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CharlieDigital · Apr 6, 2009

...and what it means to you.

I know, for some, filing taxes can be a traumatic event. Maybe that's why many people black out and don't even realize how much of their income they actually pay in taxes.

It's astounding that it seems like every one in a while, especially during the whole Joe the Plumber fiasco, someone will pop into a PoliGAF thread and say some nonsense about taxes thinking that they are actually being taxed at 30-some-percent.

Stop.

That's not how it works unless you're making something like 7 figures (even at $1,000,000, the effective tax rate is "only" 32.86%).

First, a simple definition of progressive tax brackets:

http://en.wikipedia.org/wiki/Progressive_tax

A progressive tax is a tax by which the tax rate increases as the taxable amount increases.[1][2][3][4][5] "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate.[6][7] It can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. Progressive taxes attempt to reduce the tax incidence of people with a lower ability-to-pay, as they shift the incidence increasingly to those with a higher ability-to-pay.

Wiki gives a good, simple example:

If taxable income falls within a particular tax bracket, the individual pays the listed percentage of income on each dollar that falls within that monetary range. For example, a person in the U.S. who earned US$10,000 of taxable income (income after adjustments, deductions, and exemptions) would be liable for 10% of each dollar earned from the 1st dollar to the 7,550th dollar, and then for 15% of each dollar earned from the 7,551st dollar to the 10,000th dollar, for a total of $1,122.50. This ensures that every rise in a person's salary results in an increase of after-tax salary.

Okay? Let that soak in for a bit.

.
..
...

Good? Now let's move on.

Here are the tax brackets for the year 2008:

http://www.bargaineering.com/articles/2008-federal-income-tax-brackets-official-irs-figures.html

Code:

Tax Rate 	Single 			Married Filing Jointly
10%   		Not over $8,025 	Not over $16,050
15%  		$8,025 - $32,550 	$16,050 - $65,100
25%  		$32,550 - $78,850 	$65,100 - $131,450
28%  		$78,850 - $164,550 	$131,450 - $200,300
33%  		$164,550 - $357,700 	$200,300 - $357,700
35%  		Over $357,700 		Over $357,700

So how does this actually work? Moneychimp has a good example:

http://www.moneychimp.com/features/tax_brackets.htm

To take an example, suppose your taxable income (after deductions and exemptions) was exactly $100,000 in 2008 and your status was Married filing separately; then your tax would be calculated like this:

Code:

(	$ 8,025   minus   	 0 )	   	x .10 :	$802.50
(	32,550   minus   	8,025 )	  	x .15 :	3,678.75
(	65,725   minus   	32,550 )	x .25 :	8,293.75
(	100,000   minus   	65,725 )	x .28 :	9,597.00
					 Total:		$ 22,372.00

This puts you in the 28% tax bracket, since that's the highest rate applied to any of your income; but as a percentage of the whole $100,000, your tax is about 22.37%.

This second number, 22.37, is an "effective tax rate" (but bear in mind that this simple calculation doesn't include any deductions at all). For example, this year, my wife and I fell into the 28% tax bracket ($131,450 -$200,300), but our effective tax rate was closer to 20%. You can find various calculators to roughly calculate your effective tax rate, which will vary based on your deductions and state tax rates.

So you see, even if your salary was $357,701, you would still not be taxed at 35% (calculator says 29.02, but if you're that wealthy, you're probably going to claim a shitload of deductions and come in lower than 29.02%); you would have to make much more before your effective tax rate was equivalent to your marginal tax bracket.

And no, I'm not inclined to believe that GAFfers are making anywhere near $357,700 (with the exception of a small handful...maybe).

According to census data, in 2005, only 1.7 million households made more than $250,000...that's 1.5% of all households.

http://en.wikipedia.org/wiki/Household_income_in_the_United_States

I hope that this has been informational for you. Please, I don't want to see anymore bullshit posts crying about being taxed at 35%.

