Berkeley CSUA MOTD:Entry 53782
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2025/07/09 [General] UID:1000 Activity:popular
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2010/4/12-5/10 [Reference/Tax] UID:53782 Activity:moderate
4/12    My gf did her taxes. She was unemployed most of last year and only
        paid about $500 in federal tax. She is getting a refund of $1300.
        We are both rather annoyed at this. How can you get a refund of
        more than you paid in?! (This is a rhetorical question. I know
        how.) Another acquaintance of mine makes less than half of what I
        do, but her take home is only 20% less. Even though I put money into
        my 401k (to shelter the income) and have a mortgage interest deduction
        (she does not itemize) she just got a huge refund. I got a (little)
        bill. I paid about 15x in taxes what she paid. I cannot believe there
        are goobers who want to raise taxes. 50% of people aren't paying any
        as it is! You want to raise my taxes? Eliminate some bogus credits
        first! Those with more income should shoulder more of the bill,
        but these free rides are ridiculous. You can't have half of the
        country not only not paying taxes, but getting refunds on top of it!
        "The bottom 40 percent, on average, make a profit from the federal
        income tax, meaning they get more money in tax credits than they
        would otherwise owe in taxes. For those people, the government
        sends them a payment."
        \_ It's call the erosion the middle class.
        \_ I made several billion less than GE and apparently paid more
           US taxes than they did: http://tinyurl.com/y5tpaoy
           \_ Did you also put 323,000 people to work, paying payroll
              taxes for all of them and likely millions in sales taxes
              and other taxes? If you did then I'm in favor of refunding
              any income tax you paid.
        \_ It's called the erosion the middle class.
           Really rich makes the rules, or at minimum, controls how
           the rules are applied, so they don't pay all that much into
           the system.  No matter, the system is designed to fall
           apart eventually because with enough discouragement of the
           right thing to do, no one will do the right thing.  No
           empire lasts forever. As the joke goes, "make your time..."
           I only tolerate it because I think of it as paying for my
           Mom's benefits in a very indirect way.  If you don't have
           anyone in your family who can draw from the broken system,
           what can I say.  Switch to cash business, hide it away, and
           retire as soon as possible and become part of the leeches.
           I plan to retire fairly early and stop participating in the
           broken system, as much as I can, anyway.
        \_ Look what I found through Google:
           http://www.taxfoundation.org/news/show/1410.html
           "These findings raise serious questions about the future of
            the U.S. income tax system...."
        \_ If you include all taxes, not just income tax, everyone pays
           taxes. Overll tax rates including FICA and Sales tax are pretty
           flat above about the bottom quintile. Income tax is pretty
           progressive (high earners pay more) but most other taxes are
           regressive (poor people pay more, as a percentage).
                                                  \_ percentage of income, or
                                                     percentage of the
                                                     particular service or good
                                                     or whatever subject to
                                                     that tax?
        \_ http://www.nytimes.com/2010/04/14/business/economy/14leonhardt.html
           \- leonhardt should have also mentioned the giant mortage
              interest dedection [~$100bn]. do you think the OP is
              stupid or disingenuous?
              \_ Is that a rhetorical question?
           \_ Rebuttal to some points he makes:
              1. I wouldn't call myself "very wealthy". I think the perception
                 of who is "very wealthy" has changed. I am middle-class,
                 _maybe_ upper middle class if I lived somewhere less expensive.
                 Let's be realistic. People who make over $52100 are not
                 all "wealthy". Saying that $52100 is the statistical
                 middle class may be true, but you cannot live a
                 traditional middle class lifestyle on that salary in any
                 urban part of the country. That doesn't mean people who
                 make less should pay no tax and it doesn't mean that
                 people who make more should shoulder the burden of all of
                 the tax revenue. If you make $100000 per year you are not
                 John D. Rockefeller.
                 \_ You can live a middle class lifestyle on $52k/yr in most
                    of the country. Just not in expensive areas. That is quite
                    a bit of money in San Antonio, for instance.
              2. "It will have to raise taxes even more than it otherwise
                  would on everybody else. Or it will have to find deep cuts
                  in Medicare, Social Security, military spending and the
                  other large (generally popular) federal programs."
                  I would lobby for either of these options. I think some
                  deep cuts need to be made and I also think that people
                  in the bottom 50% need to start paying more than they do
                  now, even if that means the top 50% also sees an increase.
                  One cannot just raise taxes on the top 50%. Everyone has
                  to share in the pain and right now that's just not true.
