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  #21  
Old 06 February 2019, 06:11 PM
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Quote:
Originally Posted by Dr. Winston O'Boogie View Post
I think the original idea behind taxing capital gains at a lower level was for things like home ownership - my parents bought our house at $6,000 and sold it at $150,000. Yes, I know that there are homestead exemptions (or at least there were....) and other things, but Joe Average can get behind it if you explain it as "when you sell your house, you're not getting soaked." Yes, Joe Average may benefit some, but Sir I. Percent will make additional bundles.
Which would also be a misleading talking point as the first $250,000/$500,000 of capital gains for a home sale are not taxed at all if that home was the primary residence for the seller. IE, your parents would pay no taxes on the $144,000.

ETA: Someone using an example like your parents would the one doing the misleading.

Last edited by GenYus234; 06 February 2019 at 06:20 PM.
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  #22  
Old 06 February 2019, 07:26 PM
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Originally Posted by Dr. Winston O'Boogie View Post
And that was iskinner's point - those who don't want the higher tax rates at the higher brackets will intentionally leave off the "marginal" to confuse the issue. Yes, it sounds OUTRAGEOUS that we would tax the rich at 70% of their income.
The IRS does not really help the issue. If one still does one's US taxes by hand, once you have calculated all your deductions and credits and what all to determine one's final Taxable Income for the year the IRS provides a Tax Table that shows the total taxes for taxable incomes from $0 to $100,000. This table determines one's proper taxes based on the current brackets and ranges, but it does a great job of obscuring this detail, making it much easier to confuse people who don't understand the details. This is even more true of computerized tax return systems that do all the calculations in the background and just show a final total.

I personally think if the IRS modified the forms so everybody had to calculate their taxes for each bracket and then total them for one's final taxes somewhat as they do for taxable incomes over $100,000, but include all the brackets, it would lead to much better understanding and more people would be more open to historical tax rates.
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  #23  
Old 06 February 2019, 07:30 PM
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It might make it so more people understood how taxes work, but it would make it harder to calculate proper taxes and make it much more likely that taxpayers would accidentally mispay their taxes. I think the IRS's job should be implementing tax law in the easiest way possible and they shouldn't be involving themselves in what would more or less be influencing politics and policy decisions.
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  #24  
Old 07 February 2019, 12:20 AM
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One problem we have here with the idea of large rates on estate taxes, especially on assets, is that oftentimes, the estate does not have liquid cash to pay said taxes.

Case I'm thinking of involved a significant coin and stamp collection. It was valued (with the rest of the estate) and fell into the bracket for estate taxes. Problem was, there was no liquid assets to pay the tax and selling said collection turned out to provide less than the government said they were worth. In essence, around 75% of the collection had to be sold to cover the estate and sales taxes.

I don't know enough to understand the intricacies of tax law. I am a coin collector and this story was featured in a story in a magazine that I used to subscribe to.
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  #25  
Old 07 February 2019, 01:00 AM
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If anyone really wanted to know what their effective tax is it is a simple matter of dividing taxes paid by gross income. I think that most people paying in the higher brackets know they aren't being 35/37% on all of their income.

On the other hand, federal income tax is only one part of the taxes one pays. I pay taxes to the state and two cities plus property taxes. Not to mention sales tax, gas tax, etc. While someone in the 24% bracket definitely does not pay 24% of their income to federal taxes, this does not mean they don't pay 24% or more of their income into taxes.
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  #26  
Old 07 February 2019, 01:31 AM
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People misunderstand a lot about the tax system. People who think they'll make less money after a raise because they don't understand marginal rates. People who confuse the withholding rate with the taxes they pay and think they aren't making money working overtime if it fluctuates weirdly, or who think they must be paying more or less taxes based on their refund without looking at withholding. People complaining about income tax, when they are in an income range where they almost certainly pay next to zero federal income tax, if any (they probably do pay significant payroll taxes like social security, but at lower incomes are likely to get back more than they put in if they live long enough). I'm not sure there's much to be done about it. Some people have suggested financial literacy as a subject in schools, but there are a lot of things taught in schools that people don't seem to know, so it's not a perfect solution.

Most tax stuff is done electronically anyway these days. It would be nice if we could fully move into the 21st century and link more things. Instead of our archaic system of W4 forms and tax refunds, it seems like all tax data from employers and financial institutions should be able to be reported instantly and combined so they know exactly how much to withhold in real time. Common deductions like mortgage/property tax/student loan/state tax/etc would all be readily available, and with the Republican changes fewer people than ever are able to itemize lesser deductions now. Registered charities other than the really tiny local ones would be able to report your donations if you want to give them your social security number, otherwise you can do it the old way. So most people would get $0 refund or extra tax owed at tax time. It would already be taken care of. When you E-File, you'd basically just review the highlights for accuracy, and enter any unusual circumstances that can't be automated.
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  #27  
Old 07 February 2019, 03:30 AM
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Quote:
Originally Posted by Beachlife! View Post
federal income tax is only one part of the taxes one pays. I pay taxes to the state and two cities plus property taxes. Not to mention sales tax, gas tax, etc. While someone in the 24% bracket definitely does not pay 24% of their income to federal taxes, this does not mean they don't pay 24% or more of their income into taxes.
I keep running into this from the other direction: people complaining that 'x % of the population doesn't pay any taxes' because x% have so little income that they don't owe any income tax.

