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Wed Jan 2, 2013, 08:00 AM

Fiscal Cliff Math: am I doing this right?

Last edited Wed Jan 2, 2013, 11:06 AM - Edit history (1)

Tammy Teacher makes $50,000/year. Her payroll taxes are going up 2%, and she pays payroll tax on 100% of her salary.

Bobby Banker makes $500,000/year. His payroll taxes are also going up 2% -- but thanks to the cap, that only effects 1/4 of his salary. And his income tax is going up 4% -- but only for the portion over $400,000, the final 1/5 of his salary. 2% * 1/4 = 0.5%; 4% * 1/5 = 0.8%; 0.5% + 0.8% = 1.3%.

So Tammy Teacher is seeing a 2% increase in her tax burden, but Bobby Banker is only seeing a 1.3% increase. Where I come from, that's a regressive taxation package. Forgive me while I restrain my elation.

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Arrow 31 replies Author Time Post
Reply Fiscal Cliff Math: am I doing this right? (Original post)
Proud Public Servant Jan 2013 OP
rgbecker Jan 2013 #1
JoePhilly Jan 2013 #2
reformist2 Jan 2013 #3
liberal N proud Jan 2013 #4
Sekhmets Daughter Jan 2013 #5
Sirveri Jan 2013 #29
Motown_Johnny Jan 2013 #6
Demo_Chris Jan 2013 #7
Dragonfli Jan 2013 #11
jpljr77 Jan 2013 #8
Proud Public Servant Jan 2013 #13
SammyWinstonJack Jan 2013 #19
No Compromise Jan 2013 #22
Sirveri Jan 2013 #30
Egalitarian Thug Jan 2013 #31
sabrina 1 Jan 2013 #24
Make7 Jan 2013 #9
bigtree Jan 2013 #10
TXDem72 Jan 2013 #12
think_critically Jan 2013 #14
jerfro Jan 2013 #28
JayhawkSD Jan 2013 #15
mother earth Jan 2013 #16
GeorgeGist Jan 2013 #17
oldhippie Jan 2013 #23
PoliticAverse Jan 2013 #26
SheilaT Jan 2013 #18
Proud Public Servant Jan 2013 #21
hfojvt Jan 2013 #20
Texano78704 Jan 2013 #25
cthulu2016 Jan 2013 #27

Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 08:10 AM

1. Looks right to me...but remember...

This was all passed so those that own stock don't have to worry about the market tanking out of fears of another recession. I wonder if Bobby has more stocks than Tammy?

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 08:14 AM

2. To get some perspective, draw a number line ...

Start at 0, and then use increments of 250,000 until you get to 20 million.

Then place a DOT a 250k. Label that dot #1. That's where the negotiation started.

Then place a DOT at 450k. Label that dot #2. That's where the negotiation ended.

If the deal didn't go through, your teacher would have been hit with additional taxes behind the 2% you reference. And that 2%, many on the left claim, is bad for the future funding of Social Security.

Oh, and folks who need an extension of UE got it.

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 08:16 AM

3. Color me disappointed as well.


Our side could have fought harder. A lot harder.

Obama and the Dems are making some inroads in taking the country back, but Wall Street is still pretty much running the show.

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 08:19 AM

4. The rich and those who support them will think that is unfair

They will think that 1.3% is too much.

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 08:21 AM

5. Nope...

You are mixing apples with oranges. The Payroll tax has always been a regressive tax as it has always been a flat tax and is separate from the income tax which used to be more progressive than it is currently. There is nothing in this bill to elate anyone. Even the unemployed must feel only a bit of relief.

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Response to Sekhmets Daughter (Reply #5)

Thu Jan 3, 2013, 12:12 PM

29. FICA is not regressive, it vests at differing rates based on inputs.

Those rates are 90%, 35%, and 10%. Because the return is progressive, and the input is flat, the FICA is progressive. Yes, people above ~120k don't pay FICA, they also don't have that income counted towards their SS benefits. If we raise the cap we would need to adjust those tiers, and I think we should look into doing that to give greater security to seniors, but the FICA structure looked at as a whole is not regressive.

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 08:24 AM

6. That is right if you quoted net income, not gross, and just the earned income.

Odds are Bobby has more deductions and also earns some income from capital gains.

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 08:25 AM

7. It's 3D chess, only one guy is helping the other guy collect all the pieces

 

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Response to Demo_Chris (Reply #7)

Wed Jan 2, 2013, 09:00 AM

11. That is just shared sacrifice, the chess master is sharing the pieces he has sacrificed

It is pragmatic and part of the strategy.

It really only hurts the pawns so it is the most sensible thing one could do.

