Who Really Pays Unfair Taxes?

The blogosphere has been throwing a lot of statistics around, trying to claim that one segment of the population or another pays too much or too little in taxes. I’d like to take a closer look at some of those statistics and show how they don’t mean what most of us think they mean.

Taxman

With respect to the lads from Liverpool, taxes aren't nearly as bad as they sing they are.

Half the Population Pays no Income Taxes At All!

This statistic is true. No, really. Give or take a few thousand people, about half the citizens in this country do not pay any earned income tax. Or rather, they pay it, but they get it all back at the end of the year. This is not because they’re super-rich and have discovered clever tax shelters or whatever. No, it’s mostly because their income tax withholdings fall below the “Standard Deduction,” ($5800 for an individual in 2011) and so they get all of their earned income tax withholdings back in a lump sum at the end of the fiscal year.

Now, the 10% earned income tax bracket goes up to earned income of $8,500, so every dollar earned between dollar one and dollar 8500 gets taxed at ten percent. If Bob earned $8,500.00 last year, his tax withholdings would equal $850. Since $850 is a lot less than the standard deduction of $5,800, Bob gets all of his income tax withholdings ($850) back when he files in the spring. So people in the 10% tax bracket don’t pay any income tax at all! Married couples filing jointly have a higher standard deduction ($11,600), so if Bob and Nancy get married, and they ‘only’ earn $77,400 between the two of them, they will pay no earned income tax.

Check my math*: married couples filing jointly pay taxes of 10% on the first $17,000 they earn ($1,700), 15% on the next $52,000 ($7,800), and 25% on the next $70,350 ($17,587.50). But if they only earn up to $8,400 in the 25% bracket, they only have $2,100 withheld. Add up $1,700, $7,800, and $2100 of withholdings, and you get a total withholding of $11,600, which is equal to the standard deduction. That married couple filing jointly will get all their withheld money back at tax time!

Let’s let that sink in: Between them Bob and Nancy earn $77,400 per year, and still get all of their earned income tax money back in April.

But this fact by itself is misleading.

*All figures in this article assume that no deductions (e.g. dependent children) are claimed on the W2 form and that no creative accounting (asset depreciation, offshoring of accounts, etc.) are used to artificially reduce taxes owed.

Standard Deduction: a set figure that reduces citizens’ tax burden on the assumption that they do things like giving money and goods to charity, but don’t bother keeping records about it.

Wait, What? How Can it be Misleading!?

Observant readers will have noticed that in the section above, I was careful to say “earned income tax” as opposed to just “tax,” or even “income tax.” (Even folks who aren’t paying very close attention might have noticed, since I put the words earned income in bold.) There’s a reason for this. Earned income taxes aren’t the only taxes we pay.

What About Other Taxes?

The big one is the federal gas tax of $0.184 per gallon (that’s 18.4 cents per gallon). Everyone who buys gasoline pays this tax no matter how much they make. How does this disproportionally affect low-earners? Well, have you ever heard of a person telecommuting to a job at a retail store or a fast-food restaurant? Plus, even if the lower-income person (earning $25,000) and the high-income person (earning $250,000 drive the same car (unlikely) the same distance to work every day, and use (for ease of math) 20 gallons of fuel every week, they each pay $3.68/week, or $184/year in gas tax (assuming a 2-week vacation during which they don’t drive).

As a percentage of their incomes, this works out to .7% for the low-income person and .07% for the high-income person. The wealthy guy pays a tenth of the effective gas tax rate of the poor guy.

There are other federal taxes that don't get paid by individuals directly. But as others have pointed out, when corporations get taxed, they pass those taxes down in terms of higher prices. Both the rich and the poor end up paying taxes levied on corporations (but the poor pay a greater percentage of their income than the wealthy do).

Oh, Yeah, FICA…How Does That Work Out?

Glad you asked. According to the IRS’s Publication 15, employees get 4.2% of their pay withheld to pay for social security. Employers pay 10.4% of the employee’s pay into the Social Security till as well. Some would argue that if the employer didn’t have to pay that extra 10.4% to SocSec, they’d pay it to their workers, who would have more income to tax; some argue that there should be no employer contribution to SocSec in any case, etc, etc. It’s a controversy, but not the one we’re examining at the moment. I only mention it to acknowledge its existence. The Medicare tax is 1.45% for employees, and 1.45% of the employee’s pay for employers.

Right, so, the Social Security tax on earned income is 4.2% over and above any income tax you’ve already paid. That’s on all your earned income, from the first dollar up to the 106,800th dollar. So Bob and Nancy, who earn $77,400 per year between them, pay $3,250.80 for Social Security. If Bob or Nancy were to get raises, and earn $106,800 between them, the SocSec tax on their earned income would be $4,485.60. But suppose Nancy‘s boss’s boss’s boss is really impressed with her presentation on the future of her company, and she gets promoted to a higher-paid management position. Now Bob and Nancy earn a total of, say, $250,000 (more than double what they were earning before). The Social Security tax on their earned income is still $4,485.60. That’s because they stop collecting Social Security taxes after the 106,800th dollar of earned income.

As for Medicare, the 1.45% tax on earned income doesn’t stop; it’s a true flat tax (at least as far as earned income is concerned).

So What’s Wrong With That?

On the surface, it seems perfectly fair, doesn’t it? Why should people who make more than $106,800 per year be asked to contribute to Social Security beyond what everyone else does? That tax only pays for those Social Security checks, after all, and they wealthiest folks probably won’t need SocSec anyway, right?

Well, sorry, but no. It may or may not be the case that the top earners won’t want or need to get a Social Security check--that's not important. The important thing is the fact that SocSec tax money doesn’t only pay for Social Security.

What do You Mean?

Well, you know how the US has a bit of a debt problem? Right. So who do you think we're borrowing most of that money from? Yes, some of it (about 7.5%) from China; some of it from other nations. Most of it (almost half) is owed to US citizens and institutions. Did you maybe get a bond or two as graduation gifts? Yeah, that’s money that the US government borrowed from the person who bought the bond, and promises to pay you back with interest 30 years later. But a respectable portion of the debt (nearly 18%) is owed to the Social Security trust fund.

Remember back in the day when President Bush was pushing to privatize Social Security? Remember how he said that the Social Security trust fund was “just a bunch of IOUs?” Well, those IOUs are government debt, just like those savings bonds. The money that was supposed to be held in reserve to cover our Social Security obligation has been borrowed against to pay for things like roads, parks, defense, the War on Terror, Wall Street bailouts, and all kinds of stuff that’s meant to be paid for by other taxes. So really, our SocSec taxes aren’t really paying for Social Security. They’re paying for pretty much everything but Social Security.

That seems okay, until you figure that only the bottom earners pay the full 4.2%, regardless of any deductions. When Bob and Nancy started moving up in the world, their Social Security tax rate actually went down in terms of their total earned income. A married couple earning $250,000 is paying an effective Social Security tax rate of 1.8% (less than half of the rate they paid when they earned less).

Now think about the fact that the government that owes all that money to its own citizens just got its debt downgraded as an investment. The people who most need Social Security might not be able to collect it—not because Social Security was inadequately funded, but because its funds were misappropriated to pay for other things.

What Was That About Earned Income?

Right, so taxes on earned income (like the income tax, Social Security, and Medicare) only apply to money that the worker earned by doing a job and getting paid for it. If Bob and Nancy both work for GM, say, and between them they earn a total of $250,000/year, they pay 10% on their first $17,000, 15% on the next $52,000, 25% on the next $70,350, 28% on the next $72,950, and 33% on the next $37,700, minus the standard deduction of $11,600, for a total earned income tax burden of $48,354.50, or an effective tax rate of a little over 19%. Figure in Social Security and Medicare and you get a tax burden of $56,785.50, or almost 23%.

If they were to get a raise, say, to $300,000/year, their extra $50K would be taxed at 33% for an effective earned income tax rate of 24.67%, including SocSec and Medicare. But what if the raise came in the form of stock?

If instead of another $50,000 in cash, Bob and Nancy are given stock in GM valued at $50,000*, and they don’t sell it the first year, that extra $50,000 will be taxed not at the earned income tax rate of 33%, but at the long-term capital gains rate, which is 15%. Neither the 4.5% Social Security tax nor the 1.45% Medicare tax will be paid on this income, which gives Bob and Nancy a total tax burden of $55,854.50 and an effective tax rate of about 21.4%. Bob and Nancy are getting paid more, but their tax rates are getting lower! And remember, they only pay capital gains tax if they should choose to sell their stock and realize their gain. If they sit on it, they only pay the 15% tax on any dividend checks they get (unless they choose to reinvest their dividends, in which case those taxes are also deferred).

Now imagine that Bob and Nancy get promotions and raises, but work their compensation package so that they get less money in salary and more money in stocks. Together they’ll earn, say, half a million dollars per year, but will only be paid $200,000 cash between them. The rest will come in $300,000 worth of stock. After all earned income taxes (including SocSec and Medicare) and capital gains taxes have been factored in, they will pay an effective tax rate of 17.04%, which is less than the 18.75% effective tax paid by a married couple earning $175,000 between them.

*Yes, I know, it never works out in round numbers like this. If it did, we wouldn’t need accountants, would we?

How Tax Brackets Really Work

“The top tax rate is 35%! That’s an unfair burden on our top earners!” This is the mantra of the Tea-Party backed conservatives in congress, and when you say it like that, it sounds pretty bad. But remember, it’s only the top part of your earned income that gets taxed at 35%. The first $17K only gets taxed at 10%, no matter how much you make. The next $52K is taxed at 15%. And so on. The only money that gets taxed at 35% is money that you get paid by an employer in exchange for work over and above the first $379,150 you’ve earned this year. The effective earned income tax rate (as a percentage of total income) of a married couple earning $400k/year, filing jointly, is 27.22% They only pay 35% on the last $20,850 that they earned, and they pay no Social Security tax at all on earned income over $106,800. This assumes that all of their income comes in the form of a paycheck. If the same couple got half their income from their salaries and the other half from capital gains, their effective tax rate would be 17.54%, which is a lower rate than a married couple who work for less than half as much money per year.

Nobody really pays a 35% tax rate, no matter what the pundits say.

But Don’t 20% of the People Pay 80% of the Taxes?

Sure, that’s true. In 2008, according to the National Taxpayers’ Union, the 20% of Americans with the highest incomes paid over 80% of the taxes in the US.

Looking only at those numbers, it’s easy to see why someone might think there’s a problem with a mere 20% of the nation’s people shouldering 80% of the nation’s tax burden, but let’s take a look at how much people pay in taxes as a percentage of their total income. This is going to take a while; please bear with me.

If your family brings in about $69,000 or less every year, your tax burden is 2.91%. You get all your income tax withholdings back, but you still pay about $2,000 to cover whatever the government has borrowed from the Social Security money to pay for. Remember, these are people who conservatives like to claim don't pay taxes at all. If your family earns $100,000 per year, you pay 11.6%. This is about the bottom of the top 20% of household earnings.

At $150,000 per year, your family pays 16.97% in taxes. At $200,000, you pay 20.09%. At $250,000 of earned income/year, your family will pay 22.72% of your income (about $56,800) in taxes, assuming you do not itemize and all of your income is earned.

As we continue up the income ladder, let’s add an equal amount of income from capital gains (which folks closer to the bottom of the ladder generally do not have access to) and earned income, and see how this affects the percentage of your total income you’ll pay in taxes.

At $300K/year ($25K of which is capital gains) your family will pay 23.05% in taxes. Still more, but not much. At $350K/year, you’ll pay 23.29%. At $400K/year, you’ll pay 23.47%. At $500K/year, you’ll pay 23.72%. At $600K/year, you’ll pay 24.04%. At $750K/year, you’ll effectively pay 24.38%, even though you’re in the top tax bracket (only $120K of your earned income is being taxed at the top rate)!

