Serious - Bipartisan Tax Question

[jaypaw]

I do have a good question about taxes for you or anyone else you think would be interested to ponder this thought:


I read an analysis of tax receipts on one of the IRS webpages and have concluded that the bottom 50% of income earners are paying 3.97% of all taxes - and my question is why bother taxing them at all?


I made $50,000 last year, and after all the deductions and miscellaneous adjustments - I am paying an effective tax of about 2% which amounts to just over $1,000 bucks (I am a little on the low tax end because of the two kids [and another due in december] and mortgage/student loan interest deductions - but still there are many out there like me I am sure).

My question is - if taxes paid by me and every other chum out there who makes $50,000 only adds up to less than 4% of the total taxes collected, then why bother taking the $1,000 dollars from me (us)?

$1,000 dollars extra for me is money that would not go into savings or to some luxury item or luxury activity - but it would go to stock the fridge a little better (83 bucks more a month to our shopping budget), help make some car repairs (that for the most part we pay on credit when we need them), or maybe even to a downpayment to fix the drafty windows in my house - or upgrade my heating system from modular heating to a baseboard system of some sort with a real furnace.

Dont get me wrong - I am all in favor of tax cuts, and if it weren't for the philosophies of the republican party then we WOULDN'T even be having this discussion - my tax burden would be so high that I would be in the soup line, and I damn well couldnt have afforded to buy a home. BUT when looking at the meager 3.97% figure I get kind of frustrated.

I know everyone should pay their fair share because everyone does benefit from the spending on defense which keeps us safe, infrastructure maintenance and homeland security spending etc. but to cut that 3.97% from the Federal budget in spending certainly wouldnt break the bank...

is it just an anomaly that people are too afraid to discuss because they will be frowned upon for "not wanting to pay their fair share"?


Is that supposed to be "progressive"?


As it is I've decided to take a second job (just started this week) from 5PM-12:30AM at LL Bean for 10 bucks an hour during the "peak" season - to see if I get get ahead some before the new baby comes....

 

[WildBill]

Break the question down more Jaypaw and you might get some insight. I believe the bottom 20-30% of the scale pay no tax or close to it; in fact a few earn money back with the EIC.

One reason, I speculate, is that it would be open to abuse if you just told a portion of the population not to even bother with reporting taxes. As they say in business, keep the relationship open with them. At some point hopefully they do pay taxes. And at some point you might have to make sure there is nothing funny going on. As an example, say the rule was under 30k, no taxes paid. A bunch of salaries would suddenly be 29,999...with potential for some "side" non-reported income being potentially there. Add to this the whole mess the tax system is, it just probably makes more sense to make all part of the system with the very lowest effectively not paying, but still reporting.

 

[jaypaw]

I see - so in other words you would say that something like 20-30% of the people are actually paying around 4% - and the other 20-30% left are paying next to nothing if not nothing at all...

I hadn't thought about it that way.

The more I think about it though I still see validity in the argument that people who make such a small amount could really use that extra $1,000 bucks or so because it would lead to (allow) more spending on necessary items as opposed to luxury goods-services, savings, etc.

I agree with you that its easier to have people stay 'in touch' in terms of continuting to file - but it seems like having so many people pay a few thousand bucks for at total benefit of only 4% is more of a "strain" on those people that it is worth. So people should continue filing and submitting income verification docs but maybe only pay a minimal processing fee to cover the regulatory costs... I mean a few thousand dollars is a little extreme if thats what it costs to process the paperwork.

Relatively speaking if you assume that people who make less than $50-75k per year (especially with families) would spend the money on goods and services that are largely 'need based' then wouldnt that 4% be spent just as well in the economy as opposed to the many federal budget categories (including of course federal low income assistance services [home loan programs, medicaid, and food assistance programs, etc] for many of the people already in that category?

 

[bblight]

Duplicate - sorry!

 

[bblight]

The tax systerm is graduated JP.

Actually, you pay no taxes at all on the frist $20K or so - depending on maritsal status, # of dependants, and a few other factors.

You pay 15% thru about $42K, and then you pay about 28% for anything over that - again, adjusted to marital status, # of dependants and other factors.

With a 401K, IRA and a few depndants, a married couple would pay 15% to about $70K annualized family income.

There are a ton of deductions to be made if you're astute - remember the flap over Bill Clinton getting a sizable deduction for donating clothing (the underwear deduction!).

The one thing I always thought of as comical is the definition of "rich" - as in "we only want to tax the rich" you'd be shocked at who is considered "rich". The second point is that the bulk of the tax burden doesn't always shift to the top of the tax paying bracket (the 50% you mention), but to the bottom. Take a look at the IRS stats at hteir website and check out where the burden has shifted.
If you're one of the top 50%, then you're rich by the Democrats defintion!
One other point - just a corelation - when did the shift move from the top, and when did this booming economy begin - you might be happy paying that $1K to keep this great economy.

http://www.irs.ustreas.gov/pub/irs-soi/01in01ts.xls

 

[jaypaw]

I completely understand how it works - and I think you misunderstand me.

