If You’re Still Wondering Why Your Taxes Are So Ridiculiously High . . .
. . . this article might explain it:
Census Bureau: Means-Tested Gov’t Benefit Recipients Outnumber Full-Time Year-Round Workers
Here’s the summary: in 2011, 108,592,000 persons in America were receiving some kind of means-tested benefit from Federal, state, or local governments. That same year, only 101,716,000 people worked full-time year round.
Unfortunately, that’s only part of the “good news”. The total of nearly 108.6 million above does not include persons receiving non-means-tested government benefits – e.g., benefits such as Social Security, Medicare, non-means-tested VA benefits*, or unemployment compensation. Again according to the Census Bureau, the total number of persons receiving Social Security, Medicare, non-means-tested VA benefits, and unemployment compensation in 2011 was 104,617,000.
There’s obviously some overlap between these categories. There’s overlap as well as with means-tested government benefits. Still – this is well past ridiculous, and fast approaching obscene.
So, the next time you wonder why you pay all those damned taxes, just remember: there are now more people drawing means-tested government benefits in America than are working full-time. There are also more people drawing non-means-tested government benefits than are working full-time. That just might have something to do with why the government seizes so much of your earnings.
And it also might explain why we can’t seem to come up with enough dollars to defend the nation adequately, too.
*Note: most VA benefits are not means-tested. However a few VA benefits – such as VA pensions for low-income vets and the VA Aid and Assistance allowance, to name two – are means-tested.
Category: "Your Tax Dollars At Work", Defense cuts, Economy
Ex-PH2: my dad had a similar story, and it’s probably why he ended up making the military a career. His dad was a coal miner – as in anthracite, underground. The aftereffects killed him 5 or 6 years before I was born.
I also had family on my mom’s side who were farmers. I saw the toll that took on them, and how little they made from it – even with agricultural subsidies. (They never went hungry, though. People who farm rarely do.)
Nothing wrong with either of those lines of work. But I decided as a kid neither was for me, and that I’d find some other way of making my living that wasn’t likely to kill me by degrees. I’ve been lucky enough to do so.
NHSparky: for high earners, 40% is indeed a lowball figure.
Top Federal rate: 39.6%.
FICA: 15.6% (drops to 2.9% above Social Security wage base).
State tax: figure a minimum of 5% (most states charge at least this much as a top state income tax rate)
Bottom line: in most states, someone earning a high salary ends up paying a marginal tax rate of at least 47.5% (39.6% + 5% + 2.9%) in income taxes at some point. And if you live in a state with higher state income taxes, think 50+%.
I specifically omitted unemployment taxes from the above. Those are (1) paid only by employers (the individual doesn’t pay a penny), and (2) they vary widely from state to state and with an employer’s history – from essentially zero to 8% or more.
That also doesn’t include sales, property, excise, gasoline, and personal property taxes. Those can add up to a sh!tload in some areas (talk to someone from LA about sales taxes – and being from NH, I’m certain you know that bigtime regarding property taxes).
Bottom line: for high wage earners, above a certain point the government is forcibly taking 50+% of their earnings before they see a penny of it. That just ain’t right.
Federal income tax rates are on a sliding now. They used to be a flat tax and that changed. Now it’s just extortion under the law. The only flat taxes we have now are FICA, Medicare and state income tax. Illinois used to have state income tax at 3%, but bumped it up to 5% two years ago because the state went broke under Blago.
We’re all just a bunch of peones at the mercy of the overlords. No wonder so many people signed up to go to Mars.
Ex-PH2: during US history, we have had a “flat” Federal income tax rate precisely 7 years: 1867-1871 and 1894. (Congress dropped income taxes from 1872-1893; after they were reinstated in 1894, the SCOTUS ruled them unconstitutional in 1895, resulging in no income taxes until the Constitution was amended to allow them in 1913.)
During the Civil War, income taxes were progressive. And since income taxes were re-instituted in 1913, they have always been progressive – e.g., taxing higher incomes at a higher rate. The brackets and rates have changed many times over the years, but we’ve had to put up with that “progressive taxation” crap continuously for over a century now.
