Ok, this is the second time in two days that I have heard that tax deductions are a form of welfare. What a bunch of liberal/PC crap. A deduction is simply a built in part of the tax rates. Taking a deduction is simply part of the system that takes money from me and uses it for a small number of useful things, but basically gives it away. Receiving that money without doing anything for it is what is called welfare. Me giving slightly less welfare money to the government is hardly equivalent to me receiving welfare.
What they are talking about (usually) is REFUNDABLE tax credits. The Earned Income Credit is the classic example- in this case, most dudes who qualify (usu single moms) are paying 0 taxes, but get a “refund” of up to around $4000. That is then- exactly that= “welfare”.
Now they are talking about the Child Tax Credit, and possibly making IT “refundable” also- which would also be more “welfare” in the case of those whose credits exceed their taxes.
Well both references were to tax deductions. I agree that a tax credit for non-taxpayers is a form of welfare.
It might help if you quoted the specific statements you are referring to. I’ve seen something similiar to what you’re talking about (and me even have been one of the people who called it welfare), but it was, again, income tax credits to people who had anot actually paid income tax in the first place.
Be more specific and there might be a debate here.
That’s not true. While EIC recipients often have zero liability in federal tax they still pay Payroll taxes(social security and medicare at the Federal level and sales taxes. The EIC is a way to refund THAT money. They are still taxpayers. They just don’t pay the Federal Income tax, they still pay the flat rate taxes. EIC is an attempt to reduce that liability for our poorer families. The Child Tax Credit is a similar attempt which uses the reasoning that people with children pay monies for the child’s upkeep which are subject to sales taxes and other local taxes.
Enjoy,
Steven
Steven: Was your post aimed at me? Pls note that I specifically referred to income taxes twice and made it quite clear what I was talking about. So your statement “that’s not true” is actually not true.
But I really don’t want to get into another debate about whether FICA and income tax should be linked. I’d be more than happy if got rid of FICA altogether, and either privatized it or at least made into a true retirment savings account. But even in it’s current form, there is a cash benefit to be paid out later in life, so if you want to talk about the tax burden incorporing FICA, then do the calcualtion to remove the implicit cash benefit later in life.
You have to have income of a little more then $50,000 to pay $4,000 in FICA taxes. (50,000 * 7.65% = 3825)
The Earned Income Credit does refunds a good deal more then the working poor pay in FICA taxes. Even if you factor in sales taxes they are getting more of a refund then what the paid.
It would make me have more respect for the proponents of this tax credit if they would simply acknowledge this fact (as per my bolding in your quote). Until then, it makes me think they have a hidden agenda, and are not really debating the issue “above the table.”
John: No, I actually started composing it after the first comment by DrDeth, but the thread moved faster than I did. I should have put a quote or a specific address to a person in there. Sorry about that. The “that’s not true” was intended to refute the idea that people are “paying zero taxes” and getting back cash. They ARE still paying taxes. A significant amount of taxes actually.
Anyway, I bet numbers would do it better.
FICA = 7.65%
State Sales Taxes range from 0%(five states) to 7.5% Municipal taxes and other local taxes add on to that. In my area it is 8.125% on sales tax although the state tax rate is 6.25%
7.65% + ~7% for an approximation of state and local sales taxes = 14.65% in unavoidable(non-income based) taxes. This doesn’t count any property taxes(on cars for example) or things like the excise taxes on gasoline.
The 4,008 dollar refund is the maximum credit. This is for a family(married, filing jointly) with three or more children and with between 10,000 and 13,000 in taxable income. This is after-deductions income. According to my back-of-the-envelope-and-from-memory EIC calculations(I’ve claimed the credit in the past and done the paperwork several times) a family of 5+ with 10-13k in taxable income will have a gross income of ~ 25-28k because you’ll go down to the AGI then down some more based on deductions before reaching the 10-13k taxable income level.
25,000 * .1465 = 3662.5
28,000 * .1465 = 4102
Enjoy,
Steven
Let me try to clarify my position. If one is paying income taxes, and to this I will include social security and medicare taxes AND if any of those taxes are reduced, it is not welfare by any stretch of the imagination. Tax rates change from time to time and when they go down one is simply paying less of his earnings to the government. No one is giving him anything. A tax credit to someone who is paying no taxes based on income is a form of welfare, they are being given money from the producers.
