An investing client of mine asked me Sunday morning if I thought it was fair that 50% of Americans paid little to no federal income tax.
Of course, this is a loaded question. Others have pointed out that while some poorer Americans pay little to no federal income tax, they do pay 15.3% FICA taxes which covers their contributions to Social Security and Medicare, a highly regressive tax because only your first $106,000 of income is subject to the tax. In addition, local sales taxes are highly regressive because the poor and middle-class end up having to consume a much larger percentage of their income just to get by.
But the question got me thinking. What do the poor and middle class do with their money? Have they figured out some great way to avoid taxes? If they don't have Swiss bank accounts or tax shelters in the Cayman Islands, how exactly are they avoiding paying federal income taxes? What I found out was terribly disturbing.
I decided to examine household incomes in America by quintile to see, if indeed, the rich were paying too much tax. Following is a breakdown by quintile of the average incomes for American households for the year 2010. I have also included the data for someone with a million dollar income just to see what he or she ends up paying in tax;
Source: Census Bureau - Table H-3
Rather than making a traditional calculation on what percent of their total incomes each quintile pays in federal taxes (including FICA taxes), I thought it would be interesting to ask what percent in taxes they each pay after paying for basic necessities like food and shelter. I tried to come up with an estimate of what amount of money one would have to pay each month just to barely get by, to barely keep his or her head above water. Here is my estimate. You can see it is a very low estimate of what it costs to live in the US as it doesn't even include anything for medical expenses or health insurance or the required savings needed to send your kids to college or to retire on.
I know this is low and I challenge anyone who disagrees to try living on $2,000 a month for a while and to feed and clothe a family. But, let's call it the bare necessities and see what it means for American families.
If you subtract this $2,000 a month or $24,000 per year from the various quintiles' incomes, the following pre-tax disposable incomes result;
And here are the actual average taxes paid by quintile;
Source: Tax Policy Center
And so, here are the tax percentages that each quintile actually pays as a percent of their true disposable incomes assuming everyone needs at least $2,000 a month just to get by;
This certainly doesn't look fair, much less progressive. A rate cannot even be calculated for the lowest quintile because they are $13,000 negative in the hole before even paying their taxes. Similarly, the second quintile owes more taxes each year than it has available after paying for basic necessities. The third quintile represents the median income earner in the United States and is paying approximately 50% more of their disposable income in taxes than our richest Americans.
This is clearly a terribly regressive system in which the least among us are asked to pay the most from our disposable incomes. When looked at from this perspective there is no question that the wealthy have to pay a greater share of the taxes if we have a chance in balancing the federal budget.
But these numbers are distressing even regardless of tax policy. They suggest that 40% of American families after tax don't even have enough income to cover life's bare necessities. Think of it. 40% of American families can't save a dime for a child's college education, can't afford to save a dollar for their retirement and can't afford to buy health insurance.
What have we done? We have opened trade with countries that pay their workers less than one dollar an hour and get away with it because the cost of living in those countries is so low. But our own workers cannot be forced to compete with such low wages as it costs much more to live here.
I have watched my native Kentucky lose its manufacturing plants overseas and have its union plants busted up solely by the threat to outsource jobs. Manufacturing wages in my parent's home town in Kentucky have declined from $15 an hour plus benefits to $7-$8 an hour with no benefits. You cannot raise a family on seven dollars an hour even if both parents work.
We are killing this country. CEOs, entrepreneurs, bankers, lawyers, doctors and politicians at the top of the pyramid are all benefiting from the lower cost of labor for their employees and the lower cost of goods imported from low-wage countries. But our workers, our dear workers are getting crushed. This is not the America I grew up in. And this shall not stand.
John R. Talbott is a bestselling author and financial consultant to families whose books predicted the housing crash, the banking crisis and the global economic collapse. You can read more about his books, the accuracy of his predictions and his financial consulting activities at www.stopthelying.com
I can't even address how low your figure for automobile expense is. Fuel alone would exceed that considering the average American drives 16 miles/day just TO work. That's 32 miles round trip just to get to and from work each day. That does not include trips to the grocer, medical appointments, picking children up at school/day care, running errands.
Each of the other items are grossly under estimated, as well. The reality of your "line item budget" has that family of four in about $600-$1000 deficit each and every month. You did not even consider a couple other necessities, as well, such as health insurance and deductible/co-pays. A family with children absolutely cannot be without health care coverage. We won't even figure that into the realistic "deficit" your budget has them in.
Before hitting the "send" button on this one, you really should have done your homework, not just acknowledged that your figures were very low...they weren't very low...they were absolutely unrealistic.
The figure you used for utilities is equally unrealistically low. In areas where both heat and air conditioning are necessary, the minimum bill during off seasons of both heat and air, would be about the figure you used. However, when the heat or a/c must come on, you are looking at more than $200/month upward to $300 for combined electric/gas or oil/water and telephone (a neccessity for families with children).
I will have to post twice to continue...
Number of tax returns: Top 1% - 1,379,822, Top 10% - 13,789,220, Top 25% - 34,495,551, Top 50% - 68,991,102, Under Top 25% down to Bottom of Top 50% - 34,595,551, Bottom 50% - 68,991,102..
Of the Grand Total Income Tax collected what % of this Grand Total did these groups pay : Top 1% - 36.73%, Top 10% - 70.47%, Top 25% - 87.30%, Top 50% - 97.75%, Under Top 25% down to Bottom of Top 50% - 10.45%, Bottom 50% - 2.25%. Thus bottom 75% of Taxpayers (incomes under $67,280 a year) paid only 10.70% of the Grand Total Income Tax collected. .