I was surprised when I looked this up – I thought, incorrectly, that that “progressive taxation” crap started in the FDR administration. But it started at least 20 years earlier – and arguably dates from the Civil War.
So much for equal treatment under law. When it comes to taxes, that hasn’t been the rule for over a century.
http://taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets
And, for what it’s worth: not all states have flat income taxes. Some have a progressive state income tax, too. And any states purporting to have a “flat tax” that exempt the first $x,000 of earnings from taxation don’t actually have a flat tax, either. They just have a two-bracket progressive tax scheme, with the first bracket having a tax rate of nada.
Well, then who was it proposed a flat tax? Was it Daddy Bush? And why was that opposed?
I thought it made sense. Oh, yeah, I forgot – revenues would drop. Silly me.
Ex-PH2: IMO, a flat tax makes eminent sense. They’re the easiest to manage and implement, the simplest to calculate, and the least likely to allow people to avoid paying taxes by legal but unethical dodges.
But, you see, a flat tax is just “so unfair to the poor”. So we can’t have that. (I hope the sardonic nature of the preceding two sentences was incredibly obvious.)
There is absolutely nothing inherently unfair about treating everyone equally when it comes to taxes. Yes, the poor feel it more. Well, guess what: the poor feel the cost of everything more – taxes included. GMAFB.
By that logic, retailers ought to be required to charge different prices according to the customer’s income. Sorry, but that idea’s bullsh!t too.
What the left has always wanted was succinctly stated by Marx: “From each according to his ability, to each according to his need.” Outside of religious communes, that didn’t work nearly 150 years ago; it doesn’t work today; and IMO will never work society-wide. It’s just a monumentally stupid idea.
But it’s attractive as hell to those who want something without having to work for it themselves.
For what it’s worth: according to Wikipedia (yeah, I know) – Russia has a flat tax with a tax rate of 13%.
These days, I’m guessing they think that “from each according to his need . . . ” line of bullsh!t is, well, bullsh!t. And they’d kinda be in a position to know.
Actually, it DOES work, and VERY well – but not if freedom and individual liberty for the largest number of people is your aim. For those who wish to enslave others, it’s a great vehicle – punish the producers while slowly sucking in more dependents.
Hondo (#19). The table you linked in your comment actually supports my response. For Priority Group 5 veterans it does list “yes” in the column for medication copays, however there is a comment in the far left hand column that these veterans have “No medication or extended care services copayment if in receipt of VA pension or income below applicable pension threshold”.
Some Priority Group 5 veterans are Means Test Exempt from paying prescription copays while others are not (all are means test copay exempt for outpatient care). I don’t work in benefits or eligibility, but I do have multiple patients who are Priority Group 5 veterans. Because the income thresholds include a consideration of dependents, some of them have switched between means test exempt and not means test exempt for medications when grandkids have moved in and out of the home.
It can make a big difference on whether or not a person follows through with a recommended course of treatment and on the choices they have to make about where to spend their money, especially at the beginning of the year if they have chronic medical conditions requiring multiple medications and are unlikely to have reached the maximum medication copay amount for the year.
Hondo, I worked out the difference. The minimum wage guy at McD’s is taxed at 15% over $8925 + $892.50 His income tax is $2123.70. His actual taxable amount is $5136.30. His refund will be $1,610.
On a straight 15% flat tax, his payroll income tax deduction is $2574, but keeping the same deductions on the tax form ($6100 for 2013 and $3800 for 2012), his actual taxable income amount is lower, at $4,686.00. His refund will be $1871.
So how would those earning lower wages be hit harder? You can put as many examptions on your W-4 for you paycheck as you want to. You just can’t do it at tax time.
This is just the simple math that anyone can do, and does not include dependent exemptions on the W-4 or anything else. There is a huge difference and it DOES benefit those with lower incomes, no matter what the dumpstercraps say. They don’t do the math. They don’t even do their own tax returns. They go to some place like H&RBlock and pay someone to do it for them, because they are SO lazy.
