Well, in light of recently passing tax day, I was wondering on how people felt about the status of the tax structure in the United States. I do believe taxes are necessary, and justified as a cost of living in the United States, arguably one of the best places in the world to live.
However, I feel our tax system is completely upside down. Anyone else bothered by the fact that a married couple, no children, that rents an apartment, annual income ~$70k pays a higher percentage of their income in taxes than any other demographic in the country? Shouldn't the "progressive" system we have implemented work better?
It's important how you frame this discussion. If you look at just income tax what you said is essential true, although it extends more into the half mill bracket as well.
Lets start with the poor. Now, I'll admit that poor is sort of tricky to define, so lets keep it to those who pay no federal income tax at all. That's actually about half the the US population. Although that's including children, the elderly, the disabled and non compensated labor (ie. stay at home moms). So if you only count the people who actually get a regular paycheck, that fraction of "deadbeats" falls significantly. I think that its also important that I state right now that the median annual income in the United States for 20010 was $26k {cite} which is not exactly a fabulous living wage. It should also be kept in mind that although these people may pay no federal income tax, they still pay a social security tax, a state income tax, sometimes a local income tax, property tax if they own a house, not to mention sales tax on just about everything they buy and their employer has to dish out a payroll tax.
This brings us to the progressive tax income system. When you make $20k a year, a much larger portion of your income (just about all of it) goes to providing the basics like food, housing and transportation. As your income increases, the amount you absolutely NEED to spend does not increase proportionally, which means that you now have some extra cash at the end of each cycle. This money can be put into savings and investments or spent on additional goods. This is also money that the government knows it can tax, so it does. Naturally, things like children, illness or just about anything else can complicate this model, but that is a very general overview of the benefits of a progressive tax system.
When it comes to the rich, millionaires and billionaires, they usually have enough cash laying around to bribe legislatures to do anything they want.
I'm gonna end it there for now and see what kind of bites I get so I know which direction to go in.
You're not quite correct with the calculation of federal taxes. Of the returns filed (those with income exceeding the minimum required to file, 47% receive 100% or greater refunds), not the total population. However, many are young adult workers, poor, and others whom make very little income. Part of the flaw with our tax system is not who is paying, but it is simply unbalanced.
While the base cost of merely living is essentially uniform for all, it seems rather ridiculous that someone can live off of dividends and capital gains, paying the marginal 15% capital gains tax (per the 1099 schedule) e.g. Mitt Romney, and be exceeding wealthy, while those that must work for paychecks pay significantly more in taxes. Income should be taxed at same rate, regardless of source. There should be a standard, flatter tax (though not quite tax), and I like the following schedule:
It's nowhere near as punishing as when the marginal tax rate for the highest income bracket was 90+% ca. 1940, but would still be fair. Add in perhaps a 10% VAT, and a 25% corporate transaction tax, and we'll be getting somewhere. No more deductions/loopholes, just a highly simplified system. Complexity breeds corruption.
You're not quite correct with the calculation of federal taxes...Part of the flaw with our tax system is not who is paying, but it is simply unbalanced.
While the base cost of merely living is essentially uniform for all, it seems rather ridiculous that someone can live off of dividends and capital gains, paying the marginal 15% capital gains tax (per the 1099 schedule) e.g. Mitt Romney, and be exceeding wealthy, while those that must work for paychecks pay significantly more in taxes. Income should be taxed at same rate, regardless of source.
Yes, I was simplifying it to a degree, but my point was that capital gains doesn't fall under the traditional income tax. That's why people like Romney, who do mostly live off capital gains (Dividends fall under capital gains) get to pay a rate of 15%. Back 20 years ago, the capital gains rate was more than the highest income tax bracket. Clinton had agreed to lower it to match the income tax rate. The House decided that wasn't enough and decided to take off another 10%.
There should be a standard, flatter tax (though not quite tax), and I like the following schedule:
This is flawed, the system should not be flat across the brackets. Just using your suggested rates, someone who makes 50k will be taxed at 20% and it should go up linearly, so someone making 75k will be taxed at 25%. That way, by earning 1 dollar more, your tax rate doesn't jump from 10% to 20%. That is actually how the income tax system works now if you ignore all the deductions and loopholes.
Perhaps I wasn't clear enough, but that wasn't a "blanket" tax meaning if you make $100,001 that you'll pay 30% on your income. It's a progressive system: 10% on dollars earned from $25-50K, 20% on dollars earned from $50-100K... and I know how the existing tax structure works (or at least fails to) for the time being. It is nonsense that someone that undertakes massive debt should pay less in taxes (e.g. home mortgage) while I am responsible and decide to rent, because I feel that it is irresponsible to purchase a home without solid, permanent employment. It is also crazy that someone can decide to have children, and pay less in taxes, yet consume more societal resources, while I do not. No more loopholes/deductions. I don't care if you have no children or ten children, if you make the same income as me, you should pay the same tax as me.
Can't say your wrong. Interestingly enough, all the loop holes you listed were introduced as a form of societal conditioning. The government wanted to encourage people to own homes, so they put in a tax incentive. States often do the same thing if they want to attract a certain industry or business in general. Not saying that its right, but that's how a lot of this stuff came into existence.
Business especially benefit from the tax code. It's not always to "attract" business as much as it's to gain campaign financing and support. Now with "Super PACs," business can essentially give unlimited money to the candidate of their choice, that candidate being the one supporting legislation that adds some form of subsidy to their industry.
The whole system is upside down at this point -- the people that write the laws shouldn't be allowed to take money from the people those laws affect. It's a clear conflict of interest -- I could get fired for doing something like that. But politicians, they get elected for doing that.
This is flawed, the system should not be flat across the brackets. Just using your suggested rates, someone who makes 50k will be taxed at 20% and it should go up linearly, so someone making 75k will be taxed at 25%. That way, by earning 1 dollar more, your tax rate doesn't jump from 10% to 20%. That is actually how the income tax system works now if you ignore all the deductions and loopholes.
I think you're correct, but I'm not sure because I'm not exactly sure what you're saying. If you're saying the tax system doesn't work with flat brackets, you're correct.
So the tax rate on the first $8700 you make is 10%. If you earn $8701 in taxable income, you pay 10% on the first $8700, and .15 on that last dollar.
Taxing the example from the link, if you're a single person earning $100,000, your "tax bracket" is 28%, but that's not your overall tax rate.
You're paying 10% on the first $8700, so $870. Then you pay 15% on the next $26,650 ($35350 - $8700) so $3997.50, then you pay 25% on the next 50,300 ($85,650 - $35350) so $12,575 in taxes, then you pay 28% on the next $14350 ($100,000 - $85,650) or $4018.
So as a single person earning $100,000 you paid $21,460.5 in taxes, or an effective tax rate of about 21.4%.
Now, deductions, credits, exemptions etc, affect "taxable income," They get taken off the top, so they can save you a disproportionate amount of tax dollars if you're near a bracket. Suppose in the scenario above you could deduct a total of $14350, you'd save about $4018, because the deduction is on dollars taxed at 28%, not 21%.
