Half don't pay income tax

[Lewis]

Why half of us don't pay income tax


Lawmakers often lament the fact that such a high percentage of Americans end up owing no federal income tax. But intentionally or not, they set it up that way.
NEW YORK (CNNMoney) -- It's a provocative fact about the tax code: Nearly half of U.S. households end up owing no federal income tax.
But it's not surprising given the addiction to tax breaks by both Democrats and Republicans, and the fact that the U.S. tax code is set up to be progressive.
Quiz: What the rich really pay in taxes



"There's nothing nefarious going on here," William Gale, co-director of the independent Tax Policy Center, said on a call with reporters Wednesday.
Intentionally or not, Congress set it up this way.
Over the years, lawmakers have increased the number of non-payers by enacting reams of tax breaks -- such as tax credits for work, kids and education. And the Bush tax cuts, first passed more than a decade ago, expanded many of them.


Then lawmakers approved temporary tax breaks after the 2008 financial crisis to stimulate the economy, and that expanded the rolls even more, said Robert Greenstein, president of the liberal Center on Budget and Policy Priorities.
The Tax Policy Center estimates that for tax year 2011, 46% of households will end up owing nothing in federal income taxes.
The percentage was closer to 40% before the recession, Greenstein said.

Millionaires who owe no federal income tax
Looking ahead if the Bush tax cuts are allowed to expire next year, the percentage of non-payers could drop to 36%, said Roberton Williams, a senior fellow at the Tax Policy Center.
While the Zero Tax Club includes some very high-income households, it is made up disproportionately of low- and lower-middle-income households.


They, too, may benefit from a bevy of tax breaks, such as tax credits for work and kids. But for many, those types of breaks aren't the biggest reason why they end up in the non-payer group.
Say lawmakers stripped out all tax breaks except those most elemental to a progressive code -- such as the standard deduction and personal exemption, which exempt subsistence-level income and dependents. Even then, about 23% of households would still end up owing nothing in federal income taxes, according to Tax Policy Center research.


More taxes from...everyone: Johnson


In other words, a couple with two kids, earning less than $26,400, would get an $11,600 standard deduction and four exemptions worth $3,700 each, reducing their taxable income to zero, Williams noted in the blog TaxVox.
But if payroll taxes are counted, the number of non-payer households drops precipitously -- to an estimated 18% in 2011.


That's because payroll taxes, which fund the big entitlement programs, hit low-income households harder than most since 100% of their income is subject to them. High-income filers pay a lower percentage of their income in payroll taxes since wages subject to the Social Security tax are capped at $110,100.
Most of those 18% of households that owe neither federal income nor payroll taxes are elderly or had income under $20,000, Williams said.

But even then, they still end up paying something in taxes. Once sales taxes as well as state and local income taxes are thrown into the mix, virtually no household in America would qualify for the non-payer group.

 

[Hammer]

That's half the population in the pockets of the Democrats, just for entitlement reasons, government for free.

Payroll taxes should be included on income tax forms, too, so that people don't ignore them.

 

[Pizzaguy]

That's half the population in the pockets of the Democrats, just for entitlement reasons, government for free.

Payroll taxes should be included on income tax forms, too, so that people don't ignore them.

I think that payroll deduction is a scam - if we had to write a check for income taxes like we do property taxes, the tax revolt would have occurred long ago.

 

[Knotical]

I think that payroll deduction is a scam - if we had to write a check for income taxes like we do property taxes, the tax revolt would have occurred long ago.

Now that would be interesting. Take the payroll deduct option away from employers and force all citizens to submit quarterly payments to the government for their taxes. Then we should see how upset people will get when they see the government wasting their money, especially on foreign aid to countries that are killing our diplomats and servicemen.

 

[Carolyn]

Many of us are living on social security and retirment income on which we already paid federal income tax. These should continue to be deductable.
The inflation caused by Obama's borrowing trillions is catching the lower and lower middle income people in the biggest squeeze. The price of basics such as food, simple houseing, transportation (including gasoline), medical expenses and heat during the winter are all much more expensive.

