1 Topic by Einstein (edited by Einstein 21-Nov-2011 01:32:38)

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Topic: US Tax system explained

There is a lot of lack of knowledge of the US Tax system, so I plan to explain it here.



For this example I shall use a low wage of $1000 a month. This is what the employer shows as a 'gross wage'.

First we have standard payroll taxes. Everyone pays these, regardless if they earn $10 a year or ten million a year. There are caps to help the rich but this example does not meet that level.


First is Social Security. This tax applies to both employee and employer in a method intended to make employees feel like they are not taxed so high.

This tax is 6.2% for each, which means we have $124 in taxes.

The next tax is medicare at. 1.45% per employee and employer. This to is paid regardless of income level

This is another $29 in taxes.

There is also an unemployment tax of 6.2% for another $62

At this point let's summarize

You had a gross of $1000, which directly lost $76.50 as well as indirectly lost $138.50. Meaning your employer has a cost of $1138.50 to employ you, and from that you got the government (Federal) 18.8845% in taxes.


Next the Federal Government assess the Federal Income Tax. In this case it is 10%. After standard deductions this is $620 annually or $51.67 a month or an additional 4.5%

This is prior to State Taxes.


So an average person making what is damned low wages is already paying 23.3845% in taxes prior to State and local Taxes.


If you have extra deductions they apply now, tho if single, renting, and not got enough itemizable your not getting crap more.



Yes I said 23.3845% for the people who for 160 hours of work (or less) get $1000 gross income. yikes x(





Knowing this made me long ago back a flat tax, a Fair Tax, or more recently Cain's 9-9-9 tax plan. The Cain plan will be a 18% tax on all levels which means the people earning minimum wages will actually save more money.

Everything bad in the economy is now Obama's fault. Every job lost, all the debt, all the lost retirement funds. All Obama. Are you happy now? We all get to blame Obama!
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Re: US Tax system explained

Flint, I think you forgot about half the tax code...

Let's just start with EITC.  How does that affect your calculations?

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Re: US Tax system explained

Eitc applies as an extra deduction due to not everyone at the example bracket being able to qualify.

Yes there are deductions for being blind, medical costs, for children, mortgages, donations, etc.

However at this level, for a single person that list is unlikely to not happening if at the income level I provided.

Everything bad in the economy is now Obama's fault. Every job lost, all the debt, all the lost retirement funds. All Obama. Are you happy now? We all get to blame Obama!
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Re: US Tax system explained

>Knowing this made me long ago back a flat tax, a Fair Tax, or more recently
>Cain's 9-9-9 tax plan. The Cain plan will be a 18% tax on all levels which means
>the people earning minimum wages will actually save more money.

I remember that the FairTaxers suggested that a 23% tax rate would be revenue neutral.  For Cain to suggest that it can be done with an 18% tax rate, what exactly does he plan to cut?  Perhaps food stamps that our $1000/mo earner is benefiting from?  Social services that they can utilize?  Tuition subsidies and financial aid that he can use to better himself and hopefully start making a little more than $1000/mo?  I do know that he probably ain't planning to cut defense contracts or old-age pensions before the assistance for our $1000/mo hero has been gutted.

But let's get back to the FairTax's 23% tax rate, because this is incredibly misleading in and of itself.  The FairTax crowd likes to pretend that their FairTax is comparable to a sales tax, but in fact it's not.  A FairTax is tax-inclusive whereas a sales tax is not.  Here's what this actually means.  Let's say I'm purchasing a good with a $100 pretax price.  With a 23% sales tax, I have to pay $123.  With a 23% FairTax, I have to pay $130 (30 / 130 = 23% of the total purchase paid the FairTax).  But in fact, that's equivalent to a 30% sales tax.  And a 30% sales tax is a whole heckuva lot worse than the 23% tax rate our $1000/mo hero currently pays.  And it's worse even though we're pretending that our $1000/mo fellow isn't benefiting from EITC or a whole host of other credits that reduce his tax liability.

