What is the highest marginal federal tax rate Obama proposes on earned income?

[Torie]

Now you get the opportunity to vote not only on what you think highest federal marginal tax rate on earned income should be, but what you think Obama thinks it should be. The answer will be revealed in due course.

[Alcon]

I'm reasonably sure I already know the answer to this, although I might be wrong.

I won't vote, just in case.

[Torie]

By the way, the highest marginal tax rate kicks in at about 360K for taxpayers, be it single filers or joint filers.

[Alcon]

Hehe...

*poof*

[Ban my account ffs!]

Hehe.. poof is right.. too bad I read it first Alcon

But I'll be a sport and not guess now that YOU RUINED IT FOR ME.

[Torie]

Matters have been cleansed. I am not saying Alcon was right by the way. The formula is complex.

Anyway, Snow vote has if you didn't trust Alcon's asserted knowledge. Do it for me.

[Sbane]

I honestly have no clue. I will just say 90%

[Verily]

Question is, are you including the social security tax? If so, it's just shy of 50% (39.1% base peak, reverting to pre-Bush, plus 6.2% social security covering all income and various small taxes such as Medicare). It's pretty close to the border between 45%-47.49% and 47.5-49.99%, so I'm not sure which to say.

[Torie]

Question is, are you including the social security tax? If so, it's just shy of 50% (39.1% base peak, reverting to pre-Bush, plus 6.2% social security covering all income and various small taxes such as Medicare). It's pretty close to the border between 45%-47.49% and 47.5-49.99%, so I'm not sure which to say.

Yes, it includes the FICA tax increase, for which no additional benefits are earned. Your maths are errant. It is 39.6 for starters. You are also ignoring the employer share of FICA taxes, paid by self self employed individuals on top, and indirectly by employees, less the value of the tax deduction (on the "employer" half). And then there are the itemized deduction phase outs.

And while not included here, there are the state and local taxes, with income taxes over 10% in New York and 10.6% in California, with a federal tax deduction for that that is phased out (and stalked by the Alternative Minimum Tax). But this question is before state and local taxes. This question is about what the Feds get before the local sheriffs go after you.

We are also ignoring the Alternative Minimum Tax here to boot, which hits the slobs who earn from about 150K to 400K in high tax stats.

[opebo]

By the way, the highest marginal tax rate kicks in at about 360K for taxpayers, be it single filers or joint filers.

360K!  Sheesh, who cares then.

But in this poll I don't see any settings for what one thinks the top marginal rate 'should' be.  I liked the old 70% rate plus reasonable deductions.  I mean sheesh what possible reason could we have for wanting to privilege people with more than 360K per year, absent expenses.

[Torie]

That is the other poll thread Opebo. Just go to it and click the over 60% box.

[Verily]

Question is, are you including the social security tax? If so, it's just shy of 50% (39.1% base peak, reverting to pre-Bush, plus 6.2% social security covering all income and various small taxes such as Medicare). It's pretty close to the border between 45%-47.49% and 47.5-49.99%, so I'm not sure which to say.

Yes, it includes the FICA tax increase, for which no additional benefits are earned. Your maths are errant. It is 39.6 for starters. You are also ignoring the employer share of FICA taxes, paid by self self employed individuals on top, and indirectly by employees, less the value of the tax deduction (on the "employer" half). And then there are the itemized deduction phase outs.

Those are not a part of the federal tax rate. You're simply making up numbers from thin air. The employer share of FICA is not paid by the employer him or herself, but by the company, and it is dishonest at best to include it in any individual's tax rate.

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Income tax is not over 10% in New York state. The highest state income tax in the country is 10.3% in California, not 10.6%. New York's income tax is 8.14%, although NYC has an additional income tax of 4% (primarily designed for people such as myself who do not pay New York state income tax but do pay NYC income tax).

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Only when they are not paying at least 28% in federal income tax at the highest income categories, which means that the AMT is meaningless when calculating the highest marginal tax rate. It will never raise your tax rate above 28%, assuming you are already at an income level that puts you in the highest brackets otherwise. Besides, while I don't deny that Obama has not presented anything to deal with the AMT, there's nothing that suggests he supports it, and, given the sheer volume of politicians calling for its reform, it is certainly reasonable to suggest that he would also change it.

[Torie]

Hold on now. The self employed do pay both halves of the FICA tax, and if you want to think that a tax the employer pays on employee wages is not passed on to the employee in the form of lower wages, that is fine, but probably wrong. In any event, since self employed are people too, it is appropriate to use them to find out the highest marginal rate. I don't know why you don't consider FICA an income tax, particularly if like Obama you are going to decouple it from SS benefits.

You are right, the highest rate in California is 10.3%, not 10.6%. Apparently, the New York State tax is 8.14% (I read an article with the wrong number, maybe the New York City income tax of 4% was included.)

