Posts Tagged ‘Taxes’

In total, how much do Americans pay in taxes? For what? To whom?.

January 26, 2017

Since tax reform is on the front burner, it’s time for some tax facts.

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Americans pay a tad over $5 trillion in taxes to the Feds, States and Local Governments.

Technical note: In government parlance, the taxes are called “revenue”.

By taxing authority

Drilling down, the $5 trillion is split roughly 50%-30%-20% to the Feds, States and Locals, respectively

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* * * * *

By type of tax

Roughly 1/3 of the $5 trillion is income taxes individual and corporate)

about 1/4 is ad valorem taxes (think sales and property taxes)

just under 1/5 are social insurance (i.e. Social Security, Medicare, Medicaid)

… slightly more than 1/5 are fees and charges (think tolls, business licenses)

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* * * * *

Income taxes

Roughly 1/3 of the $5 trillion – about $1.8 trillion — is income taxes

…  83.4% are individual income taxes; only 16.6% are corporate income taxes

… about 80% of income taxes go to the Feds; around 20% goes to the States & Locals

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* * * * *

Ad-valorem taxes

Roughly 1/4 of the $5 trillion in total taxes paid – about $1.2 trillion – is ad-valorem taxes – taxes paid based on the value of something bought or owned.

…  about 40% of ad-valorem taxes are Local property taxes

…  about 1/3 are Sales Taxes …  going mostly to the States

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* * * * *

Social Insurance

Roughly 1/5 of the $5 trillion in total taxes paid – about $961 billion – is social insurance – with about 80% going to the Feds

…  roughly 60% of the social insurance payments going to the Feds is for Social Security

…  almost 1/4 of the social insurance payments going to the Feds is for Medicare.

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* * * * *

Pulling it all together Ken’s Rosetta Stone of Taxes

All the details — now much? to whom? for what?

Click for a PDF: Ken’s Rosetta Stone of Taxes

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PDF          Data Source

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Who pays taxes? Who benefits? … Here are some nums.

September 26, 2012

As loyal readers know, I’ve been trying to get my arms around this question.

In a prior post, we drilled down on taxes … or, as my Dem friends would say government “revenues”.

We posted that in 2012 Americans will pay a tad over $5 trillion in taxes to the Feds, States and Local Governments.

Drilling down, the $5 trillion is split roughly 50%-30%-20% to the Feds, States and Locals, respectively. Note that the Federal portion is just under $2.5 trillion.

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* * * * *
If these are “revenues” there must be matching services provided, right?

I found a study by the non-partisan Tax Foundation that analyzes taxes paid and benefits received.

The study is old – using 2004 data – but, in my opinion is a good starting point to calibrate the answer.

First, the easy part …

The Federal tax revenues in 2004 were a bit over $2 trillion … compared to our $2.5 trillion projection in 2012.

Here’s how the 2004 tax revenues were spent … i.e., the benefits received by citizens.

Note that the Federal spending is just under $20,000 per household.

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* * * * *

The Tax Foundation analysts also sorted taxes paid by household income pentile against benefits received by the pentiles ….. and things got interesting.

The bottom pentile – households in the bottom 20% of income – pay about 2.5% of Federal taxes (including payroll taxes !) … and receive 1/3 of government benefits.

The top pentile pays over half of the Federal taxes and draws about 15% of government benefits.

The middle pentile comes close to breaking even – paying 14.1% of Federal taxes and getting 16% of government benefits.

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* * * * *
Here’s another way to cut the data …

On average, households in the bottom pentile get $23,178 more in benefits than they pay in taxes; average households in top 20% run a deficit of almost $40,000 – that is, they pay about $40k in taxes than they receive in benefits; the breakeven point is somewhere around $50,000 in household income – that’s where taxes paid equal benefits received.

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* * * * *
When state & local taxes and benefits are factored in, the surpluses and deficits grow even  larger.

The bottom 20% gets over $31,000 per household in net government benefits; the top 20% pays almost $50,000 per household more than it gets in government benefits.

The breakeven point is still somewhere around $50,000 in household income – that’s where taxes paid equal benefits received.

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* * * * *

I’ll be hunting for more recent data.

Until I find it, chew on this!

Note: The Tax Foundation says it doesn’t have funding to update its study.

Nuts !

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Flashback: About those 47% who don’t pay income taxes …

September 24, 2012

Romney sure caused a stir with his remark that 47% don’t pay Federal income taxes.

Well, the Homa Files was on this case over 4 years ago !

This analysis was originally posted on July 31, 2008 during the run-up to the election. It proves the point (ahead of its time) that less than half of all voters pay any income taxes now that “Make Work Pay” has been enacted (as part of the stimulus program). Think about it: the majority gets to demand more government programs that they don’t pay a cent towards. I think that’s scary. Very scary..

It’s the HFs post that continues to get the most hits, and the topic is ‘hot’ this week because of Mitt’s smokin’ gun video.

So, here’s a flashback …complete with numbers and sources.

* * * * *

Despite the drumbeat of warnings from various sources, the prospects that a minority of voting age Americans will be paying Federal income taxes under the Obama tax plan doesn’t seem to arouse much visible public anxiety.

Why?

First, for those in the emerging majority that won’t pay any income taxes – or may even be getting government checks for tax credits due – the deal is almost too good to be true. To them, Obama’s plan must make perfect sense. So, why rock the boat?

Second, some people argue that low-earning people who don’t pay income taxes shoulder a regressive payroll tax burden to cover Medicare and Social Security. Yeah, but these programs – which are most akin to insurance or forced savings plans — offer specific individual benefits that are directly linked to each wage earner’s contributions.and the benefits phase down quickly as qualifying income increases. That is, they’re not as regressive as many people argue.

Third, most of the energetic criticism of Obama’s plan has centered on its redistribution intent — taking over $130 billion of “excess” income from undeserving rich people, and giving it directly to those who earn less and need it more.

Fourth, most folks just don’t believe that the numbers will really shift enough to create a voting majority of citizens who don’t pay income taxes. They’re wrong. Very wrong.

Here are the numbers … and why they should bother you.

* * * * *

Today, 41% of voting age adults don’t pay Federal income taxes

Based on the most recent IRS data, slightly more than 200 million out of 225 million voting age Americans filed tax returns. That means that 25 million adults – presumably low income ones – didn’t file returns and, of course, didn’t pay any income taxes. See notes [1] to [4] below

Of the 200 million voting age filers, approximately 68 million (33% of total filers) owed zero income taxes or qualified for refundable tax credits (i.e. paid negative income taxes). [5]

Add those 68 million to the 25 million non-filers, and non-payers already total 93 million – 41% of voting age adults.

