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Thread: "Earn under $57,343? Watch out"

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    Featured Member lunchbox's Avatar
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    Default "Earn under $57,343? Watch out"

    Kind of fits with discretionary spending and who's got what discussions. Thought some folks here might be interested.

    In fact, income thins out pretty quickly. According to the most recent (2003) IRS statistics on tax returns, households needed at least $295,495 to be in the top 1%, $130,080 to be in the top 5%, $94,891 to be in the top 10% and $57,343 to enter the top 25%.
    http://c04.moneycentral.msn.com/cont...bt/P134742.asp

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    God/dess Emily's Avatar
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    Default Re: "Earn under $57,343? Watch out"

    jeeez....$57k is not that much for a whole household. Kind of wild to think about that being in the top 25%

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    Veteran Member MsTopaz's Avatar
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    Default Re: "Earn under $57,343? Watch out"

    translation...those of us in middle class status pay the most in taxes.
    why do some people still have to fight to get the same opportunities that are given to others?

    reclusiveness...is a good thing.

    the greatest revenge in the world...is success.


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    Default Re: "Earn under $57,343? Watch out"

    I'm having a one time even this year that will push my household gross above $300K. Sounds great on the surface but now I gotta figure out how to pay the extra taxes

    FBR
    Once again I have embraced my addiction and have put off the moral dilemma to another day.

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    God/dess montythegeek's Avatar
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    Default Re: "Earn under $57,343? Watch out"

    Quote Originally Posted by MsTopaz
    translation...those of us in middle class status pay the most in taxes.
    Did you read the same article?
    Look at the table. The bottom 50% paid 3.5% of the taxes and the top 25% paid 83.9% of the taxes. that leaves the group between 50 and 75% paying 12.6% of the taxes. That is a quarter of the population with above-average incomes paying half the share of the average in taxes. This upper middle class pays one in 8 dollars of taxes!!!

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    Featured Member lunchbox's Avatar
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    Default Re: "Earn under $57,343? Watch out"

    Al Sharpton didn't believe it either.

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    Banned Katrine's Avatar
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    Default Re: "Earn under $57,343? Watch out"

    90% of americans overpay the IRS. The IRS readily admits this. Proactive tax planning can save almost anyone money immediately and in the long run.

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
    "And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion

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    Default Re: "Earn under $57,343? Watch out"

    the bottom line is the average tax rate by income percentile, as well as each group's share of total income taxes ... table 1 at

    table 8 at the same link is also interesting, as it shows the changes in average tax rate by income percentile over the last 25 years.

    I would also point out that Adjusted Gross Income does not necessarily include ALL income ... with a favorite investment of the very rich i.e. Muni Bonds not counting towards AGI. Thus what the chart does show is that a rich dude with an AGI of $1 million typically paid 24% or $240,000 in taxes. But what the chart doesn't show is that the rich dude COULD have had a total income of 2-3-5 million dollars, but with 1-2-4 million dollars of that income coming from Muni Bond interest, foreign investments, or other tax favored US investments which do not appear above the AGI line - resulting in an ACTUAL overall tax rate for the rich dude that isn't the stated 24% but more like 12% - 8% - 6% of their TOTAL income.

    Thus the very rich can actually wind up paying overall tax rates which are in the same ballpark as 'lower class' wage earners, with the 'middle class' stuck paying 15-18-21% tax rates on much less total income than the very rich. This is the 'dirty little secret' of certain rich politicians who call for tax increases ... tax increases which don't have much impact on the bottom 50%, and which have little real world effect on the topmost 1-2% despite published tax rates (which the very rich can avoid paying), but which fall squarely on the shoulders of the 'upper middle class'.
    Last edited by Melonie; 11-30-2005 at 04:31 PM.

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    Senior Member DanMorris95156's Avatar
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    Default Re: "Earn under $57,343? Watch out"

    Although I try to avoid many of the economic debates that are raised here, in large part because there are frequently no correct answers, I want to respond to Melonie's muni-bond interest notation.