GDJustin · Apr 6, 2009

That's only federal taxes. When you include state taxes (which are generally paid at the same time), almost everyone who isn't at the poverty line ends up paying ~30% or more.

CharlieDigital · Apr 6, 2009

GDJustin said:
That's only federal taxes. When you include state taxes (which are generally paid at the same time), almost everyone who isn't at the poverty line ends up paying ~30% or more.

My effective tax rate, including state taxes, was 20% this year and I am in the 28% bracket so I call bullshit.

Pull your last tax return and look at the numbers.

Door2Dawn · Apr 6, 2009

Very helpful information,thank you.

Herpes Reasons · Apr 6, 2009

like most here probably, i fall under the 25% tier.
factor in state tax, social security, medical, and SUI tax, yeah its a lot more than 35% of my net income.

GDJustin · Apr 6, 2009

CharlieDigital said:
My effective tax rate, including state taxes, was 20% this year and I am in the 28% bracket so I call bullshit.

Pull your last tax return and look at the numbers.

*shrug*

I dunno what to tell you. I am an independent contractor so I do an itemized deduction and write off an INSANE amount of stuff, and my effective tax rate for Federal+state still ends up being about ~25%. I fear for peeps that don't get the write-offs I get.

Additionally, I know your OP dealt only with income tax, but remember that that isn't the only tax people pay. When people refer to the fact that they pay "over 40%" of their money to taxes, they're also referring to sales taxes, tolls, property tax, and other similar hidden "day to day" taxes that add up, over the course of a year. The sales tax where I live is 8.5%. No shit.

Tideas · Apr 6, 2009

Federal tax isn't what kills me.

It's Social security and medicare. Those 2 add an extra 70% to deductions from my paycheck.

I pay $132 in fed tax a week. I pay an extra $90 in social security and medicare.

To think, when I become 65, I won't see a dime of the $90/week

viakado said:
like most here probably, i fall under the 25% tier.
factor in state tax, social security, medical, and SUI tax, yeah its a lot more than 35% of my net income.

That ain't right. I fall into the 25% tier too, but if u come State, Fed, SS, and medicare, I pay an effective 22%.

JayDubya · Apr 6, 2009

Double posts are awesome. I love them. I'm going to put this space to good use, though, don't worry. I'll post something utterly fascinating. Sure. Eventually.

JayDubya · Apr 6, 2009

Rebuttal summary: needlessly complex and unneccessary. And unfair.

CharlieDigital · Apr 6, 2009

GDJustin said:
Additionally, I know your OP dealt only with income tax, but remember that that isn't the only tax people pay. When people refer to the fact that they pay "over 40%" of their money to taxes, they're also referring to sales taxes, tolls, property tax, and other similar hidden "day to day" taxes that add up, over the course of a year. The sales tax where I live is 8.5%. No shit.

I really doubt that most people factor that in. Aside from that, sales taxes are different by state and discretionary: you only pay however much you want to pay (based on your spending habits) so it's not a number you can use in a discussion on an internet board where people are spread across the country under different local tax codes and have huge differences in discretionary spending habits.

But you can just see the general stupidity of most Americans exemplified in Joe the Plumber types who have no fucking clue. I very, very much doubt that they've thought that far ahead and calculated their taxes that clearly (I doubt they can calculate much of anything).

Tideas said:
That ain't right. I fall into the 25% tier too, but if u come State, Fed, SS, and medicare, I pay an effective 22%.

Exactly, doesn't add up at all.

Lazy vs Crazy · Apr 6, 2009

JayDubya said:
My rebuttal summary: overly complex and unneccessary.

So, would you suggest regressive taxation?

JayDubya · Apr 6, 2009

Lazy vs Crazy said:
So, would you suggest regressive taxation?

I'd advocate a flat tax as far preferable to the current norm. Attempt to label that how you will. I'd call shifting to such a method "progress" towards something more equitable.

Beer Monkey · Apr 6, 2009

Lazy vs Crazy said:
So, would you suggest regressive taxation?

