US tax rate history - A return to the glory days

[Averagesupernova]

I can't count how many times I have heard people say: "I should have not taken that payraise because it bumped me into the next tax bracket and now I am taking home less than had I not gotten the raise!" After that, I no longer take anything they say seriously. They are not worthy of my time in a conversation. I dont' feel I should need to explain this in a thread full of 'experts' but I will. The bump up into the next tax bracket only taxes you on that amount within that bracket . For easy explanation we will use salary breaks at $10,000, $20,000, and $30,000. We will use respective tax rates of 10%, 20% and 30%. If you make $9999 your tax bill would be $999.90. The uninformed think that if you make $10,100 your tax bill would be $2020 because you are now in the 20% bracket. Incorrect. Your tax bill would be 10% of the first $10,000 ($1000) and 20% of the salary you earned within the next bracket between $10K and $20K which would be $20 for a total tax bill of $1020 dollars. Anyone who doesn't believe me PLEASE PM me because the next payraise you complain about because of pushing you into more taxes I will gladly pay your tax increase if you hand over the extra salary.

 

[russ_watters]

There is no increment in the marginal tax rate that is so extreme that people would refuse extra income to avoid it.

Not refuse extra income, refuse extra work. This is a standard feature of economic theory, though the effect is very difficult to accurately quantify:
http://books.google.com/books?id=Xs...e&q=progressive tax work disincentive&f=false

The concept, though, is more extreme on the opposite end of the spectrum in the welfare and unemployment disincentives to work: pay people not to work and they won't look for work. http://community.middlebury.edu/~wunnava/Recent_Papers/ECOLET 25.4.pdf

This effect is much clearer cut due to the progressive taxation/benefit curve being much steeper at the low end. In other words, people who receive benefits stand to lose much more, proportionally, by giving up their benefits and going to work.

 

[russ_watters]

As I said, I know at least two people that do, an ER doc and a consultant. It is not really surprising to me, the marginal utility of money decreases and the tax code is designed so that the marginal effort to make money increases.

I don't know many people who have been on unemployment, but I know two well who have taken full advantage of unemployment compensation. One (my best friend) took a taxpayer-funded western vacation immediately upon being laid off. The other refused an actual job offer because it wouldn't have paid enough more than unemployment to be worth doing the work.

Please think about the question I asked. Would you personally choose to work overtime if you were going to be paid at 50% of your regular salary? How about 9%?

Expansion: what people tend not to recognize is that if 9% is a disincentive, then much smaller increments are also disincentives, they are just less (and harder to measure). There isn't a clean cutoff, but I can be pretty sure that I'd be quite unwilling to work more overtime for nine cents on the dollar.

 

[Averagesupernova]

There isn't a clean cutoff, but I can be pretty sure that I'd be quite unwilling to work more overtime for nine cents on the dollar.

I know certain folks on here will call it redistribution, but if you aren't willing to work for 9 cents on the dollar doesn't that give someone else the oppurtunity to work to make up what you are unwilling to do? I don't see that as a bad thing.

 

[OmCheeto]

Fast moving thread

n.f.s.

This thread is hilarious to watch.

Stop laughing! You're out of the will young man!







I concur. Old people are hilarious. I would go on about how it is usually people over 30 that create most of societies problems, but that's common knowledge. We leave it to you and your friends, as a planetary homework problem.

Don't get it wrong...

 

[Ryumast3r]

I cannot for the life of me keep up with this thread. :(This thread is seriously growing faster than the United State's Debt.

 

[WhoWee]

Not refuse extra income, refuse extra work. This is a standard feature of economic theory, though the effect is very difficult to accurately quantify:
http://books.google.com/books?id=Xs...e&q=progressive tax work disincentive&f=false

The concept, though, is more extreme on the opposite end of the spectrum in the welfare and unemployment disincentives to work: pay people not to work and they won't look for work. http://community.middlebury.edu/~wunnava/Recent_Papers/ECOLET 25.4.pdf

This effect is much clearer cut due to the progressive taxation/benefit curve being much steeper at the low end. In other words, people who receive benefits stand to lose much more, proportionally, by giving up their benefits and going to work.

I'm glad you pointed out the disincentive at the bottom.

There is a common situation where moving up in the tax brackets is a problem though - large commission checks and bonuses. Quite often, (large ticket) sales people are paid either a base or a draw against commission on a weekly basis by their employer with deductions taken for taxes and benefits. The primary reason is a long sales cycle and without the draw - the salesperson would starve. Depending upon the line, a commission might be earned in the $20,000 to $100,000 range on a single sale. When the payroll is processed, the draws are deducted and the full net amount is paid on the next week. A $20,000 pay check is going to be taxed at the highest federal rate - it all works out at the end of the year - but the first time it happens - it's a shock. The same type of shock is often reported by folks at quarterly or year end bonus time.