Poor people pay lots of taxes. If they're too broke to pay income tax, they still pay sales tax; many of them pay gas tax; they pay property tax either directly or (if they rent) indirectly; if they've got jobs, they pay (in the USA) social security and medicare taxes -- the latter of which are specifically regressive, in that they're not charged on income above a certain level. ETA: sales taxes tend to also be regressive, because while the rich do buy more expensive stuff, the poor need to use a higher percentage of their income to buy even basic necessities; so often much more of their income gets spent on things that have sales tax on them.

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Originally Posted by Errata View Post
it seems like all tax data from employers and financial institutions should be able to be reported instantly and combined so they know exactly how much to withhold in real time.
Some of us are self-employed.

And many of the self-employed are small enough business that we can't afford to hire somebody to report, instantly, every time somebody pays the plumber's bill; let alone every time somebody hands over cash at the farmers' market.

And many even of the employed have income from multiple sources; and more than one person in a household earning income, which may or may not be reported jointly. I suspect that keeping all of that instantly coordinated to produce what for many people would be a constantly changing withholding rate wouldn't be a trivial matter.
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  #28  
Old 07 February 2019, 04:50 AM
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Originally Posted by thorny locust View Post
And many of the self-employed are small enough business that we can't afford to hire somebody to report, instantly, every time somebody pays the plumber's bill; let alone every time somebody hands over cash at the farmers' market.
Then you'd have to file your taxes as normal, and this wouldn't impact you. Businesses have much more complicated taxes than the average person, and this would do nothing for that. There's no reason that very small businesses can't keep doing things as is where appropriate. For an employee who makes a salary or hourly wage, there is no added complexity for the employer. For commissions and more complex compensation schemes, you'd only have to report when you actually pay them, regardless of the process that you use to determine that, and you already need accounting overhead for withholding. There's no reason a medium or larger business would have to hire anyone to do anything more than they're already doing to figure out how much to pay them.

Quote:
Originally Posted by thorny locust View Post
And many even of the employed have income from multiple sources; and more than one person in a household earning income, which may or may not be reported jointly. I suspect that keeping all of that instantly coordinated to produce what for many people would be a constantly changing withholding rate wouldn't be a trivial matter.
Multiple income sources are precisely the reason that such a system would be necessary and why W4 forms are a bad solution. Any system that combines multiple sources to calculate the witholding rate would be much better than the current system that uses only a single income source at a time to estimate withholding, and then results in big refunds or deficits when it gets it wrong.

It would not be more complex for medium to large employers. They mostly use accounting software for payrolls and withholding anyway. If the software automatically reported the income to the IRS/state system, it factored in all the data available on that taxpayer, and instantly reported back how much to withhold, then there would be no extra steps for the payroll manager. The difficulty is in linking disparate systems and transitioning people to reporting the information consistently, but the actual calculation of a changing withholding once sufficient information is available is trivial.

There's no technical reason that we can't drastically simplify taxes for 90% of personal taxpayers with paychecks, withholdings, and publicly traded investments by bringing it into the 21st century. In years where they have weird or complicated events, they can add as much supplemental information as necessary.
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  #29  
Old 07 February 2019, 04:45 PM
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Originally Posted by Errata View Post
People misunderstand a lot about the tax system. People who think they'll make less money after a raise because they don't understand marginal rates. People who confuse the withholding rate with the taxes they pay and think they aren't making money working overtime if it fluctuates weirdly, or who think they must be paying more or less taxes based on their refund without looking at withholding...
A meme that came across my Facebook news feed last night illustrates this misunderstanding pretty well. It went something like "Last year I got a tax refund of $X, but this year I owed $Y with no change in salary. I'm middle class, yet the rich got a tax cut." Except the IRS lowered its withholding rate last year, so that's really insufficient information to determine whether one's taxes went up or down. The only way to really compare how much income tax you paid between two years is to look at line whatever on your tax return.
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  #30  
Old 10 February 2019, 04:47 AM
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Quote:
Originally Posted by Errata View Post
There's no technical reason that we can't drastically simplify taxes for 90% of personal taxpayers with paychecks, withholdings, and publicly traded investments by bringing it into the 21st century. In years where they have weird or complicated events, they can add as much supplemental information as necessary.
I heard in many countries, the government has an office that does your taxes for you, then sends you the finished report to read and review. The US government probably already has all the records it would need to do this, and it would be cheaper and more efficient in the long-run to do it that way, but its not going to happen thanks to H&R Block, TurboTax, etc.
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