paychecks and taxes

[blakerwry]

woohoo, I got my first paycheck in waht seems about 6 months. The government automatically took ~10% of it for with holdings and I'm sure they will take another 10% come income tax time.

We also have sales tax (7%) on anything we buy here(Johnson county, Kansas City, USA) and then property tax on things we own like cars, boats and houses. My county's website gives an example where you have to pay $180 on every $5,000 worth of stuff you own(~3.6%) each year.

Sales and property tax is a city/county thing and goes to benefit local governments. While income tax goes to the state and federal government.


What kind of taxes do you all see? Do you think they are fair?... ie: being used to efficiently and to the betterment of your country/local area without undue burden on any single person or class.

 

[jtr1962]

I don't feel the current tax system is fair in the least. I hear of far too many rich individuals and corporations that get away paying hardly any tax while the average working person pays over 25% in income taxes alone-more if you add the the additional taxes the employer pays on their behalf like matching Social Security and disability. What it comes down to is a person making $500 per week will be costing their employee something like $650(plus health insurance, if any), and will be taking home maybe about $350 or so in a high tax state like New York. Out of this $350 perhaps another 15% will go towards sales and real estate taxes, and the cost of all goods and services is probably 25% higher than it would otherwise be to account for the taxes the businesses must paying. Therefore, the real net pay is closer to $200 out of the $650 that the employer is spending on that person. I can't help but think that the average person would be better off just getting the full $650 and providing for their own retirement, health care, etc. Most working persons are ineligible for most of the "benefits" that their taxes fund anyhow, and the bulk of what the governments spend(especially at the state and local level) is indeed on entitlement programs. Medicaid alone accounts for over 20% of the New York City budget, and is one program I would eliminate right off. Many working people have no insurance of any kind, so it is fundamentally unfair to use taxpayer money to provide health coverage for non-working persons. Food and shelter is one thing, but the taxpayer largesse should stop there, and there should be mandatory public service whenever you receive any welfare from the government, as well as a stipulation that you must have 5% deducted from your paycheck once you start working until the benefits you received are paid back.

I have a second fundamental problem with an income tax, and this is that the government knows my business, which I would rather it didn't. Sales and user taxes are fine, as long as the rate is kept reasonable. An average working person shouldn't pay more than 10% of their income for all taxes combined, and there should be no income or Social Security taxes at all. The United States got along just fine for most of it's life without an income tax, and the citizenry got along without Social Security, the cost of which keeps going up as more and more expensive new benefits are added thanks to the strong AARP senior lobby. Now they're talking about adding prescription drug benefits. Enough already! At this rate they'll be taking out 20% just for Social Security alone. What people fail to realize is that Social Security is worthless if the country providing it ceases to exist. Just ask all the Russians who were promised retirement benefits by the old USSR if they are getting them now. When the U.S. falls(which it will within 2 decades), U.S. seniors will be in a similar position unless they had the foresight to put money aside. Unfortunately, due to the mandatory nature of Social Security(which I think is both wrong and unconstitutional), that is 15.3% less of your paycheck that you can save. I'm also not thrilled about health insurance, either. While it is a good benefit, employees should have the option of opting out and getting whatever the insurance costs added to their take home pay. Some companies do this but many don't.

 

[Fushigi]

Well, jtr is certainly opening up a can of worms for debate. Its too early here for me to be entirely coherent so I'll just answer Blakerwry's post.

Federal income tax: 28%
Social Security tax: I think it's 7.75% but I haven't looked at it lately.
State income tax: 3%
Property tax: I forget the rate but for 2002 I paid $5500 and it's going up to about $6000 next year. That's for a good sized 4 bedroom home on an average lot in the far western Chicago suburbs. Close to 60% of that, BTW, goes towards the school system (we don't have children but hopefully will shortly). The upside is that property tax is a deduction on the federal tax form so that $6000 next year will in actuality cost me about $4320.
Sales tax: 5% for Illinois. In the Chicago region, there are various county & local sales taxes; the overall rate varies from 6.75% to just over 10% for the restaraunt taxes in some places.

There are other hidden taxes like the gasoline tax, extra taxes on liquor & cigarettes ("sin taxes"), taxes on the casinos, etc. These rates aren't actually disclosed to consumers directly; you must do some light research to find them.

And there are the use taxes on land-line phones, cel phones, some other utilities, etc. These can be federal, state, and/or local.

Some fees, like vehicle registration, are a form of a tax or exist in place of a tax.

Let's not forget the screw-the-visitor taxes on hotel rooms & rental cars. These often add 12 - 18% to your cost of travelling.

Of course, for Mercutio, the Indiana Sales tax just went from 5 to 6% at the end of November.

- Fushigi

 

[jtr1962]

Social Security tax: I think it's 7.75% but I haven't looked at it lately.