 

[Vanadium 50]

Tax rates are marginal. There is no way to make less money by earning more/moving into a higher bracket.

That may not be true. It was not true in the past.

In the past, certain deductions were 100% deductible, but only if they exceeded some fraction of your income. (This is different from having only the amount above a fraction being deductible) If you got just a little more money, it could cause you to lose the deduction.

This caused very bizzare, albeit rational, behavior. If the threshold was 2%, and you averaged 1.5% every year, it was incentive to try and move expenses across year-end boundaries so you would have one year at 1%, then a year at 2%, then a year at 1% etc. rather than 1.5%, 1.5%. 1.5%.

I am not familiar enough with the US tax code to know if this is still the case.

The $1 million to $10 million crowd tend to be the very affluent professionals, but going above that, you start moving a lot more into business owners.

I bet the $1M to 2M cohort looks different than the folks above that. You don't have to be a very affluent professional to be a millionaire. Just someone who is comfortably middle class and near retirement.

 

[russ_watters]

I know certain folks on here will call it redistribution, but if you aren't willing to work for 9 cents on the dollar doesn't that give someone else the oppurtunity to work to make up what you are unwilling to do? I don't see that as a bad thing.

There is a shortage of engineers, so productivity would go down if I (and others) am not willing to work.

 

[Vanadium 50]

Yes, but there is a positive correlation between productivity and unemployment.

 

[ParticleGrl]

In the past, certain deductions were 100% deductible, but only if they exceeded some fraction of your income. (This is different from having only the amount above a fraction being deductible) If you got just a little more money, it could cause you to lose the deduction.

I stand corrected. Do you know which deductions these were?

One (my best friend) took a taxpayer-funded western vacation immediately upon being laid off. The other refused an actual job offer because it wouldn't have paid enough more than unemployment to be worth doing the work.

What state doesn't have a work-search requirement for unemployment? How could your friend be out of state but still meeting his work-search requirement, unless applying for work in that western state? Why didn't your other friend run into issues/lose benefits when he reported turning down job offers?

 

[Vanadium 50]

I don't remember. Real estate taxes maybe? Unreimbursed business expenses? The important fact is that there is more than just the income side of the tax code to look at - there's also the deduction side. The combination is so complex that all of its..er..emergent properties are not readily apparent to even its creators.

 

[russ_watters]

There is a shortage of engineers...

I retract this: though historically, it tends to run something like half for engineers what it is for the general population, there was a major spike in 2009. I'm not sure what it has done since - I'm having some trouble finding 2010 and 2011 data.

 

[russ_watters]

What state doesn't have a work-search requirement for unemployment? How could your friend be out of state but still meeting his work-search requirement, unless applying for work in that western state?

IIRC, at the time, you could call-in your bi-weekly claim and the government doesn't check-up on you. Not certain how that works.

Why didn't your other friend run into issues/lose benefits when he reported turning down job offers?

Why would she report turning down a job offer? If you don't tell them, they won't know!

It isn't like that Seinfeld episode where you have a claims officer hounding you and calling places where you've applied.

 

[ParticleGrl]

IIRC, you can call-in your bi-weekly claim and the government doesn't check-up on you. Not certain how that works. Why would she report turning down a job offer?

Ah, when my ex collected unemployment briefly, one of the questions on the benefit form was "have you received a job offer in the last _?" Obviously answering yes would effect your eligibility. You could always lie, but that's probably technically fraud. These sort of things almost certainly vary state to state.

 

[Al68]

Tax rates are marginal. There is no way to make less money by earning more/moving into a higher bracket.

Sure there is. If you're single and your taxable income is $34,001 instead of $33,999 your tax is $4,688 instead of $4,678 per the http://www.irs.gov/pub/irs-pdf/i1040tt.pdf".

That's an extra $10 of tax to pay for the extra $2 of income, for a net loss of $8.

You did say there was "no way to make less by earning more" right?

 

[Al68]

Oh, if they don't state that position, there's no way they believe it?

My point was that it's very easy to argue against a position "you think they really believe" instead of arguing against a position someone is actually arguing for.

It's like stepping into a boxing ring to fight a punching bag. Easy to win, yes, but you haven't won anything.

Plus, if you have to resort to making claims about what someone "really believes", you have conceded the legitimate debate already.

