Then perhaps the best solution is to remove as many excise/use/sales taxes as possible and lower the thresholds for income taxes proportionally. Then, at least, you have accomplished the triple win of making taxes more overall progressive (since sales taxes disproportionally hit the poor in terms of “percentage of income”), taxes become more visible (since most people don’t think about, say, the gas tax or anything else that doesn’t show up on their pay stub and 1040EZ), and the economy as a whole is less distorted by specific item taxes muddling with demand/supply curves.
Even if you add up the retirees, people not in the workforce, children, and the unemployed you don’t get to 50%.
When I hear this figure I tend to think what is meant (I guess) when it is said is that 50% of America doesn’t genuinely lose any money to taxes, when all is said and done.
Just as a for example, and because I recently heard this family anecdote, I have a nephew who makes around $40,000 a year. He has three kids and a wife that doesn’t work, he owns a ~2500 sq. ft house and two cars.
His income tax refund was around $8,000 this year. Given his gross is $40,000 I suspect that if you added up all the property taxes, sales taxes, and other excise/etc taxes that everyone pays, and his FICA taxes they probably do not equal $8,000 a year. Obviously while he has withholding taken out of his pay check given his income and the amount of his refund his effective Federal income tax rate was $0.
But that 15% goes to your retirement and health care after retirement. None of that goes to general government services. Not one dime of that pays for national defense, for example.
Y’know, given the GINI coefficient in this country, that doesn’t actually bother me the more I think about it. I’m aware that it’s generally the upper middle class that by necessity shoulders much of the tax burden, but the “downside” of the rich getting proportionally richer is that they’re going to pay a proportionally larger share, especially as the marginal utility of each of their dollars to them is infinitely lower than it is to, say, me. (and I’m still paying an effective rate, when all the deductions and whatnot shake out, of 20% with one kid)
But what if they have proportionately more children and a larger house.
I wish there was a way to run Turbotax in reverse and see how high your salary could go, adding children and various deductions, while getting your effective rate down to zero.
This was the first year I was able to deduct mortgage interest and property tax, wow what a difference that makes!
I believe all people who receive Social Security benefits are responsible for paying Federal income taxes on the benefits (don’t know about Supplemental Income). But not all recipients end up with a taxable income high enough to have to pay anything.
Someone said that it depends how much other income you have. That’s true, sort of–the more income you have (whether SSRI, SSDI or regular ol’ hourly wages or salary) the more Federal tax you will pay. But you will be taxed on your Social Security benefits whether you have other income or not.
There’s a point at which that’d break down pretty rapidly: I’m already pretty upper middle class. Supposing someone makes $1mil a year (which, according to Forbes for publicly reported US companies, that’s approximately the top 500 or so CEOs), they’d need to have 14 kids and a 25,000 square foot house to be proportional with me. 
House square footage is also something with a pretty nasty marginal utility curve (once you get past a certain area per person anyway), so I’m disinclined to consider it–and let’s not even talk about variant property tax rates. I make almost twice as much as Martin’s example but my local property taxes would make it prohibitive for me to have even a 2,500 sq ft house unless I moved out of the school district (which, to be fair, is excellent and uses its largess well).
My point is that even if you consider proportionally larger families (which doesn’t seem to be the case in general) and appropriately larger houses for said larger families (I’m equally disinclined to give a family of three with a higher salary a tax break for their McMansion with empty rooms, how proletarian of me 
), once you consider the marginal utility functions the rich are still going to pay (often, significantly) more in proportion to how much richer they are than Joe Average. The trend towards the rich getting richer (as measured by the Gini coefficient, which is thankfully leveling off during the recession at least) while their marginal tax rates are lowered worries me, since it means they have proportionally more assets and are paying proportionally less. The above example of the guy making $1mil a year is pulling in, after federal taxes, 10 times as much as I am a month. I just bought a car on a 60-month 0% loan–he can buy two of 'em a month and have more than twice as much left over than I make a month after taxes. He also pays almost 3.5x as much in tax as I make a year, but each of his dollars means much less to him–so why shouldn’t he pay relatively more to the government than I do?
Of course, whether you agree or not depends entirely on whether you are counting dollars as dollars or trying to apply some kind of utility function to those dollars. I think the latter is more “fair”, and I expect to continue thinking that even if my salary doubles (which, if I pass the interview I’m flying out for next week, it will).
Somehow the idea of implementing any plan you’d come up with from that mode offends me more than gaming welfare by adding children.
Meh–it’s all taxes eventually, even if the Fed is nice enough to consider that I’m getting hammered in property tax.
You think that’s bad? Adoption fees and medical expenses are deductible as well.
Your millionaire adopts a bunch of sick kids and can avoid taxes for years…
Do you have any idea of how withholding works?
Half the country doesn’t pay taxes? Does that include corporations and wealthy who avoid taxes? Or should we focus on the poor people who are struggling to feed themselves and keep some kind of roof over their head?
I have to wonder if this is one of those instances where reality is different from perception. Consider summing: unemployment rate of 9%, the % population under 18 of ~26% (from 2000 census), the % population over 65 of ~11% (ibid) yields ~46%. Not quite 50%, but close, and it doesn’t include people not in the workforce (or other categories I’m missing).
ETA: I think it’s important to note again that there’s a difference between population and households. I have little idea how incorporate the difference, but it exists and should be accounted for.
According to Note 1 of this site, the Tax Foundation estimates the “average” American pays 34% of their income in taxes (note the authors peg the number higher at ~48%). Even using the lower value, if your nephew qualifies as “average” here, his refund doesn’t cover what he pays in total.
