top rates for families earning over$50,000 by 5% at all levels.
2.) Eliminate the EITC
3.) Promote investment in the US with accelerated depreciation schedules for capital equipment (purchased from US manufacturers)
4.) Reduce Capital Gains on US based activities by 5%.
5.) Increase Capital Gains on foreign investments by 5%.
6.) Encourage savings (up to 50% of income) in tax deferred retirement funds (US based only) and expand HSA's (and similar programs) - restrict lending of these funds (by banks) to domestic investment and lowest risk.

7.) Cut government spending by 40% (a few ideas: eliminate duplication, renegotiate union contracts, cut foreign aid, cut SSDI spending (primarily Bi-Polar disorder), cut Medicaid spending (address emergency room visits - send non-emergencies to a clinic or require they have a PCP), (restore) Social Security rate and increase to 8% AND eliminate the cap on SS max (but reduce to 4% at $100,000) AND increase the SS and Medicare ages by 3 years). 8.) Seek a return on investment from defense spending Last week, someone asked me what I thought was the greatest problem faced in the US today? My response was a lack of direction and purpose. The Chinese plan in 250 year+ increments, we plan in 90 day increments and election cycle to election cycle - it's a disgrace. The top priority of the US should be to protect the US - now and in the long term. Tax policy needs to encourage investment in the US. Tax policy needs to encourage savings to protect against unforeseen future economic downturns and retirement. Tax policy needs to guarantee that, regardless of the Party in power, the "Golden Goose" continues to lay golden eggs - and not be eaten in a singl meal. Are you saying that a family of four with an income of$50,000 or less is eligible to a $5,000 dollar payout, and that the system was not originally designed to do this? That does sound excessive, though I don't know the price of goods in the U.S. (but I always thought things were cheaper over there). Approximately - yes - here's a quick summary. http://www.consumeraffairs.com/news04/2010/12/taxpayers-to-see-more-generous-deductions-in-2011.html "The maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to$5,751, up from $5,666 in 2010. The maximum income limit for the EITC rises to$49,078, up from $48,362 in 2010.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children. " Mech_Engineer Science Advisor Gold Member Raising the top tax rate does not work . Rich people find ways to protect themselves - even if it means leaving the US (financially). ... IMO, this would be a logical path to follow: 1.) Raise the top rates for families earning over$50,000 by 5% at all levels.
You say that raising taxes does not increase federal income, yet you want to raise taxes on people making more than $50,000? What is your reasoning behind it? Why$50,000? What's the purpose of the tax hike?

You say that raising taxes does not increase federal income, yet you want to raise taxes on people making more than $50,000? What is your reasoning behind it? Why$50,000? What's the purpose of the tax hike?
It's a reasonable increase. When rates were 70%, investors had no choice but to find shelters. An increase of 5% is a collectable amount.

Mech_Engineer
Gold Member
It's a reasonable increase. When rates were 70%, investors had no choice but to find shelters. An increase of 5% is a collectable amount.
Why is 5% a "reasonable" amount? What would be achieved through the increase? It certainly wouldn't cover the current federal deficit...

Why is 5% a "reasonable" amount? What would be achieved through the increase? It certainly wouldn't cover the current federal deficit...
The amount of the increase is reasonable - on it's own 5% won't cover the deficit. Together with the other items I specified, the multiple problems would be addressed comprehensively.

Mech_Engineer
Gold Member
The amount of the increase is reasonable - on it's own 5% won't cover the deficit. Together with the other items I specified, the multiple problems would be addressed comprehensively.
You assume a 5% increase would result in higher federal income. What if we are on the falling edge of the Laffer Curve rather than the rising edge? The Bush tax cuts significantly increased federal income- this suggests to me we are (and still are) on the falling edge of the Laffer Curve. Therefore it seems to me that a 5% increase would result in less federal income.