At $1million/year, again assuming that a sizable chunk of your income is from capital gains, you’ll pay 24.72%. That’s with a $625K annual paycheck. You’re making a million dollars a year as a family, and you’re not yet paying the dreaded 35% income tax rate! What if you made a million five? Again, assuming that you get half of each increase in capital gains and only half in a paycheck, your family’s income of $1.5million will be taxed at a rate of 25%.

Suppose your family’s income were $2million? Assuming you earn $1.125million at a job and get the rest in capital gains, you pay 25.22% in income tax. Remember, this is if you take the standard deduction, with no write-offs or depreciation of assets or other clever accounting.

Warren Buffet is famous for saying that his taxes are lower than his secretary’s. Well, he’s wrong: in real dollars, he pays more in taxes than his secretary does. But he's also right; as a percentage of his income, his taxes are lower than his secretary's.

Now I'll show you why asking the wealthy to pay more in taxes isn’t as unfair as you think it is.

How is it Fair to Ask for More From Those Who Already Give the Most?

Okay, let’s suppose your family brings in the same $2million/year, but only half of it is from a paycheck. The other million comes from capital gains. Your tax burden drops to 23.88% of your income. Yes, if you make more money, your tax burden, as a percentage of your total income, can get smaller! You’re still paying more in actual dollars than you did when you took in “only” $1.5million, but you’re paying 1.34% less of your income in taxes.

Now let’s assume that you get $2.5 million, and everything over $1million is in capital gains. You’d pay 22.1% in taxes. Yes, your tax rate just went down again, by 1.78% Notice also, that you’re paying a lower effective tax rate than you did when you earned $250K at your job (22.1% as opposed to 22.72%). At this stage of the game, it might be possible to stop working for a paycheck entirely and live on the income from your investments. Now, some of those capital gains probably came from your job in the form of stock in whatever company you worked for, so we’ll assume that your $1million in earned income goes away entirely, and that you will only be getting about $500K per year in capital gains from your assets.

What do you think your family’s tax rate will be, assuming you take the standard deduction and don't claim any dependents? You’re taking in $500,000/year remember. Give up?

12.68%.

You have an income of half a million dollars, and because you don't get your income from work and you don't pay Social Security or Medicare tax, you pay a lower tax rate than a family who earns half as much by going to a job. Assuming that both families take the standard deduction and don’t itemize, they pay 22.71%, or $56,785.50 while you’ll pay 12.68%, or $75,000. And you can stay in bed all day if you want to. Ain’t life grand?

Now, back when the Bush-era tax credits took effect, lots of people noticed a disparity in the amount of money that went to the wealthy and the amount that went to the middle class and poor. This disparity was justified, said many people (myself included, believe it or not!), by the fact that the top earners paid a lot more in income tax. So if everyone gets, say 5% of their taxes back, the people who paid $100 in taxes will get $5 back, and the folks who paid $100,000 will get $5,000. That’s perfectly fair.

But let’s take a look at taxes as a percentage of income. Now, as we’ve seen in the sidebar, if you’re paying the 35% tax rate, you’re not paying 35% your total income. You’re not even paying 35% of your total earned income. You’re paying the 35% rate only on your income over and above the first $379,150. If you take home $500k/year, you have an effective tax rate of about 29.07%. Add capital gains to the mix and your effective tax rate can actually get lower as you gain more income. Keep that in mind.

Now, think about the last decade’s tax rebates and how someone with a greater income pays more in taxes and therefore gets a bigger refund. Now take a look at the graph below. Note that the line showing effective tax rate stays pretty flat (it hovers around 22%), while the line showing income gets very steep, and the line showing actual taxes paid kind of flattens out toward the end. This is because at the top of the income scale, the actual percentage of income paid gets lower even as incomes get higher. Note that these numbers don't even take into account the various loopholes and shelters and other ways that the very wealthy are able not to pay taxes on their income. Yes, Americans can get more income, and pay lower taxes, but only if they have incomes in the highest 5%. How is that fair?

Clearly, if there’s an income tax based on a percentage of your income, the greater a person’s income, the more that person will pay in taxes. Nobody disputes this. Some argue that as a person’s income increases, their tax rate should also increase, since they benefit more from the economy and have more money to spare. Some argue that everyone should pay the same percentage, and it shouldn't go up as income goes up (flat tax). I am not going to argue either side of this premise. But even the most rabid anti-tax Tea Partier would be hard pressed to rationalize an effective tax rate of 15% for someone taking in a million dollars a year while someone with less than a fifth their income pays nearly 19%.

Income goes up, but taxes paid stay relatively flat, since effective tax rates go down. This chart assumes income from capital gains increases with greater earned income, and does not take loopholes, tax shelters, etc into account.
Income goes up, but taxes paid stay relatively flat, since effective tax rates go down. This chart assumes income from capital gains increases with greater earned income, and does not take loopholes, tax shelters, etc into account.
Rich Dad Poor Dad: What The Rich Teach Their Kids About Money - That The Poor And Middle Class Do Not!
Rich Dad Poor Dad: What The Rich Teach Their Kids About Money - That The Poor And Middle Class Do Not!

Here you'll learn stuff like the difference between an asset and a liability. (Hint: your car is not an asset. Neither is your home.) There are also hints on how to arrange your income so as to pay very little in taxes.

 

So What are We Supposed to Take From This?

Well, that’s the kicker. I’m not even entirely sure what I think about it. The article necessarily simplifies some very complicated things. Capital gains income is calculated using a huge number of factors, including how long the asset was held before sale, depreciation, whether the gain is from the sale of stock in a “small business,” whether the taxpayer takes advantage of the various deferment possibilities, selling some assets at a loss to offset gains, inflation, and so forth. Even tax on earned income can be reduced by various methods, if you have enough disposable income to take advantage of them. But if we strip away all the complexities of the tax code, and get to the root of the claims made by various talking heads, we can clear up a few myths.

Myth: 50% of the population pay no taxes.
Fact: They pay no income tax, but they do pay Social Security, Medicare, and excise taxes.

Myth: Social Security is bankrupt.
Fact: Social Security would be fine if the money owed to it were paid back with interest.

Sort-of Myth: The more money you make, the more you pay in taxes.
Fact: This isn't always true. At the bottom of the income scale, your taxes always go up as your income grows. But at the top, while the dollar amount you pay in taxes goes up, the percentage of your income that you pay in taxes can actually drop.

Myth: The top earners pay a tax rate of 35%.
Fact: Nobody actually pays 35% of their income in taxes; even the top earners don't pay much more than 27%.

Myth: Taxes go up faster as you make more money.
Fact: Tax rates start to flatten out at the top of the income scale. Depending on the income source, effective tax rates can even go down as income increases.

Armed with this information, perhaps we can be a little more rational when deciding which tax policies to support.

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Comments 126 comments

WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

To put it simply, we all pay payroll deductions like Social Security, but most Americans no longer pay any income tax at all, gleefully letting the so-called 'rich' bear the entire burden.

What terrifies the Democrats is having to go back to asking ALL Americans to pay their fair share, instead of continuing the free ride. If they did that, we would have the rioting we are seeing in other socialist countries where the spoiled brats are learning that there's no free lunch.


Uninvited Writer profile image

Uninvited Writer 5 years ago from Kitchener, Ontario

Which planet are you living on Will?


lmmartin profile image

lmmartin 5 years ago from Alberta and Florida

Th poor of London are spoiled brats? I've been there and I'll tell you, the poor of London are simply poor.

But that's not the point here at all. (Will is famous for mouthing on about everything but the point of a hub.)

An excellent look at reality. But there's something no one has pointed out: even if the lower paid workers get their taxes back at the end of the year, the truth is the government has had the use of that money in the meantime. They are still contributing to cash flow. Call it a low interest (or no interest) loan.

What you have here is a good argument for "straight line" taxation. Good work. Lynda


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

Two replies and both are personal attacks?

Typical for liberals. Don't address the topic. Just attack the opponent.

No matter how you slice it, over half of Americans no longer pay income taxes, preferring to make the 'rich' shoulder the entire load. Then they wonder why we are in financial distress.

The rioters in London are not the 'poor'. They are spoiled, youthful liberals who want the free ride to continue.


someonewhoknows profile image

someonewhoknows 5 years ago from south and west of canada,north of ohio

Even if,the majority of people don't end up paying any appreciatable taxes at the end of the tax year.During the tax year many willingly give the government a taxfree loan for that year.They don't get any interest on that loan.So,the government gets to use tax payer money for free to invest or whatever.The government is getting something for nothing.Isn't it? Is,it our fault the government can't control themselves by spending money they don't have? In a way yes ,we are.Because we allow it to go on without rebuking or recalling them from office.

P.S.

Then there is the CAFER REPORT on how government accountants are ripping the taxpayers of this country off at every level of government right down to the county,city and township level by keeping taxpayer money that wasn't used during the ficscal year and investing it privately without taxpayer knowledge.


GNelson profile image

GNelson 5 years ago from Florida

Your points are well made. When the wealthy paid just a little more this country was much better off. 20% of the people may pay 80% of the taxes but they have most of the income. How many of the non paying 50% don't even have a job? How many of the non paying 50% are corporations like GE? The tax code needs re-written but no matter how it is done those earning the most should pay the most.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

"How many of the non paying 50% don't even have a job?"

None of them. If they have no job, they aren't counted because they have no income to tax!

Over 50% of income earning Americans pay no tax on that income.


someonewhoknows profile image

someonewhoknows 5 years ago from south and west of canada,north of ohio


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

Will, you say "we all pay payroll deductions like Social Security, but most Americans no longer pay any income tax at all, gleefully letting the so-called 'rich' bear the entire burden." You clearly have completely misunderstood the article. The folks who pay no income taxes still pay taxes--they pay Social Security, Medicare, excise taxes, and (indirectly) corporate taxes. The folks who get all of their withholdings back at tax time do in fact pay taxes. And as Lynda points out, having taxes withheld and getting a refund in April amounts to a 12-month interest-free loan (to the tune of about $3.6 trillion) to the government. It's possible to set your withholdings so as to have a smaller return at the end of the year, but most people do not.

You seem pretty upset about the people who get all their withholdings back at the end of the year. I wonder, does your family's combined income exceed $77,400? Because if it doesn't, you are among those who don't pay any income taxes. No need to answer; I don't really want to know your financial information. I was just making a point.

You're not addressing the topic, Will, you're merely parroting your talking points, and you keep repeating the falsehood that half the people pay no taxes: they do pay taxes, and to say they don't is just plain not true.

By the way, have you visited London? I have. You're wrong about them.

To the rest of you, thanks for the kind words. As I said, I haven't really decided what the best thing to do is, but I hope that I've cleared up some misinformation about who pays how much, and how the tax burden is distributed.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

Ah, the left. Attack you for commenting, insinuate that you pay no taxes, claim you are wrong about who is rioting (despite all the media coverage plainly showing that they ARE young hoodlums in both video and commentary!), and then simply dismiss you because you do not agree with them.

The fact that over 50% pay no income tax is a fact. No one claimed they pay no tax at all, so insinuating that someone one did is the real myth here.


The Frog Prince profile image

The Frog Prince 5 years ago from Arlington, TX

The figure, as I read it, is that 51% of wage earners pay "zero" income tax. Do you dispute that? If so, do some research as some of us have rather than spout left wing talking points. I hear Obama say he wants a FAIR tax system. To me that means that EVERYONE pays. The wealthy in this nation already pay approximately 60% of the income taxes collected. Do you dispute that? If so, do some more research rather than spout left wing talking points. Everything I just cited are FACTS and not talking points.

I didn't vote you UP or Down. Why bother when something is based on left wing talking points?