              3. Focusing on payroll taxes is a distraction unless you
                 own a company. This is not money coming out of my (or
                 your) pocket. In fact, this is another way of saying that
                 the wealthy (who own the companies) are also bankrolling
                 other benefits for the poor. State tax is a red herring. Some
                 states have none at all and we can choose to move there if we
                 wish. Mortgage deduction is also irrelevant. If the bottom
                 50% had huge mortgage deductions they would still pay 0 (or
                 get a refund). It's just a way for homeowners to keep from
                 getting _really_ reamed compared to the bottom percentiles.
                 Without it the gap would be even worse.
                 \_ you're a (wordy) idiot.
                    \_ Nice rebuttal. You obviously have no counter.
                       \_ you obviously have no clue, so why bother?
                          \_ Pathetic.
                 \_ You don't understand what "payroll taxes" are. This is
                    another name for FICA, which everyone pays, though it is
                    only taxed on the first $100k or so of income.
                    \_ Everyone pays less than _half_ of. (Example: only
                       the employer contributes to FUTA). Further, money that
                       "you pay" (the other half) is mandated by law to be
                       withheld by your employer. Since it is mandatory
                       and it comes out of your paychecks (and not out of,
                       say, your capital gains on stock or other income
                       you make outside of your employment) you could make a
                       good argument that it's really your employer paying all
                       of it. This is slightly different from income taxes
                       (which you pay out of your salary also) because with
                       income taxes some people pay more and others pay less
                       depending on their situation. So that's money that, if
                       your tax situation allows, you may get to keep. Not so
                       with payroll taxes (unless you switch jobs in the middle
                       of a year and overpay). It's never really "yours" to
                       begin with unless you are an independent
                       contractor/business owner. For example, I cannot lower
                       my FICA withholding, invest it for the year, make a
                       profit on it, and pay the amount due at the end of
                       the year. So how is this money really "mine"? What
                       it is is money paid by my employer on my behalf.
                       \_ It's yours because it comes out of *your* salary.
                          When someone gives you a job offer and says you'll
                          be paid $100K/year, you will claim your salary is
                          $100K/year, it will go down as $100K/year on your
                          tax forms, but the amount you get to spend is
                          less FICA.  Sales tax is mandatory, too, that doesn't
                          mean it's money paid on your behalf by the business
                          you're buying from.
                          Returning to: you're an idiot.
                          \_ Semantics. It's your employer paying it. As
                             I said, you have no chance of retaining your
                             _half_. Sales tax is not at all mandatory in any
                             way. I can live a lifestyle in which I pay no
                             sales tax at all or I can end up paying 100%
                             of my salary in sales tax depending on my
                             situation and my choices. Not so with "payroll
                             taxes". Instead of calling me names, realize
                             that "you" are not paying these payroll taxes.
                             These are employer contributions in your name
                             under the guise of salary.
                             \_ Guess what: If you don't have a salary, you
                                don't pay payroll tax.
                                \_ True. This is just another way of saying
                                   that employers always pay for it. If
                                   you don't have an employer, you don't
                                   pay it. Ever. Not so with income tax or
                                   sales tax. The evidence is strong that
                                   this is a tax employers pay. Employees
                                   may pay it in legal terms, but the
                                   reality is that employers pay it all
                                   unless you are an independent contractor,
                                   which 90+% of people are not.
                                   \_ There is no such thing as "employer
                                      paying for ***" as they'll just pass
                                      the cost to the employee.  There is no
                                      such thing as free beer. !op
                                      \_ I would argue the opposite. There
                                         is no such thing as "employee
                                         paying for ***" as it is because
                                         of the employer that the employee
                                         has any money at all. Of course,
                                         the employer also relies on
                                         employees, but it's much easier
                                         to find a janitor to work at Microsoft
                                         than to found Microsoft.
                                         \_ Do you think your employer pays
                                            for your health care because it
                                            comes out of your paycheck?  How
                                            about unemployment?
                                            \_ How do you get the money to pay
                                               for it if not from your
                                               employer? And if you quit
                                               your job you will stop
                                               paying unemployment and
                                               _really_ start paying for
                                               your health care in earnest.
                                               \_ What kind of insane logic
                                                  is that?  You got the money
                                                  from your employer, therefore
                                                  your employer paid for it?
                                                  Your employer gives you
                                                  a *salary*.  That salary
                                                  belongs to *you*.  Deductions
                                                  from that salary are things
                                                  that *you are paying for*,
                                                  just as surely as if you
                                                  spent the money on a
                                                  cheeseburger.  -tom
                                                  \_ Some deductions, yes.
                                                     Others, no. You are
                                                     forced to pay for
                                                     unemployment insurance.