We already have regressive taxation, de facto. Warren Buffet pays about 15% of his yearly income in taxes and his secretary pays about 30%.

itsinmyveins · Apr 6, 2009

Just a couple of days ago I realized I only paid 29% in taxes, i.e. a few percent lower than a few years ago. I guess the conservative government here lowered the taxes.

Tideas · Apr 6, 2009

JayDubya said:
I'd advocate a flat tax as far preferable to the current norm. Attempt to label that how you will. I'd call shifting to such a method "progress" towards something more equitable.

So what, charge 10% all, and American cuts back 20% of its services?

or charge 35% all, and poor people gets even poorer?

35% of a 100k salary is 35k. You have 65k left over.
35% of a 20k salary is 7k. You have 13k left over.

Hmm...that seems fair to me.

daw840 · Apr 6, 2009

So, if I make 100,000 per year I end up paying ~22% to the government on Fed income tax alone. After you factor in everything else you end up paying to the gov't I guarantee that it adds up to over 40%. From property taxes, to registration taxes for your vehicles, to state taxes, etc. Fuck this BS. Where does all this money go? That's what I want to know. When I lived in MO, the roads were atrocious, the school were even worse (KCMO schools actually lost their accreditation), etc.

JayDubya · Apr 6, 2009

Tideas said:
Hmm...that seems fair to me.

Good, that means you can do math.

Lazy vs Crazy · Apr 6, 2009

daw840 said:
Where does all this money go?

Bombs, airplanes, private military contractors, administrative waste, etc...

Herpes Reasons · Apr 6, 2009

Tideas said:
That ain't right. I fall into the 25% tier too, but if u come State, Fed, SS, and medicare, I pay an effective 22%.

yeah i know its not right, tell that to my accountant.

CharlieDigital · Apr 6, 2009

daw840 said:
So, if I make 100,000 per year I end up paying ~22% to the government on Fed income tax alone. After you factor in everything else you end up paying to the gov't I guarantee that it adds up to over 40%. From property taxes, to registration taxes for your vehicles, to state taxes, etc. Fuck this BS. Where does all this money go? That's what I want to know. When I lived in MO, the roads were atrocious, the school were even worse (KCMO schools actually lost their accreditation), etc.

If you want to know where it goes, get involved in your local government and demand accountability. Review your township's budget. Review your state budget. I'm sure most of this stuff can be easily discovered by visiting your local municipal building or maybe even your town's/state's web site.

One of the best graphics I've seen on federal spending is: [B]http://www.wallstats.com/deathandtaxes/[/B] <--- check that out and you'll see exactly where your money goes.

viakado said:
yeah i know its not right, tell that to my accountant.

You need a new accountant.

daw840 · Apr 6, 2009

Yay, let's work harder to make more money and get punished for it!! YAY!

AstroLad · Apr 6, 2009

Can't wait 'til eznark sees this and realizes his whole life has been a lie.

daw840 · Apr 6, 2009

CharlieDigital said:
If you want to know where it goes, get involved in your local government and demand accountability. Review your township's budget. Review your state budget. I'm sure most of this stuff can be easily discovered by visiting your local municipal building or maybe even your town's/state's web site.

Right, but where does the FED income tax go? That's my question. I can easily enough find out where the state taxes go, but the FED tax is what bothers me. Especially since I have to dodge gaping holes of death on I-70. Are interstates locally or federally funded?

CharlieDigital · Apr 6, 2009

daw840 said:
Right, but where does the FED income tax go? That's my question. I can easily enough find out where the state taxes go, but the FED tax is what bothers me. Especially since I have to dodge gaping holes of death on I-70. Are interstates locally or federally funded?

http://www.wallstats.com/deathandtaxes/

A short answer? Most of your federal tax dollars go to defense spending.

GDJustin · Apr 6, 2009

Tideas said:
So what, charge 10% all, and American cuts back 20% of its services?

or charge 35% all, and poor people gets even poorer?

