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Federal Tax Rates: Most Americans are Getting Screwed.

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What the Feds are Doing to Working Class Taxpayers

A Really Big Screw

        Disclaimer: I do not claim to be an accountant, tax lawyer, economist, or constitutional scholar. However, at various times I am all of these things, as I do all the payroll, accounting, taxes, and economic planning for my auto repair business, and can read and understand the constitution. Figures and arithmetic may not come out to the penny, but are pretty close. This is an article, not a tax return. Feel free to run the numbers yourself with links at bottom.

        Mitt Romney paid 13.9% of his gross income in federal taxes in 2010, the last year he has released records for, on a gross income of over $21,700,000. Barack Obama paid 20.5% of his gross income in federal taxes in 2011, on income of over $700,000. Billionaire investor Warren Buffett paid 11% of his 2010 income ($62 million plus) in total Federal taxes. The 200+ millionaires in the U.S. House and Senate and most other U.S. multimillionaires and billionaires most likely paid federal tax rates in the 10% – 22% range as well.

        Lets compare this to a fictional regular American. Rebecca owns and operates a computer repair shop. She has no employees, and has a good year in 2013, making $64,000 in net profits before taxes. As Rebecca is single with no children, her federal income taxes owed are $10,608, or 16.6%. Next, we can figure Social Security and Medicare taxes. These are considered by some people to not count as taxes, but as an old age / retirement fund. Rebecca has never collected from these programs and will die when she is 48 years old, before she collects funds from either program. As such, these funds are taxes for her, as they are taken from her by law and given to other people. Social Security tax is currently 6.2%, while Medicare is 1.45%, for a total of 7.65%, making her total tax rate 24.25% of her gross income. She is not done yet, as like Mitt Romney and Warren Buffet, she is a self-employed business owner. She also gets to pay the employer share of Social Security and Medicare, which stands at 7.65%, bringing her total to 31.9%.

        Where we stand so far:

Warren Buffet:   11% on $62,855,000 income for 2010

Mitt Romney:   13.9% on $21,700,000 income for 2010

Barack Obama:   20.5% on 734,000 income for 2011

Rebecca:   31.9% on $64,000 income for 2013

        Rebecca has seen these numbers, and wants to increase her income so she too can pay taxes at a lower rate. She works really hard for the rest of the year, and has a little luck, and her income goes up to $90,000. Unfortunately, this also increases her tax rate, to 32.9%.

        This brings us to:

Warren:    11%   $62,855,000

Mitt:   13.9%   $21,700,000

Barack:   20.5%   $700,000

Rebecca:   32.9%   $90,000

        Eight Rebeccas, though making the same amount in gross income, would pay over 50% more to the IRS than one Barack. 241 Rebeccas, while making the same amount in gross income, would pay over 2.2 times as much in federal taxes as one Mitt. 698 Rebeccas would pay THREE TIMES as much to the feds as one Warren.

        Lets now go to a lower income person. Brad has a job at Megacorp, and makes $25,000 in 2013. His income tax withholding rate is only 9.6%. What a damn freeloader. Oops, we almost forgot his other taxes: 7.65% for SS / Medicare, 7.65 percent for employer’s share of SS / Medicare, and 6% Federal Unemployment Tax (FUTA, which is also paid by the employer). FUTA tax rate is 6% on first $7,000 in income, which brings Brad’s total rate to 26.6%, somewhat lower than Rebecca’s rate.

        Hold on, you say – we can’t include the employer’s share of payroll tax or FUTA, as this is not a part of the employee’s pay. These amounts wind up in the U.S. Treasury as a direct result of Brad’s labor. If he did not work, or was replaced with a machine, the funds would not go to the feds. If laws did not require Megacorp to pay an amount equal to 7.65% of every dollar of Brad’s wages, plus $420 for FUTA to Treasury, Megacorp could give these funds to Brad, without affecting their profits one bit. Money going into the Treasury only due to the fact that Brad made income is income tax.

