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Thread: 2003 stats out - who really pays income taxes ?

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    Banned Melonie's Avatar
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    Default 2003 stats out - who really pays income taxes ?

    The IRS has begun releasing financial info projections on 2003 (post Bush tax cut) income tax payments. Some of these facts knocked my socks off ...

    44% of Americans pay no income taxes whatsoever. This means that they either :
    #1 don't work/collect welfare or other gov't benefits,
    #2 earn so little that they don't have to file a return, or #3 earn little enough that even though income taxes are withheld from their paychecks during the year that between exemptions, deductions and tax credits, that they get back every single dollar that was withheld.

    The lower earning 50% of Americans, with incomes up to about $64,000, pay less than 4% of total income tax money collected.

    The next 40% of Americans, with incomes between about $65,000 and $100,000, pay less than 30% of total income tax money collected.

    The top earning 10% of Americans, with incomes above about $100,000, pay over 65% of the total amount of income tax money collected.

    This seems pretty good for somebody who lives in a state where housing and living costs are low, and where there is no state or local income tax. They can live well on a $65,000 annual gross income and can keep about $60,000 of it !

    This sucks for somebody like me that lives in an expensive state with high living costs and high state and local tax rates. In that case it takes over $100,000 to be able to keep the same $60,000 after tax income as above, because the federal, state and local governments confiscate 40% of your money in income taxes.

    And on top of that the cost of living is ridiculous. For example, an average Manhattan condo's price just cracked $1,000,000 (yes a million dollars for an "apartment"), with a $3,000 per month condo mortgage payment for 30 years.

    Maybe it's time to start thinking about moving to Nevada !

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    Default Re:2003 stats out - who really pays income taxes ?

    IMO, one of the biggest inequities in the tax code is that it doesn't differentiate by region (ignoring certain limited exceptions). The Condo that is costing Melonie $1 million costs probably 1/2 of that or less in Las Vegas (please tell me that's at least a luxury condo, Melonie). However, the New Yorker only gets the same exemption amount per child that the Las Vegan does, despite the fact that the New Yorker has to incur significant additional costs to maintain the same standard of living. A $100,000 salary is "doing okay" in New York, while $60,000 might maintain the same standard of living in Las Vegas. I took a significant pay cut when I moved to Las Vegas from New Jersey (about 20%) and had a better standard of living. Did the tax code care? Nope.

    Unfortunately, there's no easy way to correct this. If the IRS tries to give a preference to people living in New York or Los Angeles or wherever, it is almost certain to be shot down by people who feel they are being penalized by not getting the same "tax breaks." Also, there will be extensive game-playing by people near but not in the "preferred" areas to get these better tax breaks and it would probably cause more chaos than it would solve. If it were up to me, I'd have a relatively low federal tax with states/municipalities able to determine local taxes in a way that would even out the artificial benefits/punishments of the Internal Revenue Code. This would obviously involve shifting a lot of the record-keeping/revenue collecting/service providing to the states, something the Federal Government doesn't want to have happen, so I think something like this is unlikely to occur.

    Melonie...its a great state here, as long as you don't mind the lack of culture. We certainly don't have the theatre, symphonies, museums, etc. that NYC has, however we have great weather and no state tax...that's gotta count for something. lol.

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    Banned Melonie's Avatar
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    Default Re:2003 stats out - who really pays income taxes ?

    Of course it's a "luxury" condo. They don't come any other way in Manhattan LOL.

    Grossing $100,000 is NOT doing OK in New York. Besides losing about 40% of that 100K to federal, self-employment, plus state and local income taxes, you then also have to figure in sales tax rates, property tax rates, etc. to get down to a true net income after taxes of perhaps $50,000. If you apply that to the cost of living in New York, where an el-cheapo apartment will set you back $20,000 a year in rent, where gasoline is over $2.00 a gallon etc., $100K in gross income is "just getting by". Of course, you can minimize the cost of living by crossing the river into the Bronx, but then you have to worry about somebody stealing the money you saved !

    I agree with you that this tax disparaty is a major motivating factor for people who live in expensive states to move. In your case I'm sure you see an increasing number of ex-Californians moving just across the Nevada border. In New York, the trend is to live in CT, NJ or PA and commute to jobs in the city. However, the NYC income tax people are all over this one, and have the authority to levee their income tax on money EARNED in NYC regardless of where the person actually lives. This is wreaking havoc on professional athletes, Broadway performers, even travelling exotic dancers, because they can be assessed a 3% NYC income tax on money they earned in NYC even though they actually live on the left coast ! Of course they can claim NYC income taxes paid as a credit against taxes due to their home state, but if for example they live in Nevada which doesn't have a state income tax then they're screwed.

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    Default Re:2003 stats out - who really pays income taxes ?

    My brother once had it terrible...he lived in Philadelphia and commuted to NYC to work. He was taxed for NYC, NYS, PA and Philadelphia. Wheeeee.

    We just picked up an ex-major leaguer as a client. His wife brought me a copy of last year's return which has 9 or 10 state returns attached. There are CPAs out there who specialize solely in doing these sorts of returns for athletes and entertainers.

    It's pretty amusing to look at a client's W-2 details and see "Boston Red Sox." Although that's not what I saw, it was a different team, I just need to protect my clients. You get the concept.

    Yup...many Ex-CA people (and their total inability to drive) have made the move to Nevada. We also are encouraging CA businesses to set up NV Companies to funnel a lot of CA income into NV to avoid the 8.84% CA corporate tax. On $1,000,000 of net income, that's a $88,400 savings, more than justifying any fees we might charge.

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