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 08:35 AM

8. It's a 4.6% increase for the banker, fwiw.

Also, if he has any income at all from investments, those taxes are going up by 5 percentage points (which you've been writing as 5%).

You want numbers? The teacher will have to pay an additional $1,000 per year because of the EXPIRATION OF A TEMPORARY TAX CUT WHICH FUNDS SOCIAL SECURITY. The banker will pay an additional $6,800 ($2,200 because of the payroll tax cut expiration, $4,600 in the higher tax rates).

But that does not include one very important component that none of the whiners seem to be remembering: deductions are being reduced and phased out for those making over $250,000. So without knowing what that banker takes for deductions, it's impossible to know how much MORE than $6,800 he'll pay in taxes, but it definitely will be more.

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Response to jpljr77 (Reply #8)

Wed Jan 2, 2013, 09:32 AM

13. About that temporary tax cut...

"EXPIRATION OF A TEMPORARY TAX CUT WHICH FUNDS SOCIAL SECURITY."

Do you remember how Obama managed to get that reduction in the first place? By agreeing to the elimination of middle- and lower-income tax credits in exchange. Now the payroll holiday is over. And the tax credits that were given up for it? Funnily enough, they're still gone, too.

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Response to Proud Public Servant (Reply #13)

Wed Jan 2, 2013, 11:03 AM

19. *crickets*

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Response to Proud Public Servant (Reply #13)

Wed Jan 2, 2013, 11:08 AM

22. interesting and totally believable

 

which tax credits were given up?

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Response to No Compromise (Reply #22)

Thu Jan 3, 2013, 12:22 PM

30. Making work pay was one of them.

It actually caused taxes to go up on some workers at the time since it had a greater progressive gearing than FICA as far as take home pay.

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Response to Proud Public Servant (Reply #13)

Thu Jan 3, 2013, 12:30 PM

31. Exactly as predicted and the likely result of his con-game as well.

 

The tax cuts for capital gains and inheritance are permanent while the UI and food stamp extensions are temporary.

But none of that matters because the President and the Party can declare a victory.

Just bring the water to a boil slowly...

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Response to jpljr77 (Reply #8)

Wed Jan 2, 2013, 11:14 AM

24. Iow, the teacher just goes back to what she was paying before the tax

holiday. Was that done so we would think the teacher got something in this deal after all? Can someone explain that tax holiday which no one was asking for, and which diminished the SS fund at a time when we were being told the SS Fund was losing money because of high unemployment?

So the teacher got a short term gift which was then used to tell her 'hey, you got something too'.

And the Middle Class now earns over $400,000 a year.

Not to mention that this 'deal' will be returned to in two months when most likely, anything Repubs didn't get this time, they will try for in two months, such as Medicare and SS cuts and they will use the debt ceiling to try to get what they want.

Unemployment should never have been attached to this mess and should have been a separate issue.

What has Congress done about jobs, which is really all that needed to be talked about in terms of the deficit.

And this deal will add to the deficit, less taxes, no cuts to the actual spending that caused the Deficit, War, Bush Tax Cuts (now permanent) which makes me wonder if any of this was ever about the deficit to begin with.

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 08:50 AM

9. Total Federal taxes owed = 24.71% vs 34.13%

That includes income, Social Security, and Medicare taxes. If you just look at income taxes it is 17.06% vs 31.27%.

I'm not sure that including Social Security taxes in the equation makes too much sense. It isn't like wealthy people are getting a disproportionate payout from Social Security upon retirement - people get benefits based on what they paid in over their lifetimes. Obviously the wealthy benefit more from having the current Federal Government in place and therefore should pay more to support it - which they do, but still not as much as they should.

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 08:51 AM

10. it's a good start

. . . and the Democrats and the administration are already gunning for elimination and reduction of a whole host of deductions and loopholes. They're going to get those from an outflanked republican majority who insisted all last year that the revenue needed for deficit reduction could all come from loopholes and deductions. They're going to get that reform, but likely not what they asked for. I remember that the president coming out strongly last year, during the campaign, against carried interest deductions; endorsing specific legislation which had significant support in the Senate. So, I see this as more than just a penny-ante grab. It has legs, and it's a bold display of presidential and Democratic initiative and projection. It's not anywhere near to the last round.

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 09:05 AM

12. No you got this right.

Thank you, Mr. President.

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 09:43 AM

14. can't have it all

 


I agree that this sucks but we can't have it all. We can't say we want to protect SS and then not want to pay for it. I think the mistake was not increasing the tax in increments. They should have done 1% this year and 1% next year.

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Response to think_critically (Reply #14)

Wed Jan 2, 2013, 03:00 PM

28. Really?

Once again everyone is missing the "Wooly Mammoth" in the room; THE 60%-OF-OUR-BUDGET-MILITARY-SPENDING. Until this issue is dealt with and at least cut in half by reducing our "presence in the world", our middle class and impoverished will continue to suffer no matter what the congress does. All of what we are seeing now is nothing more than grandstanding and posturing. Get serious!

