RealTown's RealTalk

Thank you Saul. By the way, La Shana Tova

Saul analyzed data: In 2002 the latest year of available data, the top 5
percent of taxpayers paid more than one-half (53.8 percent) of all
individual income taxes, but reported roughly one-third (30.6 percent) of
income.
. The top 1 percent of taxpayers paid 33.7 percent of all individual income
taxes in 2002. This group of taxpayers has paid more than 30 percent of
individual income taxes since 1995. Moreover, since 1990 this group's tax
share has grown faster than their income share.

. Taxpayers who rank in the top 50 percent of taxpayers by income pay
virtually all individual income taxes. In all years since 1990, taxpayers in
this group have paid over 94 percent of all individual income taxes. In
2000, 2001, and 2002, this group paid over 96 percent of the total.

===

And of course, this is about INCOME or Payroll tax... most of my income is
not from payroll, and that would also be true of many so called "wealthy"
people. My net tax bill amounted to just over 15% of my income, once
deductions etc are accounted for... Income tax as payroll tax amounts to
somewhat less than half of the IRS revenue stream from individuals, from
what I understand... So while Saul says that taxing based on one year
income (and we know that in windfall years, that income can be averaged,
right Saul?) is not a good measure, in point of fact this analysis misses
most of the taxable earnings that are providing revenue to the government.

As I said, my overall tax rate worked out to slightly more than 15%... and I
am sure that my son is paying out far more, and earning much less. But he
earns mostly payroll, and so is taxed much more aggressively.

We should try to be more inclusive in our data, Saul... it would give a much
more accurate picture.

Paul Silver, Esq.
Focus Professionals, Inc.

Paul Silver said about the report I cited:

>>
And of course, this is about INCOME or Payroll tax... most of my income is
not from payroll, and that would also be true of many so called "wealthy"
people
<<
Paul,
Is your statement accurate, that most income is really from other than
Payroll Paul? On what do you base that?

Is this your guess as to what the report I cited is reporting? Where did the
report say it was counting only taxes from payroll tax? Maybe the following
will make it clearer.it discusses AGI (Adjusted Gross Income), which is
income from all sources, not just payroll.
>From the Tax Foundation (http://www.taxfoundation.org/news/show/250.html):
>>
The top-earning 25 percent of taxpayers (AGI over $64,702) earned 68.2
percent of the nation's income, but they paid more than four out of every
five dollars collected by the federal income tax (86.3 percent). The top 1
percent of taxpayers (AGI over $388,806) earned approximately 22.1 percent
of the nation's income (as defined by AGI), yet paid 39.9 percent of all
federal income taxes. That means the top 1 percent of tax returns paid about
the same amount of federal individual income taxes as the bottom 95 percent
of tax returns.
<<
Or the following from the US Treasury
http://www.ustreas.gov/press/releases/js1287.htm
Check for yourself. There is plenty of information available on this
subject.just Google "Who pays the most income tax." You decide.
And no one has addressed what the $250,000 annual income (proposed by
Senator Obama) is really referring tois it an individual or a couple? I
just think this needs be clear in all discussions.
And no one has addressed the issue of the definition of wealth as it relates
to the accumulation of assets and not just one year of income. The
government use to realize that one year of good income did not make a
taxpayer wealthy so there was a provision in the tax code for "income
averaging."
There is obfuscation on both sides of the aisle these days. Fact is, tax
individuals more and you prevent more people from attaining real monetary
wealth, the accumulation of assets (hopefully growth and income earning
assets.
Saul

---

Saul, I did not say that "most income is really from other than Payroll" --
as you quoted, I said most of MY income is from other than payroll, and that
I would bet most of the so called "wealthy" people also pay more in capital
gains than in payroll taxes, in terms of dollar amounts. Witness today at a
hearing before Congress, the ex CEO of Lehman Bros., who made about $60
million in cash and salary for the year, and another $250 million in stocks
and tax deferred assets. He pays income tax on a piece of the $60 million,
and not any, at present, on the $250 million... At least that is what he
testified to Congress, under oath... sound fair?

This is definitely true for me, as I see my tax returns every year, and sign
them. It is also true for Warren Buffet, who said so on Charlie Rose the
other night. And obviously for the ex head of Lehman Brothers.

As a percentage, my taxes work out to just under 16%... and I am sure that
is lower than my nephew pays, who earns about $30K a year in payroll money,
yet pays something like 28% of his income to taxes.

The statistics you quote pertain to income taxes, as they state.

We can't talk about dollar amounts, as that is an obscure measure that does
not reflect the buying power of the wealthier folks... my gross dollars paid
in taxes far and away exceeds my nephews tax dollar amount, but as a
percentage of total earnings, I pay much less than he does.

I do not think that an increase in my taxes to say 20% would have any
bearing on my increase in wealth, or on that of other technically classed
"wealthy" people. I am hard pressed to see how it impacts the average
person either...

I think there is a standard economic definition of wealth... The Princeton
University online dictionary quotes Wikipedia: In economics and business,
wealth of a person or nation is the value of assets owned net of liabilities
owed (to foreigners in the case of a nation) at a point in time. The assets
include those that are tangible (land and capital) and financial (money,
bonds, etc.). ...
en.wikipedia.org/wiki/Wealth (economics)

So, if we want to tax wealth, perhaps a property tax discounted for debt is
the way to go... of course there are downsides to this too...

