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Thread: Your real tax rate: 40%
02-21-07, 11:30 AM #1
Your real tax rate: 40%
Your real tax rate: 40%
Income taxes, sales taxes, property taxes, Social Security and Medicare taxes, 'sin' taxes and the rest add up to a virtual flat tax nationwide.
By Scott Burns
We have a national flat tax, albeit one with bumps and potholes.
The fact that the political parties won't acknowledge this is one reason they are doing a disservice to the voting public.
Instead, both parties have a vested interest in the theatrical possibilities created by the idea of graduated tax rates. Notice that I said "the idea of" graduated tax rates. That should not be confused with reality.
Democrats argue that taxes on the rich should be raised because others need the money. This wins votes from the legions of voters who aren't rich.
Republicans argue, with great piety, that high taxes crush incentives and should be reduced, and that only then will the American way see a new dawn.
Politicians talk this way because they generally talk about only one tax: the federal income tax, which offers graduated rates from 10% to 35%.
Politicians rarely talk about what real people experience: the true maze of taxes and government benefits. If someone put them all together, we could see what our actual tax burden was. We could see who pays at the highest or lowest rates. Discussions of tax policy wouldn't be a waste of time.
Well, two researchers did it.
In a study for the National Bureau of Economic Research, Boston University economists Laurence J. Kotlikoff and David Rapson have found that our all-in marginal tax rate is 40%, give or take a bit. Yes, you read that right: 40%.
Most workers will pay about that much on each dollar of income when all taxes -- federal and state income taxes, sales taxes, taxes for benefit programs, etc. -- are considered.
As a consequence, a 30-year-old couple earning only $20,000 a year has a marginal tax rate of 42.5%, while a 45-year-old couple earning $500,000 pays at 43.2%. There are some exceptions: A 30-year-old couple earning $50,000 a year, for instance, pays 24.4%, and a 60-year-old couple making $150,000 a year faces a tax rate of 47.7%.
The average marginal tax rate on incomes between $20,000 and $500,000 is 40.3%, the median tax rate is 41.8%, and the standard deviation of all of those rates is 5.3 percentage points. Basically, most of us pay about 40%, plus or minus 5.3 percentage points.
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That's not a big range, particularly when you notice that it covers an income rise of 2,500%.
So I have a modest proposal: Ask your senators or representative if they have a clue about this. If they donít, regardless of party, they shouldn't be in office. Vote accordingly.
The de facto flat tax
All-in marginal tax rates for couples
Age $20,000 $30,000 $50,000 $75,000 $100,000 $150,000 $200,000 $300,000 $500,000
30 42.5% 42.3% 24.4% 36.9% 37.0% 45.9% 36.8% 43.9% 44.0%
45 41.7% 41.8% 35.8% 36.1% 36.1% 45.1% 35.9% 40.9% 43.2%
60 32.0% 36.3% 36.5% 45.5% 45.5% 47.7% 43.2% 45.8% 45.0%
Source: "Does It Pay, at the Margin, to Work and Save?" by Laurence J. Kotlikoff and David Rapson
We are the thin blue line
and all the money in the world.
And no you can't have any.
02-21-07, 04:22 PM #2
All the more reason for the Fair Tax!"If everyone is thinking alike, then someone isn't thinking." -Gen. George S. Patton
02-22-07, 09:00 AM #3
Hold onto your wallets now that the Dems are in the majority.
02-22-07, 09:11 AM #4Banned
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Figure in the various fees and you're quite a bit higher yet.
I'm no Fair Tax supporter. The "prebate" is the worst kind of social programming and the steady inclusive nature makes it even less visible. At least people do pay attention and give a damn each April.
Worst of all it does nothing to reduce the tax load. It's just a different method of collection. When government is trimmed down to a size that will fit inside the Constitution I might consider changing the leeching method, until then it solves nothing.
Besides, the current system is something like the lottery - a tax on people who suck at math. (and reading) I don't cheat, no need, I just pay attention instead of paying with Federal Reserve Notes.
02-22-07, 10:14 AM #5
That actually sounds low to me when you include hidden taxes, and of course fees like BugEyedBeast said.
When Ronald Regan's administration calculated it back in the 1980's, they came up with more like 65%, as I remember, and that ignored the "tax loop", whereby you pay income taxes on the hidden taxes that you pay.
Hidden taxes are mostly taxes that businesses pay and pass along to customers in the form of higher prices - Everything from taxes on business property and inventory to the taxes on their profits - SOMEONE has to pay those, and the only source of income for most businesses are their customers.
When you calculate hidden taxes paid at each step of the supply chain by the next link in the chain, the Federal, State, and Local governments start looking like they're operating the classic "Protection racket" that hoodlums are known for, taking their "cut" every time money changes hands.
VAT (Value Added Taxes) are the most insidious - It can double or triple the end price of goods and services (folks in the UK know what I'm talking about, with their VAT tax, which was like 17% last time I was there - And that's just the retail VAT tax, not counting hidden VAT taxes I was paying in the form of inflated prices)
I would much rather see zero taxes on businesses, and have it all taken out in the form of a 65% retail sales tax - That would boost savings and improve our consumer debt and Balance of Trade too, because no one would pay taxes on money that they didn't spend (of course, I'd exempt food and prescriptions from this tax, same as we do in Texas now for the state sales tax... And we somehow manage to do that without a state income tax, plus Texas wound up with a huge budget surplus last year).
Also the "sticker shock" on a 65% sales tax would no doubt cause people to pressure Congress into reviving spending limits that have fallen by the wayside, or were never enacted (mostly the latter). In Washington, a slight slowdown in spending increases is what usually gets touted as "draconian cuts".
Last edited by TXCharlie; 02-22-07 at 10:38 AM.
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