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 09:47 AM

15. Yes, you have it wrong. You are not comparing apples to apples.

Both Tammy Teacher and Bobby Banker are paying 6.2% of their income into a trust fund for retirement. Both had a temporary hiatus on almost 1/3 of that contribution, which is now ending. In neither case will that affect their retirement, because the government made the amount they did not pay. Bobby Banker pays more in because he has a higher income. No, he doesn't pay on the entirety of his income because, as has been pointed out, he receives retirement funding based on what he paid in and there is a cap on the benefits he can receive. The reason Babby Banker doesn't pay in based on the entirety of his income is that his payments into the system would be excessivebecause of that benefits cap. So, although the tax appears regressive, it is actually not. The benefits received are proportional to the amount paid in.

Tammy Teacher's taxes are not going to go up at all. They are completely unaffected by this deal. As mentioned arlier, the forgiveness she had earlier on paying into her retirement does end, but the amount she pays for the operation of her nation's government is unchanged.

Bobby Banker's taxes will increase on $100,000 of his income. The forgiveness he had earlier on paying into his retirement ends, and the amount he pays for the operation of his nation's government will increase.

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 10:30 AM

16. Seriously, sometimes you just have to lay it out in these terms.

Add to that the corporate hand-outs & tell me, where again is our victory?

http://www.democraticunderground.com/?com=view_post&forum=1002&pid=2115942

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 10:43 AM

17. Apples and Oranges.

FICA is NOT a tax.

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Response to GeorgeGist (Reply #17)

Wed Jan 2, 2013, 11:13 AM

23. Oh really? Then what is their Constitutional authority ....

 

.... to collect it?

C'mon, man. This has been gone over so many times. The Congressional Act that created it, the US Code that implements it, and the IRS and SSA that enforce and collect it all define and refer to it as a TAX.

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Response to GeorgeGist (Reply #17)

Wed Jan 2, 2013, 02:54 PM

26. FICA is a tax...

http://www.law.cornell.edu/uscode/text/26/subtitle-C/chapter-21

a) Old-age, survivors, and disability insurance
In addition to other taxes, there is hereby imposed on the income of every individual a tax equal to the following percentages of the wages (as defined in section 3121 (a)) received by him with respect to employment (as defined in section 3121 (b))

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 10:58 AM

18. If Bobby Banker maes $500,00/year,

then the portion of his income over $100,000 is not the final 1/5 of his salary, but the final 4/5.

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Response to SheilaT (Reply #18)

Wed Jan 2, 2013, 11:07 AM

21. You're right, fixed it

Had originally written "final $100,000," then edited the phrasing without fixing the number.

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 11:06 AM

20. no you are not

it is better to look at dollar figures than as percentages.

Tammy's taxes are going up by $1,000

Bobby's taxes are going up by $6,000 - $2,000 in payroll taxes and $4,000 in income taxes.

$6,000 is greater than $1,000.

Percentages are less relevant than actual numbers.

Bush always wanted to use percentages so he could give a $6,000 tax cut to Bobby and $1,000 to Tammy and then say "see? My plan favors people like Tammy, look at the percentages."

But the tax CUT that Obama calls a "middle class" tax cut, also favors Bobby far more than it favors Tammy. Thanks to Obama's awesome negotiating, Tammy gets to keep her Bush tax cut of $1,500 and Bobby gets to keep a Bush tax cut of perhaps $8,000, and, once again $8,000 is much greater than $1,500.

But hey, according to Obama, Bobby is practically part of the middle class anyway, so hurrah for middle class tax cuts that favor him.

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 02:49 PM

25. If you only look at "earned income"

Bobby Banker, unless he is living an extremely extravagant lifestyle, has a significant portion of that $500,000 as income from investments, dividends and capital gains. Tax rates on that "unearned income" are higher now as well.

Tammy Teacher's 401k, if she has one, is not affected.

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Response to Proud Public Servant (Original post)

Wed Jan 2, 2013, 02:58 PM

27. Social Security is not supposed to be progressive

It is, somewhat, in practice, but it is not supposed to be something where the rich pay more into SS to subsidize the SS benefits of others.

So the example mixes a progressive tax with a non-progressive tax.

The teacher gets personal value from her SS payments. It isn't a tax for the general welfare.

And leaving the value gained out of the equation treats her SS payments as if they were a dead loss, which they are not. (For her group, though individually she may personally die before collecting much in benefits, while another teacher might live to 90 and take a lot more value out of SS then he ever paid in.)

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