I think we should do the following to get out of the economic trouble we're in:

• We need to balance the Federal budget. If the budget isn't balanced, we're prepetually screwing ourselves. This would be a painful process, but it can't be looked at as optional any more.
• Major overhaul of the US tax code. Imagine the savings that would be realized in IRS resources if a flat tax was implemented. I think a flat tax of 15-20% would be reasonable for a starting point.
• Cut corporate taxes. This will have a two-fold effect- incentivise companies to expand and hire (supply), and give consumers (employees) more money in their pocket for buying power (demand). Tax cuts also need to be implemented permanently rather than for a 5-10 year period, so that companies do not feel the need to stave off a tax increase that's just around the corner.
• Expand US manufacturing/export incentives. I personally like the German implementation- income made on all exported products are tax-free. Germany is a huge export powerhouse because of this policy and only have a population of 80 million; imagine what would happen to the US manufacturing base if similar incentives were implemented here!

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You'll probably want to be careful how you characterize Social Security, lest you inadvertently characterize it in a way you don't want.
I characterized it exactly how I want.

Um, well, no it most certainly does not balance out in the end. The whole reason we're having this discussion is too point out that the rich pay vastly more than the poor and middle classes for the same services.
First off, no, the reason we're having this discussion is comparing the US system to foreign systems. Secondly, that's the context in which I made the "it balances out" statement. Compared to foreign countries, they make their credits to the poor more explicit, while in the US, we merge it with the tax code. It all balances it out.

Mech_Engineer:

Be that as it may, it really puts calls to "make the rich pay their fair share of taxes" into perspective... they already pay out the nose!
There are no calls to "make the rich pay their fair share" that I'm aware of. There are calls to raise taxes on the rich to help pay for government spending, and the fact is that the rich have more money to be ABLE to pay higher taxes.

If you raise taxes on that family making 50k per year, they have to cut back on important things, like college savings plans, food, et cetera. If you raise taxes on the rich, unless they were living very extravagantly compared to their means, they don't have to cut back on their lifestyle at all. Maybe they only put 50k instead of 75k into their hedge fund this year. Big deal.

WhoWee:

7.) Cut government spending by 40% (a few ideas: eliminate duplication, renegotiate union contracts, cut foreign aid, cut SSDI spending (primarily Bi-Polar disorder), cut Medicaid spending (address emergency room visits - send non-emergencies to a clinic or require they have a PCP), (restore) Social Security rate and increase to 8% AND eliminate the cap on SS max (but reduce to 4% at \$100,000) AND increase the SS and Medicare ages by 3 years).
None of these things would even come CLOSE to reaching 40%.

You assume a 5% increase would result in higher federal income. What if we are on the falling edge of the Laffer Curve rather than the rising edge? The Bush tax cuts significantly increased federal income- this suggests to me we are (and still are) on the falling edge of the Laffer Curve. Therefore it seems to me that a 5% increase would result in less federal income.

I think we should do the following to get out of the economic trouble we're in:

• We need to balance the Federal budget. If the budget isn't balanced, we're prepetually screwing ourselves. This would be a painful process, but it can't be looked at as optional any more.
• Major overhaul of the US tax code. Imagine the savings that would be realized in IRS resources if a flat tax was implemented. I think a flat tax of 15-20% would be reasonable for a starting point.
• Cut corporate taxes. This will have a two-fold effect- incetivise companies to expand and hire (supply), and give consumers (employees) more money in their pocket for buying power (demand). Tax cuts also need to be implemented permanently rather than for a 5-10 year period, so that companies do not feel the need to stave off a tax increase that's just around the corner.
• Expand US manufacturing/export incentives. I personally like the German implementation- income made on all exported products are tax-free. Germany is a huge export powerhouse because of this policy and only have a population of 80 million; imagine what would happen to the US manufacturing base if similar incentives were implemented here!
You've made it difficult for me to defend only 1 leg of my 8 legged (post) - therefore, I'll respond to your list.

Budget: a balanced budget is very good -but after reducing the size and scope of Government (by 40% IMO).
Flat Tax: is a great idea - but will never be passed - it's too fair. Instead, as long as higher income individuals pay slightly more - the Left will approve - AND as long as the bottom 50% pay something - the top 50% will agree to pay a little more (IMO) - especially if up to 50% could be tax deferred.
Cut Corp Taxes: YES, I agree -however, we need domestic investment incentives now - if we hope to get people back to work. In the long term - our corporate rate is excessive.
Increased Exports: I agree again - and to facilitate, we need to promote domestic investment.