One would think that people making an average of $250K per year should have
some accumulated assets in addition to their income... if they do not, then
likely they are living as the typical American, with debt far outweighing
their assets, and expenditures beyond their means... not something I would
participate in... perhaps that is why I have wealth, rather than debt...

These are facts Saul, without an ax to grind...

Paul Silver, Esq.
Focus Professionals, Inc.

Editor's Note
I think you are missing the point Paul, the point being that just because a couple (not a person as we are being led to believe) earns $250,000 in a year, that they are not wealthy.And to your point that most of the "so called wealthy people" are earning most of their income as capital gain, I would bet that most couples who earn $250,000 per year (these are the new wealthy people according to Senator Obama's tax proposal, in so many words) earn it as payroll or income from their business and not capital gain. Maybe this is the case (most of their income being from capital gain as you state) with the super wealthy that you refer to (by name specifically and then others by inference), but  the point for me is that $250,000 in  income in a year does not mean a couple is wealthy. Not only that, it inhibits their opportunity to truly gain wealth over time.In real estate, an agent or broker may have a few years where they net little to nothing (like the last few years and maybe the next few). If they then earn (as a couple), $250,000 in Modified Adjusted Gross Income in a single year, do you think they think they are wealthy? I do not.Sure, "you would think" that someone (a couple) who consistently earns $250,000 per year over some amount of time, may be wealthy. But do you think the first time they reach this level they are wealthy? That is the way it is being portrayed and that is not accurate and tends to pit income classes against each other...some call it class warfare.As to the "facts," you mention in your last paragraph, I do not see any facts in your response Paul. I do agree that people should live within their means. As a Certified Financial Planner for many years, that was my mantra. Anyone with a steady income over a 40 year working life can accumulate what many would refer to as wealth. It really is a discipline, and yes, many of our fellow citizens, for one reason or annother, do not have wealth...but earning $250,000 in a year will not, imo make them wealthy.Saul

Paul wrote: So while Saul says that taxing based on one year
income (and we know that in windfall years, that income can be averaged,
right Saul?) is not a good measure, in point of fact this analysis misses
most of the taxable earnings that are providing revenue to the government.

Paul, income averaging went away in 1986 with the Tax Reform Act (legislation proposed by 2 Democrats). So, if you hit Lotto for $100,000 and had income of $150,000 in one year, you could still be considered wealthy. Supposing, you and your spouse both have salary income totaling $250,000, but were hit with medical bills of $50,000, not covered by insurance, remember, this may be $250,000 AGI, which is before qualified deductions. Are you still wealthy? I think most of us need to take a course on the preparation of income tax forms, just to get a better picture of what this could actually mean.

Editor's Note
Enthusiastic Agreement Kathy. People need to take a good look at the IRS Form 1040. It is the "gateway" to understanding the federal income tax...and not that complicated as forms go, it is like a table of contents of a tax return.And you are correct about the tax caslculation method known as Income Averaging, which I mentioned in a previous post as well. It is long gone.One year of income at the level of $250,000 for a couple does not make that couple wealthy. Because our citizens know so little about personal finance, the politicians can slip lots of sound bites through and create "marketing myths" to enhanse their agenda.Saul

Paul wrote:

As a percentage, my taxes work out to just under 16%... and I am sure that
is lower than my nephew pays, who earns about $30K a year in payroll money,
yet pays something like 28% of his income to taxes.

Paul,

Your nephew most likely has no deductions, just like many salaried or payroll people. For chuckles figure your tax on all your income before subtracting deductible expenses and then tell us what your percentage would be. Are you using line 42 of your 1040 to arrive at your percentage?

Compare apples to apples: If your nephew's line 42 (taxable income) is $30,000 married filing jointly his tax would be $3,721. If your line 42 is $90,000 married filing jointly, your tax would be $15,354. What are the percentages of tax to taxable income now?

Because our citizens know so little about personal finance, the politicians can slip lots of sound bites through and create "marketing myths" to enhanse their agenda.

Saul

I compare Politicians to some Real Estate Listing Agents. Politicians say what they think we want to hear, not what we need to hear (the truth) in order to get the vote. Some listing agents tell sellers what the seller wants to hear, not what they need to hear (the truth) in order to get the listing.

Since we are talking a little tax understanding here. I think some of you may consider that although the tax law does not allow income averaging, if you incorporate you can go backwards to recover taxes paid in a prior year when you loose money in a current year. I am sure a lot of us may loose money this year. It also in many cases can allow a larger 401K deduction. For example if you make 100,000 this year. You pay you and your spouse 40,000 each and make a 20,000 each 401k contribution. Then take your mortgage interest and all the other various deductions you should be in a 0% tax bracket and banked 40,000. The corporation then makes its 401K contribution and wipes out most of the corporate profit. This is an over simplification but it is the idea. It does take a bit of sit down time with a CPA. I paid no takes last year, put almost 90K in a 401k (which is now probably 50K). This really only probably pertains to those of us who are older, I am 62 and can live very well on very little taxable income.