I’m a liberal guy, working with a bunch of conservatives. I’ve heard this whole Neal Boortz, Rush, etc, thing about taxes and the Bush tax numbers but I’m unable to explain the difference that I think people should know about what taxes are being cut, who’s paying them and the REAL affects on people.
I know that the “good” statistics the republicans use show pretty much only federal taxes, but I need to know the difference in all these different taxes and who pays what percentage, who pays what, and so on.
I’ve heard the argument about the tax cuts and the statement that “but that’s only federal taxes”, but don’t really know what that means. I look at my paycheck and assume that everything that isn’t state deducted is “federal” taxes.
I understand “progressive” and “regressive”, but need some clarification on the difference between f.i.c.a., and the rest of the stuff on everyones paycheck.
I’m certainly not stupid here, but have WAY too many personal things going on to spend time searching for the differences. If a succinct summary could be provided, I would be appreciative.
Wally
I’ll go with that one…I could probably use a refresher on most of the subjects you raised, but the main question I have is what is the difference in all of the different taxes we pay. What’s the difference between fica and social security, etc. etc…
I hope that’s not too vague, if you need a further dilution of subject, please let me know…
This report from the IRS (see Figure C) shows how much of the total taxable income each group earned in 2000, and how much of the tax-base they comprise. This gives you an objective picture of how “fair” our progressive tax system is – I place “fair” in quotes because different groups believe in different standards of “fairness” in taxation.
For example, those taxpayers taxed at 15% were the largest block of taxpayers. They comprised 64.9% of the taxpayers, but only 22.3% of the income. They contributed 15% of the revenue – a nice break for them! Likewise, the 28% bracket comprised 25.9% of the taxpayers, but 34.1% of the income (the largest single block). They contributed 29.5% of the total revenue – also something of a break for them. The 39.6% bracket (think about that for a moment: almost 40% tax!) earned 20.9% of the taxable income, but contributed 31.1% of the revenue.
These are statistics from 2000, which makes the data irrelevant to any questions you have about the Bush administration. You can get 2002 Data as well, but you’ll have to dump it into Excel or just download the Excel version yourself.
2001 Data are also available. That should give you a good starting point for your research. Yes, these are only federal taxes – state taxes vary (surprise!!) from state to state, and so aren’t really relevant to a discussion of national (federal) tax policy. Anyone who wants to argue the “real effects of taxes” on a national level, and then says “oh, that’s just Federal” is probably trying to sidestep an uncomfortably tight spot in their argument.
I’ll just run down the list of taxes on my paycheck.
Federal tax: a progressive tax rate that funds discretionary federal government programs, such as defense, veterans benefits, education, some transportation programs, labor programs, and whathaveyou. The 10% tax bracket is on income below $7k if single, $14k if married; and goes up to a 35% bracket on income over $311,000 if single or married.
State tax: self-explanatory. Different everywhere, some states don’t have it.
FICA/OASDI: Old Age Survivors and Disability. The Social Security tax. The rate is 6.2%, IIRC, on the first $87,000 of income.
Medicare: 1.5% of all earnings. Funds Medicare. This and OASDI are known as “payroll taxes” because they apply to even low levels of income and the employer pays a matching rate.
I have other deductions because of my work for the gummint, such as FEHBP (my HMO) FERS (pension contributions), and TSP (my 401k sort of thing).
After-tax income in this group reached, "$863,000 in 2000, an increase of 201 percent over the 1979-2000 period. " (in 2000 dollars, adjusted for inflation).
This group paid 36.5 percent of federal income taxes in 2000, and a much smaller share of other taxes. Overall, they paid 25.6 percent of total federal taxes in 2000.
Compare 25.6% of total federal taxes to the 17.8 percent of all pre-tax income in 2000 received by the top 1%. It’s bigger, but not overwhelmingly so.
Also recall, that the top 1% pays less than their income-share of state taxes: that is, state and local taxes are regressive in most states (with about 2 exceptions, IIRC).