A tax based on spending (sales or excise taxes) should not be included in the discussion as they are based on consumption rather than production. Also, not all states charge sales tax, and in my opinion none should charge sales tax on neccessities such as food and clothing. I do not think you can say a tax rebate to those who pay no income taxes but do pay sundry other taxes can be counted against those and is therefore not welfare. Should one pay 500 dollars in taxes and receive a 400 rebate (credit), even if it does not apply to the higher tax brackets is not welfare either.
You are assuming that every penny the person makes is spent on an item subject to sales tax. Most monthly bills (rent, water, electric) aren’t subject to sales tax. In many states food isn’t subject to sales tax or taxed at a lower rate. My state even has “tax holiday” days were people can buy clothing and school supplies with out paying sales tax.
If the state sales taxes range from 0 to 7.5%, why is your approximation using a 7% figure? Isn’t that a tad on the high end of the range?
Mtgman:
I understand that the earned income credit is to ameliorate payroll taxes.
I had not heard that extending the child credit to those who do not pay Federal income taxes is intended to ameliorate sales tax taxes related to the costs of raising a child?
That doesn’t mean it’s not true, just that I haven’t heard it.
It’s a screwy way of doing things, anyhow.
If I bop you on the head with a two by four instead of ameliorating it by giving you a lollipop, wouldn’t it be much better if I stopped bopping you in the head?
Likewise, why not simply exempt those entitled to the earned income tax credit from payroll taxes in the first place?
Why not offer a sales tax exemption on certain child care products?
An INCOME tax credit to someone who pays no INCOME tax, perhaps. People who have low enough incomes and/or high enough deductions to qualify for no federal income tax still pay taxes. EIC is a tax credit handed out at income tax time and administrated by the IRS, but it is intended “to help offset the basic living expenses (including FICA taxes) of low income employees” but it is still(mostly) based off of the estimated tax burden(from various sources) of those individuals/families. There may be some families who get back slightly more than they pay in taxes of various stripes, but the margin isn’t very large at the current rates/refund amounts.
In Conceivable, a family of five on an income of 25-28k per year most likely IS spending every penny on subsistence. I can’t imagine supporting five people on 5k per head per year pre-tax income and being able to sock much away. That is ~3-6k above poverty. And yes, water, electric, gas, phone, and many utilities ARE subject to taxes. Look at your itemized rates sometime. I have my wireless phone bill handy and I paid 14.51 cents in taxes of various stripes on a 79.95 plan with no additional minutes. This is ~18% in taxes. I also had 18.40 in credits of various stripes from my cell phone carrier so the taxes might have been on the acutal services charges of 61.55. 14.51 in taxes on my discounted service charges of 61.55 is a ~24% tax rate. My state has a tax holiday weekend too, but surely you’re not suggesting everyone buys enough clothing/shoes/etc once or twice per year to make their sales tax burden significantly lighter by buying on tax-free weekend?
Bricker. I did a bit of looking for some cite that averaged the sales taxes across states and I couldn’t find one. I went with 7% because although there are a handful of states with extremely low rates it seems most cluster around the 5-6% mark with some pretty populous states(California, Texas, and Florida) having 6% or higher. Kind of a weighted-average based upon the fact that lower population states(like Idaho, the Dakotas, and Utah) tended to be lower. My goal was to get an estimate which would be most accurate for the largest number of people, so the tax rates of very populous states were taken more into account. An estimate of .75-1.25% for municipal and other taxes brings us to ~7%. Rremember, it is only the base state rate that is listed in that cite. Municipalities, cities, and sometimes even suburbs, tack onto that number. Factor in that most citizens live in cities and would be subject to these higher rates and I think it’s fairly close. It’s not an exact science, but it is a decent guesstimate IMHO.
Enjoy,
Steven
Not sure that came out right. The figure I used for State Sales Tax was actually between 5.75 and 6.25%. Then I added on a .75 to 1.25% boost to account for local sales taxes. 5.75 to 6.25% is a fairly good weighted average guesstimate based on the tax rates in the states with the highest populations. This site seems to have a better breakdown of the impact of local taxes on overall sales tax rates. Texas, on average across local areas, has a 7.9% sales tax rate, but only 6.25% of that goes to the state. California has a 6% statewide sales tax but local additions make it 7.9% statewide average as well. The five most populous states(California, Texas, New York, Florida, and Illinois) have average local sales taxes of 1.9, 1.65, 4.05, 0.6, and 1.15% respectively. I think a nationwide average of .75-1.25% for local sales tax is a conservative estimate. Added to my estimate of 5.75-6.25% for the state baseline is how I came up with the ~7%.