[Verily]

Hold on now. The self employed do pay both halves of the FICA tax, and if you want to think that a tax the employer pays on employee wages is not passed on to the employee in the form of lower wages, that is fine, but probably wrong. In any event, since self employed are people too, it is appropriate to use them to find out the highest marginal rate.

All right. However, I will say that the number of people who are both self-employed and in the top income tax bracket to begin with is very small, to the point of being negligibly so, and a rather dishonest way of calculating the peak tax rate. The fact that there may be 100 people for whom the extra tax applies is unfortunate, but not really an argument against any given tax plan.

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I didn't say that.

[Torie]

Verily, my friend, the highest marginal rate under Obama's plan at least for self employed people kicks in a 360K per year, and Xahar just told us that is not rich (and it is certainly more than 100 folks, maybe more like 2 million folks as a guess), and frankly I don't feel rich, and one other thing, is that often folks just make the big bucks for a year or two, before regressing back to the mean. It is a veritable game of musical chairs up there on the upper floors.

In any event, I don't know why it is dishonest to ask a question.

By the way, marginal tax rate to me, means that when I add another 10K of eared income on my Form 1040 Turbo Tax program, what percentage of that goes to the Feds in the form of higher taxes. Right now it is 38%, or $3,800.  It the KISS principle.

[Verily]

Verily, my friend, the highest marginal rate under Obama's plan at least for self employed people kicks in a 360K per year, and Xahar just told us that is not rich (and it is certainly more than 100 folks, maybe more like 2 million folks as a guess), and frankly I don't feel rich, and one other thing, is that often folks just make the big bucks for a year or two, before regressing back to the mean. It is a veritable game of usual chairs up there on the upper floors.

2 million self-employed making over $360,000/yr? That's awfully out of touch. The top 1% of US households, not people, make around $350,000/yr. Most of those households, save for those at the extremely high end, will have more than one income earner, so the number of individuals earning $350,000/yr is far lower.

Unfortunately, I can't find information on the top 1% of individuals, but we can guess from the above that it is close to maybe $225,000/yr, being generous. Again, being generous with our guesswork, we can estimate that, at that rapid attrition rate as incomes rise, those individuals making over $360,000/yr are close to 0.1% of the population, or about 300,000 people. Of course, the vast majority of those are not self-employed; even offering a generous number of 10% as self-employed, that's 30,000 people. 100 was an exaggeration, obviously, but 30,000 people is no crisis.

[Torie]

In 2006, there were over 1.3 million returns with AGI over $388,000. I bet you dollars to donuts at least  half of those have a self employed individual.  So today, maybe close to a million folks are in that category (or the over $360,000 category), and of course I think employees pay the FICA tax indirectly, so it is not economically correct to separate them out, but whatever. And going down to $250,000, the marginal rate is only going to be about 3% lower maybe, since it is at $250,000 that the Obama confiscation starts.

[Sam Spade]

Stop talking about my parents' tax returns, Torie...    Oh wait, they qualify under your dynamic.  But they'll retire soon, maybe when this whole thing kicks in.

Hmmm...  I just also wondered how many small/mid-size NY/NJ/CT law firm partners (with under 50 employees) that covers too...  Well, at least their ability to sue the crap out of people to pay their taxes won't be hampered at all. 

[MarkWarner08]

I guesstimated the 52-54.99 range.

Maybe John McCain will announce a cogent tax plan after Pete Peterson and Jack Kemp stop throwing staplers at each other.

[Torie]

It is time for me to follow up with all of this. First, we have a WSJ column piece by Boskin, who put up this chart:



Unfortunately the chart adds in state taxes assuming you live in California. Unlike me, most folks are fortunate tax wise to not live in California. My mission in life is to run a few extra laps to support the welfare state. The question was what does Obama propose as the top marginal tax rate looking only at the federal tax rate on earned income. The chart also ignores that one can deduct 50% of the FICA tax from one's AGI, and that the phase out of itemized deductions only increases one's marginal tax rate by the value of the deduction after tax.

So what is the real top Obama federal marginal tax rate? Taking the above  into account, the answer per my calculations is, the envelop please, well if I can read it .... 52%.

Here are my calculations, with a little help from Excel and Turbo Tax:



Only on Leips can you get such trenchant analysis.

                                     

[opebo]

52-65% sounds like a reasonable level to me, Torie.  Keep in mind that this is a marginal rate, and thus only applies at levels where there is no reason or use in allocating money (privilege) to individuals.  Of course ownership carries with it political power and thus income, so in practice it is difficult to maintain privilege reduction strategies like this while still retaining the basic oppressive capitalist system. 

Stop talking about my parents' tax returns, Torie...    Oh wait, they qualify under your dynamic.  But they'll retire soon, maybe when this whole thing kicks in.

I thought they were owners, SS?  What difference does it make if they're 'retired'?  My parents income didn't change much when they reached their golden years.