Of course, there have been big tax cuts that fell disproportionately on the donor-class since 2000.
“The income-tax cuts enacted in 2001 and 2003 will increase the after-tax income of households with incomes that exceed $1 million by nearly $113,000 per household in 2003. This represents an average increase in the after-tax income of this group of 5.4 percent. Among the top one percent of households, the average after-tax income gain is $26,300 per household, or 4.6 percent.”
Hilariously, the Bush administration’s retention of the Alternative Minimum Tax tends to limit the benefits of the tax cut to the upper-middle class, in contrast with those in, say, the top 1%.
OK, slight hijack. I always considered my self fairly finance savvy, but the FICA rate is a new one (well, not the rate, but the $87 k limit).
Am I to assume that someone making $250K a year is only taxed on the first $87k?
So someone making $25K a year is taxed at 6.2% ($1550), and someone making $250K is taxed at 2.1% ($5394)?? Why aren’t more people screaming about this, especially with Soc Sec about to go down the toilet?
The FICA or social security deduction is not literally a tax because you get “credit” for these payments when you retire. The amount of the ss check you get is proportional to the total amount you’ve contributed over the years. The maximum yearly amount of $87K merely limits the size of your ss check when you retire. This maximum amount is indexed for inflation each year. Also be aware that your employer contributes an equal amount to ss. The amount you contribute is post-tax and your employer’s amount is pre-tax. When you collect ss on retirement you will thus pay income tax on half the amount because you’ve already paid income tax for half of your benefit. This gets really complicated if you collect ss and continue working.
Don’t get me started on AMT. Pretty soon this will take back all of the “tax cuts” that have been made so far plus even more … even for ordinary taxpayers.
Yes, but your benefits are limited. We (younger people) already pay way more into the system then we’ll ever see after retirement. Disability’s a good program, though, and if that happens soon, it’s likely we’d break even.
And social security’s been “about to go down the toilet” as long as I can remember! It’s really nothing to worry about. Other than paying for it.
Adding to what RufusLeaking said, it is best to stop thinking of Social Security as either a welfare program, a pension, or a retirement program. It is more accurate to call it an income insurance program – you pay your “premiums” from each paycheck, which allows you to collect payments if/when your income drops off because of old age, disability, or the death of a spouse.
For 2004: Social Security deductions are 6.2% on the first $87,900 in wages paid in the calendar year, and Medicare deductions are 1.45% on all earned wages for the calendar year. Medicare deductions used to have a ceiling (like Social Security does) until a few years ago. CITE.
Here are the historical limits for Social Security deductions…CITE.
FICA is not a new terminology…it’s just merely the sum of the Social Security Tax and Medicare Tax which is 7.65%. If a company pays salaries far less than the taxable maximum of $87,900, the company tends to lump the two taxes together for simplicity sake. Your employer MATCHES your deductions (for a total of 15.2%) and submits payments to the feds.
As for the missing uproar about high wage earners paying less percentage-wise (because they have fulfilled the threshhold of paying $5449.80), there is a cap on the benefits paid when they retire. CITE.
Ok, but don’t forget that it’s “underfunded”: it runs a surplus now, but will run a deficit when the Baby Boomers retire. Furthermore, today’s surpluses don’t cover tomorrow’s deficits.
I’m not sure how I would characterize the social security program.
Just a quibble, this is only for wages. For example, someone who has capital gains from selling a house or dividend income from stock does not pay medicare or social security tax on that income.
You are confusing the marginal tax rate (the rate you pay on each additional taxable dollar) with average tax rate (the total percentage of your income you pay in taxes). Figure B shows the latter. Taxpayers making between $100,000 and $200,000 pay 17.3% of their total income in federal taxes, those making between $500,000 and $1,000,000 pay 28.3%, for those making more than a million it goes back down to 27.7%.
This does not take into account state sales taxes, and taxes on gas, alcohol, and cigarettes; all of these are regressive.
It’s really nothing to worry about. Other than paying for it.