President Obama’s claim middle class incomes are paying an unfair share & have an unfair burden because Rich are not paying their fair share is clearly a bold faced mathematical falsehood. Paying 10.70% compared to the Rich paying 89.30% of Grand Total is not at all unfair, or evidence of a burden. Even the claimed unfair tax avoider Mitt Romney is the top 26% of rates paid & thus pays over 87.3% of the Grand Total collected.
Hope a taste of actual facts aids your understanding of the Real World.
Look at actual income Tax Facts for 2009 (most recent publicly available from IRS) income reported & Tax paid, Top 1% 16 times more paid, Top 10% 15 times more paid, Top 25% 7.47 times more paid, Top 50% 4.64 times more paid, finally Under Top 25% down to Bottom of Top 50% 4.63 times more paid, all paid more than what Bottom 50% paid by many multiples. No factual IRS evidence the Rich half aren’t paying a Fair Share of their income compared to Bottom 50% (incomes $33,047 or lower) who paid 2.25% of their income. Group tax rates paid (Tax / AGI): Top 1% - 24.0%, Top 10% - 18.0%, Top25% - 14.68%, Top 50% - 12.50%, finally Under Top 25% down to Bottom of Top 50% - 5.58% , Bottom 50% - 1.849%.
Group AGI Income (millions of dollars): Top 1% - $1,324,572, Top 10% - $3,379,731, Top 25% - $5,149,871, Top 50% - $6,770,174, Under Top 25% down to Bottom
But really folks, it is not about money. It is a group of people who only have self-value if they can look down on others. It is about staking yourself in positions of financial superiority to be able to feel good about themselves. The more they can cheat and stomp on those below them, the better they feel about themselves. They need psychological help. You don't have to be an economic tyrant to achieve self-satisfaction.
I have had a company for 15 years and have done well. Survived the auto crisis just barely and now working towards hiring again. I treat everyone equally as money is just money, it does not make a persons character. Those qualities you talk about or no where near exclusive to people have have done well financially. I hear people of ALL economic status ripping into their fellow man, and it is sad that people are so unhappy and need to blame someone else for their own perceived shortcomings and/or misery.
Its pretty straightforward. You take an income, figure out how much SS/Med they paid (7.65%) and set that number aside ($28,636 x 7.65% is $2190.65). Then take that income and take off standard deduction and exemptions, multiply by 10% ($28,636 - $11,900 - 4x$3700 = $1936, multiply by 10% and you get an income tax liability of $193.60). Add in child tax credit (2 x $1000 = $2000) and earned income tax credit ($2,476.94), and you get $4,283.34. Thats what this persons tax return would PAY them withhout having withhled a single penny from their paychecks.
But, they did pay $2190.65 in SS/Med taxes, so if you do THAT math they STILL didn't pay money to the Federal Government and walked away with a check for almost $2,100 ($4,283.34 - $2,283.34 = $2,092.69). That is paid to them and is their entire tax "bill", not the $5,384 tax BILL that you have in the article. Now potentially there actually is a tax they paid that I missed. If so, please explain what tax it is that accounts for this $7,000+ delta between your calculations and mine.
Not the "capital formation" BS (plenty of unused capital laying around) -- the *moral justification* of it.
I still want to know the moral justification why and individual taxpayer like Romney pays 15% for zero labor while others pay much more for hard physical labor -- that's all.
What makes it *right* in a country that constantly preaches the value of hard work -- and shows a level of intolerance for those on welfare who refuse to perform such (or any) work?
And as a corollary, is Romney not, in effect, on welfare at that low rate -- subsidized by people who actually work -- the people who he shows in ads as being exploited by lazy welfare slackers?
Of the Grand Total Income Tax collected what % of this Grand Total did these groups pay :
Top 1% income group - 36.73%, Top 10% - 70.47%, Top 25% - 87.30%, Top 50% - 97.75%, Under Top 25% down to Bottom of Top 50% - 10.45%, Bottom 50% - 2.25%. Thus bottom 75% of Taxpayers (incomes under $67,280 a year) paid only 10.70% of the Grand Total Income Tax collected. I would never have believed this until as retired Treasury Dept. financial examiner I analized & did actual calculations.
No individual pays any income tax.
Eliminate the concept of 'gross' and 'net' pay. Salaries, hourlies and bonuses become singular amounts. This would give us a much needed wage hike.
Responsibility of revenue to the Federal Government become a duty of enterprise--solely an employer responsibility. Based on employee income, employers would pay a percentage. Per employee, per paycheck, three employer payments: 1) the employee's pay, 2) government revenue, 3) employee health insurance.
The government then receives revenue on that 50% currently paying nothing. Yet their current take-home would increase. The percentage would be small--say 10%--yet amount to a large boost in Federal revenue.
Percentages would rise as amounts in employee pay rise. It would max at 33%-50% on all forms of income paid to top earners. Yet individual pay would not be infringed, thereby strengthening incentive to perform.
City, State and FICA would be paid, in an adequate scheme, by the Federal government. Adjusting earning per dependent is tossed-out. Business expense deductions shift to the employer.
April 15, tax filings are eliminated.
Current actual numbers--gross, tax, net and revenue across level and in total--need analyses. This would yield percentages that increase individual pay. It would also ensure little, if any, additional quarterly burden on employers.
That's the plan, Stan.
WELCOME TO THE REAL WORLD politicians lie about and hide from Voters.