This thread is confirming what I guessed when I started – that it’s probably very complicated to figure out exactly what a person’s actual tax burden is. (Hence why I didn’t bother checking the math.)
Economically, it’s defensible to count the employer-paid portion of someone’s payroll taxes. In fact, it probably makes more sense to count it. It’s the same as with sales tax: it’s not relevant whether it’s charged to the business or to the customer; the ultimate price the customer pays is the same, because if it’s charged to the business, they’ll raise prices to compensate, and if it’s charged to the customer, fewer will be willing to buy at that higher price. The place where the supply and demand curves cross is the same regardless of who the tax is charged to.
If you’re talking about workers being paid wages, it’s the same, as they’re selling their labor. If I earn $X yearly salary, but my employer pays some amount beyond that, it’s still money they’re paying for my employment. The gap between what money I actually get and what my employer pays is the same regardless of who is formally charged what percentage of the tax. Without that tax, my employer would be able to pay me a few thousand dollars more (and if not, I know I’m apparently worth it, so I could probably find another employer willing to pay it. Yes, at the moment the labor market is probably less competitive than usual but it still doesn’t really make any difference who pays the tax. It’s still a tax and it would depress take-home pay the same even if they’d originally decide to charge it all to the employer or all to the employee.)
You see, Dave, supporting Obama is a bit like getting old. Not so rosy as we might have hoped, sure, but not bad enough to make the alternative appealing.
At that point, economically you could probably add all sorts of additional federal taxes. For example, we know Romney gets a decent portion of his income from pass-through entities. These entities themselves pay all sorts of federal taxes (not federal income tax, or course). Would it then be reasonable for Romney to claim his ownership interest’s share of those taxes as part of the federal taxes he is responsible for? The paying of these taxes is directly lowering his income.
Further, if you are self-employed then you get to deduct the employer equivalent portion (7.65%) of your self-employment taxes (13.3%). Your method of including the employer portion would result in an employed person adding the 13.3% but an self-employed comparable position adding only 5.65%. This seems absurd to me.
The numbers you are showing make sense. You just would never say the effective rate based on the taxable income though. The standard deduction and personal exemptions are just tools to make the income tax calculation a little more progressive. Do you honestly think that person you referenced would say they make $20,000 a year or would they say they make $30,000 a year?
$103,375 AGI. DINK. We took the standard deduction plus a smallish education deduction.
[QUOTE=Barack Hussein Obama]
20.5%
[/quote]
Actual:
$13,733 Income Tax
$5966 Social Security / Medicare
19.05% effective tax rate
That’s close enough for jazz. If you count my employer’s contribution to the payroll taxes (which I think you should - didn’t GWB pimp that idea that I’d have that money to invest on my own if his SS privatization plan went through?) it’d be more like 24%.
My wife and I had a combined income of $99,000 last year, and TurboTax said our effective rate was 20.9%: pretty much what the Obama calculator said. On the other hand, in 2007 I was single and made $34,000. My effective rate was 9.5%, which is considerably less than the gadget said. I’m going to e-mail the campaign tomorrow and ask what the source for the figures is.
I feel a little weird using my AGI as my “total income”, as it’s actually 16.5% less than my employer pay plus investment income. Some of that was interest from tax free bonds. I had a capital loss from a stock sale. I also contributed to a pre-tax retirement fund. There are very good reasons for not counting all of these as part of my total income, but I had never actually done the math and was surprised at how much lower it is. For the purpose of comparing people’s tax rates, I suppose basing it on AGI is the easiest way to go.
Mine is right on if I use taxable income and only Federal income tax. Its not far off if I use my total income and add Social Security taxes back into the amount that I paid in taxes.
Some of you are now just being absurd. Essentially, you are searching for ways to make your income sound lower and your taxes to sound higher without even pretending to try to think through what you are saying.
Using taxable income as a proxy for your income? Taxable income has completely arbitrary exemptions and deductions solely for the purpose of making the tax code more progressive. The number on its own is meaningless. What possible argument exists that your income is lower because of the standard deduction. Think through that thought process logically: if they raised the standard deduction, does your income lower? Is it a good thing personally for you if they raise the standard deduction? Doesn’t it actually result in more dollars in your pocket? How can something that results in you receiving more money be a reduction in your income if it raises?