35% of a 100k salary is 35k. You have 65k left over.
35% of a 20k salary is 7k. You have 13k left over.

Hmm...that seems fair to me.

You could do away with the income tax, but significantly raise the sales tax. This would reward people who saved money responsibly, and would also act as a more realistic "graduated" taxation system than what we have now. If a very-high sales tax was the ONLY tax people paid, but it was across the board on all purchases, rich people would still pay much more than poor people (since rich people spend much more money).

You might say that a crazy-high sales tax would crush some single working mother or something, but remember they WOULDN'T be filing an income tax return every year.

Cyan · Apr 6, 2009

JayDubya said:
Good, that means you can do math.

That's still not fair, since everyone is paying different amounts.

A true flat tax would have everyone paying equal dollar amounts. Say $5000 apiece. This is the only completely fair way of taxing people. Why should I pay more just because I make more money?

Lazy vs Crazy · Apr 6, 2009

GDJustin said:
You could do away with the income tax, but significantly raise the sales tax. This would reward people who saved money responsibly, and would also act as a more realistic "graduated" taxation system than what we have now. If a very-high sales tax was the ONLY tax people paid, but it was across the board on all purchases, rich people would still pay much more than poor people (since rich people spend much more money).

You might say that a crazy-high sales tax would crush some single working mother or something, but remember they WOULDN'T be filing an income tax return every year.

Sales tax is also very regressive.

Tideas · Apr 6, 2009

viakado said:
yeah i know its not right, tell that to my accountant.

This has nothing to do with your accountant, lol, unless you run your own business.

if you are employed at a company, look at your pay stub. It should have your total weekly (biweekly wage), and the amount of deductions (fed, state, SS, and medicare).

deduction/salary = % paid to the gov.

Are you counting your total salary or your adjusted salary (salary - pretax deductions(401k, health care)).

if you count your adjusted salary, then yeah, teh % would be higher. mine would be around 29%

Cyan said:
That's still not fair, since everyone is paying different amounts.

A true flat tax would have everyone paying equal dollar amounts. Say $5000 apiece. This is the only completely fair way of taxing people. Why should I pay more just because I make more money?

So someone making 10k a year loses 50% of your wage? really? seriously?

Jeff-DSA · Apr 6, 2009

Tideas said:
So what, charge 10% all, and American cuts back 20% of its services?

or charge 35% all, and poor people gets even poorer?

35% of a 100k salary is 35k. You have 65k left over.
35% of a 20k salary is 7k. You have 13k left over.

Hmm...that seems fair to me.

Uh, but the 100k guy and the 20k probably consume equal amounts of tax money. Actually, the 20k guy will be most likely using more, while paying less.

So yes, would be fair.

GDJustin · Apr 6, 2009

Cyan said:
That's still not fair, since everyone is paying different amounts.

A true flat tax would have everyone paying equal dollar amounts. Say $5000 apiece. This is the only completely fair way of taxing people. Why should I pay more just because I make more money?

It shouldn't be a flat dollar amount... that's stupid as fuck. It should be a flat PERCENTAGE.

You should pay more if you make more, because if you didn't, your taxes would be a smaller % of your income than someone less wealthy.

If everyone paid a flat 25% (or whatever) of their income, period, then that would be a true fair flat tax.

EDIT: The other benefit of a flat tax is what it does to the FUCKING INSANE tax code. Streamlining is a good thing.

Fjolle · Apr 6, 2009

JayDubya said:
I'd advocate a flat tax as far preferable to the current norm. Attempt to label that how you will. I'd call shifting to such a method "progress" towards something more equitable.

B... bu. but sales taxes are hitting poor people harder than rich bastards...

daw840 · Apr 6, 2009

Fjolle said:
B... bu. but sales taxes are hitting poor people harder than rich bastards...

Then maybe the poor people need to work harder, and figure out a way to make more money.