I am in fact saying (as stated above) that the top 50% pays 96% of the total taxes collected.

Thus I am concluding that if the bottom 50% has to pay on average a few thousand a head - then why bother taxing them at all?

I think of myself as conservative minded and I tend to vote republican for the most part - one of the many reasons being because it is republicans that have forced the issue of tax relief at least over my lifetime. However I am NOT trying to make this a partisan issue - in fact most good conservatives would probably say that I am a communist for even proposing this thought (which I admit I might have said to someone myself in the past)... but the more I think about it it just seems so futile to bother collecting taxes from so many people only for it to amount to slightly less than 4% of the total taxes collected.

I use myself as an example becuase my family made $50,000 - and once you take out all the deductions and credits I paid an effective tax rate of 2% (as also stated above).

My question is why bother? In my case I could REALLY use the $1,000 bucks - and I'm not complaining or anything but I just wanna understand the logic.

$1,000 bucks from every family like mine contributes to this 4% - yet at $50k in income I am eligible for federal home loan programs, and if my wife didnt work part time we would be eligble as a family of 5 for some sort of medicaid program that would provide free healthcare for the kids, and even a Women with infants program that covers milk and formula for the kids!

I am not really issuing a judgement on these programs - but I do wonder - is that what my $1,000 dollars goes to? and if that is the case then wouldnt it be more profitable for the government to let me keep my $1,000 bucks and fend for myself when it comes to getting a loan, getting my kids healthcare, or extra food for the small ones?

I guess it comes down to me saying - I'd RATHER not have these services available to me - so I can keep the $1k that I earned and spend 86 more bucks a month on extra food, or to go towards a downpayment on my home - or to help pay the healtcare premiums


see?

 

[jaypaw]

and yes - to break that down further you would of course see that people making the most money are also paying the most - even within that bottom 50%...

So for example people who make over $100,000 probably pay 90% of the 4% in question...

yet again makes me wonder why the people under 100k are paying taxes - when in many cases it is that very tax payment that might be the difference maker when confronted with the decision to accept government services that they qualify for.

This also leads in to an entirely different can of worms - which is the ethical question regarding whether or not to accept the services offered based on principle.

This is the thing that is knocking at the door of my original political assumptions - because I feel that if I decline the services available to me - then someone else who needs it less would get the very same benfits. So my neighbor with only one kid but who makes only $35k per year , has a lower house payment, and also has inherited some money recently is just as eligible to accept these services as I am - even in debt (that I mostly inherited from my wife), with 3 kids, and only my "principles" to fall back upon...

Kind of like the ever looming gambling question in states that border gambling authorized states - for example in Nebraska, a huge % of the western Iowa gaming revenue comes from nebraska residents. Even though people might be against allowing gambling - they are paradoxically also against reaping the very tax dollars that are leaving their state to contribute to gambling privilege tax collections in the neighboring state.


anyway - sorry to be so long winded - I just wanna get some responses to see if I am brainwashed by the commies.

Thanks

 

[jaypaw]

?

 

[Illini]

You pay a 4% tax and you're complaining?

 

[jaypaw]

no

you read it wrong

First I am not complaining I am just seeking people's opinions as to the reasoning behind this structure.

Second - I dont pay a 4% tax, you are referring to the fact I stated that says the bottom 50% of all income earners pay only 4% of the total tax amount paid.

I repeat - I do understand how it works, people pay between 15 and 38% of their income (after deductions). That part of it isnt rocket science.

But I am asking - if the millions of people who pay a few thousand dollars a year in tax only amounts to 4% of the total tax amount then wouldnt it be worth looking into at least studying the impacts of a change in the system. The reason I think its worth looking into is because I know a lot of people (and I'm not that far off myself) who live somewhat comfortably with a few kids who qualify for federal programs. If you implemented a system that allowed these people (and others in the category) to keep their meaningless 4% and lower the income limits of those programs (cut them back some) then I dont think a lot of these people would complain and it might even save the gov't money. Even if it didnt save the government money it might be worth cutting back on a few reams of paper in each gov't agency per year to offset the small difference.

The problem in making this case is that I dont know what data is available for government expeditures on these programs broken down by the recipient's income.

Still I would like to hear people's opinions on this - I can see many points of view:

for example

- It makes sense to say that its just good practice for these people to pay something so that as their income goes up and over the break point they wont be shell shocked at the drastic jump in taxes and thus may be encouraged to not want to earn more in the hopes of avoiding what would ultimately be a penalizing tax code on those who are above the threshold.

- However - it is also valid to hold the point of view that since individuals are better equipt to decide how to spend the money they earn than the government - then why not cut that bottom 4% of tax receipts and give it to the people to spend how they see fit (since it is a large number of people)? The theory being that this would be better for the economy of course than if people above our hypothetical threshold had their taxes cut - as this money largely goes into additional savings, or luxury items as opposed to the spending on much more 'necessity' that the bottom 50% of income earners would do.

Just to be clear - I am not debating whether or not to cut taxes, I am simply exploring the possibility of getting rid of federal income taxes on people below a certain threshold (which also is difficult to determine)