Even if we take the Cain plan and eliminate virtually every transfer and social service that our hero enjoys in order to reduce the FairTax from a tax-inclusive 23% rate to 18%, he'll still be paying the same tax rate he does today but he won't have food stamps, EITC, or anything else like that to help him get by.

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Re: US Tax system explained

I guess one positive of the Fair Tax is that it would increase the price of gasoline by about $1 on every gallon.

Take that car culture!

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Re: US Tax system explained

As for Herman Cain's Nein-Nein-Nein plan, this really says it all.  Here's the change in tax liability for the five income quintiles:

http://jaredbernsteinblog.com/wp-content/uploads/2011/10/Average-tax-change-from-9-9-9-plan-10-18-2011-OPT.jpg

(that may be difficult to display on your computer screen)

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Re: US Tax system explained

The Cain tax presumes no need for most of the IRS which would result in a large savings in of itself.

The 9% sales tax and 9% income tax (and 9% corporate tax) literally presume no deductions for almost anything. Eliminiation of those loopholes significantly increases total revenues per a %. Additionally the plan presumes a reduction in the capability and the desire to fraud on taxes.

While some with kids and no spouse could see an increase they would not see (with the projected revenue) a reduction in the benefits you listed. However they would have less costs proprtionally on the food side as well which would leave them more or less even.




The Fair Tax I know of quoted that cost plus tax = cost, aka $100 plus a 20% tax would be $120 total. However I had seen numbers around 14% bandied around for it. Ofc that came before the recent huge spikes in government spending...

Everything bad in the economy is now Obama's fault. Every job lost, all the debt, all the lost retirement funds. All Obama. Are you happy now? We all get to blame Obama!
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Re: US Tax system explained

As for your graphic they clearly avoided the payroll taxes part companies pay which is eliminated.

This is part of your pay, should it go I, and everyone I know, will demand a raise equal to that saved cost, and get it as well.

Everything bad in the economy is now Obama's fault. Every job lost, all the debt, all the lost retirement funds. All Obama. Are you happy now? We all get to blame Obama!
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Re: US Tax system explained

>Flint wrote:
>
>The Fair Tax I know of quoted that cost plus tax = cost, aka $100 plus a 20% tax
>would be $120 total. However I had seen numbers around >14% bandied around
>for it. Ofc that came before the recent huge spikes in government spending...

Back in 2008 when Huckabee was hardselling the FairTax they were advertising a 23% FairTax as being revenue-neutral.  That's debatable (they assume some magic happens), but I don't want to quibble on that point.  That was based on Bush-era taxes.  14% seems completely ridiculous and it's very doubtable that a Cain-style 18% would do the trick given that the FairTax people are already relying on questionable assumptions that tax evasion drops to make 23% revenue-neutral. 

Here's the difference between FairTax and a sales tax.  Just to make the math easy, let's assume a 25% FairTax and a 25% sales tax.  Let's say that the after-tax price of an item is $100.  With a 25% sales tax (tax-exclusive) you pay $80 for the item and $20 (25% of $80) in sales tax for a total of $100.  With a 25% FairTax you pay $75 for the item and $25 (25% of $100) in FairTax for a total of $100.  The difference is that with a sales tax you aren't taxed on the tax, but with the FairTax you are taxed on your taxes.  You get quite a bit less for your buck with a FairTax than you do with a sales tax, and trying to pretend that they're equivalent is misleading.

That's a big difference.  The FairTax guys like to compare the FairTax to a sales tax, but a 23% FairTax is equivalent to a 30% sales tax.  Does that make sense?

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Re: US Tax system explained

> Einstein wrote:
>
> As for your graphic they clearly avoided the payroll taxes part companies pay which is eliminated.

No, they included employer-side payroll taxes as taxes on the worker.  Typically an easy gotch'ya, but the Tax Policy Center has its act together.

http://taxpolicycenter.org/numbers/displayatab.cfm?Docid=3222&DocTypeID=2

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Re: US Tax system explained

Well I do know that the Fair tax replaces ALL taxes, including corporate.


