Actually, I understand all that. It’s sort of beside my point, which I’ve since realized isn’t really relevant on account of the fact that Romney is dealing in millions and the inclusion or exclusion of SS/Medicare taxes makes no difference when calculating his effective rate.
I take back my statement that the calculator is dishonest.
To expand on this: for most people who receive wage income, their tax returns do not include payroll taxes. However, people who are self-employed pay their payroll taxes via their 1040 as “self employment tax”. This includes both the employers and employees portion. Romney’s self employment tax can be seen on line 56 of his 1040: $29,151.
Well look, even it was calculating it correctly, there’s two ways to look at the results. One is, “Oh my god, rich people don’t pay enough taxes!” And the other way is, “Oh my god, I’m paying too much in taxes! They should reduce my tax rate down to Romney levels!”
A person who sees the latter is then going to side with political party who’s been yapping all along that taxes are too high. And that’s going to be exacerbated if the widget constantly reads high.
This is not true. Consider the data from Citizens for Tax Justice, which most people would describe as a “left leaning” organizations with the following as the mission.
[QUOTE=CTJ]
Fair taxes for middle and low-income families
Requiring the wealthy to pay their fair share
Closing corporate tax loopholes
Adequately funding important government services
Reducing the federal debt
Taxation that minimizes distortion of economic markets
[/QUOTE]
The following from their link is percentage of total taxes (local, state, and federal) as a percentage of cash income.
[QUOTE=CTJ]
Lowest 20%: 17.4%
Second 20%: 21.2%
Third 20%: 25.2%
Fourth 20%: 28.3%
Next 10%: 29.5%
Next 5%: 30.3%
Next 4%: 30.4%
Next 1%: 29.0%
[/QUOTE]
The overall tax code is progressive. The middle class simply is not bearing the burden. A person might think the tax code should be more progressive, but at least be educated about the true nature of it.
No, I think it is still pretty clearly far off. By no reasonable measure of income or tax, is the tax of for example, a person with an income of $20,000 paying an effective federal tax rate of 15.5%. We know at a bear minimum that it must only be talking about federal taxes and not including state or local since it is promoting a proposal that is a federal income tax proposal and comparing only to a Romney rate that is federal. It can be reasonably be argued that you should include payroll taxes. It’s still off by over 4%, and would still be well below Romney’s rate. Further, remember that they just show a rate of 20.6% if you enter in certain lower income numbers and hit calculate. They also show 20.6% if you enter very high income. Basically, if the rates can’t possibly fit their narrative then they give up and just show 20.6% on the low end and high end.
No, it’s still not even anywhere close even if you include payroll taxes.
No, this is not correct as has already been discussed. The employee portion is 5.65%. The portion paid by employers is 7.65% and is in no meaningful way a tax that employees can say they pay. For self-employed people they can deduct the additional 7.65%.
You think it is valid to use taxable income as a income? Please explain how. You also think it is valid to include the employer paid portion of payroll taxes to a persons taxes without making any other adjustments? Please explain how. My opinion is that there is nothing valid about either of those and that no reputable tax professional would do so in an analysis of what percentage of taxes a person is paying.
You are doing something wrong. You are seriously saying Turbo Tax isn’t even getting your marginal tax rate correct? Yeah, right.
Because they have an existing back tax problem- a large balance due and, up until recently, a decade’s worth of unfiled returns.
No. Your friends are probably just scared of fucking something up. If you can prepare your tax return using a W-2 and fewer than three other forms (say, a couple of 1099s) there is no reason for you to have someone else do it.
If you think that the tax rate of the top 10% of earners varying by around 1% as incomes go from a couple of $100 K to millions is progressive - even slightly - you’ve got a very different definition of progressive than I have.
As far as the calculator goes, the site seems perfectly honest. It does not claim to tell you your tax rate, just what the average person pays. If your income has a significant capital gains portion - more than average - and if your deductions are higher then average than clearly your rate is going to be lower. Big deal. At the end of running Turbo Tax it gives you countrywide averages for your income level and situation. But that involves you entering all your data.