        So-

Warren:    11%    $ 62,855,000

Mitt:   13.9%   $ 21,700,000

Barack:   20.5%   $ 700,000

Rebecca:   32.9%   $ 90,000

Brad:   26.6%   $ 25,000

        Another fictional friend, Maria has been unable to find work in her field for 3 years, and gets a part time temp job for a few weeks, her only income for the year. As she only made $700, she pays no income tax at all, but is still responsible for 21.3% of her gross income winding up in the U.S. Treasury (7.65 + 7.65 + 6). There is no lower limit on SS / Med /FUTA tax, but income over around $112,000 is exempt from Social Security Taxes.

        Our final tally:

Warren:   11%   $ 62,855,000

Mitt:   13.9%   $ 21,700,000

Barack:   20.5%    $ 700,000

Rebecca:   32.9%    $ 90,000

Brad:   26.6%   $ 25,000

Maria:   21.3%   $ 700

        Capital gains are currently taxed at a 15% rate by the federal government, if they are not stashed in some offshore tax haven. Someone who just collects money from various investments theoretically gets taxed at a 15% rate. If our fictional Rebecca had her tax burden decreased by 20%, this would bring her rate to 12.9%, saving her $18,000.  698 Rebeccas, each with an extra $18,000 to spend would certainly do more good for the American economy and populace than one Warren keeping all of this amount.

        The tax laws which make this possible were not all put into effect by Bush, or Obama, or Clinton, or Reagan, for that matter. Many hundreds of Congresspeople and many Presidents have voted on and signed tax laws in the past several decades. Several reports I have seen have the current U.S. Federal tax code at well over 70,000 pages.

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        Update 4/13:

        Barack and Michelle Obama released information about their 2012 Federal taxes yesterday. From the White House website:  “reported adjusted gross income of $608,611. The Obamas paid $112,214 in total tax. ” and: “The President’s effective federal income tax rate is 18.4 percent.” So his tax rate drops by 2 % once he knows he will not be running for office when the numbers come out. How convenient for him. Vice president and Mrs. Biden:  “Together, they reported adjusted gross income of $385,072. The Bidens paid $87,851 in total federal tax for 2012.”  This comes out to 22.8%. Fifteen times the income of Brad from our example and a lower tax rate. $385,000 per year is not middle class in America today. It is rich, wealthy, or whatever such term you care to use. Mitt Romney would not release tax information from other years when running for president, so you can be damn sure his rate in those years was lower than 13.9%.

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Since only about 7 or 8 people will ever read this, (hi Mom) and no one will comment, I have decided to argue the merits of this post with some troll comments I make up myself. This may make me go blind, but here goes:

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“Taxes are unconstitutional, end the Fed, end capitalism, taxation is theft,  you are a Marxist, etc.”

        Since this article is comparing current U.S. federal tax rates paid by individuals to rates paid by other individuals of varying income, these arguments are irrelevant to the discussion at hand. Please return to your Ron Paul rally / anarchist meeting / laying on the couch watching Fox News / etc.

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“Warren paid $6.8 million in taxes. (11% of $62 million) This is way more than his fair share.”

        This argument is contrary to the very concept of how taxation has worked in America for the past few decades, if not for most of history. If each person was to pay the same amount, this would be a citizenship fee, like a fishing license, not a tax. Is it unfair for someone who buys 100 bottles of whiskey to pay 100 times the liquor tax of someone buying 1 bottle? Want to pay less total liquor tax? Buy less whiskey. Want to pay less total income tax? Have less income. Seems pretty fair and equitable. We have sales tax in our state. Someone buying $10,000 worth of stuff pays 100 times the tax as someone buying $100 worth of stuff. This seems pretty fair and equitable. I can see arguing for or against having a sales tax, but not arguing that different people should pay different rates. ‘All men created equal’ and such.

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“Maria from your example is probably collecting welfare and food stamps, getting back more in benefits than she paid in taxes.”

        First, that would be irrelevant to this article, as it is only about tax revenues, not how they are spent. Second, this is a completely ignorant and prejudicial comment, based on the data presented in article. Maybe Maria was laid off from a $200,000 per year job 3 years ago, and has been living on her savings, never collecting any type of assistance. Maybe she has a boyfriend who takes care of her every need as has never collected any type of assistance.

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2 Comments

  1. Jose D Monjardin says:

    Good job brother! I know how you feel 😦

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