Speaking of that, I have 18 years of bookkeeping and billing A/R experience. I should go to HRBlock and find out if they’re taking people for training for NEXT SPRING. I could use the extra cash. The cats need cookies, too, you know.
Ex-PH2: a true “flat tax” does not exempt any income. Dollar one in income is taxed the same as dollar one million.
For the first approx $113,000 of earned income, FICA taxes are an actual “flat tax”. Everyone with earned income pays them on all income up to that level, and they all pay the same percentage. The upper limit for the tax is because there is an upper limit for benefits payable, regardless of income. (The Social Security payout, however, is decidedly not “flat” – it’s designed to benefit lower income wage earners at the expense of higher earners by intentionally replacing a much larger percentage of low-earner wages than it does of high-earner wages.)
A system that “exempts” any income whatsoever from taxation is not actually a flat tax system. At best it is a multi-bracket progressive taxation scheme with the first bracket having a tax rate of zero percent.
Under the current tax system, a person working full-time earning minimum wage (about $15,300) and making no IRA contributions has only about a $140 Federal tax liability due to exclusions, personal exemptions, EITC, etc . . . . (See http://www.calcxml.com/calculators/federal-income-tax-calculator ) Under a bona fide “flat tax” system with a 15% tax rate, that individual would owe about $2250 in Federal taxes.
And I wouldn’t exactly say “you can claim as many exemptions as you want”. There are substantial penalties for deliberately failing to pay taxes on a timely basis – and I also believe some of those penalties can be criminal if intent to evade taxation can be proven. If I recall correctly, a few tax protestors found that out the hard way some years ago when they tried to claim an outrageous number of exemptions (I seem to remember that one guy tried to claim 99) and that fact was noticed by someone at the IRS.
Yeah,Hondo, I’ve known people who claimed up to ten exemptions on their W-4 so that they had less income tax deducted.
Also, my calculations did not include FICA or Medicare. They were strictly income tax, because income tax is based on your gross income, not income after mandatory taxes like FICA/Medicare. I’ve never seen anything that says a flat tax eliminates the standard deductions and exemptions on tax returns.
However, a flat tax of 15% on ALL income, earned or ordinary (meaning dividends and investments) is more likely to increase tax revenues that the current system.
Otherwise, dump federal income tax, keep FICA and Medicare, and add a federal VAT to all sales at 10%, which is, I think, what the Brits pay on sales of all goods. I’m not sure if that includes housing, too, but it would not surprise me if it did.
I’m not sure that you can even take a capital loss on the sale of your house any more as a deduction. You get hit on capital gain if you sell it at a higher price than you paid. I get hit with a $6.68 charge labeled ‘govt tax and fee’ for my cell phone, which I hardly use. This is just for having a cell phone service. You just get nickled and dimed to death these days.
PH2–one thing you failed to note is that the refund will in fact be several thousand MORE than you stated because a worker making that little (particularly if they have dependents) will have ALL their federal taxes returned to them PLUS their EIC, which if H&R Block is to be believed, a person filing Head of Household with two dependents living with them, an income of $16,000, federal withholding of $1300, state taxes (sales, income, property) of $1200, child care of $2600, they’re looking at a refund of $8622.
Yeah, you read that right. $8622. Even if they didn’t pay a dime in child care, they’re still looking at a refund of the SAME $8622.
I wish I was kidding.
Ex-PH2: claiming extra exemptions is lawful – provided you still have enough withheld to cover a large portion (I believe 3/4) of what you eventually owe. If not, you’re required to send estimated tax payments to Uncle Sam quarterly. Don’t do that and underpay enough during the year, and you’re looking at stiff penalties.
The guys in the 80s who got in trouble as tax protesters were abusing the system by claiming ridiculous numbers of deductions to avoid having any withholding whatsoever. They were intentionally trying to evade paying taxes. If memory serves, they also got hammered legally for doing so.