Zyzyxxz · Apr 6, 2009

daw840 said:
So, if I make 100,000 per year I end up paying ~22% to the government on Fed income tax alone. After you factor in everything else you end up paying to the gov't I guarantee that it adds up to over 40%. From property taxes, to registration taxes for your vehicles, to state taxes, etc. Fuck this BS. Where does all this money go? That's what I want to know. When I lived in MO, the roads were atrocious, the school were even worse (KCMO schools actually lost their accreditation), etc.

Defense spending :lol . You know its true that much of your hard earned money goes to fund stuff we overspend on.

Honestly though I don't get why people want to defend rich people from getting taxed more. Sure they have earned alot of money and many have put alot of work into it but they are still living a great life better than most of the world so can they really complain? Maybe if we spent more on social programs to help our fellow man instead of prepping him for wars they'd feel better about their lost income but overall they are in a very fortunate minority to be in that many of us don't have the opportunity to get into.

I remember reading this article, and hearing from a teacher once. A significant perfecage of Americans believe they will be eventually in the top percentage of the country income wise and taxing the rich more would mean potentially taxing them more in the future. Yet the highest tax bracket accounts for such a small percentage of the population there's no way all of them will reach that level.

zombieshavebrains · Apr 6, 2009

daw840 said:
Right, but where does the FED income tax go? That's my question. I can easily enough find out where the state taxes go, but the FED tax is what bothers me. Especially since I have to dodge gaping holes of death on I-70. Are interstates locally or federally funded?

I think it would be nearly impossible to see where everyone's individual money went. That's the beauty of the Federal Govt. Pick a spot, say paying for a senator's salary, and imagine it goes there! Or pick every single spot it could go to and pick there!

border · Apr 6, 2009

WARNING: Annoying FAIRTAX advocacy INCOMING

CharlieDigital · Apr 6, 2009

daw840 said:
Then maybe the poor people need to work harder, and figure out a way to make more money.

Oh shit, it's that easy?

So why aren't you a millionaire yet?

zombieshavebrains said:
I think it would be nearly impossible to see where everyone's individual money went. That's the beauty of the Federal Govt. Pick a spot, say paying for a senator's salary, and imagine it goes there! Or pick every single spot it could go to and pick there!

--> http://www.wallstats.com/deathandtaxes/ <--

daw840 · Apr 6, 2009

CharlieDigital said:
Oh shit, it's that easy?

So why aren't you a millionaire yet?

I didn't say millionaire. I don't think I will probably ever get there, but I can at least get into the middle class with minimal effort.

Herpes Reasons · Apr 6, 2009

Tideas said:
This has nothing to do with your accountant, lol, unless you run your own business.

if you are employed at a company, look at your pay stub. It should have your total weekly (biweekly wage), and the amount of deductions (fed, state, SS, and medicare).

deduction/salary = % paid to the gov.

Are you counting your total salary or your adjusted salary (salary - pretax deductions(401k, health care)).

if you count your adjusted salary, then yeah, teh % would be higher. mine would be around 29%

So someone making 10k a year loses 50% of your wage? really? seriously?

yep. Overtime pay skews my overall deduction as well.

Pristine_Condition · Apr 6, 2009

The OP's story is all nice and cheery...unless you are stuck paying the additional 15.3% self-employment tax.

How do you think that feels?

It damn sure feels like 30% to me and everyone else who has a small business, or is an independent contractor.

CharlieDigital · Apr 6, 2009

daw840 said:
I didn't say millionaire. I don't think I will probably ever get there, but I can at least get into the middle class with minimal effort.

:lol

daw840 · Apr 6, 2009

CharlieDigital said:
:lol

What's funny? You can work as a damn claims adjuster in insurance with no college education and make 35-40K per year very easily. You can work in construction and make more than that. You can be a plumber and make more than that.

zombieshavebrains · Apr 6, 2009

CharlieDigital said:
http://www.wallstats.com/deathandtaxes/

A short answer? Most of your federal tax dollars go to defense spending.

Wtf the Air Force has a larger budget than the Army? USAF has almost a third of the personal as the army lol. Pretty good site though thanks for the link.

