88 wrote:H4ever, I'll give you credit for putting out some numbers. As you probably know, it is very hard to draw any lines that make any sense. That is why the "fair share" argument is so unfair.
Here are some examples.
A family of four living in Manhattan making $250,000 per year would have a very different relative lifestyle as compared to the same family of four earning the same income in Lubbock. It simply costs less to live there. The New York family, in addition to the equivalent federal tax burden (assuming equal deductions, which is probably not the case), would bear a sizable state and local tax burden by comparison. The housing prices would not be comparable at all. Even basic living expenses, such as transportation, would be much different. Residents of Manhattan who do own automobiles generally have substantial parking expenses, bridge and tunnel tolls etc. etc. The two families, although doing well compared to many others, would have vastly different economic realities.
$250,000 is not an easy income to earn, at least in terms of wages. According to the 2009 Census (
LINK) general practitioners (family doctors) earned an average yearly income of $168,550 in 2009. And to bring down that kind of income, one must invest in eleven years of education (4 years of college, 4 years of medical school and 3 years of residency) beyond high school before you can begin establishing a practice. You are at least 29 before you can hang out your shingle. And it takes several years of hard work and long hours to build a successful, profitable practice.
Lawyers, such as myself, have an easier time in terms of the number of years of education. It only takes seven years of education (four years of college and three years of law school) beyond high school before you can become an attorney. According to the Bureau of Labor Statistics (
LINK), in May of 2008, the average yearly wage for a lawyer was $124,750.
Those who invest more in their education and specialize often do better than the average. But the number of years they have to recoup that investment is shorter. And, if they are self-employed, they have no pension or other retirement plan waiting for them aside from what they are able to squirrel away while repaying their college loans.
Employees who earn wages split the payroll tax burden with their employer, each paying 7.65% of eligible wages (most rational people would argue that the employee actually pays all of the tax, because the wage would be higher if the employer didn't bear a 7.65% tax burden). A self-employed person pays both halves, or 15.3% total. The tax is composed of a Social Security tax of 12.4% on the first $106,800 of net self-employment income (for 2009 through 2011), and a Medicare tax of 2.9% on all net self-employment income. And these are taxes in excess of income taxes.
For Tax Year 2011, a couple (married filing jointly) pays tax at the following rate on:
Taxable income between 0 and $17,000 - 10%
Taxable income between $17,000 and $69,000 - 15%
Taxable income between $69,000 and $139,350 - 25%
Taxable income between $139,350 and $212,300 - 28%
Taxable income between $212,300 and $379,159 - 33%
Taxable income above $379,159 - 35%
The above rates are on "earned" income, and not on income derived from investments, which are generally taxed at a capital gains rate of 15%.
Again, these taxes do not include state income taxes (~5% for most income levels in Ohio), local taxes (mine are 2%), real estate property taxes (depends on the value of your home and the rate charged in your tax district), school taxes etc. And I have not attempted to consider all of the new taxes imposed by Obamacare (e.g., the 3.8% tax on any gain from the sale of a home).
For me, my effective tax rate is about 40%, excluding consumption taxes (e.g., sales taxes) and government fees (automobile registration E-check fees, etc.)
While it is certainly the case that a family making $400,000 a year is miles ahead financially as compared to a family making $85,000 per year, one must also consider the investment the individuals in the family making $400,000 a year had to make in order to be able to earn that income. Most people in that income range have nice house, a decent car or two, eat well, travel on occasion and generally have a pretty comfortable lifestyle. But they also tend to work their asses off for many years to get to that station in life.
There are definitely a lot of members of the lucky sperm club, who are born into wealth accumulated by their ancestors. They have great educations, little or no personal debt and a much easier way to go. But the tax code does not seem to be able to differentiate between those who generate their wealth through sweat and those who do it by birth.
One of the proposals being bandied about these days is to lift the cap on Social Security taxes. Right now, no Social Security tax is paid on income greater than $106,800 (that number may be off by a percent or two - I'm not sure what the exact number is for 2011). The problem with this thinking, from my perspective, is that it Social Security was sold to the American People and defended in the U.S. Supreme Court as an insurance program, and not a social welfare program. The idea is that everyone would pay into the program, the Social Security Administration would invest the money collected, and then pay out a defined benefit somewhat commensurate with what had been paid in. The Social Security Adminstration invested in the U.S. Government (by loaning the money collected to the U.S. Treasury, which Congress then spent). There is no giant "lock box" of dollars sitting in a vault somewhere waiting to be paid out in claims. Until 2010, the Social Security Administration annually took in more in taxes than it paid out in benefits (there was a period in the 1980's before it was overhauled where this also occurred). When there is insufficent funds coming in to pay out current benefits, Congress must make up the difference by paying off some of the debt owed to the Social Security Administration. Some will argue that Social Security is solvent until 2037 or so. I say that is only true provided Congress can continue to collect taxes from the People and/or get others to buy its debts. But even if this holds true, after 2037 there will have to be significant benefit cuts in order to preven the program from becoming eternally insolvent. Lifting the cap on Social Security would infuse billions, if not trillions, of dollars into the Social Security system. But it would then cease to be defensible as an insurance program. It would be a pure welfare program, because there is no possible way for the high wage earners to recoup in benefits even a portion of the taxes they paid in. It would be the worst insurance program ever devised for them.
One possible way to "tax" the trust funders without nailing the hard workers would be to increase the capital gains tax rate. This targets investment income, which the uber-wealthy tend to have more of than the hard workers. But many economists argue that it would discourage investment and result in job losses. I simply do not know.
From my perspective, the problem is on the government spending side, and much less on the revenues side. Congress simply spends too goddamn much money. Jimmy McMillan had it right: The Rent* Is Too Damn High!
*Rent being the equivalent of what we are charged in taxes by Uncle Sam to reside here.