* * * * *

Obama’s Estimates – Make that 49%
Not Paying Federal Income Taxes

Obama says (on his web site) that he will give tax credits up of $1,000 per family ($500 per individual) that will “completely eliminate income taxes for 10 million Americans”. And, he says that he will “eliminate income taxes for 7 million seniors making less than $50,000 per year.” [6]

Taking Obama’s estimates at face value, the incremental 17 million that he intends to take off the income tax rolls will push the percentage of non-payers close to 49% of voting age Americans — within rounding distance to a majority. [7]

* * * * *

And, Obama’s estimates are probably low,
so make the number 55% (or higher)

Since Obama’s basic proposal is for tax credits ($500 per person or $1,000 per family) – not simply deductions from Adjusted Gross Income (AGI) — they will have a multiplier impact on the amount of AGI that tax filers can report and still owe no taxes.

For example, a childless married couple that files a joint return can currently report about $17,500 in Adjusted Gross Income (AGI) and owe no income taxes. [8]

Under the Obama Plan, that couple’s zero-tax AGI is bumped up to $27,500 since their new $1,000 tax credit covers the 10% tax liability on an additional $10,000 of AGI. And, married couples filing jointly can keep adding about $10,000 to their zero-tax AGI for each qualifying dependent child that they claim. [9]

click table to make it bigger

click table to make it bigger

Based on the 2006 IRS data, approximately 25 million tax returns were filed that reported AGI less than $27,500 (the post-Obama zero-tax AGI) and required that some income taxes be paid. [10]

Assuming that 45% of those were for couples filing jointly, they represent over 22 million adults. For sure, these 22 million will come off the tax rolls – and they alone will be enough to create a non-taxpayer majority (51% of voting age adults),

click to make table bigger

And, there are more folks being pushed off the tax rolls. About 4.7 million childless individuals earn less than $13,750 (the post-Obama zero-tax AGI for childless individuals), and currently pay some Federal income taxes. This group will shift to non-payer status.

So would several million joint filers who can take advantage of the Child Tax Credit to report more than $27,500 and not pay Federal income taxes.

And, some portion of the 7 million Seniors that Obama says will have their taxes eliminated — that is the Seniors couples earning more than $27,500 (but less than $50,000) — and Senior individuals earning more than $13,750 (but less than $50,000).

So, post-Obama, the percentage of non-taxpayers will easily exceed 55% of voting age adults — a solid majority. It won’t even be close.

* * * * *

The Bottom Line – Why You Should Worry

An income tax paying minority of voting age adults isn’t just a possibility. Under Obama’s plan, it’s a virtual certainty. Based on the hard numbers, Obama’s plan will create a new majority — a powerful voting block: non-tax payers. UH-OH.

Again, for those in the emerging majority that won’t pay any income taxes – or may even be getting government checks for tax credits due – the deal is almost too good to be true. To them, Obama’s plan must make perfect sense. Count on their perpetual support for the plan.

But for those in the new minority, watch out if the new majority decides that more government services are needed, or that $131 billion in income redistribution isn’t enough to balance the scales.

The Tax Foundation — a nonpartisan tax research group – has repeatedly warned that “While some may applaud the fact that millions of low- and middle-income families pay no income taxes, there is a threat to the fabric of our democracy when so many Americans are not only disconnected from the costs of government but are net consumers of government benefits. The conditions are ripe for social conflict if these voters begin to demand more government benefits because they know others will bear the costs.” http://www.taxfoundation.org/research/show/1111.html

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Sources & Notes

[1] The Census Bureau reported 217.8 million people age 18 and over; as of July 1, 2003.
http://www.census.gov/Press-Release/www/releases/archives/population/001703.html

http://www.census.gov/popest/national/files/NST-EST2007-alldata.csv

[2] The IRS reported 138.4 million personal tax returns filed in 2006.
http://www.irs.gov/pub/irs-soi/06in11si.xls

[3] The IRS reported that in 2006, approximately 45% of filed returns were by married couples filing jointly (i.e. 2 adults per return); 55% for individual filers (including ‘married filing separately’ and ‘head of household’). http://www.irs.gov/pub/irs-soi/06in36tr.xls

[4] Calculation: 138.4 million returns times 1.45 (adults per return) equals 200.7 million adults represented on filed returns

[5] http://www.irs.gov/pub/irs-soi/06in01fg.xls http://ftp.irs.gov/pub/irs-soi/06inplim.pdf

[6] http://www.barackobama.com/issues/economy/#tax-relief

[7] Analytical note: 93 million plus 17 million equals 110 million divided by 225 million equals 49%.

[8] Analytical note: $17,500 less a $10,700 standard deduction, less 2 exemptions at $3,400 each, equals taxable income of zero – so no federal income taxes are due.

[9] Analytical note: $27,500 less a $10,700 standard deduction, less 2 exemptions at $3,400 each, equals taxable income of $10,000, which at a 10% rate is a $1,000 tax liability that gets offset by the $1,000 Obama credit, reducing the tax liability to zero.

[10] http://www.irs.gov/pub/irs-soi/06in11si.xls

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Buffett Rule passes the House … now, you’re talking.

September 20, 2012

What gridlock in Washington?

Yesterday, the House of Reps passed a Buffett Rule that should put an end to Warren’s carping about how his taxes are too low.

According to the Washington Times:

The House passed Republicans’ own version of the Buffett Rule, which allows wealthy Americans to voluntarily pony up to reduce the deficit.

The bill, labeled the Buffett Rule Act, passed by voice vote, meaning Democrats and Republicans agreed with it.

Under the legislation, taxpayers can check a box on their taxes and send in a check for more than they owe to the IRS.

“If Warren Buffett and others like him truly feel they’re not paying enough in taxes, they can use the Buffett Rule Act to put their money where their mouth is and voluntarily send in more to pay down the national debt, rather than changing the entire tax code to inflict more job-killing tax hikes on hard-working Americans.”

Current law already allows taxpayers to send money to pay down the debt, but the process is a bit onerous.

Under their new plan, taxpayers would have an easy option on their tax returns allowing them to pay more.

Under the legislation, the money would go directly toward reducing the debt.

So, do you think Buffett will put his money where his mouth is?

I’m betting the under.

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Why do so many Americans hate paying income taxes?

September 19, 2012

It’s not simply about the money.

Researchers Jeff Kidder of Northern Illinois University and Isaac Martin from the University of California-San Diego have found that there are moral underpinnings that help explain why many hate paying taxes.