Gruco · Apr 6, 2009

JayDubya said:
Rebuttal summary: needlessly complex and unneccessary. And unfair.

There is nothing complex about them. At all. In fact, the progressive rates are by far the most simple component of the entire return. If looking up your income on a table is "needlessly complex" I don't know what to tell you.

I will say, though, that everyone tends to overlook payroll taxes, which, a) makes Charlie Digital's analysis lowball effective rates, and b) Makes a lot of people on the internet look stupid when they complain about the number of people who don't pay "Federal Taxes".

Payroll taxes are taxes too.

Actually, this whole debate tends to get fucked up because there are so many different components. People who don't work dodge payroll taxes, get super low dividend and cap gains rates. People who make over 100k (thereabouts) get an instant 8% marginal rate reduction. People who make a lot and buy fancy things get to lower their rates via more deductions.

Honestly, in the current system the people who tend to have it the worst are probably the 50k-150k group, but I know there is some much more extensive research on the subject (that is just off the top of my head).

...I'll try to look up the charts.

Lazy vs Crazy · Apr 6, 2009

CharlieDigital said:
Most of your federal tax dollars go to defense spending.

Don't call it defense spending, that's a weasel word.

Tideas · Apr 6, 2009

viakado said:
yep. Overtime pay skews my overall deduction as well.

you didn't answer question. haha. are you couting total salary or adjusted salary? If you're counting adjusted salary, you're doign it wrong. The government doesn't see any of your 401k or medical paymentr/contribution

Gruco · Apr 6, 2009

Pristine_Condition said:
The OP's story is all nice and cheery...unless you are stuck paying the additional 15.3% self-employment tax.

How do you think that feels?

It damn sure feels like 30% to me and everyone else who has a small business, or is an independent contractor.

There is no difference from that and anyone else though, everyone else pays half of it through their half of the payroll tax and the other half through lower wages via reduces compensation from employers factoring their half into their business model.

GDJustin · Apr 6, 2009

CharlieDigital said:
:lol

Not sure what you're lol'ing at. I have a white-collar job a couple years out of college and am already middle-class. My earning potential, along with my Wife's, is only going to increase.

If you get an education, you'll probably come out OK, $-wise.

CharlieDigital · Apr 6, 2009

GDJustin said:
Not sure what you're lol'ing at. I have a white-collar job a couple years out of college and am already middle-class. My earning potential, along with my Wife's, is only going to increase.

Of course. But his claim is that it requires "with minimal effort" to get to the middle class.

If you get an education, you'll probably come out OK, $-wise.

If you get an education...

Exactly. This is the key. And this is anything but minimal effort. A college education costs thousands of dollars (my wife and I still have about $30,000 of student loans to repay for her graduate school) and a huge time commitment.

It's a complex question with a complex answer. To say that people simply need to work harder and that anyone can get to the middle class "with minimal effort" is brushing away reality with a really, really broad stroke. That statement is definitely lol-worthy.

Herpes Reasons · Apr 6, 2009

Tideas said:
you didn't answer question. haha. are you couting total salary or adjusted salary? If you're counting adjusted salary, you're doign it wrong. The government doesn't see any of your 401k or medical paymentr/contribution

of course its adjusted.

prodystopian · Apr 6, 2009

Gruco said:
There is nothing complex about them.

Actually, this whole debate tends to get fucked up because there are so many different components. People who don't work dodge payroll taxes, get super low dividend and cap gains rates. People who make over 100k (thereabouts) get an instant 8% marginal rate reduction. People who make a lot and buy fancy things get to lower their rates via more deductions.

Honestly, in the current system the people who tend to have it the worst are probably the 50k-150k group, but I know there is some much more extensive research on the subject (that is just off the top of my head).

...I'll try to look up the charts.

Really? Because the rest of your post says otherwise. Sure it is easy to just look up my earnings and pay all the taxes, but who does that? The complexity comes in the loopholes.

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