Do you really think it would make sense to ask average people to enter scads of income and deduction information to a random site? I can imagine what the Pubbies would say about that. You’d see that this is a useful didactic tool, and perfectly honest, if you’d put aside your hatred of the concept that the rich should pay a bit higher percentage than the middle class.
Read the post I was responding to. Here is the important part in case you missed it.
The claim here is that while higher income earners may bear the tax dollar burden, the middle class pays a disproportionately high overall tax rate compared to higher income earners with the tax code being regressive. This is absolutely false, and my post responds to that point.
You, however, are making a strawman argument. I never said that the tax system relating only to the top 10% of income earners is progressive. The data that was provided by Citizens For Tax Justice indicates that the top 10% is pretty flat as you have said. I said the overall tax code is progressive. Wouldn’t you now agree that my statement especially in the context of a response relating to the middle class is correct? Any chance you admit you are arguing a strawman here?
I’m going to make another super controversial statement here. Generally, the better basketball player you are the more points you score. When you come back and tell me how wrong I am because at this stage of their careers Kevin Durant is better than Kobe Bryant even though his scoring average is lower, I’m also going to tell you that you are arguing a strawman.
I never claimed the Obama calculator was trying to tell you what an individual person’s rate is. Since it asks you only two questions, how much do you make and what your family status is, that is ludicrously obvious. I am saying that it is not telling you what the average person pays; it is significantly inflating that to try to make a political point. The average person making $20,000 does not pay a federal income tax of 15.5%, whether or not you include payroll taxes.
Any chance you could find out where I said anything about having a hatred of the rich paying more than the middle class? Any chance you could stop lying? Any chance you could read what I said instead of making up stuff out of nowhere?
Do you think regressive means that the higher earners pay a smaller tax rate? Sales taxes are regressive though everyone pays the same percentage. A flat tax is regressive once you you get past the earnings floor. The incremental value of the next dollar is much smaller for the rich than for the poor or middle class (illustrated by Romney thinking his lecture income is trivial) so the table you presented (which is very useful, btw) shows a regressive system at the top levels.
The rate for the bottom 90% is fairly progressive. However whether a progressive 90% (of taxpayers, not income) and a regressive 10% with a lot of the money is progressive in all is a matter of opinion. I don’t think it is.
Thaler has talked about winner’s remorse, which says that the winner of an auction has usually paid too much. Who is a better basketball player depends on what metrics you use to measure them. However in most sports pay is not directly proportional to goodness. Not that this means much - you might think Bill Gates deserves every penny. and still think he should be paying a much higher effective tax rate than I do. He’d probably agree.
I’m shocked, shocked! that a political website is making a political point. Perhaps the long discussion of the details of tax calculations, which had nothing to do with this site, confused me. My guess would be that the calculator partitions tax papers into married, single, dependents, and then has the average tax burden for each bucket of gross income (not taxable income.) That is how I’d do it, and I play with data for a living. It is perfectly legitimate if simplistic. I’m sure we could test this hypothesis with real data. I’ve learned through long experience that overly complicating things doesn’t work, and I deal with engineers, not Joe Public.
I gave my citation. You are correct that the employee portion is being held down during the recession, but that’s a temporary measure. It expires at the end of this year, though admittedly it might be extended. But not for forever. And the Buffet rule would presumably kick in during 2013. So for an apples to apples comparison, the 7.65% figure is appropriate.
The employer portion is nonetheless a tax on labor. Google “Incidence of Payroll Taxes is Fully on Employees”. You will get .pdf from the American Benefits Council which quotes 30 years of studies by economists as well as summaries by the CBO and Joint Committee on Taxation. The evidence is pretty overwhelming (and not immediately intuitive). Here’s one of their quotes from the Joint Committee on Taxation, 2001: Most analysts conclude that both the employee’s and employer’s share of the payroll tax is borne by the employee… You’re clearly interested in this stuff Longhorn, so check out the link.