    Personally, I am not the biggest fan of muni-bond investements for my tax clients, even though they do make sense in many portfolios. Although Muni's are exempt from tax (except some have AMT issues - but lets avoid them for the moment) - the exchange was that the taxpayer also received less income then in a taxable interest bond investment in exchange for loaning money to a state/city/local government agency. This exchange of lower tax on earnings benefits the bond issuer by lowering their cost of capital.

    Municipalities borrow money to invest in a larger number of programs/infrastructure that is designed frequently to assist the lower income population - so to some degree these Muni-bond investors that you point out actually are the investors for much of cash flow for these government agencies and without them many of these agencies would resort to direct taxation (probably sales taxes as they can control this the most) and sales taxes can be the most harmful to the very same people that governments want to serve.

    There can only be income taxes (regardless of what you call them or collect them) as it takes income at some point in time to pay the money. Corporate taxation is merely a method of collecting money because if a corportion didn't have to pay tax it could: invest the money into more R&D (expansion); pay people more money; or provide larger dividends to shareholder. All of these payments ultimately go to people who would then pay taxes on the income. The challenge is that governments confuse revenue raising with social policies and lobbyists are talented enough to protect their flocks. The rich get richer by leveraging talent and knowledge to avoid all the taxes possible (this is a reasonable thing for all people to do since there is no moral obligation to pay more then necessary) and those that either can't afford or choose to not afford to hire talent to avoid paying taxes make up the revenue shortfall differnnces.

    The plain truth is, and most socialistic leaning people just can't seem to figure this one out (not pointing to anyone here), is that the wealthy pay the majority of taxes and always have and always will. In large part because of the progressive nature of our tax laws and our marginal tax rates. Wealth has always been held by a minority of people and for the forseable future will remain so. Tax cuts alwasy benefit the wealthy because frankly poor people don't pay income taxes (yes they pay Social Security and Sales taxes and these are hurtful to too many people).

    Our tax laws are broken and abused. It is too complicated and protects too few at the cost of harming a great many. True simplification is a better solution and would be quite painful for a very short period of time. We would survive. The challenge is to find leadership willing to incur the cost today for a brighter future rather than avoiding the pain.

    Both major parties are responsible and will continue to protect themselves by continuing their current actions.

    Well, sorry about the length - I do enjoy reading the many posts - and have a great day everyone.

    Regards,

    Dan
    Daniel D. Morris, CPA
    [email protected]

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    God/dess montythegeek's Avatar
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    Default Re: "Earn under $57,343? Watch out"

    Dan,
    I agree with almost everything you say. and the balance is not worth discussing because it affects value judgements. The tax on coporate profits is a way to make the progressive tax even more so, without it looking that way.

    I have echoed your assesment of muni-bonds. they are a bad investment if the holders are in a higher tax bracket than you--just like it is a bad idea to play penny-anti poker with Bill Gates if $20 bucks means something to you.

    All political parties defend their perceived constituencies in all matters, not just economic be it tax payers, accountants, or trial lawyers. Tax laws were dramtically simplified in 1986, only to see the next 19 years adding all kinds of adjustments and provisions which makes the 1040 instructions 2x as big as 1985. No one every decides that if you put in one tax wrinkle you have to take out another. Complexity both facilitates and encourages cheating and abuse. Frankly Dan deserves a round of support as his profession is a major beneficiary of tax complications. Even if Dan does other things, other accountantants would be competing with him in thopse ventures w/o the tax biz. (as would lawyers and the estate tax, and insurance salesmen)

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    Banned Melonie's Avatar
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    Default Re: "Earn under $57,343? Watch out"

    The challenge is that governments confuse revenue raising with social policies and lobbyists are talented enough to protect their flocks. The rich get richer by leveraging talent and knowledge to avoid all the taxes possible (this is a reasonable thing for all people to do since there is no moral obligation to pay more then necessary) and those that either can't afford or choose to not afford to hire talent to avoid paying taxes make up the revenue shortfall differnnces.
    truer words were never spoken !