                                                     In fact, not only are
                                                     you forced, but your
                                                     employer hands the
                                                     money over for you. You
                                                     are not forced to buy a
                                                     cheeseburger. If my
                                                     employer took out $3
                                                     of my salary every
                                                     month and gave me a
                                                     cheeseburger instead
                                                     and I could not
                                                     change this then I
                                                     would say that my
                                                     employer bought me a
                                                     cheeseburger, not
                                                     that he paid me $3
                                                     with which I bought a
                                                     cheeseburger. I
                                                     might be vegetarian
                                                     and I don't even want
                                                     that cheeseburger. I
                                                     just want my $3 to go
                                                     buy a nice salad, but
                                                     no dice. So how is
                                                     that $3 mine? In the
                                                     case of health
                                                     insurance, I can opt
                                                     out of that and go
                                                     get my own if I wish,
                                                     but most employers heavily
                                                     subsidize health
                                                     insurance and if you
                                                     opt out you do not
                                                     get their subsidy in
                                                     cash, although I worked
                                                     somewhere where I did.
                                                     \_ Let me put it this way:
                                                        if tomorrow they
                                                        stopped requiring
                                                        employees to pay
                                                        unemployment taxes,
                                                        I'm pretty sure you'd
                                                        expect the money saved
                                                        to go to you rather
                                                        than your employer.
                                                        Because it's part
                                                        of your salary.  -tom
                                                        \_ I see your point.
                                                           Do you see mine?
                                                           If you quit your job
                                                           to live off of
                                                           your large
                                                           inheritance do you
                                                           still owe the
                                                           payroll tax?
                                                           How can that be
                                                           if you're the
                                                           one that owes
                                                           it and pays it?
                                                           It's a payment
                                                           on your behalf.
                                                           If it's no longer
                                                           mandated you may
                                                           see a gain at first,
                                                           but I would argue it
                                                           would be mostly
                                                           competed away
                                                           long-term as people
                                                           were willing to work
                                                           for just a little
                                                           more take home than
                                                           before even if
                                                           it means a smaller
                                                           salary. E.g., Joe
                                                           who made $50K and
                                                           took home $40K
                                                           (but now takes
                                                           home $50K) is now
                                                           finding his job at
                                                           risk from the new
                                                           college grad willing
                                                           to work for $45K (and
                                                           take home $45K).
                                                           The new equilibrium
                                                           will see some of the
                                                           windfall with the
                                                           employer and some
                                                           with the employee
                                                           calling into
                                                           question whose it
                                                           was to begin with.
                                                           \_ there's really
                                                              no question
                                                              whose it is.
                                                              The fact that
                                                              you can avoid
                                                              payroll tax by
                                                              not being on
                                                              payroll doesn't
                                                              mean that someone
                                                              else is paying
                                                              it.  You can
                                                              avoid sales tax
                                                              by not buying
                                                              anything, but
                                                              when you buy
                                                              something, you're
                                                              still paying
                                                              sales tax.  -tom
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7/9     

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tinyurl.com/y5tpaoy -> www.washingtonsblog.com/
FRAME: http://www.georgewashington2.blogspot.com Washington's Blog http://washingtonsblog.com/
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www.taxfoundation.org/news/show/1410.html
However, one aspect of federal income taxes they may not be aware of is the growing number of Americans who pay zero federal income tax after taking advantage of deductions and credits. That's out of a total of 136 million federal tax returns that will be filed. Using IRS data, we are able to create a profile of these individuals who are outside the federal income tax system. As Table 1 shows, those who file as single or head-of-household are much more likely to be non-payers. One-third of single filers pay nothing in federal income taxes, and almost two-thirds of those who file as head of household pay nothing. In contrast, just 22 percent of married filers are non-payers. One reason is that single filers tend to be younger and earn lower incomes than married filers--especially single parents who file as head-of-household. As a result, married taxpayers pay roughly 75 percent of all federal income taxes, despite filing only 40 percent of returns. Non-Payers by State The number of Americans who face zero federal income tax liability varies widely by state. Table 2 illustrates the number of projected non-payers for 2006 by state. There are two primary reasons why some states have a disproportionate share of non-payers. First is that average household income varies by state, and those with lower-than-average incomes will have a larger share of non-payers. Second, some states have a high number of single parents--who typically file as head-of-household--whose tax liabilities are reduced through tax credits such as the $1,000 per child tax credit and the Earned Income Tax Credit. The estimates in Table 2 do not take into account the likely increase in the number of non-payers in Gulf Coast states as a result of Hurricanes Katrina and Rita. Large Number of Non-Payers Make Tax Reform Difficult Federal tax reform requires that the base of the federal income tax be widened, so that overall tax rates can be reduced. However, because of the large number of Americans currently paying zero federal income tax, any attempt to broaden the tax base will be a difficult sell for lawmakers. The millions of Americans who have no federal income tax liability will either be indifferent about tax reform or will positively oppose it, as it would require bringing them into the federal tax base. The Effect of Recent Tax Cuts on Non-Payers As President Bush pushed through his two major tax bills in 2001 and 2003, opponents focused on the dollar amounts saved by high-income individuals. What many critics have ignored is the number of people who were removed from the tax rolls as a result of the expansion of the child tax credit, which was a key provision of the President's Economic Growth and Tax Relief Reconciliation Act of 2001. As Figure 1 illustrates, the number of tax returns with zero or negative tax liability has risen steadily over the past decade. However, it accelerated sharply between 2000 and 2004 due to the effects of tax changes during President Bush's first term of office. Conclusion These findings raise serious questions about the future of the US income tax system, and the possibility of base-broadening tax reform when the majority of the federal tax burden is borne by a shrinking pool of taxpayers. As Congress considers tax reform proposals during the coming year, this is an issue lawmakers should begin to debate. Footnotes 1 Those who are claimed as dependents on a tax return with positive tax liability are defined as "in the tax system."
