Seriously... Are you Paying Your "Fair" Share?

[Seshmeister]

I would love to see the income tax scrapped and just have a VAT tax with food being exempt. Of course the income tax creates a huge tax preparation industry and creates lot's of jobs but it's a bunch of bullshit. Everyone should pay some tax and I think it's fair because the rich buy more so they will pay more.

Firstly it's not fair because rich people pay a lower amount because less of their income gets spent on things which will attract VAT.

A typical family with $15,000 per year take-home pay spends about 75% of their income on items subject to the sales tax.
A typical family with $100,000 per year take-home pay spends only about 25% of their income on items subject to the sales tax.

Secondly I doubt the books would balance. Here VAT is 20% and brings in less than income tax so you could be looking at a 50% VAT rate if you abolish income tax.

Also VAT is notorious for the scams that can be done. There are estimates that Britain gets defrauded by many billions every year from VAT cons.

[ZahZoo]

the one problem with the argument that certain lower income people pay nothing in income taxes is that it usually ignores that they pay social security and medicare taxes.

for a parent with 2 kids earning $30,000 a year, $1800 is a lot of moeny, but that's the amount of social security taxes they pay. so even if they don't pay another dime in income taxes, taxes still strongly affect them.

That's a valid point but... Social Security/Medicare taxes are applied at flat rate across the board (currently 4.2% for SS and 1.5% for MC) based on employment income up to $110K. IMO that's paying your fair share.

Using your example and simple math and tax tables... 2 families with 2 kids, married filing jointly. Income rate is gross adjusted.

$30k pays $1710 in SS/MC after deductables/tax credits pays about $900 in Federal taxes. 5.7% + 3% = 8.7% Fed income tax

$130K pays $6275 in SS/MC after deductables/tax credits pays about $24,750 in Federal taxes. 5.7% + 19% = 24.7% Fed income tax

The SS/MC is fair and proportional... but why should the higher income earner have to pay 3x more than the lower in proportion to earnings. Closing that gap is what "paying your fair share" should be about. The gap grows even bigger the higher up your income.

Maybe silly... but if we shifted the graduated tax rates to investment income and locked employment income in at 15% period... then I believe the tax burden would be much more fair. Most likely would better fund the government and put more spending money in the wallets of people who need it. Thus helping the economy directly.

[knuckleboner]

That's a valid point but... Social Security/Medicare taxes are applied at flat rate across the board (currently 4.2% for SS and 1.5% for MC) based on employment income up to $110K. IMO that's paying your fair share.

Using your example and simple math and tax tables... 2 families with 2 kids, married filing jointly. Income rate is gross adjusted.

$30k pays $1710 in SS/MC after deductables/tax credits pays about $900 in Federal taxes. 5.7% + 3% = 8.7% Fed income tax

$130K pays $6275 in SS/MC after deductables/tax credits pays about $24,750 in Federal taxes. 5.7% + 19% = 24.7% Fed income tax

The SS/MC is fair and proportional... but why should the higher income earner have to pay 3x more than the lower in proportion to earnings. Closing that gap is what "paying your fair share" should be about. The gap grows even bigger the higher up your income.

Maybe silly... but if we shifted the graduated tax rates to investment income and locked employment income in at 15% period... then I believe the tax burden would be much more fair. Most likely would better fund the government and put more spending money in the wallets of people who need it. Thus helping the economy directly.

i hear you, but i think the problem is on a micro level, the family of 4 is barely scraping to get by as it is. increasing their taxes hurts their ability to full provide.

on the macro level, you pull money out of a lower / middle income family, and you're directly pulling cash out of consumption - economic expansion. with a higher tax rate, wealthier people reduce investment more than they reduce consumption. true, you want investment in an economy, but without consumption, it doesn't really matter.

if it's a zero-sum game, and you've got to get the revenue from somewhere, i think it makes perfect sense to have a graduated income tax.

that doesn't necessarily mean today's rates are the right ones, or that spending couldn't be more limited. but at the end of the day, a lower income family paying 10% in effective taxes is impacted far more than an upper income paying an effective 25%.