Irregardless of how you feel Cain IS A ROCKET SCIENTIST, and his math has been vetted by leading mathematicians including Proffessor Laffer.

The math pans out with the 9-9-9 plan.

Everything bad in the economy is now Obama's fault. Every job lost, all the debt, all the lost retirement funds. All Obama. Are you happy now? We all get to blame Obama!
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12 Reply by SavingHawaii (edited by SavingHawaii 21-Nov-2011 08:26:13)

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Re: US Tax system explained

> Einstein wrote:

> Well I do know that the Fair tax replaces ALL taxes, including corporate.

Not all taxes.  But this isn't really a rebuttal of my point.  I'm not certain where you're trying to go with this.

(Taxes that don't get repealed under FairTax include gasoline excise taxes for example)

>Irregardless of how you feel Cain IS A ROCKET SCIENTIST, and his math has
>been vetted by leading mathematicians including Proffessor Laffer.

Cain was a ballistics analyst for the Navy.  My uncle was an engineer on the Saturn V.  One of them took plug and play formulas and figured out missile trajectories.  The other was a rocket scientist.  Not to say that either isn't respectable (I wish I had Cain's bragging rights), but there is a difference.

As for his plan being vetted by Laffer?  Seriously.  Even Josh Barro (recognize that last name?) ripped Laffer apart for this in NRO of all places.  Within the first couple paragraphs he'd already demonstrated that Laffer hadn't even closely looked at the Nein-Nein-Nein plan:

"First, Laffer describes the business tax component of 9-9-9 as a 9 percent tax on

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Re: US Tax system explained

Your so called VAT is a lie.

A VAT works via adding a tax per the increase in value of an item. A company harvests potatoes... there is a tax. They sell to a slicing company that makes fries, there is a tax. They sell to a company that spices them, there is a tax, they sell to a company that adds it to a tv dinner, there is a tax.

Now when companies have standard taxes it is not a VAT. This is a tax on the profits, not on the product.

There is a very significant difference, and any group labeling it a VAT is lying.


And the potatoes are an analogy.


And under your presumption, you ofc ignore opportunity zones, you also do not quote the existing corporate tax rate of 40%.

Everything bad in the economy is now Obama's fault. Every job lost, all the debt, all the lost retirement funds. All Obama. Are you happy now? We all get to blame Obama!
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14 Reply by SavingHawaii (edited by SavingHawaii 21-Nov-2011 16:54:12)

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Re: US Tax system explained

> Einstein wrote:

> Your so called VAT is a lie.

>There is a very significant difference, and any group labeling it a VAT is lying.

Are you calling Herman Cain a liar?  His campaign described it as just that: a VAT.

>And the potatoes are an analogy.

Pee-oh-tee-eh-tee-oh-ee...

>And under your presumption, you ofc ignore opportunity zones, you also do not quote the existing corporate tax rate of 40%.

Exactly how much verbal vomit do you want me to throw into these posts?  No, I can't provide a good level of detail on a broad subject in 5 paragraphs or less.

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Re: US Tax system explained

I don't care if they call it a transit tax. It is not a VAT.


Normal corporate tax on three companies:
Company one harvests trees and transports them to a lumber yard. Their net profits a month is 10k, with a 40% tax they pay 4k.
The lumber is worth 100k, with a 9% VAT it would cost 9k (net cost 109k)
With a 9% sales tax it would be 9k. (Net cost 109k)

Next company is the lumber yard. They purchase the timber and turn it into lumber, including special order stuff for the next company.
They make 30k profits a month
Their product (from 100k worth of timber) sells for 500k
40% corporate tax would cost them 12k (net is now 16k)
9% VAT would be 500k * 1.09 (plus the origional 9k) (net is now 54k)
Now the Cain plan says the product was bought from an American company so the first company does not need to pay tax, so net taxes would be 500k * 1.09 (net is 45k)

But wait that's not the final use of our timber. Sold to a yacht company who makes five yachts with a total profit of 5 million between them off the portion that is the lumber. The yachts cost (off lumber costs) 1.5 million each (labor and wood and equipment and other expenses).