Rather than being associated with a free-market ideology or a person’s own economic interests, tax hostility is more linked with moral principles.

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“Tax talk is about dollars, but it is also about a moral sense of what is right.”

Generally, respondents saw income taxes as violating the moral principle that hard work should be rewarded.

The respondents “portray taxation as a threat to the moral order because they believe taxes deprive deserving hardworking middle class people of dignity, while rewarding others who are undeserving (both rich and poor)”.

Entrepreneurs are particularly anti-tax.

In fact, a recent survey by payroll service provider Paychex found that tax codes, along with employment regulations and retirement security are the top three election issues for small business owners.

Source: LiveScience extract from the Journal Symbolic Interaction

In total, how much do Americans pay in taxes? For what? To whom?.

September 11, 2012

Americans pay a tad over $5 trillion in taxes to the Feds, States and Local Governments.

Technical note: In government parlance, the taxes are called “revenue”.

By taxing authority

Drilling down, the $5 trillion is split roughly 50%-30%-20% to the Feds, States and Locals, respectively

image

* * * * *

By type of tax

Roughly 1/3 of the $5 trillion is income taxes individual and corporate)

about 1/4 is ad valorem taxes (think sales and property taxes)

just under 1/5 are social insurance (i.e. Social Security, Medicare, Medicaid)

… slightly more than 1/5 are fees and charges (think tolls, business licenses)

image

* * * * *

Income taxes

Roughly 1/3 of the $5 trillion – about $1.8 trillion — is income taxes

…  83.4% are individual income taxes; only 16.6% are corporate income taxes

… about 80% of income taxes go to the Feds; around 20% goes to the States & Locals

image

* * * * *

Ad-valorem taxes

Roughly 1/4 of the $5 trillion in total taxes paid – about $1.2 trillion – is ad-valorem taxes – taxes paid based on the value of something bought or owned.

…  about 40% of ad-valorem taxes are Local property taxes

…  about 1/3 are Sales Taxes …  going mostly to the States

image

* * * * *

Social Insurance

Roughly 1/5 of the $5 trillion in total taxes paid – about $961 billion – is social insurance – with about 80% going to the Feds

…  roughly 60% of the social insurance payments going to the Feds is for Social Security

…  almost 1/4 of the social insurance payments going to the Feds is for Medicare.

image

* * * * *

Pulling it all together Ken’s Rosetta Stone of Taxes

All the details — now much? to whom? for what?

Click for a PDF: Ken’s Rosetta Stone of Taxes

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PDF          Data Source

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Is the Federal government a good value?

August 28, 2012

A Kaiser Foundation survey asked folks:

Thinking about all that the Federal government does for you, do you think that you get more or less value than what you pay in taxes?

The results

  • Less than 10% said that they got more value than what they paid in taxes.
  • About 1/3 thought they got about the right value for taxes paid
  • More than half of the respondents said that they got less value than what they paid in taxes.

Of course, the last finding is most interesting since it’s a majority … and since about half of the folks don’t pay any income taxes.

Hmmm

* * * * * *

Source question

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News flash: Many people strongly dislike paying taxes … here’s proof.

August 28, 2012

Most people dislike paying taxes.

Many  people strongly dislike paying taxes.

No surprise, the tax aversion tendency is most prevalent among people who identify with political parties that generally favor less taxation.

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Although this distaste could be rational on economic grounds, a recently published study  shows  that this attitude extends beyond simply disliking the costs incurred and affects behavior in “counternormative” ways … a phenomenon coined “ tax aversion”: a desire to avoid taxes per se that exceeds the rational economic motivation to avoid a monetary cost.

The researchers  provide evidence that people have a stronger preference to avoid tax-related costs than to avoid equal-sized (or larger) monetary costs unrelated to taxes.

  • For example, the proportion of Americans who said they’d travel 30 minutes to save 8% on an item by getting it tax-free was 29% bigger than the proportion who said they’d travel the same distance to get an ordinary 9% discount.
  • Similarly,  more than 4 times as many Americans said they’d rather invest in a bond that offered a $120 annual tax-free return than a bond that offered $160 but required a $40 tax.

The researchers say that tax aversion can be mitigated by identifying positive uses of tax payments.

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Seeds of a revolt: Legal tax avoidance is gaining momentum …

July 12, 2012

A hot topic at BBQs this summer is the impact of Obama’s tax increases … the elimination of the so-called Bush tax rates and, now, the increased likelihood of the ObamaCare hits.

Back in the 70s — before Reagan — tax shelters were the rage … finding ways to transform ordinary income into lesser taxed capital gains and generate paper losses from generous depletion & depreciation allowances.

I’m sensing a return to the 70s mindset.

In the past couple of weeks, I’ve heard of  or seen …

  • A Maryland family plan to relocate to Northern Virginia to dodge Maryland’s increased sales, income and estate taxes.
  • Five Maryland exec-families establishing primary residencies in Florida … to take advantage of Florida’s income and estate tax rates … according to CNBC, they’re a microcosm of rich fleeing MAryland
  • Savvy investors talking about buying municipal bonds as a way of avoiding higher Fed income taxes … especially if dividends start getting whacked at ordinary income tax rates.
  • People going across state lines and ramping up internet purchases …  to minimize sales taxes
  • Merchants and contractors encouraging payment in cash … sometimes with accompanying discounts … to get income “off-the-books”

Most of the tactics are completely legal.

My point: tax avoidance is becoming a popular sport … fed-up tax payers are starting to revolt.

Tax & spend politicos should take heed … their rosy tax hike projections might not materialize as planned.

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The 3.8% solution … here comes the tax pile-on.

July 10, 2012

Taxes will be going up … thanks to  ObamaCare and Justice Roberts.

Flashback: ObamaCare’s initial $1 trillion cost projections (which have already doubled) … were funded (on paper, that is) roughly half by cuts to Medicare and half by tax increases.

One of the tax increases is a 3.8% tax on investment income … essentially slapping payroll taxes on so-called “unearned income”.

“Unearned income” is more than dividends and capital gains.

According to the WSJ

The tax applies to:

  • dividends;
  • rents;
  • royalties;
  • interest, except municipal-bond interest;
  • short- and long-term capital gains;
  • the taxable portion of annuity payments;
  • income from the sale of a principal home;
  • a net gain from the sale of a second home;
  • passive income from real estate and investments, such as limited partnerships.

The tax does not apply to:

  • payouts from a regular or Roth IRA, 401(k) plan or pension;
  • Social Security income; or annuities that are part of a retirement plan.
  • life-insurance proceeds;
  • municipal-bond interest;
  • veterans’ benefits; Schedule C income from businesses

Also, the tax does not apply to  non-resident aliens.