The rate is 7.65%(6.3% retirement, 1.35% Medicare) for employees, and the employer pays a matching amount. For those who are self-employed the rate is 15.3%(12.6% retirement, 2.7% Medicare). The retirement portion is only taken out of the first $84,900 in earnings(in 2002), not that many people actually make more than that anyway. The Medicare portion is taken out of all earnings.

Social Security is one of the most regressive taxes imaginable, especially the 15.3% rate that self-employed persons must pay starting with the very first dollar of income. A poor person starting a business who only makes $10,000 the first year must fork over $1530 to the federal government, an amount someone in that income bracket can ill afford. In theory the amount is tax deductible, but you pay very little income taxes on the first $10,000 in income anyway. If we really must keep this system in place(although I don't think it should be mandatory, esepcially for self-employed persons), we should exempt the first $15,000 to $20,000 in income from Social Security taxes, and make up for it by raising the maximum earnings subject to retirement tax by $30,000 or so.

Now for a little history lesson. The very idea of Social Security was regarded as socialist when it was first proposed(I still think it is). It was made politically palatable to the voting public by initially having an artificially low rate of 1%. If the rate had been more realistic, at say 3%, and had been invested properly, the system would be able to cover today's needs, and the rate would still only be 3%. Instead, Congress chose to shift the tax burden on future generations, and even with the high rate today of 7.65%, the system will still only be able to pay 80% of promised benefits, although this is partially because the government "invested" the surplus of prior years by putting it into treasury bonds(thus in effect using it for other things) rather than investing it properly in stocks, bonds, or mutual funds. This is why Social Security is the biggest shell game in the history of the planet, and if a private corporation did something like this it's board of directors would be wearing prison jumpers instead of fancy suits.

Here's a table of the tax rates by year(sorry that it doesn't line up):

Calendar Years Maximum Earnings Subject to Social Security Social Security

Year | Tax Rate | Medicare Tax Rate | Total FICA Tax Rate
1937-49 $3,000 1.00% -- 1.00%
1950 $3,000 1.50% -- 1.50%
1951-53 $3,600 1.50% -- 1.50%
1954 $3,600 2.00% -- 2.00%
1955-56 $4,200 2.00% -- 2.00%
1957-58 $4,200 2.25% -- 2.25%
1959 $4,800 2.50% -- 2.50%
1960-61 $4,800 3.00% -- 3.00%
1962 $4,800 3.125% -- 3.125%
1963-65 $4,800 3.625% -- 3.625%
1966 $6,600 3.85% 0.35% 4.20%
1967 $6,600 3.90% 0.50% 4.40%
1968 $7,800 3.80% 0.60% 4.40%
1969-70 $7,800 4.20% 0.60% 4.80%
1971 $7,800 4.60% 0.60% 5.20%
1972 $9,000 4.60% 0.60% 5.20%
1973 $10,800 4.85% 1.00% 5.85%
1974 $13,200 4.95% 0.90% 5.85%
1975 $14,100 4.95% 0.90% 5.85%
1976 $15,300 4.95% 0.90% 5.85%
1977 $16,500 4.95% 0.90% 5.85%
1978 $17,700 5.05% 1.00% 6.05%
1979 $22,900 5.08% 1.05% 6.13%
1980 $ 25,900 5.08% 1.05% 6.13%
1981 $ 29,700 5.35% 1.30% 6.65%
1982 $ 32,400 5.40% 1.30% 6.70%
1983 $ 35,700 5.40% 1.30% 6.70%
1984 $ 37,800 5.70% 1.30% 7.00%
1985 $ 39,600 5.70% 1.35% 7.05%
1986 $ 42,000 5.70% 1.45% 7.15%
1987 $ 43,800 5.70% 1.45% 7.15%
1988 $ 45,000 6.06% 1.45% 7.51%
1989 $ 48,000 6.06% 1.45% 7.51%
1990 $ 51,300 6.20% 1.45% 7.65%
1991 $ 53,400 6.20% 1.45% 7.65%
1992 $ 55,500 6.20% 1.45% 7.65%
1993 $ 57,600 6.20% 1.45% 7.65%
1994 $ 60,600 6.20% 1.45% 7.65%
1995 $ 61,200 6.20% 1.45% 7.65%
1996 $ 62,700 6.20% 1.45% 7.65%
1997 $ 65,400 6.20% 1.45% 7.65%
1998 $ 68,400 6.20% 1.45% 7.65%
1999 $ 72,600 6.20% 1.45% 7.65%
2000 $76,200 6.20% 1.45% 7.65%
2001 $80,400 6.20% 1.45% 7.65%
2002 $84,900 6.20% 1.45% 7.65%
*2003 $89,100 6.20% 1.45% 7.65%
*2004 $93,300 6.20%

 

[blakerwry]

I too disagree with the fundamental concpet of social security. Hanving to spend my money in order to pay for someone elses retirement doesn't sound good... but then there's the fact that although I will have paid tens of thousands of dollars into social security, I will probably never get a dime back(as it seems SS will be defunct after not too long).