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www.nytimes.com/2010/04/14/business/economy/14leonhardt.html
Enlarge This Image Daniel Acker/Bloomberg News About three-quarters of households pay more in payroll taxes than in income taxes. That's the portion of American households that owe no income tax for 2009. With Tax Day coming on Thursday, 47 percent has become shorthand for the notion that the wealthy face a much higher tax burden than they once did while growing numbers of Americans are effectively on the dole. Given that taxes are likely to be one of the big political issues of the next few years -- and maybe the biggest one -- it's worth understanding who really pays what in taxes. Once you do, you can get a sense for our country's fiscal options. How, in other words, will we be able to close the huge looming gap between the taxes we are scheduled to pay and the services we are scheduled to receive? The answer is that tax rates almost certainly have to rise more on the affluent than on other groups. Over the last 30 years, rates have fallen more for the wealthy, and especially the very wealthy, than for any other group. So a much greater share of income is now concentrated at the top of distribution, while each dollar there is taxed less than it once was. It's true that raising taxes on the rich alone can't come close to solving the long-term budget problem. But if taxes are not increased for the wealthy, the country will be left with two options. It will have to raise taxes even more than it otherwise would on everybody else. President Obama -- have increased the number of households that receive enough of a tax credit to wipe out their federal income tax liability. But the modifiers here -- federal and income -- are important. Income taxes aren't the only kind of federal taxes that people pay. There are also payroll taxes and investment taxes, among others. Even if the discussion is restricted to federal taxes (for which the statistics are better), a vast majority of households end up paying federal taxes. About three-quarters of all American households pay more in payroll taxes, which go toward Medicare and Social Security, than in income taxes. Focusing on the statistical middle class -- the middle 20 percent of households, as ranked by income -- underlines this point. Households in this group made $35,400 to $52,100 in 2006, the last year for which the Congressional Budget Office has released data. That would describe a household with one full-time worker earning about $17 to $25 an hour. A good number of people, in fact, paid no net income taxes. But the picture starts to change when you look not just at income taxes but at all taxes. This average household would have paid 08 percent of its income in corporate taxes (through the stocks it owned), 09 percent in gas and other federal excise taxes, and 95 percent in payroll taxes. I realize that it's possible to argue that payroll taxes should be excluded from the discussion because they pay for benefits -- Social Security and Medicare -- that people receive on the back end. People do not receive benefits equal to the payroll taxes they paid. Those who die at age 70 will receive much less in Social Security and Medicare than they paid in taxes. The different kinds of federal taxes are really just accounting categories. At the end of the day, the government has to cover the cost of all its operations with revenue from all its taxes. Kim Rueben of the Tax Policy Center notes, state and local income taxes and property taxes are less progressive than federal taxes, while sales taxes end up being regressive. The typical family pays a lot of state and local taxes, too -- almost half as much as in federal taxes. There is no question that the wealthy pay a higher overall tax rate than any other group. than in the past is that their pretax incomes have risen so rapidly -- which hardly seems a great rationale for a further tax cut. So why are those radio and television talk show hosts spending so much time arguing that today's wealthy are unfairly burdened? Well, it's hard not to notice that the talk show hosts themselves tend to be among the very wealthy. No doubt, like the rest of us, they don't particularly enjoy paying taxes. They are happy with the tax cuts they have received lately. They would prefer if other people had to pick up the bill for Medicare, Social Security and the military -- people like, say, firefighters, preschool teachers, computer support specialists, farmers, members of the clergy, mail carriers, secretaries and truck drivers. com A version of this article appeared in print on April 14, 2010, on page B1 ofthe New York edition.