Couple of mega-takeaways:

1) Municipal bonds benefit … not subject to the ObamaCare surcharge … and don’t count towards the $250k AGI trigger.

2) Renters lose … landlords are likely to pass along the surcharge to higher rents

3) Housing prices pressured … double-whammy … higher cap gains taxes make houses less attractive as investments … rents tax decreases motivation for investors to buy and rent homes.

4) Seniors lose … if they shifted their retirement portfolios to fixed incomes … since interest and dividends get hit … dividends especially since they’ll also get hit with an increase in income tax rates — from 15% to as high as 39.5%

At least our health insurance premiums are going down … NOT !Could be worse … our health insurance premiums could be going up … oops, they are.

Oh well …

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A couple of great quotes …

May 25, 2012

Free Stuff
Think Facebook, “free” email services …

“If you’re not paying for something, you’re not the customer; you’re the product being sold”.  Source

* * * * *
The Economic Recovery
Team Obama would like you to think we’ve turned the corner, but…

“Calling our current economic status a recovery is like calling the product of a Kim Kardashian wedding a marriage.”   Source

* * * * *
Obama on Taxes

“Over the past three years, Obama has pursued the goal of higher tax rates as relentlessly as Captain Ahab pursued the great white whale.”  Source

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“Tax morale” … why some folks don’t pay up.

April 26, 2012

Did you know that there’s a field of study devoted to the subject of how individuals make choices about paying taxes; it’s called “tax morale.”

According to BusinessWeek, the IRS studied the factors motivating taxpayers to comply with tax laws and concluded that the” fear of getting caught plays a much smaller role in keeping taxpayers honest than is commonly assumed.” They’re less inclined to dodge when they believe that their cheating creates national problems.

On the flip-side, when taxpayers learn that many people evade taxes, they are more likely to evade them, too. 

And, the IRS hired  social anthropologists to look more closely at the behavior of tax dodgers.

They divided evaders into eight categories of noncompliance.

  • Procedural noncompliants don’t pay taxes because IRS procedures are too complicated.
  • Asocial and habitual noncompliant taxpayers get a rush out of cheating.
  • Symbolic noncompliant taxpayers game the system out of principle.
  • Brokered noncompliants use accountants and lawyers to cheat
  • Some who don’t comply simply can’t afford their tax burden, or are too lazy to file.
  • Generational noncompliers think it’s normal not to pay taxes because people in their families didn’t pay.

The sociologists also found that there are towns in the U.S. inhabited by super-taxpayers who have high compliance rates in numbers and percentage of taxes due that are paid.

Now, the IRS is trying to identify the  super-tax-paying communities’ demographics to pinpoint what makes their residents so honest.

Among the hypotheses: an inspiring pastor, an immigrant community with values from the home country, or really good public schools.

Maybe they should test the locales’ water supply …

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John “The Plumber” Lovitz rants on Obamanomics… ouch!

April 25, 2012

Former SNL comedian John Lovitz voted for Obama in 2008.

Now, he’s expressing his disappointment in a very “colorful” way.

The essence of his rant goes to the core of what bothers many besieged taxpayers.

“I voted for the guy and I’m a Democrat.

First they say … ‘You can do anything you want. Go for it.’

So then you go for it, and then you make it, and everyone’s like, ‘F— you’ … give me half … no, that’s not enough, give me more than half.

This whole thing with Obama saying the rich don’t pay their taxes is f—ing bulls—.”

Worth listening to the whole thing … if you don’t mind a few bad words … and want a few yuks

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What’s the difference between the “Buffett Rule” and the AMT?

April 17, 2012

Finished up my taxes this weekend …. OUCH.

Along with more than 30 million other taxpayers, I got caught by the Alternative Minimum Tax (AMT).

There are about 130 million Fed tax filings each year … about half of them pay no Fed income taxes (or get a refundable credit) … that means that about half of all tax payers get hit with the AMT.  it only takes about $75,000 in income to make somebody a candidate for the AMT.

This year — in part because of the hoopla re: the Buffett Rule — I dug dig into the AMT calculations rather than just take Turbo Tax’s answer and run.

The bottom line — based on my dissection — is that the AMT requires that high earners pay about 28% on their ordinary taxable income — wages, interest, pensions, etc.

So, on ordinary taxable income the Obama-Buffett Rule (OBR) boosts the rate from 28% to 30%.

Big deal, right?

The real impact is what happens to capital gains and “qualified” dividends — which are currently capped at a 15% rate — even under the AMT.

Under the Obama-Buffett Rule, capital gains and qualified dividends would be taxed at 30% — a doubling of the current AMT rate.

Now, that is a big deal.

When you cut to to the chase, the Obama-Buffett Rule is simply a doubling of the capital gains tax rate — selectively applied to those people who earn most of the capital gains.

The OBR simply takes capital out of play from the private sector and transfers it to the government sector.

If you think that the government does a better job allocating capital than the free market, then you gotta love the Obama-Buffett Rule.

If you think the government uses capital less efficiently than the private sector, you gotta hate it.

Put me in the latter camp …

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Why the top 1%’s “individual” income has increased so sharply …

April 10, 2012

Interesting op-ed in the WSJ last Friday: “The Real Causes of Income Inequality”

Article’s conclusion: Yeah, the Top 1% have accrued a greater portion of income in the U.S., but not to worry, they still pay proportionately more taxes that in places like, say, France or Sweden.

And, from a strictly taxes-economics perspective, the disproportionate gain is traceable to 3 tax changes which boost economic efficiency:

1) Marginal tax rates for individuals were lowered below corporate tax rates, so new businesses formed as limited partnerships and S-Corps instead of C-Corps.

In 1986, before the top marginal tax rate was reduced to 28% from 50%, half of all businesses in America were organized as C-Corps and taxed as corporations.

By 2007, only 21% of businesses in America were taxed as corporations and 79% were organized as pass-through entities, with four million S-Corps and three million partnerships filing taxes as individuals.

Now,  a significant amount of what is now declared as personal income is actually income from businesses that are now taxed as individuals.

In 1986, just 5.6% of the income of top 1% filers came from business organizations filing as Sub-chapter S-Corps and partnerships.

By 2007, almost 19% of income declared on tax returns filed by the top 1% came from business income.

A significant amount of income that critics claim is going to John Q. Astor actually is being earned by Joe E. Brown & Sons hardware store.