The Frog


prektjr.dc profile image

prektjr.dc 5 years ago from Riverton, KS, USA

As a teacher, I don't make bank! However, it amazes me that people who are on welfare are getting over $6000 back (??) on their taxes. Seriously? back? anyway...voted up and interesting! Very interesting and thought provoking for even those whose math isn't as defined as yours.


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

Will,

You say that "No one claimed they pay no tax at all," but in fact, in your previous comment you said: "Over 50% of income earning Americans pay no tax on that income." But they do: they pay Social Security and Medicare, which doesn't come back at the end of the year. It's not called income tax, but it's a tax on income. So yeah, your statement pretends that the low income earners pay no tax on their income when in fact they do. It's not a lot, but it's a tax, they pay it, and they don't get it back.

I didn't attack you for commenting. I merely pointed out that your comments were wrong. (Being wrong doesn't make you a bad person. It just means you're wrong is all. )

Nor did I claim that you don't pay taxes. I just pointed out to you that if your family income is under a certain point, you are one of the people who get all of their withholdings back at the end of the year. If your family gets between that level and $100K, your income tax (without FICA) is 5.65% (and statistically, you're probably somewhere in the middle there). Perhaps you feel that you should be paying 20%, as someone who earns $200K does? Are you volunteering to pay that rate? Or do you feel that your tax rate should go down as your income goes up?

Frog, I don't dispute that 51% of earners pay no income tax, but I also recognize that they do pay Social Security, Medicare, and the various excise and corporate taxes (which even the right acknowledges are ultimately passed down to individual citizens).

The wealthy pay 60% of the taxes, that's true, but they pay taxes at a much lower rate (as a percentage of their income) That, too, is a fact, which the irrational anti-tax folks love to ignore. You have to look at all the facts, not just the ones that support your ideology, if you expect to be taken as anything other than an ideologue.


The Frog Prince profile image

The Frog Prince 5 years ago from Arlington, TX

So why don't we do this Jeff. Lets redistribute the tax money by instituting a flat tax,a VAT or a regressive tax such as the FAIR tax where everyone contributes to supporting that bloated bureaucracy we call the federal government. It would be shame if everyone had to be taxed on the income they receive huh?


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

You folks on the left need to make up your minds on terms. For year, you have refused to call FICA a 'tax'. You have insisted on calling it a 'payroll deduction'.

When I said they pay no tax on income, that means no income tax, and I sure you knew very well what I meant.

In any case, the truth remains...over 50% of wage earners pay no income tax at all, and they are the true source of revenue the government needs. I have no doubt that they will be taxed in the future, as our situation becomes more dire.

Creating a society where only the wealthy shoulder the burden, while the rest enjoy the spoils, has resulted in the rioting we are seeing in London and in Greece when the hosts can no longer support the parasites.


Tom Koecke profile image

Tom Koecke 5 years ago from Tacoma, Washington

There are several flaws in the hub, but it still makes its point.

The standard deduction reduces taxable income rather than tax due. It is an income reduction, not a tax credit. A person who makes $69,000 per year WILL pay income taxes on $63,200, barring other deductions and credits. It actually strengthens Jeff's argument.

Couples making over $106,800 do not have their social security maxed out at that amount UNLESS all the income were earned by only one of them. Each pays social security on the first $106,800 they earn. This also strengthens Jeff's argument.

It was claimed that people without jobs do not pay income taxes. This is also not necessarily true. Both unemployment compensation and social security are taxable incomes. My mom has income tax withheld from her social security checks. She does not get all of her withholdings returned, partly because she also has a rental from which she derives some income. She does pay some income tax, plus she pays property taxes on both her home and the rental house.

Also, as Jeff pointed out, any fixed tax (i.e. gas taxes) result in a greater rate paid by low income earners than high income earners.

The fact is almost everyone pays taxes to the federal government even if it isn't in the form of income tax.

Good hub, Jeff.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

Tom points out that while over 50% pay no income tax (calculated to gain votes for Democrats), they do pay lots of hidden taxes.

This is one more good reason we should pass the FairTax, which eliminates all those hidden taxes, relieving that burden on the poor. With the FairTax, all federal sales taxes paid by the truly poor will be reimbursed, and they will pay no tax at all, including income tax.


The Frog Prince profile image

The Frog Prince 5 years ago from Arlington, TX

Will - Everyone else pays those same "hidden taxes" as well, usually in a larger proportion.

The Frog


Cherrypie 5 years ago

Very well written and factually supported hub Jeff. Great myth busting!

I've seen similar comments from WillStar where despite the actual content of the hub, spouts out some anti-'Democrat' that misses the point of the article entirely. It would appear that many like him suffer from acute blindness by political affiliation. Anyone who just repeats the same hollow sound bites has lost the ability to think critically when presented with information and ideas that may no fit into there pre-defined and rigid ideology.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

What is it with liberals and personal attacks? For all their claims of 'tolerance', they cannot tolerate dissent, and will attack opponents personally.


The Frog Prince profile image

The Frog Prince 5 years ago from Arlington, TX

Will - We'll just slap some vanilla ice cream on it and throw it in the microwave. LMAO... I know you know which rule from Alinsky that one is. Facts always bring out the worst in a liberal. It blows their talking points.


CMerritt profile image

CMerritt 5 years ago from Pendleton, Indiana

Twice on here I have seen where someone claims that Will misses the point of the hub....show me where exaclty he missed any point. He clearly stated facts. He statement was "most Americans no longer pay any income tax"...this is a fact...period.

Jeff I will give you props for a very articulate hub, with some sounding statistics and claims.

I think being rational is what Will and I, along with others merely want in this nation. What we current are experiencing is NOT rational. As it is, 50% of the income tax earners to pay for 97% of all the federal income taxes collected....How is it rational, to expect raising taxes these folks during an extremely DOWN economy?

Even Obama earlier claimed that this was a bad idea, along with most all of the economists.....then when the talk of actually cutting spending to live within our means....it becomes irrational by "those tea party" folks to want such a thing...okay, I am getting off of your topic.

Jeff, what I have gathered from this hub is that you have clearly shown just how complex our current tax system really is...and there is no denying that it is full of loopholes that allows those with good accounting lawyers to get around our laws to not pay what was intended.

Another reason why folks like Will and myself are in favor of the FairTax Bill....a very, very RATIONAL measure to assure that ALL Americans are contributing to our ways of life.

I will vote this up and interesting.


Wayne Brown profile image

Wayne Brown 5 years ago from Texas

I think the exercise Jeff went through in this article accomplishes one thing more so than others. Regardless of what anyone tells you about taxes and how they are going to be changed, etc., the middle class income earners are the ones who suffer the biggest portion of the tax load....actual tax versus earned income. This is no accident...the middle class is the "sweet spot" in the population where the largest number of workers make income at an optimal level...in other words more bang per head for the buck. Sure the system can tax rich people more but as was pointed out here, they also have more alternatives to soften that blow and in the end, there are far less of them than there are middle class wage earners. Earned income as a basis for taxation in America is outmoded, outdated and serves the purposes of the political system moreso than anything else. In a society such as ours, the answer to our revenue issues lies in a "consumption tax" which displaces tax on income and allows the person doing the consumption to decide how much they pay in taxes simply by choice. With such a tax applied at even a level of 3% on all transactions including stocks and real estate, there would be fare more money that there currently is coming into the system. The politicians perfer income as a base because it is a more consistent predictor of revenue as oppposed to the ups and downs of the consumption market. But the fairness comes in to say, if you tell me you don't have a job but you buy a big screen television...you still participate in the taxation process. If you are Warren Buffet and you buy a really big big screen television, you share in the taxation process. There are other aspects of this discussion which bother me. For one, Social Security and Medicare can certainly be defined as a tax although as Will points out, the Washington terminology wants to call the "witholdings" meaning you will get them back at a later date. At the same time, the government is abusing both of these programs in the name of deficit spending and too many of us in the general public are all right with that. Just because LBJ and company passed some convoluted law for the government to pipe the funds designated for particular purposes does not make it all right. Our spending problems are rapidly showing that the government's intrusion into these funds are the basis for their insolvency downstream. Lastly, how much money is "enough money" when it comes to a government that operates too often with a real budget and has no intention of every balancing spending with revenue? There will never be "enough money" in the federal government until we change that methodology which brings you right back to the premise that the middle class, the sweet spot of income earners will always get the shaft. This is a problem regardless of tax cuts, tax increases, who is in office, what Congress thinks or where our debt ceiling is at the moment. Those who make our laws and serve us in elected office are among the "rich" who are receiving these tax benefits so it is no accident that the tax code is written as such. WB


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

Will,

"When I said they pay no tax on income, that means no income tax, and I sure you knew very well what I meant." Sure, but that's not what you /said./ Conservatives like to use shorthand to make it sound like the working poor don't contribute anything to the federal budget, and it just ain't so. I'm just calling you on it. It seems that facts make conservatives uncomfortable as well as liberals.

Frog, Yes, the wealthy pay the 'hidden' taxes, and they usually end up paying a larger /amount/ measured in dollars. But as a percentage of their income, they pay a much lower tax /rate/. See, this right here is where ideologues start to get angry, insisting that only their favorite facts are important (or even exist). Yes, both the wealthy guy and the poor guy pay the gas tax. But all things being equal, the wealthy guy pays about seven hundredths of a percent of his income on the gas tax, while the poor guy pays a rate about ten times higher. If the rich guy drives five times as much as the poor guy, he pays more money in gas taxes, but he still pays at a /rate/ that's about half what the poor guy pays.

Liberals love to talk about percentages when it comes to income taxes, while conservative love to talk about raw dollar amounts. Both need to recognize that their favorite facts aren't the only ones that matter.

As for the "Fair Tax," it may surprise you to know that I think the concept is sound--taxing consumption rather than income makes sense. I worry, however, that the government will become more intrusive when people try to consume "off the grid" as it were, selling something expensive for an "official" price of a little (with an unofficial "gift" making up the difference). If a way to prevent that can be found, I'd support the Fair Tax movement.

Wayne gets the main point I was trying to make. Tax rates start low, peak somewhere between 20% and 25%, and then start to go back down again. The wealthiest pay the most money in taxes, but they pay lower tax /rates/ than the middle class. The poor pay the least money in excise taxes, but pay the highest excise tax /rate/. The middle class is the group who get squeezed the hardest, because they usually can't arrange their income such that their tax rate goes down.


The Frog Prince profile image

The Frog Prince 5 years ago from Arlington, TX

Jeff - I think everyone understood exactly what Will said. It wasn't exactly written in braille. Your article was well written, just slightly off the mark.

The Frog


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

So then, I'll 'call you on it'.

Your statement that someone said they 'pay no taxes' was in your original Hub, and preceded my own remarks, so trying to claim your 'myth' statement was a response to anything I said is obviously false.

If someone on the right actually made that claim, what is your source? Or did you simply make it up?

I suspect the latter.


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

Will,

"If someone on the right actually made that claim, what is your source?"

I've encountered lots of folks who like to say "half the people don't pay taxes" all over the internet. Its most famous version is the false analogy of the restaurant, which has the bottom four diners paying nothing at all for their meal. So no, I didn't just make it up. Projection?

I'm not trying to claim that the Myth statement in my hub is in response to you; that's something that you seem to have made up. But you did say this:

"Over 50% of income earning Americans pay no tax on that income."

which is false. SocSec and Medicare are deducted from everyone's /income/ at the same rate (except SocSec taxes stop after the first $106K). Sure, it's not called "income tax," but it's a tax on earned income (and /only/ earned income), just the same.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

"I've encountered lots of folks who like to say "half the people don't pay taxes" all over the internet."

According to Democrats, that would be true, because they never call payroll deductions 'taxes', the same way Obama calls taxes 'revenue', instead of taxes.

In any case, we are talking about income tax, and over half don't pay any these days. Your 'myth' is just another silly distraction. You know exactly what is meant when people say over half pay no taxes. So do we all.

