How the American Tax Code Favors the Rich

The American tax system favors the rich. Truly. According to massive economic experiments and studies on the impact of taxation, the general theory that guides tax-rate decisions is that ‘lower taxes attract more investment’, leading to more jobs and increased prosperity. As you file your next annual taxes, this article shows you exactly why the system is hijacked to favor the rich and super rich!

a)      Poor Americans Do Pay Taxes

There’s been a lot of media myth speculating that poor Americans don’t pay taxes. For instance, Fox News host Gretchen Carlson once said that ‘47% of Americans don’t pay any taxes’. Based on a fact-check ¬¬¬¬though, this is wrong. Indeed, poor Americans pay lots of taxes! Data obtained from the Tax Foundation reveals that back in 2008, the bottom half of taxpayers had an average income of $15,300. This amount was below the tax exemption threshold of about $9,000 for singles and $18,000 for married couples. Effectively, that means that this group didn’t pay any INCOME taxes. But they still paid a lot of other taxes, including sales taxes, gas taxes, utility taxes, federal payroll taxes, etc. Apparently, no American is tax-free.

b)     The Wealthiest Group Has a Lesser Burden

It’s true that the wealthiest 1% of wage earners pay about 40% of all federal income taxes. But people often forget that income tax is just a small fraction of the entire total taxation picture. The bottom 90% of wage earners are taking care of social security, unemployment insurance, and Medicare taxes. People who hit the $107,000 (roughly) tax mark are no longer required to pay more for social security. That means if you’re earning rounds off at this figure, you’ll be paying the same social security tax as Warren Buffet, Bill Gates, Mark Zuckerberg, and some other big-shot billionaires.

c)      The Wealthier you are, the Lesser Taxes

The richest 400 Americans pay less in taxes, despite massive incomes. This is so thanks to a number of loopholes in the system, allowable deductions and other instruments of exemption. According to the Internal Revenue Service, the actual share of their income, that’s paid in taxes is just 16.6%. The majority of not-so-rich Americans have a federal tax burden that’s more than 20%. read more

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What Americans Want from Tax Reforms

Over 90% of all American citizens want investments tasked as much as wages. That’s according to a survey conducted by WalletHub. This debate has even been brought up through the current presidential election debates that are taking place in the country.  Americans, it appears, want tax equality – and that means tax reforms.

Critics have argued that there’s worsening income equality under the last two administrations. This inequality has also been perceived through gender and marriage rights. Based on the WalletHub study that involved more than a thousand American taxpayers, below are the most common tax reform issues that people are interested in.

I.                    Equality before Economy

When asked what they thought was the most important among ‘tax fairness’, ‘tax equality’ and ‘what’s best for the economy’, most respondents in the survey placed economy at the end of their priority list. Over 60% said that they wanted tax fairness while about 20% placed a lot of prominence on tax equality. 18% thought that the economy was the priority issue. This perhaps wouldn’t have been the response a few years ago during the Great Recession, when a majority of Americans poured their hearts out to the economy.

II.                  More Simplicity with Fewer Deductions

Taxation is an expensive affair. In addition to the fact that about 31% of each American’s annual income goes to local, state and federal taxes, taxpayers spend billions (and a lot of time for that matter) trying to file returns and comply with tax regulations. That’s an additional cost that’s brought about by the complication of the tax code. Most Americans would wish that this code was less complicated. According to the WalletHub survey, more than 80% of the respondents think that the tax code has become ‘too complex’. This is compared to only 2% who think that it’s ‘simple’. Nearly a half of polled respondents think that a simpler and fairer tax code would only have fewer deductions.