2) Capital gains taxes were lowered, first under President Bill Clinton and then under President George W. Bush.

At a top tax rate of 28%, realized capital gains were 2.5% of GDP and made up 17.7% of the income of top 1% filers.

The percentage of the income of top 1% filers coming from capital gains grew to 26% in the 1997-2002 period and 28.1% during 2003-07.

By reducing the penalty for transferring capital from one investment to another, these lower tax rates increased the mobility of capital.

High-income taxpayers sold more assets, declared more income, and paid more taxes.

3) The tax rate on dividends was lowered,

Similarly, when the tax rate on dividends fell to 15% in 2003, dividend income for the top 1% grew 178% by 2007 to make up 5.6% of the income of these filers.

In 2007, immediately prior to the recession, capital gains and dividend income combined was equal to the amount of salary, bonus and exercised stock options earned by the average top 1% filer.

Lower tax rates made dividend-paying stocks more attractive to high-income investors and made dividend payouts more attractive for companies that would have previously retained those earnings or bought back their stock.

Capital trapped in companies with below-market rates of return was redeployed and the entire economy benefited.

* * * * *

So, if corporate tax rates are pushed own – as they should be to make the U.S. competitive in the global economy – then more businesses will incorporate as C-Corps and income will shift from the top 1% to corporations.

Hmmm.

And, if capital gains and dividend taxes are raised, then capital will become less mobile, and often locked in low return businesses.

Double hmmm.

Hope Team O read the op-ed.

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Buffett: Giving to the Gates Foundation because it’s run more efficiently than the gov’t … no (bleep), Warren.

March 8, 2012

Interesting interview with Warren Buffett on CNBC last week.

The dialogue that caught my attention had to do, of course, with Buffett’s whining that his taxes are too low … paired with the hypocrisy that he’s sheltering his estate from taxes by dishing his end-of-life dough to the Gates Foundation.

CNBC’s Joe Kiernan observed to Buffett:

I’ve gotten you to admit in the past that one of the reasons you think the Gates Foundation will do a lot better with your 50 or 60 billion is because charities have a better — a much better reputation for watching how money is spend and for doing more good.

Buffetts retort:

Anytime an organization is as big as the US government or any other government, they are not going to be as efficient, obviously, as smaller organizations.

Kiernan followed up:

So with all that in mind, can you at least see how someone might, on an intellectual basis, be opposed to just giving a blank check to such a profligate entity?

Buffett’s answer:

On the other hand, we have successfully defended the country, we’ve built the greatest industrial machine the world’s ever seen, we’ve built the richest population the world’s ever seen.

The truth is, we can have a country that works wonderfully with 19 percent or so of revenues going to Washington and spending 21 percent.

Say, what?

Kiernan politely went in for the kill:

If the government was a business and Berkshire was looking at it, there’s no way Berkshire would even take a 1 percent stake in the government with their track record of investments. Right?

All Buffett could do was stammer …

Full transcript

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Sara Lee splits company … incorporates part in the Netherlands.

March 6, 2012

I bet you missed this one.

It announced on a Friday afternoon, so most folks missed it.  And, it sounds innocuous enough …

According to the WSJ:

Sara Lee Corp. said Friday it will seek a listing for its coffee and tea business on the Amsterdam stock exchange, as part of its plan to split the company in two.

Sara Lee said the business will be incorporated in the Netherlands, where its Douwe Egberts coffee brand is already based.

The new company, which also makes Pickwick Teas, will be headquartered in Amsterdam.

Maybe the move is simply to get company execs closer to the relevant markets.

Call me cynical, but I think we’re going to see quite a few of these offshore splits by U.S. companies.

Why?

Simple.  If Team O continues to push for taxation without repatriation of non-U.S. earnings, you can bet that more American companies will split and plant major parts of their companies in non-U.S. locations.

The economics are compelling …

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The Buffett Rule … a few facts might help.

January 31, 2012

At the risk of stifling the tax rate hysteria with facts, the Congressional Research Service did a great study on the “Buffett Rule”.

One of the key charts – with a couple of Homa Files accentuators – says that

  • “Millionaires & billionaires” tax rate is – on average – 11 points higher than folks making under $100k.
  • About 1 in 4 millionaires & billionaires (less than 100,000 tax payers) – those with the lowest effect tax rates – pay a lower rate than about 10% of the more than 100 million folks making under $100,000
  • Applying the SOTU Buffett Rule – minimum 30% for folks making more than $1 million – would jack up taxes for about 1/2 of millionarires and billionaires.

Is jacking the rate on about 200,000 taxpayers really going to get us out of this fiscal mess we’re in?

I’m betting the under.

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* * * * *

Supplementary data:

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Judge Judy for President …

December 9, 2011

Warning: This post isn’t politically correct and may offend HomaFiles left-leaning readers.

* * * * *

In a recent segment that has gone viral, Judge Judy is trying to settle a rent dispute.  A 3rd year college student is getting government aid that is specifically intended as rent money. But, he isn’t paying his rent.  JJ wants to know why and lands on a broader message that she “wants to send to Congress”.

click to view video
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My favorite lines: “Just having me around is like me paying rent” and “I’m getting the money just for being me”.

Geez … and some people  don’t want to pay higher taxes … wonder why?

I wish that the President & Michelle would be preaching these lessons instead of Judge Judy.

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How close are you to the evil 1%?

December 8, 2011

Note: Based on 2009 tax year filing data, the Internal Revenue Service says an adjusted gross income, or AGI, of $343,927 or more will put you in the top 1 percent of taxpayers.

The WSJ has a cool interactive … plug in your household income (which is a higher number than AGI) and it pegs your percentile.

For example, the WSJ says …

  • $100,000 puts you in the 81st percentile
  • $150,000 puts you in the 89th percentile
  • $200,000 puts you in the 94th percentile
  • $250,000 puts you in the 96th percentile
  • $507,000 puts you in the 99th percentile

 click to plug in your number
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You may be closer to the top 1% club than you think … or, at least the top quartile.

October 31, 2011

The IRS recently released 2009 tax data.

Here are some highlights:

  • It takes $343,927 in household income to make it into the top 1%; $112,124 to make the top 10%; and $66,193 to make the top quartile … sounds to me like a reasonable reach.
  • Excluding Warren Buffett, the top 1% pays a 24% effective rate … higher than Buffett’s secretary … whew!
  • The top 10% pays 70% of Federal income taxes; the bottom half pays essentially nothing … hmmm.