I assumed all along that your claim was based on pure anecdotal evidence. Thanks for admitting it.


American Romance profile image

American Romance 5 years ago from America

I believe you are leaving several things out of the mix, You said you were not going to discuss the payroll tax matching and social security employers have to pay? I would surmise the majority of all people making over $250 thousand a year are business owners who after making payroll have to reach into their personal pockets and pay these additional taxes, I had only 5 employees for many years and this burden cost me around 1500 per month! I could have had a much nicer home had that money been mine to keep! This is a much NOT talked about little secret that is a tax burden! This should go into the math!

The next thing is the class warfare you are suggesting! I don't care if you make a billion or 100 dollars per year in this FREE country! Each should pay equal taxes! I will never understand the hatred from the have nots against the havs!

NO one mentioned the 50 million on food stamps, free housing, etc!! I guess that half not paying taxes is certainly not paying these folks either????

I am willing to allow this type of taxation to continue on one regard! Those who don't pay taxes cannot VOTE! Why should those not supporting the government be able to tell those who are who should run the country? ...........wanna talk fair? Put that one in your pipe!


Tom Koecke profile image

Tom Koecke 5 years ago from Tacoma, Washington

"Tom points out that while over 50% pay no income tax (calculated to gain votes for Democrats), they do pay lots of hidden taxes."

Tom didn't point this out, and I certainly didn't make any statement that should be construed as supporting a federal sales tax. It is my opinion that the ideas of flat tax rate and federal sales taxes are grasps of simple minds trying to solve complex issues.

The main point I was making is that the $5,800 federal deduction is not a tax credit.


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

Will,

"I assumed all along that your claim was based on pure anecdotal evidence. Thanks for admitting it." So, you think that nobody tries to argue that half the people pay no taxes? Here's just a few places that use the (false) restaurant analogy to make exactly that claim:

http://www.9types.com/chatboard/messages/20148.htm...

http://www.freerepublic.com/focus/news/806070/post...

http://www.gotapex.com/finance-investments-and-car...

So there's my proof that I'm not making this stuff up, as I suspect you knew full well in the first place. But full debate points for pretending to be unaware of this ubiquitous argument.

"Your 'myth' is just another silly distraction. You know exactly what is meant when people say over half pay no taxes."

Well, I know one of two things is mean when people claim half pay no taxes. Either

1) I know that they actually do pay taxes, but I'm going to use this verbal shorthand to muddy the waters, get folks mad, and get them to support more ill-advised tax cuts, or

2)I actually believe that half the people pay no taxes at all because I bought the right's rhetoric, so I'm going to keep spreading this falsehood because I don't know any better.

One is intellectually dishonest and the other is ignorant. Which would you rather be?


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

American Romance,

"You said you were not going to discuss the payroll tax matching and social security employers have to pay?"

Well, to be fair, I didn't examine that in detail at all, for a couple reasons. First, because I couldn't really find good data on how much of that matching was done by small business owners like you and how much was done by larger corporations, and second, because when it comes down to brass tacks, all taxes are ultimately paid by individuals not businesses.

The right acknowledges this when they argue against taxing corporate profits, arguing that it will just drive up prices for consumers in the end, and the tax burden will fall on the people at large.

Ah, and you're waving the class warfare flag. The right loves to throw "class warfare" around; it can usually be relied on to rile folks up, divert attention from stuff like facts, and inject an unhealthy dose of emotion into what ought to be a rational discussion. At least Will and Frog kept things on an intellectual level.

As for your idea that someone who doesn't pay taxes doesn't get to vote? I'll agree with that if you'll agree that no person or corporation or other legal entity may make more than one thousand dollars of total political contributions (not contributions to any one candidate or party, but total political contributions to all candidates/parties) per year.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

The point is, over 50% of Americans no longer pay income tax, and now expect 'the rich' to shoulder the entire burden, while they reap the benefits.

Who will they support? They'll support those who created and maintain the class warfare that resulted in a free ride for over half of Americans...they'll support the Democrats!


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

"The point is, over 50% of Americans no longer pay income tax, and now expect 'the rich' to shoulder the entire burden," Except, as you have grudgingly admitted, 'the rich' /don't/ shoulder the 'entire' burden, since the folks who don't pay income tax do pay various other taxes. Further, low earners pay those taxes at a higher rate compared to high earners.

But you go ahead and keep parroting the talking point that the poor don't pay taxes. If you pull a new argument out of your bag of rhetorical tricks, maybe we can talk some more. I'm going to stop wasting my time re-refuting this weak argument you keep repeating as if it were true.


Tom Koecke profile image

Tom Koecke 5 years ago from Tacoma, Washington

Jeff, why would you sacrifice human rights in exchange for non-human entities not doing what they shouldn't be doing anyway? Isn't that a bit like saying we will cut off the maids' arms if robots stop doing their work? What good will the maids be without arms, and wouldn't it just increase the need for robots?

It's a ridiculous argument that those who don't pay taxes would lose the right to vote. In order to implement such a draconian rule, we would need a beauracracy so large that it's incomprehensible. Furthermore, a five year old who buys a toy with his or her allowance pays tax on it. Should we let the five year old vote?

Maybe that's extreme, but I recall not getting all my FIT deductions back from my job when I was 16. Should I have had the right to vote? There are a lot of non-citizens paying taxes today. Should they have the right to vote?

People like to glorify history. Do they really want to go back to the days when a bank robbery meant the depositors lost their money? Do they really want to go back to the days when businessmen figured it was less expensive to pay for funerals than to provide safe working conditions - if they even paid for the funerals?

What amazes me is how few people understand that redistribution actually benefits the wealthy more than it does the poor. This is not only the right that fails to see it, but also the left. As the polar opposites are smacking each other around with rhetoric on what is right and what is left, both sides seem to look past the main benefit which is preventing the mass of those who don't have from waging war against those who have.

It will do not good for those who have to arm themselves with a million weapons to fight off a million people who don't have attacking them, for they still will only have two trigger fingers.

Basically, it comes down to those who believe everyone who cannot earn sufficiently should have to make Sophie's Choice versus those who believe that everyone should contribute to their ability and take that which they need.

If Marx should be considered at all, it is for his prediction that growing masses of poor will not go out into the wilderness and starve to death. They will rise in revolt. Then we can look at history and see the consequence of perceived equality is worse than what we face today, and try to reach a balance to prevent it from happening.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

"The point is, over 50% of Americans no longer pay income tax, and now expect 'the rich' to shoulder the entire burden,"

"Except, as you have grudgingly admitted, 'the rich' /don't/ shoulder the 'entire' burden, since the folks who don't pay income tax do pay various other taxes."

And you insist on twisting my obvious meaning, so let me be crystal clear:

"The point is, over 50% of Americans no longer pay income tax, and now expect 'the rich' to shoulder the entire burden OF PAYING INCOME TAX!"

So twist that.


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

Hi, Tom,

You asked: "why would you sacrifice human rights in exchange for non-human entities not doing what they shouldn't be doing anyway?" Well, two things--first, as we'll see in a minute, I'm not actually sacrificing anyone's rights, and second, you're absolutely right that non-human legal entities shouldn't be involved in the political process. But sadly, they are, to such an extent that they can be created, handed tons of money (by actual people), made to spend that money, and snuffed out of existence before anyone can find out who is behind them. I'll be happy to exchange this situation for stopping people who don't pay taxes from voting. But as you point out below, /everyone/ pays taxes.

"a five year old who buys a toy with his or her allowance pays tax on it. Should we let the five year old vote?

Maybe that's extreme, but I recall not getting all my FIT deductions back from my job when I was 16. Should I have had the right to vote? There are a lot of non-citizens paying taxes today. Should they have the right to vote?"

Well done, Tom; you just saw the trap that American Romance set for himself. Sure, let's make sure that if you pay no taxes you don't vote. (But everyone does pay taxes in some form, so everyone who would otherwise be eligible to vote is still eligible to vote.)

At least some of us are paying attention. :)


American Romance profile image

American Romance 5 years ago from America

.......the right acknowledges this and says corporations pass on those taxes......... I agree with that statement, here in lies the problem with that particular argument. The majority of those who employee people in this country are NOT corporations, but small independently owned business, I had no way of passing that cost to my customers, it was just a cost of DOING business,.............that along with many regulations and intervention by government caused me to close the doors!


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

Sorry you couldn't make a go of your business, AmRo. Serious sympathy. It can't be easy to decide to close your doors.

But as for the tax frenzy debate, I'll just respond with a quote from John Scalzi, who said it more efficiently than I could:

" If you’re freaked out about taxes, please make sure you actually know what you’re talking about when it comes to taxes. If you are a high-income earner and/or have a complicated tax profile, invest in an accountant. Either or both should help to calm your tax frenzy a bit. And if they don’t, accept that the reason you’re in a frenzy is probably because you want to be, rather than because the situation genuinely warrants it."

http://whatever.scalzi.com/2010/09/26/tax-frenzies...


LRCBlogger profile image

LRCBlogger 5 years ago

Wow. Let me say that again...wow. Really well done Hub, I ready it twice before commenting. First, terrific job shedding light on our tax code and using countless examples to make it easier to understand.

There are also some great comments on here. Wayne Brown (who I find to be pretty sharp) rightly points out that the tax code is aimed at the 'sweet spot' which is the large group of middle class to upper middle class people. Same goes for corporate taxes, large corporations are taxed at a lower rate than smaller companies. The sweet spot is small to mid size businesses. This is not by accident.

Regarding the back and forth with Will, I'm not sure he's going to see the point of the article or the point you are making. The bigger point I see is that when you add up all of the taxes (medicare, federal taxes, social security, and things that were not discussed like property tax, sales tax, etc) and compare them as a percentage of income, we'll find the tax code is 'flawed' and has numerous challenges. Even if you pay no 'federal income tax' if you measure the percent of tax you paid as a percent of your income, you may still pay more than someone who earns much much more.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

LRCBlogger,

The point of the article is to cover up the fact that over 50% of Americans no longer pay income taxes, which puts the entire income tax burden on the shoulders of the remaining minority.

Is that OK with you?


someonewhoknows profile image

someonewhoknows 5 years ago from south and west of canada,north of ohio

If,those working on the peoples behalf didn't spend money we don't have - to fund porkbarrel bills we can't afford or need as well as those expenses we don't like such as war related pork that aren't even on the books the so called "Black budget" remember those ytillions of dollarsthat were missing from the military budget that Donald Rumsfeld warned us about? and the fact that corporations like Haliburton overcharging the government for multiple times what it costs our own military to do the same things and borrowing money from the social security fund and not being able or willing to poay it back then we might have the money we need and then some.


LRCBlogger profile image

LRCBlogger 5 years ago

Will, I'll try to give you an example of what I mean. To be clear, I'm not in the '50% that pays no income taxes,' so I'm not taking a 'defensive' stance here.

Let's say you make 50k per year and pay no federal income taxes. You would pay social security and medicare which amounts to about 6%. So you pay $3000 in taxes. This of course does not include sales tax, property taxes, etc. If you live in my state of CT, you would then pay about 5% CT income tax. Let's also say that your property taxes come to $3000. So your total tax bill from State taxes, Social Security, Medicare, and Property tax would be $8500. As a percent of your income, your tax bill is 17% so far.

Now, let's flip the table and say that you are a professional trader who made $1 Mil last year. He'll pay 15% capital gains tax. You might also live in a state with no income tax (Florida for example). Finally your tax bill on your house also amounts to about $15k. Your total tax bill is 16.5% of your income.

Now, of course I realize that we are not comparing 'apples to apples' as we are comparing different states, different towns with different property tax rates, etc. However, I think you see the point that the person paying no federal income tax may still be contributing more in total taxes as a percent of his income, than the person making $1 Mil.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

Since all of us pay those hidden taxes, your 'point' is both invalid and a distraction.