III.                More Tax for Corporations

Wall Street vs Main Street – that’s a rivalry that has decorated the American taxation debate for years. Many taxpayers, it appears, were enraged by the government’s bailouts of major firms, including those that contributed to the recent recession. The fact that corporate profits have bounced much faster than household incomes typically ‘adds salt to the injury’. Some of the largest and most profitable American companies are parking overseas in order to avoid hefty taxation in the U.S. over 90% of respondents in the WalletHub survey said that investments should be tasked as much as wages are. This piece of information clearly highlights the current taxpayer sentiment. read more

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6 Things Every American Should Know About Taxes

Every day is a tax day in America. Yes, a lot of confusion with tax forms, quick trips to the mailbox, and a lot of headaches associated with keeping up with taxation requirements. Every American citizen is subject to local, state and federal taxation. Nonetheless, there’s still a huge group of people who do not know anything solid about taxes. Here are 6 things every American citizen should be aware of when it comes to taxation.

1.    Taxes are Expensive

According to research, taxes (at all levels), eat up about a quarter of the GDP (gross domestic product) every year. GDP refers to the entire total economic production value of a national annually. That’s about $4.8 trillion dollars. It’s no doubt, not a trivial amount, and most informed taxpayers will understand this all too well. Based on information from the Tax Foundation, the average American citizen will work over three months each year to pay their share of taxes for the year. This means that up to 31% of all the money you make annually going to paying taxes. That’s a whole lot, you agree?

2.    Different States, Different Taxes

A significant proportion of American taxpayers still do not know that different states have different local and state codes. Each state and its local authorities will structure a tax system that’s best in line with its needs. States such as New York, California, and Wisconsin have greater tax burdens as compared to others. For instance, the taxation level in New York is nearly double that in Wyoming. Just so you know, it helps to do a little research to determine whether you’re paying more in your state that other Americans are paying in their states!

3.    Government Doesn’t Collect Enough Money from Taxation

Although the American government and various local and federal authorities collect a significant proportion of the GDP in taxes, it’s just never enough. That means the federal spending is more than federal taxation. However, it’s important to note that in recent years, the federal spending levels have trickled down especially due to reforms in the budget. But the federal deficit is predicted to rise in the future decades, as a result of overspending. If you were perhaps wondering why the government owes China about $1.3 trillion, then you have your answer. read more

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Tax Deductions and Long Term Care Insurance

The Republicans have just scored a major victory in this last election and while it is hard to predict exactly how this will affect senior citizens, Howard Gleckman has some interesting thoughts in an article for Forbes Magazine.  Typical of democrat scare tactics, Gleckman sees the Republican victory as a dangerous thing for government health programs. Meals on Wheels and a wide range of other community living programs have their budgets on the chopping blocks as the Republicans and even the Democrats look to save money.

The reality is we now have 18 Trillion in debt and of than almost 1/2 of that created under Obama in the past six years.  Cuts need to be made and if a senior has a million bucks in the bank, they need to pay for their own long term care.  Medicaid and government programs are designed for the truly needy, those who have below $10,000 in savings.  Hard choices must be made if the debt is ever going to be tamed.

The Older Americans Act of 1965, which brought many of these services into being, has now been left by the wayside as government spending has exploded.  The Great Society and War on Poverty was created nearly fifty years ago and we’ve spent over 50 trillion on trying to attack poverty and the out come has gotten worse!

Gleckman believes that the Republicans will even push for an increase in Medicaid premiums. Some Republicans even want to lump Medicaid in with Housing and Transportation, which many Democrats fear would make it easier for States to drop these services altogether in attempts to solve our physical crisis.

It is a rough time for seniors who do not have an insurance safety net to fall back on. The government seems poised to limit nursing home benefits just to the truly needy, not people trying to scam the system. The senior population is about to reach unheard of levels as the Baby Boom generation reaches their golden years.

These senior boomers will need to rely more and more on their own personal savings, and insurance as the government programs continue to erode. The space in the work force created by retiring boomers will undoubtedly lead to a smaller tax base. This will cause the government to find further spending cuts and reduced assistance for the elderly. The future is uncertain, we will just have to wait and see what the government is going to do with these programs. There is a good chance that many of them will survive until we reach old age. The question is, how effectively will they be running on their reduced budgets? read more

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