Some links if you want to be a little more accurate (note that I can’t vouch for the accuracy of any of the cites): average home sales price (lowest value of $126,300 in the midwest), average property tax rates (1.38%, but varying by state between 0.4 and 2.6), and average sales tax rate (9.64%, again varying by state/area). Of course, you’d also have to consider state/local income taxes and the plethora of other taxes he pays (e.g., fuel tax, phone tax, etc.).
Not only do I not have enough information (nor knowledge) to do it, I’ve quickly grown tired of the exercise. But I wouldn’t be surprised to find that if you do the math, your nephew is still a net-payer in taxes.
Yes, actually, since I have employees and have to do payroll for them. Withholding is typically calculated based on their expected income tax obligation (typically you assume that their AGI will equal to a year’s worth of the pay period you are processing.)
However, what you possibly do not understand is that while some tax credits can actually be factored into it before tax time and thus increase monthly income (for example I know you can get advances on an expected Earned Income Credit disbursed monthly) not all tax credits are.
Doing a quick number crunch based on information I know about my nephew’s situation, he is probably having around $2,200 in Federal income taxes withheld each year, and $1,488 in State income taxes each year. Since his tax refund is $8,000 I don’t think it unreasonable to say his effective Federal Income tax is zero, since he gets back significantly more than he has put in. (The refund I mentioned above is Federal only, not state.)
You can’t just assume people under 18 or over 65 are unemployed or not in the labor force.
Based on the most recent BLS numbers which can be quickly found from their home page, the total number of people who are [Not in Labor Force] + [Unemployed] is 98 million or so, which is not = 50% of the population. (cite)
You also can’t make the assumption that the individuals who aren’t in the labor force at all aren’t paying taxes. Some of them may even be paying income taxes, I don’t believe the BLS calculates the labor force based on who is paying income taxes and who isn’t, I think it is based on who is employed and who isn’t, you can have income from non-employment sources.
If he will not have a Federal tax liability then he does not have to withhold anything at all.
Yeah, there are a metric buttload of things one shouldn’t assume while hoping to come up with an accurate number. For instance, now that I think about it: IIRC, the median household income is ~$50K, which puts your nephew below the “average” I cited above. The further below “average” someone is, the more likely they’ll not pay federal income tax. So, your nephew’s…let’s see, how did you characterize it? oh, yeah…effective federal income tax is indeed likely to be near zero.
But, looking back at your original post, I note that you said you understood the OP title to mean “that 50% of America doesn’t genuinely lose any money to taxes”, which is a far different thing than one’s effective federal income tax. A prevalent omission that, it seems to me, is often made (by anti-tax pundits, etc.; not by you and not here) exactly to confuse the issue.
I’m curious as to whether your nephew’s federal refund makes up for his household’s total tax load? (Not that I expect, nor even want, you to do the calculations…just wondering in print.)
As Dangerosa hints at above (and as confirmed by an academic study cited in a recent thread), the average total tax rate that the rich pay is less than that of the middle class.
But let’s ignore that and pretend the discussion is sensical. High middle classes now pay a marginal rate of 36% while the super rich pay 39.6% It almost sounds like you advocate increasing the lower rate to 39.6% so the middle class can “feel rich people’s pain.” (Is there an icon for one of the funny faces Jon Stewart makes?)
Let me phrase the implied question even more simply. Today’s America has problems. Is anyone here going to chime in and say that high taxes on the rich is one of the major problems?
Are you joking? The Repubs stand in front of mikes and say taxes on the “job creators” will hurt the economy. They have been getting their taxes slashed over and over. Where are the jobs? Well if you include India, China and 3rd world countries, there may be a few. But they are cutting jobs in America while we slash their taxes. Does that seem like a good idea?
Yes, but many people do not do that. Some do it intentionally because they view it as a form of savings (to which I counter it is an interest-free loan to the Federal government), others aren’t totally comfortable opting out of withholding, and many aren’t aware it is possible (including many employers.)
I can use PaycheckCity to at least help. I don’t mind sharing some personal information about him since he’s never likely to find out, you would have no way to identify him personally, and etc.
He lives in West Virginia.
I’m putting 40,000 in as his annual income even though I think it’s a few hundred more than that.
I’m guessing he has 5 allowances on the Federal tax portion and 5 state exemptions (a quick search says WV tax forms just tell you to claim the same number of allowances as you claimed on your Federal), I also know he works for State Government and is part of the civil service pension plan in that state. The plan requires a 4.5% of gross income contribution, which is pre-tax and thus will lower his tax burden.
Putting that in (I’m sure he probably has other stuff that might be pre-tax taken out of his paycheck, for example some medical plans can lower AGI), it results in:
Semi-monthly Gross Pay
$1,666.67 Federal Withholding
$92.29 Social Security
$70.00 Medicare
$24.17 West Virginia
$44.00 Pension
$75.00
Multiply that by 24 =
40,000.08 Gross Pay
2,214.96 Federal Withholding
1,680 Social Security
580.08 Medicare
1,056 State Withholding
The $8,000 from his Federal return is > than the sum of all the taxes taken out of his paycheck in a year ($5,531).
That leaves about $2,469 to cover any other taxes he pays. I know he’s a home owner so he pays property tax, he owns two cars and I know his State requires you pay tax on those. WV has a 6% (I think 5% on food) sales tax. Property value and income are low in WV, so even large homes will have a very low tax rate. Something many people who aren’t familiar with the area don’t realize is people there live in homes that would cost $500,000-$1,000,000 in the NoVa area and may sell for $100k-115k there. Assume $1,000 a year in property taxes, that leaves $1469 to cover sales tax. Well, to = that in sales tax @6% he’d have to spend $24,483 in purchases subject to sales tax per year, which is probably unlikely given he’s probably spending 30-40% of his take home pay on mortgage payments.