 

[ParticleGrl]

You did say there was "no way to make less by earning more" right?

Its an artifact of the tax table being broken up into increments of $50.

I also agreed that with some rare deductions, this statement could be wrong.

 

[WhoWee]

I don't remember. Real estate taxes maybe? Unreimbursed business expenses? The important fact is that there is more than just the income side of the tax code to look at - there's also the deduction side. The combination is so complex that all of its..er..emergent properties are not readily apparent to even its creators.

It sounds as though you were referring to the rules governing itemization - short form versus long form perhaps?

 

[OmCheeto]

Its an artifact of the tax table being broken up into increments of $50.

I also agreed that with some rare deductions, this statement could be wrong.

That's AI for yah.

Perhaps like the "Make Work Pay" deduction, they should include a "Make Algebra Pay" deduction as well. Prove that the $120k we spent to educate you for 12 years were put to good use.

Option A: go to the tables and find your tax.
Option B: figure out, algebraically, what your exact tax should be, to the penny.

Choose the lower of the two tax figures, and enter that into line 44.

If you are not able to determine which is lower, or are unable to do simple math, please choose option A.

If it is determined that you chose option B, but did the math wrong, then the IRS will choose option A for you, and add a $10 stupidity tax, because we obviously wasted http://nces.ed.gov/fastfacts/display.asp?id=66" , that we will never be able to recoup, even if you were able to live as long as Methuselah.

ps. Please pardon my flippancy, as I've just gotten out of the dentist's office, and I think the anesthetic is making me goofy.

 

[Ryumast3r]

The IRS actually doesn't care about pennies. You can pretty much round down on all your incomes and round up on all your deductions and they won't care.

Also, another thing I learned from an IRS person, always file via paper. Paper => innocent until proven guilty in terms of what you owe/are payed back, while internet filing => guilty until proven innocent.

Dunno why it works like that, but paper trumps all in the IRS.Also, the IRS employees aren't really out to get you out of all your money... they're people just like you who really don't care who you are or what you do for a living, and most of the time it just goes through the computer anyway and says you filed fine and there's no problem.

Funny story though, I heard of a guy who apparently reported 1 million or so in income on his form, but happened to "forget" about 17 million in income... >_>

Whoops.

Anyway, back on topic:

It's always possible to move around your deductions and such so that getting pushed into a higher tax bracket could affect you negatively, but that is hardly ever the case, and if it does you should fire your tax person because they aren't doing that great of a job.

 

[WhoWee]

But I don't support the law. It is just more tyranny of the masses. Same goes for schools.

Since Clinton, we have had the lowest tax rates since just before the great depression. I see no evidence to support your assertion.

What I do see that is that we gave huge breaks to corporations under Reagan and funded the outsourcing of our own jobs.

Ivan, this looks like a good place to re-start. I have a difficult time believing that massive outsourcing would have occurred without NAFTA. Also, Clinton basically paved the way for derivatives.
http://articles.cnn.com/2009-02-16/politics/bill.clinton.qanda_1_hillary-clinton-investment-banks-gramm-leach-bliley-act?_s=PM:POLITICS

IMO - Derivatives are a double edged sword in that pulls cash away from equity markets into more of a gambling environment and second - there is too great a risk of fraud and manipulation of markets (basically unregulated and offshore).

Again IMO - (and I suspect you'll agree) any adjustment to the tax code needs to entice Capital back on-shore - INTO LONG TERM investments.

 

[turbo]

Again IMO - (and I suspect you'll agree) any adjustment to the tax code needs to entice Capital back on-shore - INTO LONG TERM investments.

I would like to expand this. Any company that is US-based and starts exporting jobs overseas ought to be taxed very heavily. My wife works for New Balance, and they do all they can to keep their manufacturing based in New England. They have moved some production off-shore in the past, in part because they couldn't comply with complex environmental regulations, but they maintain 3 manufacturing plants in Maine and two in Mass. Now, why doesn't the military buy training/exercise footwear from New Balance? Where is the money going? Nike, Reebock, Asics, etc? I apologize for pulling the thread off the subject of tax rates, but why can't companies like New Balance be given a fair shake when they keep so many (rare) shoe-making jobs right here in New England?

 

[russ_watters]

I would like to expand this. Any company that is US-based and starts exporting jobs overseas ought to be taxed very heavily.

How exactly could that be made to work? We don't have jurisdiction over foreign countries, so facilities in other countries wouldn't and couldn't fall under US law.