There are more varieties of “flat tax” systems out there than you can probably easily count. Most aren’t really true “flat tax” systems, for precisely the reason you indicate: virtually all exempt the first X dollars of income, allow personal exemptions, or otherwise exclude from taxation a chunk of income. A tax system that does that isn’t a “flat tax” system at all – it’s simply one with two brackets, the first of which has a zero tax rate. That’s far better than the complex, incentive-sapping abomination we have today – but it’s not really a “flat tax”.
A true “flat tax” system taxes all income equally, from dollar one on up. Most so-called “flat tax” schemes really aren’t.
NHSparky, I based that calculation on single filer, not the other three categories, e.g., head of household. I did it as if it applies to me, which is how I got those results.
I think under a flat tax system, you can’t take deductions like things for a room at home used for work, or the purchase of new equipment, e.g., a new computer, but I haven’t seen enough about that vs. the sliding scale tax rates.
I’d rather see taxes reduced to FICA and Medicare only, with a VAT on sales of all types, including houses and cars. Of course, that would put a damper on employeing sandcrabs by the IRS, wouldn’t it?
Filing single with dependents still gets you $8622. Married joint, same.
If you file Single-0, with the same assumptions (except child care), you get a refund of $985. Interesting, ain’t it?
OK, but I was going single, no dependents.
I can’t take cats as dependents. Or the birds at the bird feeders. Or the squirrel.
And all this time I was worried that my butt hurt because I might be getting cancer, turns out it’s just the government f#cking me every pay day…
VOV: you seem pretty smart. Why did it take you this long to figure that out? (smile)
PH2 – think you have the right time period but the wrong candidate – the flat-tax was advocated by someone runnning against Bush – Forbes maybe? It died a’bornin’. Somewhere I think I read Perry was advocating one too… probably something like “pay me and my frinds 5% and the rest of the government 20%” (OK, I am not a Perry fan…)
To me the million-dollar question has always been: With a truly flat tax, what is the lowest revenue neutral tax rate?
Of course, to make a flat tax really work, you would probably have to merge and centralize all government functions – otherwise you have the feds hitting you, the states, etc… I don’t see it ever gaining traction due to that. Too, I have to wonder whether any efficiencies would result? I live in a jurisdiction with something like 11 police agencies: state police, highway patrol, sherrifs, constables, you think of a word for cop, we got ’em. How many do we really need?
Hondo, if a law is passed giving a $25,000 personal exemption and a 10% tax thereafter, labeled a “flat tax,” then it doesn’t really matter if that fits your definition of “flat tax.”
PH, multiple politicians have recommended a flat tax. I don’t know that it really matters who was the first one, or if that can really be determined.
The real questions are whether or not it is more fair or less fair, whether it increases real income or decreases it, whether it stimulates the economy or hinders it, whether it makes the bureaucrats of the IRS unnecessary or not, whether that translates to less budget deficit or more.
The fact is that working Americans are overtaxed, period. The fact is that we have a budget deficit and massive debt that is unsustainable.
The fact is that too few Americans are employed.
The fact is that the tax code is too complex for anyone to understand it, including those that work at the IRS, or become the head of the IRS.
The fact is that the Federal Budget is so complex that NO ONE knows where all the money goes.
The fact is that the US federal budget deficit would pay the entire national budget of the bottom 180 countries (approximately) combined.
The fact is that Americans pay approximately 25% of all taxes paid by all people in the world.
The problem is that the US tax code is so complex that you can come up with a scenario that demonstrates anything you want, but the reality is that the part that is printed on your paystub is only a small part of the tax you pay.
TN–I personally don’t think a 10 percent tax is going to cut it.
IMO, Santorum had the best proposal with two tax brackets at 15 and 28 percent, with the cutoff between the two being around $125K single and $150K married. Now a lot of the decudtions which currently exist (mortgage, etc.,) would have to go away, which would cause howls in a lot of places until people saw that in almost all cases their tax burden would go DOWN, not up.
YMMV.