Again:

Over 50% of Americans no longer pay income taxes, which puts the entire income tax burden on the shoulders of the remaining minority.

Is that OK with you?


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

BTW, one of the slickest ways to lie is to couch it in statistics. For instance, America is the most generous nation on Earth, bar none, but the America haters searched for a way to dispute that, and found that by stating American generosity as a percentage of GDP, they could claim that America was stingy!

Never believe a statistician when they are trying to support a left wing position. It's always a mathematical Three Card Monte!


someonewhoknows profile image

someonewhoknows 5 years ago from south and west of canada,north of ohio

If,I were in that well off minority,yes .At least I'd be in a position to complain about it.


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

Since LRC factored in the hidden taxes that we all pay when he figured the comparative tax rates of the guy earning $50K and the trader gaining $1M, his point is both relevant and germane.

A guy earning $50K/year pays an effective tax rate of 17% while a guy who makes $1M/year pays an effective tax rate of 16.5%. Is that okay? Oh, but that fact weakens Will's argument, so let's just ignore that, shall we? ;)

Never trust someone who thinks only one fact is important.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

Thank you for making my point!


LRCBlogger profile image

LRCBlogger 5 years ago

Will, as Jeff pointed out, I used the same variables for both the $1 Mil earner and the $50k earner so the point I made is certainly valid.

I'm not sure how else to help you understand so I'll try something even simpler. Let's say in America there are 3 taxes. Person one makes 50k per year and pays all 3 taxes at a rate of 10% per tax totaling 30%. Person 2 makes $1 Mil but only has to pay 2 of the 3 taxes at 10% each rate totaling 20% in taxes.

BTW, I wonder if you are aware of why so many people don't pay federal income tax? You do realize that the Bush tax cuts is a contributor to that? They also costs the US about 3 trillion from 2001 to 2011 and were a significant contributor to our debt.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

You guys are making a great argument for the FairTax. Under that, all other taxes, including all hidden taxes and income taxes, are eliminated, and replaced by one sales tax. The poor are exempted via a rebate, and it is a progressive tax, because the more we have to spend, the more sales tax we pay. A 23% FairTax would fund government properly, and we can also eliminate the IRS, saving a bundle.

What's not to like?


LRCBlogger profile image

LRCBlogger 5 years ago

Will, I think we both agree that tax reform is needed. I've done some research on the Fair tax and another hubber did a piece on it. I'd love to say it works but there are a lot of challenges that they have not figured out:

1. What happens to the baby boomers who saved their whole lives and already paid taxes on their nest eggs. Now they would be forced to pay 23% on their dream home, dream car, and all of the things they want in retirement. Seems unfair?

2. Businesses pay no taxes so a lot of people would try to form LLC's and incorporate so that they could buy cars and other items as business expenses and pay no taxes. Which brings me to the last challenge with the Fair Tax...bigger government

3. It is my understanding that under the fair tax, a stipend would be given to all americans to cover general expenses. This would be the largest entitlement in history. The govt would have to dole out 780 billion dollars and send out 250 million checks each month. This would cause a large expansion of govt. The other expansion would come from a large increase in IRS agents to combat all of the fraud and abuse I mentioned in point 2.


American Romance profile image

American Romance 5 years ago from America

I wanted to add one little ditty that has come to light lately! Warren Buffet said his secretary pays more in taxes than he does! (Warren is an advocate for higher taxes on the rich) .........Warren also failed to mentioin his fundemenatl little lie! Yes it is true his secretary pays more in taxes! She pays about 30% in income tax, while Warren pays only 15% in corporate gains tax!..........of course the totals for the two end up something like this...........after filling out forms and sending in to the IRS the secretary gets back $4300 dollars and Warren writes a check for 1.2 million dollars!


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

No. *sigh*. What Buffet said was that his secretary's taxes were higher (that is, his secretary pays a higher tax rate) than his, not that his secretary pays more in taxes than he does. You obviously know the difference, so I have to assume that you heard what Buffet said secondhand, from someone who likes to change things to suit his own narrative.

If the secretary really pays an effective tax rate of 30%, then the secretary earns somewhere close to half a million dollars, and /pays/ about $145,000 in taxes. That's with the standard deduction; there is no refund. I have to assume you either did the math badly, or tried to apply a 30% effective tax rate to an income that doesn't pay anywhere close to 30% in taxes.


American Romance profile image

American Romance 5 years ago from America

Jeff,

We could take 100% of the money from every person making or holding over 250 grand in this country and it would not put a dent in our deficit! No matter how you argue this, it is time for those supposedly poor people to pay their fair share! Then they will begin to vote for those who create jobs, want fiscal responsibility etc! ............ever notice the difference between OUR poor and the rest of the worlds poverty? On TV I see kids and adults with ribs showing.........Here in America they are all fat!


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

"No matter how you argue this, it is time for those supposedly poor people to pay their fair share!"

They are.

"Here in America they [the poor] are all fat!"

That's because the food that our poor have access to is all high in fat, calories, and preservatives, but low in actual nutrition. Go to an inner city neighborhood and try to find fresh produce for sale. Bet you can't. There are no grocery stores within Detroit's city limits. When all you can get is stuff like Doritos, Coke, Hot Pockets, and Mac'n'Cheeze, you're going to put on some weight.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

"Go to an inner city neighborhood and try to find fresh produce for sale. Bet you can't. There are no grocery stores within Detroit's city limits."

Because merchants can't afford an armed camp to protect themselves. Their own 'culture' is keeping them poor.


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

Spoken like someone in a position of privilege.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

"Spoken like someone in a position of privilege."

Always the class warfare terminology?

The multiculturalism embraced by the left is the driving force keeping the ghettos and Barrios down. As long as gangs, drugs, death, and unwed motherhood are celebrated by the entertainment industry and the left, the inner city culture trap will never give its victims.

But you go ahead and pat yourself on the back, proudly telling yourself that you CARE. After all, what more are you liberals expected to do?


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

"The multiculturalism embraced by the left is the driving force keeping the ghettos and Barrios down."

Sure, you keep telling yourself that, and ignore the systemic barriers to success that exist for someone born into poverty. You go ahead and keep blaming the poor for their poverty, as though they face no other difficulties than their own sloth. I'm sure it feels good to pretend that you have earned everything you have solely through your own merit and not because you had any help from your own position of privilege. You keep pretending that you don't benefit from the very forces that "keep the ghettos and barrios down," and which you pretend are the fault of those that you disagree with.

In short, feel free to go on ignoring the facts that make you uncomfortable, and rationalize the injustices that help to maintain your privileged lifestyle. Go ahead and pat yourself on the back thinking you hit yourself a double, when in fact you were born on second base.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

"You go ahead and keep blaming the poor for their poverty, as though they face no other difficulties than their own sloth."

That's not what I said, of course. (why do liberals do that?)

I said their culture of crime, drugs, and gangs keeps them down, and the left supports that idiocy with their 'multiculturalism' nonsense.

Those who do escape the culture are lauded by the left if they take up the liberal banner, and condemned if they become conservatives.

BTW, I am not the topic. (why do liberals do that?)


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

"I said their (the poor's) culture of crime, drugs, and gangs keeps them down,"

So yes, you /are/ blaming the poor for their poverty.

And you clearly have no idea what multiculturalism means. Here's a clue: it doesn't celebrate or support crime, drugs, or gangs.

You did get one thing right: those who escape poverty and take up one banner or another are lauded by the side they support, and condemned by the side they do not. Conservatives and liberals are equally guilty.

Do you get paid to be wrong?


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

I blame their poverty on their culture. That's why one culture fares so much better than another culture. That's why black and Latino poverty rates are so much higher that white and Asian poverty rates.

Liberals blame everything and everybody BUT culture. That's why you are attacking me rather than the problem, and that's why the left is their worst enemy.


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

"I blame their poverty on their culture."

So you don't believe discrimination has anything to do with it? You don't think that the tendency of hiring managers to not call applicants with "black-sounding" names has anything to do with it? You don't think that a lack of access to the old boys' network has anything to do with it?

I'm not saying that there aren't poor people who disdain study and hard work--there are. But the angry kids who beat up good students aren't the root of the problem; they're a symptom. And that's the difference between you and someone who wants to solve problems. You look at symptoms, call them the disease, and basically blame the poor for their poverty. Someone who wants to solve the problem will try to find the root cause. And the root cause is hard to find. Lots of poor people are angry and frustrated. Why is that? Because even when they do everything right, they still get hobbled by the barriers in their way. What are those barriers? People who would prefer not to hire a poor person for no better reason than they come from a poor background. Heck, even now, there are companies saying right on their job postings: if you don't already have a job, don't bother applying for this one. That's also a symptom, but one closer to the root cause of the problem, I think.

And this has taken us far and wide from the original topic: that the wealthiest people pay taxes at a lower rate than the middle class.


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

As Philadelphia mayor Nutter pointed out in a recent speech, the black culture that I described is the main source of the problem:

http://www.philly.com/philly/video/BC1099587135001...


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

So he's wrong, too. It's a part of the problem, to be sure, but it's not the source of the problem.

Should we prosecute people who commit crimes? Absolutely. Merely being poor and angry about your limited opportunities doesn't give you the right to harm anyone else. But it's also important to figure out why a poor person has limited opportunities and do our best to see that poor people have more opportunities. That way, maybe there wouldn't be this undercurrent of anger in poor communities.

But it's a lot easier (and more comfortable) to simply blame the poor for their poverty, and dismiss their anger (and the roots of it) as "not our responsibility; not our problem."


WillStarr profile image

WillStarr 5 years ago from Phoenix, Arizona

"So he's wrong, too."

And only you liberals are right? Even the black mayor who grew up in the same black neighborhood doesn't know as much as Jeff Berndt, the liberal, knows?

I'm done.


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

"And only you liberals are right?"

No, sometimes conservatives get it right, too. This just doesn't happen to be one of those times.

"I'm done."

Promise?


Mikes not a liberal 5 years ago

What many of you conservatives are failing to see is that the bottom 80% of the population only have 15% of wealth and the top 20% have 85% of all wealth so when you get upset that those making under 15K a year don't pay taxes, I say to you "If those people earned a living wage then they could pay taxes". It's not like the bottom wage earners have all the power either because as we all well know that the top 20% are the one's running the show and if they were to tax the bottom 46% that don't pay any taxes there would be class warefare in the streets! As we all know the entitelments and no taxes on those earning barely enough to buy food and housing are to protect the enslaving monetary system and those that perpetuate it because without this cushin in place there would be no where for you rich people to hide. So go ahead and let the tea and GOP tax them cause I am waitibng for the fireworks!


wba108@yahoo.com profile image

wba108@yahoo.com 5 years ago from upstate, NY

JB- Congratulations on a well written article! But In regards to Warren Buffett’s recent tax comments, they are flawed in multiple ways. When Buffett claims to pay only 15% in on capital gains and dividends he is telling a half-truth because both are double taxed to an effective rate of 35%. Buffett also distorts the comparison of effective tax rates between himself and his staff because only about the first 107k is taxed for social security thereby inflating his staff’s effective tax rate by comparison. Granted that politicians have presented social security as a trust fund for retirement and instead have used it as just another source of revenue. Still, Social security payroll tax is meant to finance a retirement and is so far proportionally a greater benefit to the less wealthy members of society. I think a simple flat tax without loopholes, credits, deductions etc., would take the class warfare out of the tax issue.


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

Thanks for the kind words, WBA. But tell me, what do you mean by saying that capital gains and dividends are "double-taxed?" As for Social Security giving a proportionally greater benefit to the less wealthy members of society, well, that's only true if those people actually realize their SocSec benefits. If the program keeps getting raided (and we keep not paying the loans back) the SocSec bankruptcy predictions will probably come true.