Well, I was surprised too. But let me be clear. Every year I play “What if” with my copy of Turbo Tax, increasing my wages by a hypothetical $1000 to see what my marginal tax rate is. It is oddly different than the marginal rate reported in the summary section. What I think is happening is ricochet effects with the ATM. Admittedly this probably doesn’t apply in our examples, so I retract. Furthermore I should add that I stopped bothering to look at their summaries long ago.
Thanks for your response. Like I said before, I believe an argument can be made (I disagree with it, but it can be made reasonably) to include the employer paid portion as a tax born ultimately by the employee. However, I do not believe this can be done in a vacuum. You also can’t use that to just boost your effective tax rate. At a bare minimum, you have to add that same dollar amount to your income, right? Wouldn’t you at the very least agree with that? Otherwise, your math has a major logical problem where one side is treating that tax as employer paid compensation that goes directly to the government as a tax while the other side is not including it as compensation? That’s one of the reasons why I am saying this argument is so silly.
Let me quote myself again on what I said regarding this.
[QUOTE=LonghornDave]
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.
[/QUOTE]
Do you really disagree with any of that?
Yes I do think this; however, it means a smaller tax rate relative to their income or wealth. It could be like sales tax and be regressive even though it has the same specific sales tax rate. That’s why you need to look at it as tax dollars paid relative to income.
By definition, a flat tax is not regressive. It is flat. You could say that a flat tax is regressive when using discretionary income. That can also be a very good way of looking at it and analyzing tax policy.
The top 10% is flat, not regressive. You have to switch definitions of income to only talking about discretionary income if you want to call it regressive. That’s fine if you want to do that, but it doesn’t really belong in this specific thread. Also, any workable system is going to have a somewhat stairstep look to it with some points on the curve flat. You would have to have a whole lot more divisions in the tax bracket otherwise. Also, you are now just arguing semantics instead of substance. You have now stated that: 1) the tax bracket is progressive for the bottom 90% of taxpayers; and 2) whether a person would call the overall system progressive a matter of opinion. However, you chastized me earlier for saying the overall system was progressive in a comment specifically about the middle class. I don’t disagree that it is flat at the top. I don’t disagree that the system could be more progressive. So, what exactly are you trying to disagree with me about again?
I havent looked through this whole thing, but I found this thread in a search.
I can clarify one thing. Turbo tax is wrong when it calculates an effective tax rate. Its way off on my taxes, and I’m trying to figure out how it came up with my effective rate of 17.3% when in reality it is at least 19% or 24% if you consider taxable income vs. AGI.
To tell you the truth Longhorn, I’m a little worried I’m going to mess up the underlying argument. But let me give it a shot anyway.
The thinking is the supply of labor for an entire labor market is relatively non-responsive to the level of wages. Of course if you wage raises in one sector (say, I don’t know, oil drilling) you will obtain additional workers from other sectors. But for the economy as a whole, higher wages will not pull that many more marginal workers out of retirement.
So the employer portion of the social security tax is thought to shift the labor demand curve along a near-vertical labor supply curve. Under such circumstances, the tax hits take-home pay pretty directly.
Qualification: you can’t just assume the labor supply curve is perfectly vertical. You need to estimate it. But the .pdf I spoke of included references to studies that did exactly that. Presumably a very small portion of the employer paid tax does accrue to the employer.
If I understand this correctly, you are saying:
(TaxEmployer + TaxEmployee) / (Employee Income + TaxEmployer)
is the proper formula. That seems right to me.
What about the cost of plant and equipment, coffee, paper clips, computers and the like? Those are other inputs into the production process: they don’t really affect the argument I gave up on top. So no, don’t add them in.
What about medical, dental, vision, life, ad&d etc insurance? Yeah, I think those should be included in income.