Virtually all of the people in the bottom half think that people at the top should pay more … it’s called “fairness”

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Tech point re: charitable contributions …

October 24, 2011

I know that I said that Part 5 of my Buffett tax analysis would be my last. but …

First, I got input from a loyal reader that my analysis was wrong because “only 5% of charitable contributions can be deducted in 1040s”

That sent me back to the tax code.  Specifically to Publication 526 : Charitable Donations.

Keeping in mind that HomaFiles doesn’t offer tax or investing advice, here’s the law:

The amount of your deduction for charitable contributions is limited to 50% of your adjusted gross income, and may be limited to 30% or 20% of your adjusted gross income depending on the type of property you give and the type of organization you give it to.

Here’s the English translation.

In general, for all typical charities,e.g. churches, schools, hospitals, disease-causes, a taxpayer can deduct 100% of his charitable … but there’s a ceiling …. the total amount of charitable deductions is limited to 50% of the taxpayer’s AGI.

So, if a taxpayer had $100,000 AGI, he can write $50,000 in  checks to qualified charities and deduct all $50,000.  If he writes checks for $60,000 … he can deduct only $50,000.

The major exception: donating appreciated assets (think “stocks).  A taxpayer can claim a charitable deduction for the fair market value of the asset, pay no capital gains, and deduct up to 30% of his AGI.

Things get a bit trickier if there are both cash donations and appreciated assets in the mix.

The general  takeaway: up to a total of 50% AGI, all charitable contributions can be deducted ,,, slightly less if the donations are stock not cash.

That said, the Buffett analysis survives intact.

We estimated charitable contributions at $20 million …about 1/3 of Buffett’s $63 million AGI … so, based on our anlysis, he can deduct all of his charitable deductions, sheltering all or most of his ordinary income.

Whew.

* * * * *

Separately, I got a few emails and replies commenting on the HomaFiles-coined GBSR™ – “Give Back to Society Rate” … the sum of fed & state taxes, and charitable contributions divided by AGI.

Some of the emails said “you’re on to something”, so I’ve trademarked the metric by adding the legal “TM” super-script.

Gotta protect your intellectual property, right?

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Squeezing Buffett’s numbers … Part 5 (and done !)

October 21, 2011

OK, today should about do it.

After a recap, I’ll drop my conclusion on you … my very surprising conclusion

First. a recap to get everybody on the same page.

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%), and showed how he could get to that low rate by offsetting practically all of his ordinary income with $23 million in deductions.

This conclusion debunks the popular pundit point that he gets to the rate by having practically all of his income in capital gains and dividends.

In Part 2, we showed that about $20 million of the deductions are probably charitable contributions – a device that rich folks use to (1) do good things and (2) to manage down their tax liabilities.

Better to give to a cause that you believe in, right? Why give it to the government and have it waste the money?

In Part 3, we agreed that Buffett’s tax rate as a percentage of his taxable income is probably less than his secretary’s – partially due to his capital gains being taxed at a comparatively low rate, but mostly because he shelters his ordinary income with charitable deductions.

And, we showed how ordinary earners can get to a rate lower than Warren’s … just by donating a huge chunk of their income to charity. Not realistic, but mathematically possible.

In Part 4, we showed that Buffett’s tax rate as a percentage of AGI is only 11% …. about half of the estimated rate for our hypothetical secretary surrogates.

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Now, my first reaction when I stared at the taxes to AGI rate was “Wow, Buffett’s right – he’s nothing but a coddled piker.”

But now, I’m not so sure.

On one hand, his paying a rate (to taxable income) that’s 5 points less than his secretary doesn’t seem fair.  Especially since he gets to the rate by exploiting some dreaded tax loopholes, aka. “deductions”.

The situation seems even worse when you consider his taxes to AGI rate – a mere 11% – less than half of his secretary’s rate (I suspect).

Gotta jack up taxes, right?

Not so fast.

Let’s construct another measure: the GBSR™ — “Give Back to Society Rate

Since I’m coining the measure, I’ll define the GBSR™ as the sum of taxes paid plus charitable contributions – since those are all money that’s supposed to be going to the common good, albeit administered by different organizations – divided by AGI.

OK, so what’s Buffett’s GBSR?

Well, based on my estimates, Buffett pays about $7 million in Federal taxes, about $3 million in state taxes, and about $20 million to charities.  ,,, for a total of $30 million … which dived by his $63 million AGI … gives a GBSR™ rate of almost 50% (47.6% to be precise).

Now, let’s pretend that Buffett’s secretary profiles like our $100,000 ordinary earner above.  Her charitable deductions would be at most $5,700.  Otherwise she wouldn’t be taking the standard deduction, she’d itemize.

So, her GBSR™ @ $100,000 AGI is 27.5%   ($5,700 + $21,709 = 27,409 / $100,0000 = 27.5%).

That means that Buffett’s GBSR™ is almost twice his secretary’s.

Hmmm.

Maybe he’s not such a bad guy and I should stop ranting about him.

And, maybe he should stop causing trouble for other folks by constantly whining about the tax code.

It just may be that the tax code is leading to the right answer.

Just have to look around the trees to see the forest.

AMEN

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Squeezing Buffett’s numbers … Part 4

October 20, 2011

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%), and showed how he could get to that low rate by offsetting practically all of his ordinary income with $23 million in deductions.

This conclusion debunks the popular pundit point that he gets to the rate by having practically all of his income in capital gains and dividends.

In Part 2, we showed that about $20 million of the deductions are probably charitable contributions – a device that rich folks use to (1) do good things and (2) to manage down their tax liabilities.

Better to give to a cause that you believe in, right? Why give it to the government and have it waste the money?

In Part 3, we agreed that Buffett’s tax rate as a percentage of his taxable income is probably less than his secretary’s – partially due to his capital gains being taxed at a comparatively low rate, but mostly because he shelters his ordinary income with charitable deductions.

And, we showed how ordinary earners can get to a rate lower than Warren’s … just by donating a huge chunk of their income to charity.  Not realistic, but mathematically possible.

Whew.

Now let’s start pulling things together.

The chart below makes the obvious clear … at least to me to me.

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Note that Buffett’s tax rate as a percentage of AGI is only 11% …. about half of the estimated rate for our secretary surrogates.

Now that’s a gap!

But, I haven’t seen anybody in the mainstream media even notice.  They, and Chuckie Shumer, just focus on the rate to taxable income.

What’s going on?

Same story as before: Buffett shelters over a third of his AGI – and practically all of his ordinary income with charitable deductions.

Simply stated, because he gives money away to charities (e.g. the Bill Gates Foundation) he only has to give a pittance to the Feds.

Is that a good thing or a bad thing?