Best,

JB


wba108@yahoo.com profile image

wba108@yahoo.com 5 years ago from upstate, NY

JB- Double Taxation in Warren Buffett’s case refers to the fact that much of his income was already taxed as corporate income at a rate of 35% minus his deductions. The Capital gains and dividends he receives are then taxed at an additional rate of 15% thus creating a double tax.-WBA


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

Not sure how that's even possible, unless you're saying that any money that anyone earns is double-taxed. Corporations are only taxed on their profits, that is, extra money left over at the ned of the fiscal year, /after/ they've spent their money on payroll, infrastructure, loan payments, and other outlays. Plus, it's the corporation being taxed, not the investors.

If we're going to argue that investor dividends (paid to the investor) have already been taxed once, and therefore shouldn't ever be taxed again, then there are some interesting implications. It might mean that sales taxes are going to have to be done away with, since anyone buying anything already paid taxes on the money they're buying stuff with. It might also mean that investors will bear some level of culpability in court cases where the corporation is found to be guilty of negligence or illegal activity (since the corporation's income is their income, and therefore can only be taxed once). There are probably other implications that I haven't thought of. I'm not sure that's an argument we want to make.


wba108@yahoo.com profile image

wba108@yahoo.com 5 years ago from upstate, NY

JB- The bottom line is that investors pay corporate taxes on corporate profits according to their share of the corporation. It doesn’t matter that the money is pooled into a common account and paid to the government their still paying the tax on their own earnings.

Dividends are shares of corporate profits paid to investors and are taxed at an additional 15% on top of corporate taxes therefore they are double taxed. I’m not disputing about whether income should be double taxed, I’m just pointing out that in Warren Buffett’s case it is.


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

Ah, think I see what you mean. If dividend money is paid /after/ taxes, then it does look like a double-tax.

But the double-tax argument is a bit of a slippery one. If a person hires a landscaper, for example, the money he's paying the landscaper with has already been taxed (whether he's using income from a job or income from the sale of stock to pay the landscaper). So why should the landscaper have to pay tax on that money, which has already been taxed at least once? If we're going to tax income (and we can discuss whether an income tax is a good idea, too--there are many arguments both in favor and against) then we're really taxing any transfer of wealth, whenever it goes from one entity to another. And that means that it'll look like a lot of money is being taxed more than once. But we're not really taxing the money, we're taxing the transaction/transfer.


wba108@yahoo.com profile image

wba108@yahoo.com 5 years ago from upstate, NY

JB- I’m not sure how we got from Warren Buffett’s tax comments to what you’re saying, I’m not sure I get the comparison. The landscaper’s own earnings are not being double taxed in the way Buffett’s earnings are.


mulberry1 profile image

mulberry1 5 years ago

I've heard so many complain about how the "rich" pay all of the taxes. From the numbers I've seen, 10% of the population earns 70% of the income and strangely enough 70% of the taxes are paid by those top 10%. So yeah, they pay more than everyone else, go figure.

You've done a nice job of presenting the facts here and allowing people to draw their own conclusions. (We need more of that!) It is a complicated issue and while I don't believe in taking money from the rich just because they have it, there must be equity and fairness.

I'm kind of disgusted with the blaming thing. One side blames the poor (they're all lazy and so forth) and the other side blames the rich (they are all corrupt and selfish). While there are fine examples on each side, they are stereotypes that are incorrect and destructive.

I have family members who go on and on about how they've earned every thing they have, never giving any credit to the fact their parents could afford to send them to college and help buy their first home. Never giving any of the credit to the fact that they were lucky enough to grow up away from street violence, fear, drugs, hunger, uncertainty, and so forth. Never showing gratitude for the fact they were lucky and have never faced a serious illness or injury, had good role models, and so forth. I've worked hard, been smart about my money etc...but in the end, I know I'm lucky more than anything else.


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

Thanks for the kind words, Mulberry1. Yes, the blame-game and the stereotyping need to end. Struggling to get by is not indicative of sloth; prosperity is not indicative of avarice or corruption. Too much of our argumentation is driven by ideology not reality. It's my hope to inject some reality into the discussion from time to time.


ethel smith profile image

ethel smith 5 years ago from Kingston-Upon-Hull

Sounds as big a mess as the UK tax system


Justsilvie 4 years ago

Excellent Hub! Fact instead of fiction, rumors and hersay is like a breath of fresh air in a stagnant polluted environement.


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

Hi, Ethel and Justsilvie, thanks for commenting.

Yes, our tax system is a bit of a mess. The real problem, though, is that so many people who want to 'fix' it have no idea what's really wrong with it. If we're going to fix it, we really have to have a realistic notion of the way it really works, not some partisan myth.


James A Watkins profile image

James A Watkins 4 years ago from Chicago

This is a good article. You explained taxation in America pretty well. Thanks.


JayeWisdom profile image

JayeWisdom 4 years ago from Deep South, USA

Jeff....As usual, your hub was well-researched and well-thought-out because you are a rational, intelligent and logical person. You don't throw words on the screen straight from an extremist ideology, which is why I like to read your hubs. This hub, in particular, made some very excellent points that many people (particularly the extreme right wing) prefer to not recognize.

Some of the irrational comments (no need to mention whose) give me indigestion and raise my blood pressure, which isn't good at my advanced age. After a few of those, I start to cringe and grit my teeth, so I must commend you for keeping your cool when replying to them, sticking to FACTS and actually reinforcing your original article. When you have FACTS on your side, there's no need to go into personal attack mode!

Great hub, Jeff. Voted UP, USEFUL, AWESOME and INTERESTING!


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

Hi there, James and Jaye! Thanks for the kind words!

I've found that both the right and the left like to ignore the facts that they don't particularly like. It's important to pay attention to _all_ of the relevant facts if you want to be anything other than an ideologue. It's funny, I generally consider myself to be more moderate than anything else, but my right-leaning readers like to call me a liberal. Maybe that's an indication of my own bias: of course my own ideas are reasonable and moderate. But it also might be an indication of how far to the right some of us have swung.

All the best,

JB


American Romance profile image

American Romance 4 years ago from America

Jeff, as liberal sympathizer, you mentioned that corporations pass down cost to the consumer, AWH HA! I do believe you just caught yourself! Finaly a full blown liberal admits this.............sooooooooo since the Democrats call corporations and small business "The Greedy Wealthy" you must now acknowledge that if we lower taxes on the "RICH" or (job creators) then consumer prices can fall, jobs can be had and the economy can flourish!...........

Now you had a nice hub but no one is talking about social security etc. The subject coming from Obamas mouth is fairness!

According to the IRS the top 10 percent of wage earners pay 90% of all the bills!.........If I'm payin this much I certainly don't want to pay others retirement!


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

Hi, AmRo,

"as liberal sympathizer, you mentioned that corporations pass down cost to the consumer, AWH HA! I do believe you just caught yourself!"

I'm not sure how you concluded that I 'caught myself.' Taxing corporations isn't the same as taxing individuals. Corporations can, and do, pass on increased costs to the consumer, whether those increased costs are taxes or the cost of raw materials or whatever.

"sooooooooo since the Democrats call corporations and small business 'The Greedy Wealthy'"

Heh, that's pretty funny. I freely admit there are some liberals (the noisy, stupid ones) who want to demonize the rich simply for being rich. But the mainstream progressives don't do that. We merely realize that a progressive income tax structure is fair, for reasons mentioned in this and other of my articles.

"you must now acknowledge that if we lower taxes on the "RICH" or (job creators) then consumer prices can fall, jobs can be had and the economy can flourish!."

No, I don't have to acknowledge anything of the kind, because your conclusions are false. You're confounding "corporations" with "wealthy individuals," and the two are not the same. If I were a CEO, and my personal income taxes went up, exactly who would I pass those costs down to? Nobody. Because I'm not selling a product or employing anybody. (The company I work for does, but we've already agreed that raising corporate taxes isn't a great idea.)

"Now you had a nice hub but no one is talking about social security etc. The subject coming from Obamas mouth is fairness!"

I'm not sure what this has to do with anything in the hub, but okay...

"According to the IRS the top 10 percent of wage earners pay 90% of all the bills!"

That's 'cos they have 90% of all the money.

AmRo, I'm starting to suspect that you had to close your business not because of high taxes and onerous regulation but because you have a bad habit of willfully ignoring reality. Just a guess.

Cheers.


phion profile image

phion 4 years ago

Every American is taxed several times over, unless you live off the taxes of others. Raising taxes will never do what obama, and the democrates would like you to believe.


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

Phion,

You say this, but you forget that when the US was enjoying great across-the-board prosperity, taxes /were/ higher: the top marginal rate was closer to 90%.

We've been steadily cutting taxes for the past several years, and the lower taxes have absolutely /not/ led to great prosperity for everyone.

You can pretend that this is not the case, but reality trumps ideology.


American Romance profile image

American Romance 4 years ago from America

Jeff,

Because its a propoganda ploy! Taxing corporations and small business is exactly what the liberals want! There are not enough rich just sitting around with millions of dollars to pay 1 minutes worth of bills this country has incurred! They use rhetoric like the wealthy, greedy rich, fat cats, Always failing to mention these are business owners and corporations supplieing this country with jobs!


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

"Because its a propoganda ploy!"

Wait...what? The fact that even though taxes are lower than they've been since the 1950s, the economy is in the toilet, is a propaganda ploy? Sorry, reality is reality, even if it shows that you're wrong. Lower taxes do not cause prosperity; higher taxes do not cause stagnation. Even the correlation is the opposite of the conservative tax-hating narrative (but in spite of that, I wouldn't argue that lower taxes /cause/ stagnation--not enough evidence for that claim yet). That's history. Spin it how you want, but it's still true.


LucidDreams profile image

LucidDreams 4 years ago from St Petersburg, Florida

Ton of imformation here. There are so many things to consider when trying to understand taxes and who pays a fair amount. Great hub!


Tioma 4 years ago

This tax analysis doesn't take into account "soft taxes" such as sales tax, utility taxes and fees, and other state and federal mandated programs that effect the bottom 50%'s wages a lot more than higher earners. (when you assess it as a percentage of their incomes, an 8% sales tax takes a lot more of an 10k/year earner than a 100k earner, considering that low income earners spend the vast majority on consumable goods, Ie food, with little to no residual value)


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

Hi, Tioma,

Actually, yes, it does, in the sidebar titled "What About Other Taxes." The sidebar doesn't go into much detail since each state has its own tax structure, and a person's real tax burden varies widely depending on where he lives. Some states have no tax on earned income at all, but a high sales tax. Alaska actually sends each citizen a check every year, depending how much the state gets from energy companies that lease state land. (Now that I think about it, Alaska is kinda socialistic....)

Thanks for stopping by.


another Jeff Berndt 4 years ago

Jeff,

I'm neither liberal or conservative, but I do have a degree in math. A couple of points..First you have some problems with your understanding of deductions and tax credits. They are not the same thing, therefore all of your numbers are wrong. Please use correct math to support your arguments.

Also much of the blog discussion/disagreements are a result of different definitions of what is a tax and what is not a tax. Simularily comparing tax rate to actual dollars paid also only leads to confusion. Until all involved are in agreement on what you are talking about both sides will only pick and choose the numbers that support their arguments without actually leading to understanding or solutions.

Now, I have no problem with those who earn more paying a larger share (as long as everyone pays something). However if you really wish to compare numbers it would be a better argument use a cash balance method. In other words..add all payments to the government at all levels and then subtract all cash value of all benefits received before dividing by income to determine the actual percentage paid. This might or might not support your argument, but it would be a more neutral set of data.


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

Hi there, other Jeff,

Thanks for stopping by and for commenting. I understand that there's a difference between a tax credit and a tax deduction. Can you point out where I've confounded them?

I also understand that there's a difference between effective tax rates and actual dollars paid, and in fact pointed this out. I have compared tax rates to tax rates, and dollars paid to dollars paid. I don't think I've compared tax rates to dollars paid, but if I have, please point out where I've done so.