Now some of you are trying to state that the employer paid portion of payroll taxes should be considered as part of your tax liability? It is possible to argue (not argue well, but at least make an argument) to add the dollar amount both to your taxes and to your income. Some of you seem to make the bizarre argument that this is a portion of your compensation since it is a part of the total cost that your employer pays. Are all the costs that your company pays for a part of your compensation as well? How about the office supplies you use, the training your company pays, the travel expenses that they pay for on your behalf? Aren’t those also costs just like cost of payroll taxes they pay to have you as an employee? Now you think you should somehow count those payroll taxes as a tax that you pay? Okay, at the very least add that to your income as well to at least make your argument consistent. Then add all the other costs that they pay on your behalf as income as well. Don’t forget about medical, dental, vision, life, ad&d, etc insurance. That should then be added to your income as well.
Now, I don’t exactly understand why people like to act like a victim, but clearly a lot of you do. I guess some people just need to act like they are so downtrodden and victimized by society. There is some legitimate disagreement over how something like effective tax rates should be calculated. It is not legitimate to reduce you income for phantom tax-code entries or to increase your tax for taxes you don’t pay. If you’re going to try to make your situation sound as bad as possible, please at least think through whether the things you are stating actually make any logical sense.
That was just one of us (me) and you didn’t have an actual argument to the contrary.
But regardless, what’s the point of arguing? You think we shouldn’t actually pay attention to total tax burden but rather on income tax burden – and you have no real reasons for that. The income tax is progressive. The payroll taxes are vaguely progressive. But aside from that, the rest of the federal tax structure is regressive. Regressive to the point that the Romneys paid less in taxes, percentage-wise, than most tax-payers in this country, despite earning vastly more. It shouldn’t be like that, and no matter how many special pleadings you concoct to try to view the tax system as more progressive than it actually is by coming up with reasons not to consider this element of it or that element, it makes perfect sense to examine it in the aggregate and understand how the tax burden affects different people of different income levels.
I think I just did provide the argument. Let me quote it again for you.
[QUOTE=LonghornDave]
It is possible to argue (not argue well, but at least make an argument) to add the dollar amount both to your taxes and to your income. Some of you seem to make the bizarre argument that this is a portion of your compensation since it is a part of the total cost that your employer pays. Are all the costs that your company pays for a part of your compensation as well? How about the office supplies you use, the training your company pays, the travel expenses that they pay for on your behalf? Aren’t those also costs just like cost of payroll taxes they pay to have you as an employee? Now you think you should somehow count those payroll taxes as a tax that you pay? Okay, at the very least add that to your income as well to at least make your argument consistent. Then add all the other costs that they pay on your behalf as income as well. Don’t forget about medical, dental, vision, life, ad&d, etc insurance. That should then be added to your income as well.
[/QUOTE]
I’d like to see some logical argument for simply adding the employer paid portion of payroll taxes to the numerator of a formula for effective tax rates when you use any of the income measures discussed in this post (total, AGI, or even taxable) as the divisor. Please explain how that could possibly come up with a meaningful result.
The rest of the federal tax structure is not regressive. I guess we’re primarily left with excise taxes, which are regressive, estate/gift taxes, which are progressive, and corporate income taxes, which are very slightly progressive but really pretty flat. Is there really any movement to make excise taxes more progressive though?
Without any statistics to back up either your claim or my argument against, I’ll say that I don’t believe this is true. I believe that including all state, local, and federal taxes, the Romneys pay more than most (greater than 50% of the number of tax-paying) Americans on a percentage of income basis. This is essentially an impossible number to try to calculate, but based upon what I know, I thinks its safe to say he pays more on a percentage basis than at least 50% of Americans. He could certainly stand to pay a higher tax rate though, which is why I would (from a most relevant to Romney standpoint) support carried interest being taxed at normal income tax rates.
Your post here is out of place. I have not made a single statement about how progressive or regressive the overall tax system is or, prior to this post, made a statement about how I would want it changed. I also have not made any statement about not examining it in the aggregate. What I do believe though is that if an argument has merit, you shouldn’t need to lie to convince people to support your side. Obama has lied to support his proposal.