Sparky, I don’t know what the magic # is, but yes, the deductions need to go away as well. One of the problems with the tax code is the complexity of it. And that goes to my second point also.
We need to cut the budget. Not just with an ax, but with a chainsaw. And by simplifying the tax code, we can cut back on the number of IRS agents. Take your pick, 2005 or 1999, and use that budget as the base, cutting or modifying from there.
TN: not my definition, amigo. That’s the accepted definition of a true flat tax. See
http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/1985/11/cj5n2-14.pdf
Or Wikipdedia (their articles on taxation actually aren’t bad). Or any number of other credible sources that discuss “flat” taxes.
A flat tax is a subset of the type of taxes proportional taxation. Any system of taxation with a fixed tax rate is an example of proportional taxation. However, such a system may or may not be a true flat tax system.
The accepted definition of a true flat tax is one that has zero exemptions or deductions. Any tax rate that has exemptions or deductions may call itself a “flat tax”, but in reality is not. It is rather a two-bracket progressive tax scheme with a proportional marginal rate for the upper bracket and a tax rate of zero for the lower bracket (e.g., whatever is exempted from taxation through personal exemptions and/or deductions).
There are precious few taxes that are actually bona fide “flat taxes” when you examine them in detail. FICA taxes and many state sales taxes are in fact true flat taxes on income (up to the Social Security wage base, anyway) and consumption (in those states that don’t exempt food, medicines, etc . . . ). Import tariffs in general are – though “most favored nation” status exemptions make that arguable. And as I recall, even the Medicare component of FICA is arguably no longer a flat tax, as that tax rate now rises above certain income thresholds.
Bottom line: the “progressive” lie that progressive taxation is somehow “fair and equitable” is so deeply embedded in our tax policies that it will be exceedingly difficult ever to eradicate it. A two-bracket “flat” tax with a relatively largish lower bracket exempted from taxation would be a good first step, but it would only partially rectify the situation.
@Ex-PH2: Your books look pretty good … I’ll check them out if you’ll check out mine:
http://www.lulu.com/shop/search.ep?keyWords=jack+bagley&categoryId=100501
I’m a proponent of the “Fair Tax” which is a consumption or sales tax that replaces the income tax (and does away with the IRS!) by repealing the 16th Amendment. It also includes a “prebate” which reimburses the sales tax you’d pay on the first $10,000 or so of your spendable income. (I think I have that right.)
Check out the book, “The Fair Tax.” It solves all of these silly problems. (Of course, that’s probably why it’ll never happen – it solves problems rather than creates them.)
@76 -JackB, I did check them out.
They look good, but why doesn’t Lulu let readers have a ‘look inside’ function?
I like your cover art. Clean, simple and attention-getting.
Did you set up a blog for your books? You could offer sample pages to readers that way.
It’s the reason I went with Amazon/Kindle – the ‘look inside’ feature gives you a quick way to decide if you want to buy the book or check it out of the Kindle library.
Thanks for tip on your books!
The reason for mortgage deductions in the tax code is simple, the government was trying to encourage a certain form of behavior by rewarding those who engage in it. The housing deduction for mortgage interest increased home ownership in the US, it drove the economy upwards and stimulated growth into suburbs throughout the US as people desired to become homeowners. It also stabilized communities because people who own things are less migratory.
Most “loopholes” were designed to encourage a certain private or business behavior to achieve a desired economic or social goal. That is not an inherently bad idea, but like everything else when overdone becomes unwieldy. If a society determines home ownership and college educations benefit society at large encouraging those behaviors through the tax code is one method. They could also be encouraged through subsidized loan rates if the tax code is legislated to maintain simplicity for compliance.
Tax code is not, and has not been, about what is “fair” but what brings in revenue and benefits the advancement of society.
The debate currently should be about what tax rates create an appropriate funding base from individuals and businesses and what expenditure reductions can aid in closing the gap between the two while stimulating a growth to increase taxable revenue. Everything else is window dressing to distract and delay and continue the current gridlock.
This is not, and never has been as difficult as some of these lazy turds in DC would have you believe.