40% tax is 400k (net 416k)
9% VAT is 675k (net 729k)
9% Sales tax is 675k (675k since the previous tax was not end sale)

That is one example.


Next, per pound of metal each of five companies adds a dollar in value as it gets mined, smelted, alloyed, heat treated, and forged and they each take 10 cents as profit.

Nominally this is $5 a pound afterwards.

After sales tax it is $5.45

After VAT it would be ((1.00 * 1.09)+ 1.00) * 1.09) + 1.00) * 1.09) + 1.00) * 1.09) + 1.00) * 1.09 for $6.5233345649 a pound.

The difference is very extreme.

Everything bad in the economy is now Obama's fault. Every job lost, all the debt, all the lost retirement funds. All Obama. Are you happy now? We all get to blame Obama!
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Re: US Tax system explained

> Einstein wrote:
>
> I don't care if they call it a transit tax. It is not a VAT.

I have a document right here from Herman Cain's website reading in plain-as-can-be English that Herman Cain is advocating a "A business transactions tax... Each business would pay tax on gross receipts less payments to other businesses. Allowing the subtraction of payments for intermediate goods yields the value added by the company. Subtracting investment as well yields a subtraction method *value-added tax*."

The Herman Cain "business transactions tax" is a VAT.  Straight from the camel's mouth.  (Always good to reference cigarette brands when it comes to the Cain Campaign).  http://www.hermancain.com/docs/999_Scoring_Report.pdf

You're telling me that Herman Cain doesn't support a VAT.  Herman Cain is telling me that he does.  Who am I to believe?  I really don't have a dog in this fight, but I think I'm probably gonna side with Herman Cain's remarks as to what he supports rather than your views as to what Herman Cain supports.

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Re: US Tax system explained

http://www.hermancain.com/999

Not in there at all

Everything bad in the economy is now Obama's fault. Every job lost, all the debt, all the lost retirement funds. All Obama. Are you happy now? We all get to blame Obama!
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Re: US Tax system explained

You are calculating the VAT incorrectly Flint

VAT stands for Value Added Tax, if you as a producer purchase materials to process in your company, you can deduct the VAT that was paid when you purchase your materials.

Meaning that VAT is only calculated on the final sell value to the consumer. Any company in the supply chain only pay VAT from the price increase of the product they add. So if you buy materials for 100, and sell product for 500, you pay (500-100)*1,09 , OR 500*1,09 MINUS 100*1,09, not it addition as you calculate it

LORD HELP OREGON

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19 Reply by SavingHawaii (edited by SavingHawaii 22-Nov-2011 21:39:57)

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Re: US Tax system explained

>Einstein wrote:
>
>http://www.hermancain.com/999
>
>Not in there at all

Holy toledo Flint.  Without even scrolling on that page I can see in font size H4 a link reading "9-9-9 Scoring Report".  Aside from all the vague talking points on the main page, the Scoring Report shows a lot of the actual details of his Nein-Nein-Nein plan.  In my last post I gave you a link specifically to the Scoring Report and quoted an excerpt of the section where Herman Cain's campaign described their proposal as a VAT.

You're telling me that Herman Cain does not support a VAT.
Herman Cain is telling me that Herman Cain wants to implement a VAT.
Who to believe?

Here's a link to Herman Cain's description of the VAT in 9-9-9 again http://www.hermancain.com/docs/999_Scoring_Report.pdf and here's what it says:

"A business transactions tax... Each business would pay tax on gross receipts less payments to other businesses. Allowing the subtraction of payments for intermediate goods yields the value added by the company. Subtracting investment as well yields a subtraction method *value-added tax*."

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