We’ll save that for a subsequent post.

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Squeezing Buffett’s numbers … Part 3

October 19, 2011

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%), and showed how he could get to that low rate by offsetting practically all of his ordinary income with $23 million in deductions.

This conclusion debunks the popular pundit point that he gets to the rate by having practically all of his income in capital gains and dividends.

In Part 2, we showed that about $20 million of the deductions are probably charitable contributions – a device that rich folks use to (1) do good things and (2) to manage down their tax liabilities.

Better to give to a cause that you believe in, right?  Why give it to the government and have it waste the money?

Today, let’s look at the popular headline: “Buffett’s Tax Rate Lower than His Secretary’s”

Since we don’t know his secretary’s specifics, we looked at 3 hypotheticals: a single taxpayer (i.e. not married), all ordinary income,  no dependents, standard deduction (i.e. doesn’t itemize).

The bottom line: The headline seems reasonable.  In each of 3 income scenarios ($50k, $75k and $100k) the rate to taxable income is in the lower 20s – about 5 points higher than Buffett’s rate.

But, keep reading …

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First, these are scenarios the get to the highest possible tax rates – a joint-married filer with dependents and itemized deductions would pay less.

Nonetheless, it’s hard to imagine an ordinary person closing the gap to Warren’s rate unless they had a big mortgage deduction and played the charity angle: giving a lot to charity to shelter income down to the 15% rate.

For example, if our 50K single taxpayer had no mortgage interest and paid about 5% in state & local taxes, he could make a charitable contribution of about $10,000 and land in the 15% tax bracket (which is capped at $34,000)

Here’s the arithmetic: $50,000 less $3,650 in exemptions, less about $2,500 in state and local taxes, less $10,000 in charitable deductions is less than$34,000 – which is the top of the 15% bracket.

The charitable deduction would be 20% of AGI … which is lower than Buffett’s apparent 30% donations’ rate ($20 million / $63 million = 31.4%) … but probably not practical at that income level.

And, using the same logic, getting our $75k and $100k ordinary income earners into the 15% bracket would require a  charitable giving rate approaching 50% of AGI.

That certainly doesn’t seem practical.

What’s the point?

Buffett’s case illustrates how a completely discretionary itemized deduction – charitable contributions – can be used by folks – especially rich folks – to shelter ordinary income from taxes … and get them to a low effective tax rate.

That’s not a shot at charitable deductions – more on that in subsequent posts – just raises the point that closing the gap between Buffett and his secretary may be less a matter of raising tax rates (on capital gains) and more a matter of how deductions are allowed and applied.

More to come ..

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Squeezing Buffett’s numbers … Part 2

October 18, 2011

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%).

We tested the conventional wisdom that the rate is low because Buffett gets practically all of his income from capital gains and dividends.

Maybe and maybe not.

We showed that, in fact, almost half of Buffett’s income could be from ordinary income and he’d still pay the low rate.

Why?

Because deductions are first applied to higher taxed income (think ordinary income @ 35%) and then to lower taxed capital gains.

Buffett could, in effect, be getting his ordinary income tax-free.

Let’s dig a little deeper on Warren’s tax data.

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The key numbers: AGI = $53 million, Deductions (aka. “loopholes”= $23, Taxable Income =$40 million, and taxes = $7 million … 17.4%

Let’s think about the deductions for a moment

Some pundits have theorized that many of the deductions are “interest on investment borrowing”, suggesting that Buffett buys a lot of his holdings on margin.

I don’t think so.

First, he’s a frugal guy who doesn’t strike me as margin kind of guy.

Second, interest rates are essentially zero … especially for a big hitter like Buffett … and zero times any balance is, well, zero.

Third, Buffett himself says it ain’t so.

He says the roughly $23 million difference between his AGI and taxable income is due largely to deductions he took for charitable giving and local taxes.

Let’s do taxes first.

Nebraska state income taxes have a max marginal rate of just under 7%.  So, Buffett probably pays about $3 million in state & local taxes.

That leaves about $20 million in charitable deductions.  It’s oft reported that many of those donations go to the Gates Foundation.

We’ll come back to the charitable deductions in a subsequent post.

We’re not saying they’re necessarily good or bad … just remember the $20 million number.

* * * * *
Next up: How does the 17.4% compare to ordinary folks?  And, is it the right  number to focus on?

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Squeezing Buffett’s numbers … Part 1

October 17, 2011

Last week Warren “Don’t Coddle Me” Buffett released some of his tax info.

Just some highlights, but enough to give fodder to some analyses.

I think I have some interesting unreported angles on the nums that I’ll be dribbling out in this and subsequent posts.

First, the facts:

  • Buffett’s adjusted gross income (AGI) was $62,855,038  last year
  • His taxable income was $39,814,784
  • His federal income tax bill came to $6,923,494, or 17.4% of his taxable income.
  • He said The roughly $23 million difference between his AGI and taxable income was due largely to deductions he took for charitable giving and local taxes
  • He paid $15,300 in payroll taxes … but, so what?

You may remember, the buzz us about how Buffett’s 17.4% is lower than his secretary’s mid-20s tax rate.

Conventional wisdom is saying that the issue stems from so much of Buffett’s income comes from capital gains and dividend (taxed at 15%) rather than ordinary earned income (taxed at 35% at the margin).

A simple analysis suggests that for Buffett to have an overall 17.4% tax rate, his $40 million in taxable  income must be split roughly $35 million from capital gains & dividends (taxed at 15%) and $5 million in ordinary income (virtually all taxed at 35%).

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But, not so fast …

I’m not a tax adviser but …here’s something that I think is right and that I bet you didn’t know:

Mechanics for applying the tax code work to the tax payer’s advantage in at least one very import way … deductions against income aren’t applied pro-rata across tax categories – ordinary income and capital gains … rather they get applied to the highest taxed category of income first.

Said differently, deductions are first applied to ordinary income, then to capital gains (if there are any left).

That’s a big deal … for Buffett and for us ordinary folks.

What it could mean for Buffett is that the could pay his 17.4% rate with an almost 50 / 50 mix or ordinary income and capital gains.

Here are the nums:

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So what?

Well, if I’m right then maybe Buffett’s right … he is being coddled.

But, the problem isn’t the tax rate (sorry, Chuckie Shumer) it’s those devilish loopholes.

It’s that he can generate tax deductions by giving mucho  $$$ to his buddy Gates’ foundation … and, in effect, can shelter almost all of his ordinary income from any taxes.

Now, that’s a big deal!

More in subsequent posts.  Trust me, I’m not done with this one.