Lots of disagreements derive from different people insisting on different definitions of words. Both the left and the right are famous for trying to redefine words to suit their position. With regards to taxation, some folks want to ignore excise taxes and FICA to pretend that some people pay no taxes at all. They're different kinds of taxes, to be sure, but they are in fact taxes.

"add all payments to the government at all levels and then subtract all cash value of all benefits received before dividing by income to determine the actual percentage paid."

This is an interesting idea, and I'd love to be able to do it. However, like in any discussion of taxation and spending, each side will want to count different things as a tax, and each side will want to count different things as a benefit. For example, I doubt that anyone on the right would count bonuses received by executives of bailed-out companies as a government benefit, but most of the left would. I doubt that anyone on the left would recognize that income tax paid on a government assistance check isn't really money going to the government from the citizen, but the right will.


Kevin Helgevold 4 years ago

Just a couple of comments --- one FICA & Medicare may be thought of as a "tax" but they are virtually the same as an insurance policy.....forced but insurance nonetheless of which everyone who pays into it has a defined benefit at some point in the future. It is not a tax in the classic sense of a Constitional Amendment which Congress & the IRS can regulate, but since it is pulled out against your will, everyone thinks it is a tax. (Try opting out and see where that lands ya)

Secondly, I had a thought about the "Buffet Rule", which seems to want to get individuals to pay more than the 15% they already pay........because I don't know the answer, my question rolls around this concept: Since corporations are "people" and therefore pay taxes, and the dividends are given to investors via cash or stock price increase which is taxed at the lower 15% rate, what is the "true" tax rate? In other words, if a company makes money, then out of a theoretical $1 what is the percentage pulled out for taxes on the corporation level, and if that remainder is distributed, is that amount taxed at a further 15%?.......isn't the actual tax rate on that theoretical dollar about 30%, and therefore Buffet is actually paying way more actual & percentage-wise than his hypothetical wealthy secretary?

In the final analysis, it seems like the progressive tax structure is doing just fine, and all that is needed is to get the spending side in order.....more private sector jobs equals more taxes (and less welfare pay outs).

Love the comments.


Kevin Helgevold 4 years ago

....followup -- I just noticed above that another person mentioned the double-taxation and you responded, however a major reason that the economy heats up every time that this "nasty" low-rate Capital Gains tax is lowered is because people or corps. decide to make a transaction, and it's that churning of capital that creates the "friction" to heat up the economy.

One group sells & another buys......an old owner dumps an old property and a new energetic entity purchases it, makes it better (or at least tries to) and that property is developed. Wah-lah. Jobs are created in construction, buying nick-nacks, setting up new business deals, etc etc .....basically the economy starts to shift into a higher gear when that action is replicated over & over & over again.

Higher capital gains rate will dampen this action every time.


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

Hi, Kevin, thanks for stopping by.

The lower-taxes=more growth theory is a great theory, but unfortunately, it only works in theory. If you look at actual economic data, you'll see that there is no--absolutely no--causal relationship between low tax rates and economic growth, or high tax rates and economic stagnation. There's not even a strong correlation. But it sure does sound good, and monied interests spend a /lot/ of their money to convince the rest of us of the irrational idea that taxes are always bad.


Kevin Helgevold 4 years ago

In the context of your argument, you are correct, however it's just another form of "word play". People living in the real world make real decisions based upon the environment they are a part of --- so if you want to set up a household (maybe got recently married, leaving home, new job, whatever the reason), it requires a decision be made based upon location, price, and possibly hundreds of criteria (or maybe just one over-riding one). Whatever the reason, taxation dampens decision making --- high taxes & the expectation of higher taxes make for a different decision than the opposite situation.

Businesses hire a new worker if that worker produces more than they cost......it is not the responsibility of the private sector to put people to work that cost more than they produce. The government does just that in alot of cases. The Constitution was established to give the people the OPPORTUNITY, not the RIGHT to have a better life whether it be thru a job, or thru taxation.

I would argue that taxation on Capital Gains is not constitutional at all.....only on income is taxation even possible. Until a constitutional amendment is passed for that style of tax would it then be legal, although it is certainly possible that Capital Gains have been settled in some past case law or thru Supreme Court activism.

Lower taxes changes the activity of the market and heats it up. More owners find it much easier to sell their asset if they have to "wait out" the government for a higher tax vs. lower tax policy.

In my case, we own our house in California and had a decision of do we add 1000 square feet onto our existing house or do we move to a larger house --- we weighed the pain of 10 months of remodeling and stay in a lower taxed home (Prop 13 & no Mello Roos taxes). The initial cost would be the same, but the taxes equated to $18,000 per year vs. $4000 per year. That made our decision extremely easy mostly because we didn't want to "throw away" a net $14,000 per year that would have increased each subsequent year as the amount is re-assessed each year at about 1.1% additional on a higher number......we didn't see the value in that decision. Maybe if we were forced by the State of California in some other form of taxation, but I am sure glad that I am did not dole out about $150,000 over the past 10 years especially since the economy is in such a dire situation as it is.

In other words, I am much better at spending my money than a nameless governmental bureaucracy is. Aren't you?


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

"In the context of your argument, you are correct, however it's just another form of "word play"."

Wait, what? In the context of real life I'm correct. If lower taxes automatically led to economic growth, the Bush tax cuts would have, well, led to economic growth rather than tanked the economy. Taxes (of all kinds) are lower now than they've been since the 60s. You'd think that, if the low taxes=growth theory were correct, the economy would be booming. But it's not, and it sure isn't because taxes have gone up.

"Businesses hire a new worker if that worker produces more than they cost."

Well, sort of. A business will hire a new worker if there's enough demand for their product/service to justify hiring a new worker to meet said demand. If nobody can afford to buy the business's products/services, it doesn't matter how productive a given worker is--there's no point in hiring him (or keeping him on the payroll).

"I would argue that taxation on Capital Gains is not constitutional at all.....only on income is taxation even possible."

You're incorrect on both counts. First, Congress has always had the power to lay and collect "Taxes, Duties, Imposts and Excises," which can include, but are not limited to taxes on income. Second, the 16th Amendment specifically gives Congress the power to tax income, from /whatever/ source derived (including gains from the sale of real property, stocks, bonds, and other capital gains). It's very constitutional. You might not like it, but that's not the same as unconstitutional.

"Lower taxes changes the activity of the market and heats it up."

If this were true, we would not have had our recent recession. Taxes went down, and so did the economy. This is reality: we had massive tax cuts in the early part of W's term. By the end of W's 2nd term, the economy was in the toilet. The economy is now slowly recovering, but it's not because of tax cuts: taxes have stayed pretty much the same. There is no causal relationship between tax rates and economic growth. The real world has proven this time and time again.

"I am much better at spending my money than a nameless governmental bureaucracy is. Aren't you?"

When it comes to picking out groceries or which car to buy? Absolutely. But when it comes to building a highway*, raising an army, or putting people on the moon, we need the economy of scale that the government can achieve. That's why we pay taxes to a government: so we can collectively achieve things for the greater good that none of us could do on our own.

*The interstate highway system was created by President Eisenhower, a Republican, by the way.


Randy Ree 4 years ago

In our Constitutional bill of rights it states. "all taxes shall be fair and equal for all"! The taxes our Government puts on buying cigarettes as of now is illegal according to our bill of rights. These taxes are neither fair or equal for anyone who choosed to smoke cigarettes. We are breaking no laws by simply smoking cigarettes ans these taxes should all be abolished because of the unfairness of this tax. I hope nobody thinks that it is fair to tax anyone because of any legal product we choose to use.


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

"The taxes our Government puts on buying cigarettes as of now is illegal according to our bill of rights. These taxes are neither fair or equal for anyone who choosed to smoke cigarettes."

Hm...You might have a point--if you argued that an excise tax hits lower-income people harder than prosperous ones. All excise taxes are buy their nature regressive. But your argument that it's unfair/unequal because only people who buy cigarettes pay it is without merit. (Heh, Merit--see what I did there?)

Everyone who buys cigarettes pays the same tax on those cigarettes, no exceptions, so it's not unequal or unfair for that reason. Problems with such a tax would include the fact that it's a regressive tax (with the burden falling disproportionally on lower-income people), the fact that the revenues for the tax do not go exclusively to health research and other things to offset the public health damage that tobacco smoking does to society, and that the government both taxes cigarettes and subsidizes the producers of tobacco (which is silly).


Quinoat 4 years ago

In your article you mention higher income earners finessing their compensation packages to include more stock options and less direct income as, I assume, a way to lower their tax burden. Does this not indicate that the tax burden is too high? If the tax rate was acceptable, why bother with compensation in stocks? Stock options have the risk of devaluing. At some rate of taxation (I have no idea what that is), it is not worth the trouble to exploit the loopholes or move your money overseas or cross state lines to buy smokes.

On the lower earner side, it seems ridiculous to argue that taxing lower earners would bring in significant revenue. We've all seen the amount the "Buffet Rule" would bring in, would additional taxes on lower incomes really bring in more? When you get right down to the math of the deficit, we aren't going to significantly address the issue until we cut spending.


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

Hi, Quinoat,

Thanks for commenting.

"Does this not indicate that the tax burden is too high?"

Let me answer that question with a question: If your kids refuse to eat their vegetables, does that not mean that there are too many vegetables in their diet?

"On the lower earner side, it seems ridiculous to argue that taxing lower earners would bring in significant revenue."

And yet many people are calling for exactly that: make the lowest earners pay more in taxes, so that they'll have some "skin in the game."

"we aren't going to significantly address the issue until we cut spending." If you add "and restore tax rates to somewhere around where they were in the 50s," I'll be right there with you. We can't tax our way out of the hole, nor can we cut our way out of the hole. We need to both restore taxes to what they used to be /and/ cut spending (including defense and foreign aid) if we're going to solve this issue.


American Romance profile image

American Romance 4 years ago from America

Jeff, it is a waste of my breath to try and teach you anything, but please study Reaganomics a little more in depth! We now have the highest corporate tax rate in the world!...............duh do you really think this one fact will create jobs, keep jobs, or grow the economy? ........man you really seem out of touch to be such a smart guy!.............have you ever answered the question about what will we do when you finaly take down corporations and the wealthy?..........I never got a job from a poor person so how will we all eat? Keep working on it because you do seem to have the energy for it!


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

Hi, AmRo,

Perhaps if you had anything to teach me, I could learn something from you. So far, you haven't demonstrated any wisdom at all; merely empty partisan rhetoric.

If you had read and understood this article, you'd know that the only thing it says about corporate taxes is this: they get passed down to the consumer. That's all. The Right agrees: they love to hold this up as a reason to abolish corporate income taxes. But what it means for us is this: everyone who buys anything shoulders part of the corporate tax burden. You can't argue that corporate taxes get passed down to the consumer and that 50% of those consumers don't pay taxes without looking like a doofus.

We may have the highest corporate tax rate in the world on paper, but in practice, a lot of the most profitable corporations do not actually pay anything in corporate income taxes to the government. In fact, many of them have a net subsidy: more dollars flow /from/ the government /to/ the corporation than vice-versa.

Heck, I've even said (in the comments, true, not the article itself) that raising corporate taxes isn't a great idea, precisely because they'll just get passed down to the consumer. We even talked about it, if you remember. (Scroll up; it's still there.) You even pretended that you "got" me, when in fact the passing of corporate taxes down to the consumer actually strengthens my overall point. It was pretty amusing.

But Reaganomics don't bloody work, and if you'd been paying attention to the economy for the past 40 years, you'd know that. Wealth does not trickle down. It never has. Look at the real world and you'll see this is true.

But please, keep commenting. If laughter is the best medicine, you're a great doctor.