 

[WhoWee]

How exactly could that be made to work? We don't have jurisdiction over foreign countries, so facilities in other countries wouldn't and couldn't fall under US law.

If we have incentives in place to attract and retain business - the jobs will stay. We need a business-friendly environment - IMO.

 

[Dale]

I wonder what portion of businesses go overseas due primarily to our excessively high tax rate on businesses.

 

[turbo]

I wonder what portion of businesses go overseas due primarily to our excessively high tax rate on businesses.

Maybe you could find out and report back when you have some information.

 

[Dale]

So turbo-1, are you ever going to answer the question I have asked you twice, or are you going to continue to avoid it?

Would you personally work overtime if you were going to be paid at 50% of your base salary? How about 9%?

 

[WhoWee]

Because the people at the top have benefited disproportionately from the Bush cuts and the policies that allowed Wall Street and banks to wreck our economy and destroy jobs. It would be a good idea to keep some money in the hands of lower wage-earners who spend most of their income. Their consumerism is the driving force in our economy, and you can't create new jobs without a sustained short-term demand for goods and services.

Do you have any support for this turbo? It seems to me the tax incentives provided to families making less than $50,000 per year are quite lucrative - EITC especially - plus the Making Work Pay credit? Further, when you consider nearly 50% of all possible tax payers contribute little to nothing - or actually receive tax payments via re-distribution - how are the benefits of people at the top disproportionate - what are percentages? Again, please support your very specific claim (my bold).

 

[Ryumast3r]

That's an example of a clueless taxpayer not taking advantage of the tax code (individual filing), not a function of a nice raise cutting your income because you inched into a higher marginal rate (only charged on the earnings that exceeded that margin). There are some folks here that are only too happy to obfuscate and play semantic games, so let's not feed the trolls. M'kay?

That was my point, was that it's always possible to lose money, but that's not because of the tax-bracket, that's because you/your tax person was stupid.

So turbo-1, are you ever going to answer the question I have asked you twice, or are you going to continue to avoid it?

Would you personally work overtime if you were going to be paid at 50% of your base salary? How about 9%?

His original point was about a pay-raise, not about overtime.

 

[Dale]

His original point was about a pay-raise, not about overtime.

In my experience people generally only get significant pay raises for doing more work and taking more responsibility. So the overtime analogy is germane, particularly wrt the two examples I mentioned for which turbo called me a liar.

 

[Averagesupernova]

There is a shortage of engineers, so productivity would go down if I (and others) am not willing to work.

So let me get this straight. Somehow it is unacceptable to allow the market to adjust itself in pay increases for engineers so there is no longer a shortage?

 

[loseyourname]

I would like to expand this. Any company that is US-based and starts exporting jobs overseas ought to be taxed very heavily. My wife works for New Balance, and they do all they can to keep their manufacturing based in New England. They have moved some production off-shore in the past, in part because they couldn't comply with complex environmental regulations, but they maintain 3 manufacturing plants in Maine and two in Mass. Now, why doesn't the military buy training/exercise footwear from New Balance? Where is the money going? Nike, Reebock, Asics, etc? I apologize for pulling the thread off the subject of tax rates, but why can't companies like New Balance be given a fair shake when they keep so many (rare) shoe-making jobs right here in New England?

DLA-issue boots are currently purchased from Altama, I believe. At least that's what I was issued the last time I was actually issued boots. They're made in the USA, as any Berry Amendment-compliant item has to be, which means all clothing issued by the military is manufactured in the USA. As it stands, most servicemen I know of buy their own boots anyway, and the New Balance boots are actually extremely popular.

 

[WhoWee]

DLA-issue boots are currently purchased from Altama, I believe. At least that's what I was issued the last time I was actually issued boots. They're made in the USA, as any Berry Amendment-compliant item has to be, which means all clothing issued by the military is manufactured in the USA. As it stands, most servicemen I know of buy their own boots anyway, and the New Balance boots are actually extremely popular.

They purchase their own boots? Is this a matter of personal choice/variety/options? Is there a reimbursement?

 

[loseyourname]

They purchase their own boots? Is this a matter of personal choice/variety/options? Is there a reimbursement?

Well, I'm an officer and we actually purchase all of our uniforms, including boots, though we still get issued personal equipment like canteens and magazine holders and body armor. Enlisted personnel are given a uniform allowance, but officers pay for it themselves. You're issued boots in either basic training or through your commissioning source, but after that, you buy them yourself. It's a matter of personal preference what you buy but the boots obviously have to meet specs. Only the Marine Corps requires everyone to purchase exactly the same boots.