One thing that currently affects my father is that he is a government employee. He pays into SS... and he paid into SS in his other jobs in the past. However, because he is a federal employee and will recieve a governmental retirement package when he retires, he is not eligable to recieve any of the money that he has paid into social security. If he were working in the private sector he could recieve both.

However, beeing a man with foresight, my father has already taken measures to secure his own financial future by investing his moeny wisely.


I'm sure everybody in the age group ~15-25 probably dislikes having to pay into SS and probably does not agree with it... and I think that anybody over 40 is hoping that SS will still be around for them, given that they have paid into it all their lives.


I think a much better system would have had people pay for their OWN retirement... not somebody elses. Of course, the government does support this now... with IRA's (you get tax benefits), 401.k matching programs, etc.

Infact, at 19 I had a Roth IRA... the stock market has done poorly so I have not been feeling up to investing.. although I think I will put in a sizable amount soon(before it starts going back up)

 

[blakerwry]

When I introduced this topic, I was hoping to get some outside(outside the US) comments... just to see some other perspectives... anybody got one?

 

[Jake the Dog]

your's doesn't sound too bad blakerwry.

a significant portion of my salary is taxed at 47%. everything I buy and can't claim tax exemption on (believe me, it's not much), I pay a minimum of 10% tax on. essential item like petrol (gas) are taxed at 47.2%. I could go on but it's depressing me

 

[Jake the Dog]

$0 – $6,000 - income tax = 17%
$20,001 - $50,000 - income tax = 30%
$50,001 – $60,000 - income tax =42%
Over $60,000 - income tax = 47%

these above rates do not include the Medicare levy of 1.5%. (Medicare is the Ov gov health system)

in my industry (software dev) US$60,000 is equavalent to about AU$70,000 very roughly speaking.


I'll stop now...

 

[Tannin]

Well, yes, I do have a perspective on this, but I'm not sure that I feel like devoting the time and effort it would take to do it justice. Perhaps another day.

 

[ihsan]

When I introduced this topic, I was hoping to get some outside(outside the US) comments... just to see some other perspectives... anybody got one?

Down here in Malaysia, our tax regime is not as rigid as the US and the Aussies. The only tax that commoners pay are our income. There are no tax nor vat levied on most essential products that we buy, if they are at all taxable (most products don't have the burden of tax). I notice that in the US, the area tax is added after the sales is confirmed hence I brought up the product tax.

Our income tax are fixed at a month's wage for 75% of the cases. Those that command a salary level below than RM 1,000 mo are exempted. Tax rebates are available for certain level of subscription ie: buying educational books, first-time computer buyer etc.

Health care are offered at discounted price but it's only available in public hospitals. Foreigners pay full bill so I guess that's how they make their money. Basic medical services are free, the government funds it through the means of income from other things.

Businesses contribute 36% of their profit in the form of tax to the government. A Hefty percentile in my opinion for a startup like me. A financial year which results in an operating loss, the tax is cancelled out.

Each individual contribute 11% into EPF in which the employer will contribute another 17% into that person's, a total of 28% in the form of social security. There are no taxes imposed on the social security.

 

[GMac]

Here in good old Blighty, the income tax system works something like this:

Your first £4615 p/a is tax exempt (personal allowance - there are also additional allowances for married couples and pensioners, plus tax credits for parents)
The next £1920 is taxed at 10%
From there to £29900 goes at the 22% basic rate
Above that, it's 40%

Next you pay 10% on anything above £75 p/w on National Insurance upto £585 p/w (but no extra to pay if you earn more than that) - employers have to pay 11% of each employees wage above £89 p/w, although there are small rebates for those employees who've joined private pension schemes. I pay 6% of my salary into the Local Government Pension Scheme for my area - that's subject to basic rate tax relief, so for every total pound you pay, you only effectively pay 78p.
VAT (i.e sales tax) is 17.5% on most goods & services other than food, newspapers, books & children's clothes, then there are separate additional duties on petrol (80% or so of the total price! :eekers: ), tobacco and booze.

Net result is that £200 so so disappears from my salary cheque before I ever see it, which I can live with, even though our Government wastes rather too much of it for my liking instead of spending it on essential things like healthcare, education & transport.

GM

 

[GMac]

I forgot to add that the aforementioned sum represents ~20% of my monthly salary, and it all goes to central government to pay for healthcare, transport, defence, education etc. Local services (fire service, refuse collection, highway maintenance and suchlike) are funded separately - partly from central govt, and the remainder via a local property tax (the Council tax), which is based on the value of your home (I pay my share of that as part of my board & lodgings contribution, as I live with my grandparents, who actually own the property).

GM