I also avoided making any statement about his Buffett Proposal before. I’ll change that now though and say it is a very stupid proposal. The Alternative Minimum Tax is already complicated enough on its own. This is simply adding another version of it. It will also be ineffective. Specifically Obama calls this a millionaires and billionaires tax. Unlike my belief for many taxes, this actually can result in less actual tax revenues from an increase in the rate for certain major sections of his targeted demographic. This is not some Laffer curve type argument I’m making. The simple fact is that if you are targeting billionaires, then this won’t really work. Billionaires have the unique ability to time when they take their income. Buffett doesn’t just pay $6 million in taxes because of a low rate. He pays that little because most of his income is in unrealized gains. He can realize them whenever he wants to. He can make his income next year $1 million or $20 billion. The Buffett tax would likely increase the rate and actual dollars received from the lower end millionaires. The billionaires’ ability to decide when to realize their income makes them essentially immune to this type of tax and if anything, less likely to realize as much income.
A better alternative would be the elimination of carried interest being taxed like a capital gain (you should actually have capital at risk to receive capital gains tax rates), and modest tweaks to payroll taxes, capital gains taxes, and dividends taxes. It also makes all the sense in the world to have some sort of corporate repatriation holiday. This is not the type of proposals we will get though. While he has paid some lip service to carried interest, Obama is much more likely to support proposals that sound good on the surface to the uneducated or unengaged masses but actually do more harm then good.
Throw out some specifics so I can actually argue back.
No, I think what people are saying is that the subject of tax, and figuring your effective rate is complex. Any of these methods is valid when you talk taxes among accountants and tax professionals (I used to be one, long, long ago), and the fact that people want to simplify it down pretty much shows how little understanding there is by the general public on this.
Until we know what numbers this site is using to estimate your tax rate, this is speculation.
But the point trying to be made here is whatever way I figure it, my tax rate is greater than that of the uber wealthy - and I’m on the downward side of the curve as we have significant capital gains most years and hit the social security cap. The wealthy - holding most of the wealth - bear the burden when you look at total dollars. But when you look at proportional share, the tax burden is disproportional to the middle class - especially when social security is added back in - and it gets worse when you add in other regressive taxes (sales tax).
You started this post to show the Big Lie that is Obama’s tax calculator website.
I think we have shown it is roughly in the ball park on taxes and nowhere near the egregious thing you painted it to be.
Is the web site going a bit far in overestimating tax burdens? Yeah, seems like it. Is it off the deep end into fantasy land? No, not really.
Welcome to politics.
We simply do not know the underlying assumptions the web site makes to get a good handle on what it is doing.
You are being absurd because you have dedicated yourself to proving your original premise which is no longer standing up very well. As you continue people cast about for alternative explanations to what the web site is doing under the hood. No one knows though.
If you persist in maintaining the fiction in the OP then you will get fantastical reasoning to try and make it fit. Thing is no one will make it fit perfectly short of a talk with the web designer who put the page up.
Seems to me the web site is close enough for government work. Fudged to be sure (shocker) but not in outer space as you would have it.
Yeah, at this point, this thread is LHD trying to justify his original anger. But that anger was predicated on not realizing that the site shows federal taxes, including payroll. It’s fairly accurate for that, and I’m sure it’s as accurate as possible, because the admin wouldn’t specifically build something to bullshit people when there are accountants that hate his guts.
The calculator is comparing all federal taxes paid by “Typical Households”, and comparing that effective rate with Romney’s effective rate from his 1040, which does not include all federal taxes. It’s dishonest.
I ask because I’ve discovered several of my friends pay someone else to do their taxes, which puzzles me, as I have no reason to think they have anything complicaated happening on their taxes. But this scares me–perhaps I’m missing out on something by not having a tax specialist helping me out?
You’re mistaken. It does include Romney’s payroll and medicare taxes, but they are capped.
If you make 100k you pay payroll on all your income. If you make 30m you pay payroll on the first 100k and no payroll on the rest.
The medicare taxes are also only on Romney’s actual earned income, not his capital gains. Romney earns very little as an overall portion of his income. If you make 500k of earned income and 30m of capital gains, you are only taxed for the medicare tax on the 500k.
“FICA taxes are the Social Security and Medicare taxes paid by individuals and employers. The total FICA tax through 2010 is 15.3%. That percentage is applied to the employee’s gross pay… The employer and employee each pay 7.65%.” Learn About FICA, Social Security, and Medicare Taxes
So total FICA taxes for the typical worker are essentially 7.65%; the other 7.65% is deducted. Though if you believe in efficient labor markets, they are more like 7.65*2 = 15.3%. The latter is actually above Romney’s 13.9%, even before income taxes are factored in.
Also speaking personally, the numbers Turbo Tax spits out for me have lined up with neither my average tax rate or my marginal tax rate. I ignore them now. FWIW.