American Romance profile image

American Romance 4 years ago from America

So Jeff, how do you explain Reagan cutting taxes from 70% to the 20s and the IRS saying after a few years more money than ever was coming into the coffers? How do you explain the growth we had during and after the Reagan years! I believe he proved beyond a shadow of doubt that trickle down economics works! His only shadow of doubt was the national debt growing by 3 trillion. Had Clinton not had the highest tax increase in history we may have been able to pay that debt down due to the huge increase in revenue from taxpayers! I have never witnessed a liberal explain the fantastic economy Reagan created! Seems you all want to reright history? Very confusing!

I noticed you used the word bloody? Are you a british immigrant? If so then you have left a country that is years ahead of us in socialism, wealth distribution, regulation and high tarrifs and gasoline?.................uh why are you now fighting for the same?.............do you simply enjoy living in misery? Why don't you take a vacation, come down to Oklahoma (only state in the union that not ONE county voted for Obama) We discourage unions, gasoline is $3.38 today ( I know cause I filled up) you can purchase an equal home that your living in now for half price (and it will be much newer) unemployement is around 5.5% low crime, many many sites to see and the best people in the world! I will cook steaks along with beans, jalapeno peppers with cream cheeze along with smoked bacon wraps and treat you to some good ole boy budlight..........I might even have a bottle of merlot in the fridge for you! Then we will take a drive around all parts of the city. I will show you how conservatives live, work, play and raise their children..............then on the drive home you can ponder your liberal thinking. Hell we might even become friends.............Lord knows we can't on hub pages! LOL!


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

"So Jeff, how do you explain Reagan cutting taxes from 70% to the 20s and the IRS saying after a few years more money than ever was coming into the coffers? How do you explain the growth we had during and after the Reagan years! I believe he proved beyond a shadow of doubt that trickle down economics works! "

I explain it by telling you that you must've pulled that number from somewhere unmentionable, because reagan actually /raised/ taxes while he was president. At least 11 times! There's this thing called the real world. Many people live in it. You should check it out.

"I have never witnessed a liberal explain the fantastic economy Reagan created!"

He created it with deficit spending and tax increases. Look it up.

Trickle down economics doesn't bloody work, and tax cuts do not lead to prosperity.

"Very confusing!"

It's only confusing to you because reality doesn't match your narrative.

"Are you a british immigrant? "

Nope, lived in the US all my life. I've traveled abroad, though.

" you can purchase an equal home that your living in now for half price (and it will be much newer)"

Yeah, but, it'd be in Oklahoma. No slam on Oklahoma, but my life is here.

And, y'know, seeing as how you love to talk about how the free market works, don't you see that cheap housing isn't the best argument for moving to Oklahoma? Aren't low prices an indicator of low demand? (Houses are cheap there because nobody wants to live there.)

LIsten, AmRo, I'm sure you're a nice guy who loves his family and so forth. We'd probably enjoy each other's company as long as we didn't talk politics. But I've never encountered anyone who has been so consistently wrong on so many issues.


American Romance profile image

American Romance 4 years ago from America

Jeff, have you read my hub on Reagonomics? If I'm wrong then read my research and refute it. The housing market is fantastic here! Housing is cheap because we don't have forced union labor building them! We have fewer regulations jacking up cost! Permits and taxation are less enabling folks to purchase more home for the buck! In Houston Texas a home like mine would cost about 800 per month in taxes..........therefore I would not be able to afford this home there. Here it cost about 160 per month. Our governor is getting rid of the state income tax at this very moment. She is fighting the federal government daily to rid them from Oklahoma! I will be happy to take my digital camera and drive just 1 mile each direction of my home to prove the brand new homes being built! They even have billboards up showing the prices. Maybe then you will begin to believe how true conservatism works? .........Please read my hub on Reagonomics, I would appreciate your remarks, in other words if I'm wrong then convince me, I"m not closed minded but truth is truth and I believe your missing the point.


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

"Jeff, have you read my hub on Reagonomics? If I'm wrong then read my research and refute it."

Done, and done. Check your comments.

"I"m not closed minded but truth is truth and I believe your missing the point."

You're right: truth is truth. You got some of it right, made one understandable but important mistake, and left a lot of things out in your hub. The bits you left out are what trip you up.


mikeydcarroll67 4 years ago

This can be confusing to figure out. I think we just need a flat tax and be done with it.


American Romance profile image

American Romance 4 years ago from America

OH Jeff! I downloaded Stossils new book on my kindle last night! Titled No They Can't, This is the book for you my friend! Even talks about the great depression and how your beloved Democrat actually caused the depression to continue longer because he interferred with the natural economy! Written by a libertarian, and I don't agree with a lot of libertarian garbage but this book is fascinating!


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

Hi, mikeyd,

A flat tax is often touted as the solution to all our woes, but I haven't seen a plan yet that doesn't have the burden fall disproportionately on people at the low end of the economic spectrum. I'm still open to suggestions, though.

AmRo, thanks for the recommendation. I'll take a look when I can.


Dave 4 years ago

could the argument not include the left right bs? does it have to be a about parties? the political party system is to divide the nation. as it was once put, a house divided will not stand.


Teizle 4 years ago

That is not true when you say everyone pays social security. The law requires through the Federal Insurance Contributions, that each employee support Medicare and Social Security through employee payroll deductions called FICA. Employers are required to deduct 1.45 percent from each employee's earning for Medicare and 6.2 percent for Social Security. But it is true that individuals who earn 106,800 or don't have to pay the 6.2 percent for Social security. The average income an individual made over the age of 15 was less then 30,000. So you could say that everyone but the rich pay for Social Security which ain't right

So everyone pays for Social Security except for the rich


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

No, you're making a mistake: individuals who earn more than $106,800 do pay SocSec tax on the first $106,800, but not on any earned income over that amount. So if you earn $106,850, you pay SocSec on everything but the top $50. Also, you don't pay SocSec on capital gains or other income that doesn't come from a job.

It is possible not to pay Social Security, but not if you get paid for doing a job.


Pat 4 years ago

While it depends upon the reason for the taxes (such as bloated government or expenses), tax is really only overpaid by those who attempt to live on substandard incomes of what it takes to survive in America today. People who are paid insufficient income should not be paying taxes; nor should those who receive payments from pensions which are not earnings but distributions of principle.

Why would anyone be paying taxes on principle they have stored with banks and financial firms?


someonewhoknows profile image

someonewhoknows 4 years ago from south and west of canada,north of ohio

The extreme left wing liberals who want big government would say -

Give me your poor lame etc.... and we will use them as an excuse to overtax the Middle Class but not right away. First we will tax the Rich or what used to be considered Rich due to Inflation and a little more on the actually Rich individuals.

Remember as Inflation eats away at peoples Income.

That is a Hidden Tax on Income due to the devaluation of the currency at the Very same time Incomes are Increasing due to Everyone's income rising including people in Unions in both Public and private sectors of the Economy and those same people and private Banks and I suppose credit unions as well seeing as Inflation is ingrained into society to such an extent that everyone is involved no matter where they are in the economy.It's become part and parcel of economic life.

The only way to change the system to to change our beliefs and or values and that must start with all of us .

We all know how Greed makes everyone Rich , Right?


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

" Incomes are Increasing due to Everyone's income rising including people in Unions"

Except that's false: incomes of most Americans have remained flat over the past several years, as productivity, profitability, and the incomes of the top earners have all increased.

Now factor into that the fact that when the housing bubble burst, the middle class's wealth largely vanished (poof!) because most middle class Americans' wealth is tied up in the value of their homes.

But don't worry: we solved that problem by giving a big bag of money to the investment bankers who were largely responsible for the crisis in the first place, leaving those of us who behaved responsibly to watch our wealth disappear, while those who made it vanish get rewarded.


someonewhoknows profile image

someonewhoknows 4 years ago from south and west of canada,north of ohio

You missed my point ! I was referring to the relatively recent past when certain unions such as the UAW were getting more than the new hires are now .I'm well aware that has changed.

Most Private Companies unionized workers have steadily lost income due to inflation over the years.

Even government workers are not immune from Inflation any longer either.

Corruption is Everywhere.


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

Oh, I see--yes, I did miss your point.

Unionized workers did have (for the most part) higher wages than their non-unionized counterparts, that's true. But you said everyone's wages were rising, and I still dispute that: even in nominal dollars, wages have remained mostly flat for a while now, and in real dollars, they're /de/creasing, for exactly the reason you cite: inflation.

But the rate of increase of profitability, productivity, and executive compensation continues to outpace inflation by quite a bit.


AJReissig profile image

AJReissig 3 years ago from New Richmond, Ohio

One major point that the article did show is how compiclated our tax structure is, and how deperately we need to scrap the system with something that works better. The fair tax, the flat tax...take your pick, but it is clear that what we have now is very complicated and need not be so. And the reason it is so complicated is both parties have used the tax code to get reelected.


Sanxuary 3 years ago

The Corporate tax rate is 35 percent but most reports indicate that they are unlikely paying even 10 percent. It is claimed that General Electric did not even pay any taxes last year. One has to wonder how such major users of our infrastructure get away with not paying any taxes. The recent Cyprus melt down was mostly due to reigning in off shore banking. I was not surprised that a tax agreement finally bailed them out. Technically, 35 percent is probably to high but I think they need to pay their taxes first. I was wondering what your opinion is on this. My data seems to indicate that most Corporations never get anywhere near 35 percent.


Jeff Berndt profile image

Jeff Berndt 3 years ago from Southeast Michigan Author

Oddly enough, I don't agree with taxing corporate income, and here's why: Corporations don't really pay taxes anyway, even if they do write a check to the IRS. Stay with me.

A Corporation is told they need to pay taxes on their profits. Fine, so they pay X% in taxes, which works out to $Y Million. That means they're making $Y Million less in profit. How do they make up the shortfall? They increase their prices such that their customers offset the tax burden, which effectively passes the tax burden down the line onto their customers. For an advertising firm, for example, that doesn't seem to have much direct impact on the average citizen, but their customers--companies that make stuff the average citizen buys--will not only have to pay their own income tax (and pass the expense along to their customers) but will also have to pass on the increased cost of their ad campaigns to their customers.

Individuals always end up shouldering the tax burden, whether by direct taxation or through increased costs for their purchases because corporations can offset their tax burden by shifting it to their customers.

That's why I don't think corporate profits should be taxed at all.

Dividends to shareholders (individuals) and capital gains on stock sales, however, are another story. That's income to an individual, and should be taxed as such.

There are probably incidental flaws in this idea, but the principle is sound, I think.


Skin Deep 3 years ago

Hey Jeff, great article. It is nice to see actual numbers versus the talking points. Also, thanks for humoring the non-Vulcan responses as it really helps to underline the point.


AJReissig profile image

AJReissig 3 years ago from New Richmond, Ohio

Jeff, I agree on the tax issue for corporate profits. As you said, indivduals will carry the burder either way, so why add another layer of tax laws? And when we have high corporate tax rates, we create incentives for multi-nationals to keep profits off shore. The recent example of Apple comes to mind, as they have been called before Congress for keeping profits in Ireland. Wouldn't the nation be better off if we got rid of coporate tax and companies like Apple and GE brought those profits home?


Jeff Berndt profile image

Jeff Berndt 3 years ago from Southeast Michigan Author

"Wouldn't the nation be better off if we got rid of coporate tax and companies like Apple and GE brought those profits home?"

Probably. As I said, there are probably incidental flaws in the idea of abolishing all corporate taxes, but I think the idea is sound.

I wonder what the unintended consequences would be?

Certainly, corporations would be unable to write-off the depreciation of equipment/assets, since they wouldn't be paying income tax anyway. They would also no longer be incentivized to donate to charities--no taxes to write-off in the first place, so why make donations? Only for PR reasons, and that might be enough. Wealthy individuals would still be incentivized to be charitable if such donations could still be deducted from individuals' taxes.

There are probably more domino effects that I haven't thought of.

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