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Fair share revisited…

October 11, 2011

Obama’s tax plans don’t really impact , so this issue is strictly philosophical.

I’m still struggling with his “fair share” riff.

Out of 140 million tax filers, there 1,470 millionaires who pay no taxes of them.

Doesn’t sound like they’re paying their fair share, but there aren’t many of them … and, I bet each has an interesting story.

More generally, according to the IRS, folks making:
• More than $1 million pay 24% of income in taxes
•  $200,000 to $300,000 pay 17.5%
•  $100,000 to $125,000 pay 9.9%
•  $50,000 to $60,000 pay 6.3%
•  $20,000 to $30,000 pay 2.5%

And, the IRS reports that – as a % of income tax revenues:
• The top 1% pays 39%
• The top 5% pays 60%
• The top 10% pays 72%
• The bottom half pays 3%

So, what’s “fair share”?

Neither Obama nor his frontmen seem comfortable saying/

Wouldn’t you like to know?

Hmmm.

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The USPS is needed .. to deliver all of those gov’t checks.

October 7, 2011

Punch line: According to the  WSJ, nearly half of all U.S. households now receive some type of government benefit.

  • Over 1/3 of Americans lived in a household that received benefits such as food stamps, subsidized housing, cash welfare or Medicaid.
  • Almost 15% lived in homes where someone was on Medicare or Social Security, or both.

Reminder: Some 46.4% of households will pay no federal income tax this year, according to the nonpartisan Tax Policy Center. That’s up from 39.9% in 2007

My bet: All of these households think spending cuts are a bad idea …
and tax hikes on other folks are strokes of brilliance.

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Geez, all the fuss over 7,000 rich guys…

September 26, 2011

Punch line: Chasing after a couple of thousand rich dudes seems like a wild goose chase to me.

I’m more concerned about the 50% of folks who don’t have any skin in the game … who pay no taxes and think other folks should pay more.

Old refrain: “Don’t tax you, don’t tax me, tax the guy behind the tree.”

Tax Policy Center analysis reported in The Atlantic

76 million people won’t legally owe individual income taxes in 2011

The vast majority of this group is poor. They won’t owe individual income taxes because they won’t earn a lot of money to start, and various exemptions, like the earned income tax credit, will wipe out any tax liability … maybe even getting them a refundable credit – a check in the mail from the Feds.

Among families making more than $100,000, there will also be  half a million tax units that will also pay no income tax.

And, 7,000 millionaires will pay no individual income tax.

How can that be?

Couple of ways:

  • Tax-free income … think gov’t bonds
  • Catastrophic losses …  e.g. mansion gets wiped out by a hurricane, very high uninsured medical expenses
  • Discretionary deductions … think charitable deductions
  • Fraud and other shenanigans …

 

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Millionaires pay a lower tax rate than $50K teachers … not!

September 21, 2011

The press were abuzz yesterday debunking O’s key premise that millionaires pay taxes at a lower rate than teachers making $50,000.

Yesterday, we showed that a married  teacher with 2 kids who earns $50,000 pays at a 5.5% rate.  Even if you add 7.65 in payroll taxes to that, the resulting  13.15% is still less than a millionaire who pays only capital gains taxes at 15%.

That was a micro analysis.

The WSJ presented the macro analysis:

In 2008, the last year for which such data are available, the IRS reports that those who made more than $1 million in adjusted gross income paid an average income tax rate of 23.3%.

That’s slightly lower than the 24.1% rate paid by those making between $500,000 and $1 million, probably because the richest are like Mr. Buffett and earn more from capital gains and dividends.

The rate for a relative handful of the rich — 400 people — fell to 18%.

But nearly all millionaires still paid a rate that is more than twice the 8.9% average rate paid by those earning between $50,000 and $100,000, and more than three times the 7.2% average rate paid by those earning less than $50,000.

The larger point is that the claim that CEOs are routinely paying lower tax rates than their secretaries is Omaha hokum.

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I think the President should modify his Buffett Rule to read: anybody who earns more than $1 million … and who has accumulated wealth greater than $25 billion  … and who plans to bequeath practically all of his estate to a pal’s “foundation” shall pay an effective income tax rate of 90% … unless he /she whines that they’re being  coddled, in which case the tax rate escalates to 100%.

My real recommendation: limit the charitable estate exemption to $1 million so that Buffet has to fork about half of his estate over to the government … that’ll keep him from bring coddled in the grave.

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A $50,000 teacher has a lower tax rate than a millionaire or billionaire … period !

September 19, 2011

In his speech, the President’s teleprompter hammered that millionaires and billionaires have lower tax rates than teacher’s making $50,000.

Hmm.

Let’s think about that.

A high earner who makes all of his money from dividends and capital gains pays 15%.  Maybe a tad less after deductions – but the deductions (charity, state & local taxes, mortgages) should be rounding error.  So, let’s call it 15%

What about a teacher earning $50,000 – all from his teacher’s pay?

Well, let’s assume that he’s married with 2 kids.

What does he pay in taxes?

Answer: 5.5%.

A married person filing jointly gets a standard deduction of $11,400

A married taxpayer with 2 kids gets $14,600 in exemptions (4 times $3,650)

So, the taxpayers taxable income is $24,000 ($50,000 less $11,400 less $14,600)

Taxes on $24,000 are $2,762.50  ($1,675 plus 15% of the taxable income over $16,750)

That’s an effective rate of 5.5%

You see, the standard deduction and exemptions are what analysts call statistically significant.

Come on Mr. President … at least get the numbers right !

* * * * *
Relevant Tax Facts

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http://www.irs.gov/pub/irs-pdf/i1040tt.pdf

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Exemptions directly reduce your taxable income. You are allowed a personal exemption for yourself, your spouse if married filing jointly, and each person you can claim as a dependent. For 2010, the exemption amount is $3,650.

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Perspective on Federal revenues (aka “taxes) …

January 3, 2011

Interesting chart from Heritage, referenced in a Forbes article …

Couple of takeaways:

As the headline says, Fed revenues have tripled since 1965 … that’s about 3% per annum … pretty much in line with GDP growth.

No big news there.

I added the line connecting 1965 and 2010 … note the 2 recent bulges above the long-term trend line … the first courtesy of the Clinton tax hikes and the dot-com bubble …  the 2nd courtesy of the Bush tax cuts and the housing bubble.

What’s common?

Fed revs jumped during the bubbles … but, rather than the Feds treating the inflows as “found money”, they treated it as a permanent change in the revenue stream and poured it into spending programs … all of which are now apparently untouchable.

Hmmm.

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