    The plain truth is, and most socialistic leaning people just can't seem to figure this one out (not pointing to anyone here), is that the wealthy pay the majority of taxes and always have and always will. In large part because of the progressive nature of our tax laws and our marginal tax rates. Wealth has always been held by a minority of people and for the forseable future will remain so. Tax cuts alwasy benefit the wealthy because frankly poor people don't pay income taxes
    This is also the plain truth. But certain important points do wind up being obscured by glossing over details. For example it is true that a rich dude who has TOTAL earnings of $5 million and who is paying $600k in taxes is paying more dollars in taxes than a middle class person who has TOTAL earnings of $100k and is paying $20k in taxes, and that both are paying more than a 'borderline poor' person earning $30k and paying $1k in taxes. The point being obscured, of course, is that the middle class person is carrying the highest tax 'burden' in terms of total income versus taxes paid.

    Municipalities borrow money to invest in a larger number of programs/infrastructure that is designed frequently to assist the lower income population - so to some degree these Muni-bond investors that you point out actually are the investors for much of cash flow for these government agencies and without them many of these agencies would resort to direct taxation (probably sales taxes as they can control this the most) and sales taxes can be the most harmful to the very same people that governments want to serve.
    Again not wanting to get political, but it would seem that this is all part of someone's 'grand plan'. Sales taxes are indeed the most insidious form of 'stealth' tax as they extract the same amount of actual tax dollars from billionaires and homeless people alike. But muni bonds are in some ways even more insidious, since they are essentially using our children's future tax dollars as collateral to spend borrowed money today - which benefits the very rich (via tax avoidance) and the very poor (recipients of spending).

    Frankly Dan deserves a round of support as his profession is a major beneficiary of tax complications. Even if Dan does other things, other accountantants would be competing with him in thopse ventures w/o the tax biz. (as would lawyers and the estate tax, and insurance salesmen)
    Absolutely !

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    God/dess montythegeek's Avatar
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    Default Re: "Earn under $57,343? Watch out"

    Several of Melonie's comments are urban legends. They are not political in nature, just false premises believed by most people.

    The poor and the rich do not pay the same sales tax- the RATE is the same, but they buy different things, the bulk of the poor's expenditures are tax exempt. In a poor person's spending the primary expenditures are rent, food, medical care and utilities. These are not subject to a sales tax, except for the "luxury item"--a telephone. These are up to 80% of a low income person's spending. They would be 15% of a high-income person's spending (NOT income). The rate is the same but 15%*eg 6% is not 85%*6 on a higher base.

    Local govt has a limitation on its ability to make taxation progressive--people can move. Fla is full of people with incomes and wealth fleeing taxation from "progressive taxes". NY make Fla popular with taxes. So. NH is full of people avoiding MA taxes. No. Ky is populated by people avoiding Ohio taxes. NM has retirees fleeing Michigan. The wife of the junior senator from MA cannot vote for her hubby (for Senator) because she is a PA resident to avoid MA's confiscatory 12% tax on dividends.

    Not related to mel's comments. The drawback of munis' is it also makes bad state investments cheaper and subsidizes both the good and the bad outlays like palatial Town halls and college admin buildings (and football stadiums). The savings to the state/local do not all go to doing more good.

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    Veteran Member MsTopaz's Avatar
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    Default Re: "Earn under $57,343? Watch out"

    not much difference between middle class and upper middle class...except for maybe a few thousand more in income levels. and for some, more income means more expences...which include getting kicked in the teeth taxwise.

    so average or 'upper level', the 'all inclusive' middle class still pays the most in taxes. i stand by my statement.

    why do some people still have to fight to get the same opportunities that are given to others?

    reclusiveness...is a good thing.

    the greatest revenge in the world...is success.


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