If federal taxes are changed, the graduated tax should remain in place. But tax shelters should be eliminated and a minimum standard tax (or whichever is greater) should be an option on all who make over ? $150,000.
Deductions for charity should be carefully examined as to legitmacy. Many schools depend on these to survive. But school tuition and expenses should have a cap on deductions. Medical expenses should be fully deductable, including the cost of medical insurance. The drug companies should have regulations. I pay $500. for a med that costs less than $1 to make. I know they have overhead, but their patent should be 5 years, not 20 or more. Then it should go to the free market.

 

[Hammer]

Take the payroll deduct option away from employers and force all citizens to submit quarterly payments to the government for their taxes. Then we should see how upset people will get when they see the government wasting their money, especially on foreign aid to countries that are killing our diplomats and servicemen.

There are two reasons for withholding: 1. to facilitate collection. 2. to dampen objections to paying taxes.

As for Libya, don't you want the US to spend our money there? If it's just for dropping bombs rather than "aid"?

 

[thisnumbersdisconnected]

There are two reasons for withholding: 1. to facilitate collection.

Let's see how many enforcers the government can afford to collect taxes if we have to pay out of our bank account. Let's see how much money the government actually has to spend. "Sure, pass any budget you want. Collecting the money to pay for it, now that's another story."

 

[Knotical]

There are two reasons for withholding: 1. to facilitate collection. 2. to dampen objections to paying taxes.

As for Libya, don't you want the US to spend our money there? If it's just for dropping bombs rather than "aid"?

Well of course the government will want to continue payroll deduction. It is the whole concept of "out of sight, out of mind." Most people don't even look at their paystubs or even their withholding until the end of the year when they have to file their taxes.

But, when it comes to sending money overseas, if it is truly being used to help others then I have no problem with it, but can we really say that is what these funds are being used for. This speaks to being a good steward, and I do not think our government, nor the people they are giving aid to, are being very thoughtful about what this money is being used for.

 

[Lewis]

Why U.S. Tax Evaders Can No Longer Count on Swiss Secrecy

Switzerland's oldest private bank, Wegelin & Co., had survived three centuries of upheaval on the continent, including Napoleon's invasion of the country and two World Wars. But its illustrious history was brought to an end last month by an unlikely source: a U.S. government desperate to track down tax evaders.
In early February, in a move that rattled Switzerland's financial industry, the U.S. Department of Justice indicted Wegelin on charges of helping wealthy Americans hide $1.2 billion from U.S. tax authorities. As the first foreign bank in history to be indicted by the U.S. government, the ruined Wegelin was quickly sold to a former rival, Raiffeisen Group. But the Obama Administration was just getting started — it also ramped up the pressure on 11 more Swiss financial institutions to hand over their American clients' names. Now it looks like U.S. authorities might get their wish.


(MORE: The Swiss Question Their Once Proud Banks)
On March 4, the Swiss parliament approved an amendment to the country's existing tax accord with the U.S., which, when ratified by the U.S. Senate, will give the American government unprecedented access to accounts held by its citizens in Switzerland. While the existing agreement has long allowed the release of tax information in cases of proven wrongdoing, various stumbling blocks, like different interpretations of tax evasion under Swiss and American laws, often slowed or even halted the process. (Evasion is a civil, not a criminal, offense in Switzerland.)


The amended treaty will now allow U.S. authorities to identify American tax evaders who exhibit certain "behavioral patterns" more easily. That includes stashing undeclared money in banks, "dummy" corporations, trusts and foundations created specifically to hide these assets. The new treaty will also allow U.S. authorities to request information from foreign banks that don't do business on American soil but have U.S. clients. Banks and account holders who are found to be hiding undeclared U.S. assets will be forced to pay a substantial fine to the American government.


"This is a strike at the heart of the Swiss banking sector and a major breakthrough for the U.S.," says Teodoro Cocca, an adjunct professor at the Swiss Finance Institute, a private foundation created by Switzerland's banking and finance community in cooperation with leading Swiss universities. Cocca warns that the pressure on Switzerland, which has long prided itself on its banking-secrecy rules, will now increase dramatically if other countries "also demand the same exchange of information rights."
The U.S. Department of Justice has been tightening its grip on Switzerland since 2008, when an investigation revealed that the country's biggest bank, UBS, helped rich Americans hide billions in undisclosed offshore accounts. To avoid criminal charges, UBS paid a $780 million fine and released the names of 250 clients suspected of tax evasion.


