Why the Rich are not Taxed Enough
Apologists for the rich want to limit any discussion of Federal taxes to the income tax. However, for the not-so-rich, the overall tax burden includes FICA taxes. Today income taxes provide less than half of total Federal tax revenue. ( Current US Federal Government Tax Revenue ) By excluding FICA taxes from the discussion, the apologists for the rich are tacitly claiming that work doesn’t matter.
The current SoSec FICA tax rate is 12.4 pct of gross income from work; half paid by the employee and half paid by the employer. (Note: the 2.9 pct Medicare tax has not been included because there are no limits on gross pay subject to that tax.) When a worker is self employed (both employee and employer) then the worker pays the full 12.4 pct. The current limit on gross pay subject to SoSec FICA taxes is $132,900. ( Social Security Wage Base for 2019 Announced ) For an individual working for pay that leaves a net income of $124,660 subject to income tax; for a self employed individual that leaves a net income of $116,420 subject to income tax.
Income tax for individual net income of $116,420 to $124,660 is 24 pct. But that is not the total Federal tax burden; the SoSec FICA tax should be added. So, an individual at the gross income limit for SoSec FICA taxes has a total Federal tax burden of 30.2 to 36.4 pct. The highest income tax rate is 37 pct. ( 2019 tax brackets )
Essentially the Federal tax code has been rigged to establish a flat tax on net incomes over $116k. The Federal tax code is no longer progressive. Those Hollywood and Wall Street political donations have really paid off.
An honest discussion of Federal taxes would be about the overall tax burden. Either the SoSec FICA income limit should be eliminated or the highest income tax rate should be increased to 49 pct. Anything less means the rich will not be taxed in a progressive manner and working Americans will continue carrying the highest tax burden.
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Don't fall for the phony baloney arguments for a flat tax. We already have a flat tax.
No, we have a progressive tax. Any tax system where the tax increases as income or values increase is a progressive tax regardless if it is capped at a certain level. FICA, on the other hand, is a legalized ponzi scheme. It includes taxes for two systems: Social Security and Medicare. However, the way both systems are structured, the people paying in are paying for OTHER people to benefit rather than as a security net for themselves as both programs were originally marketed.
Social Security and Medicare taxes are flat taxes as the rates themselves do not increase as income increases, but they are capped at something like $250,000 on the income they tax. In other words, Medicare and Social Security are regressive taxes on everyone but the rich as the rich are not as affected by them since they only have the pay the taxes on a part of their income.
The way to actually stop both the income tax and the FICA tax is the same way to stop all Federal taxes. Roll them into a National sales tax, which should be about 22% on everything except basic necessities. In other words, anything that everyone needs is not taxed, but those items that you don't need in order to live are not taxed. Books and other entertainment would be taxed. Internet service would be taxed. Electricity would not be taxed. Food would not be taxed. A basic home with enough room for the family to live in would not be taxed. A mansion would be taxed. But, these taxes only apply to the sale of the item. Stocks would be taxed only upon sale of the stock and the dividends would not be taxed. Remember, in a Capitalist society, your money is your property. Yet, the US society taxes both money and property as if you are just renting the property and the money for use and the taxes are your rent rates.
We have a progressive Federal income tax. But the overall Federal tax burden is not progressive. The overall tax burden functions the same as a flat tax. And a flat tax has a regressive effect on disposable income.
If Social Security is a legalized ponzi scheme then the 401(k) and IRA system is a legalized pyramid scheme.
That won't change the current overall Federal tax burden. The current overall Federal tax burden already functions the same as a flat tax. The only thing all the flat tax schemes accomplish is to consolidate the current overall flat Federal tax burden into a single tax. The Federal tax code has been rigged so the overall Federal tax burden is not progressive. A flat tax would only protect what has already been accomplished by rigging the tax code.
But the progressive nature of the income tax is offset by exemptions from the regressive flat tax. The progressive and regressive taxes counterbalance each other to establish a tax burden that functions the same as a consolidating all the taxes into a flat tax.
A consolidated flat tax won't change anything. The overall tax burden is not progressive now. The overall combined Federal tax rate for someone with net income of $85k is the same as someone with net income of $850k.
The canard is to simply ignore the regressive nature of FICA taxes as a flat tax so as to claim we have a progressive tax code. That canard isn't true.
The more affluent are not paying a higher percentage of income as Federal taxes than someone with a net income of $85k.
The more affluent are also eligible for SoSec benefits. The more affluent receive as much benefit from SoSec as anyone else. However, SoSec benefits are taxed as income; the income tax is progressive.
The question is whether or not the overall individual Federal tax burden should be progressive?
It does not appear you are taking into account the concept of marginal rates.