Does that make more sense? Sorry for any confusion.
Enjoy,
Steven
You know, just once, JUST ONCE , I’d like to see the reply to an answer like mine be “Ooops, never mind” . But I guess I’ll never see it.
Don’t even TRY & discuss a Federal refund of State & local sales taxes.
I have no idea of where Mtgman gets the idea the EITC is somehow tied to the amount of taxes that the recipient pays. I went thru the Master tax Guide, Pub17, and IRC sec32 itself, and nowhere does it mention that. Although, I guess that way back when it first came to be (and it was VERY different then, a credit of up to $400 for up to $4000 of income- looks like it stayed that way from 1954 to 1975, but I could be wrong) that might have been the “legislative intent”.
In any case, don’t be comparing “a family of five”- the biggest amount of EITC goes to single mothers, with 2 kids or so. The EITC is NOT calculated based upon Gross Income or Taxable income, it is calculated based upon Earned Income (which is usually gross taxable income for this sort of taxpayer, that usually means= “gross wages”). There are adjustmets for MAGI and other stuff that will make your eyes glaze over, but that is about the size of it. So, if a single Mom with 2 kids has a job where she grosses 10K, she will get the max amount of EITC, even though her Taxable income will be 0. (Due to the exemptions and Std deduction). Such things as child support, food stamps & such are not counted, but some other sources of income (like interest ) will reduce it.
Whatever the original “legislative intent” of the Code Sec was, now it acts just like welfare in many cases. A single Mom with 2 kids and earning as little as $10000 will get the maximum- around $4000. She will pay no income taxes, (and usually no State income taxes either). Her payroll taxes might run $800 (and her Sales taxes something less than 1/2 that, since there are no sales taxes on rent). Thus, if it was somehow based on Payroll taxes, it misses the mark by a factor of ten. Sure, I guess you could accuse the average Congressman at not being all that good at math, but they have aides & the Treasury writes this stuff anyway. The original 10% of earned income might have been close to “other taxes”, but now it is up to 40% of earned income, and that single Mom with 2 kids does NOT pay 40% of her $10K gross in “other taxes”. Not even close. “Pull the other one, it’s got bells on it”.
So, indeed, this rather standard recipient of EITC does indeed- “pay zero taxes” and is “getting back cash”.
Of course, other dudes do pay income taxes, and the EITC offsets what they pay. Some only get their payroll taxes back (but then, if they aren’t paying Social Security, why do they get to recieve benefits?), but still others do get EIC as a form of “welfare”.
Well, to be technical, she is paying some taxes, but sge gets back 4>5 times as much as she pays.
I see.
The idea here is that “welfare” is ipso facto evil, and a person who works (remember that it’s called the Earned Income Credit) to support children (it’s minimal for childless people; see the tables in the Instructions for the 1040 Form) should not be given a refund higher than whatever taxes she or he might be expected to pay if she or he chose to take no deductions or exemptions.
Have I got that right?
I can concur with a Libertarian government choosing to do such a thing – but a Libertarian government would not be deciding to take vast quantities of taxes from people, precluding them from giving that money to charity to help such a person, in order to underwrite some of the peculiar programs that the state and federal governments seem to feel are required to be supported by our tax dollars.
I see a real moral question in what we’re doing here – and any person who excludes him/herself from that “we’re” has abnegated his own moral duty as a citizen of a representative democracy, and should be IMHO barred from any comment in a thread dealing with politics.
I don’t know about this. I haven’t seen anyone calling the EITC ‘evil’. It just seems like they are trying to point it out for what it is…a form of welfare. It walks like a duck and quacks like a duck so it is probably a duck.
Any discussion on welfare and how it should be handled should include the EITC as one component of the welfare system. As it stands the EITC seems like a sort of sneek at welfare and may be glossed over when talking about welfare issues. Whether it is right or wrong is another debate altogether.