(MORE: Can UBS Bounce Back from the Rogue-Trader Scandal?)
Both the Swiss government and Swiss Bankers Association welcomed the new treaty, hoping it will finally end the long-running tax dispute with the U.S. But not everyone in Switzerland is happy about it. The right-wing Swiss People's Party (SVP) argues that the agreement is a breach of constitutional privacy rights and a brazen attempt by a cash-strapped U.S. government eager to fill its coffers with tax revenue. "Americans disregard rights of others just to be able to pay off their huge debt," the party claims on its website, adding that American authorities are "hypocrites" for pressuring Swiss banks while thousands of "dummy" companies set up in Delaware are helping U.S. corporations evade taxes in their own country.


Switzerland is the world's largest offshore-banking center, with $2.1 trillion in foreign money under management, but the Swiss believe their country's reputation as a haven for illicit funds is unjustified. Legislation passed in 1998 made money laundering illegal, while other laws require that any suspicious deposits be reported to the authorities. Last year, another new law was passed allowing the government to confiscate funds deposited in Switzerland by plundering dictators and return the money to the country of origin. And numbered anonymous Swiss bank accounts are a myth — the law requires that all financial institutions identify their customers and ensure that deposits come from legitimate sources.


Some Swiss banks worry that the new treaty will make the country's financial sector less attractive to overseas clients. But experts say this is an unlikely scenario. "The future competitiveness of Swiss banks doesn't depend solely on secrecy," says Stéphane Garelli, an economist and director of the World



Competitiveness Center at the International Institute for Management Development in Lausanne. "Switzerland offers other advantages — a stable democracy with transparent arbitration and justice procedures — which may not be the case of certain emerging competitors, especially in Asia." Martin Naville, head of the Zurich-based Swiss-American Chamber of Commerce, agrees. He says Swiss banks still offer "more discretion, professionalism and security, within tax compliant and legal bounds, than financial institutions in many other countries."


While the long-term impact of the new treaty remains unknown, the U.S. government has made at least a couple things clear: Swiss banks will have to change the ways they operate if they want to stay on Washington's good side, and Americans hoping to hide their wealth in Switzerland can certainly no longer bank on secrecy.

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[jasoncran]

Now that would be interesting. Take the payroll deduct option away from employers and force all citizens to submit quarterly payments to the government for their taxes. Then we should see how upset people will get when they see the government wasting their money, especially on foreign aid to countries that are killing our diplomats and servicemen.

yeah thats called owning a business and having employees or being paid as a indepent contractor. i match myself and have taxes taken out of my wife's ssi.

 

[Knotical]

yeah thats called owning a business and having employees or being paid as a indepent contractor. i match myself and have taxes taken out of my wife's ssi.

I know, but imagine if everyone who was not self-employed paying their taxes the same way those who are self-employed.

 

[jasoncran]

I know, but imagine if everyone who was not self-employed paying their taxes the same way those who are self-employed.

well its common knowledge that your employer matches your taxes.

i knew that when before i went into the independent contractor business. well my wife owned a business and owed taxes and so i learned what it was all about.

 

[Knotical]

well its common knowledge that your employer matches your taxes.

i knew that when before i went into the independent contractor business. well my wife owned a business and owed taxes and so i learned what it was all about.

How exactly does my employer match my taxes? They certainly contribut to the premium on my health plan, and my 401k, but the company pays taxes on a completely different structure than I do as an individual.

 

[jasoncran]

How exactly does my employer match my taxes? They certainly contribut to the premium on my health plan, and my 401k, but the company pays taxes on a completely different structure than I do as an individual.

when you pay your taxes and they are matched by your employer. ie ss(the irs collects these if you file and owe , as in my case ).

for instance in 2001 the last year of when my wife work as home cleaner she made only 8k and owed a few grand on taxes. how is that possible?

 

[AirDancer]

You pay 100% of federal income tax on your paychecks.

You pay 50% of Social Security; employer pays other 50%

You pay 50% of Medicare; employer pays other 50%.

That's if you're employed by someone other than yourself.

Self-employed:

You pay 100% of Social Security & Medicare...........these are the 'self-employment' taxes. However, on the first page of the 1040, you receive a credit for half of the amount.

 

[jasoncran]

my tax rate isnt above 16%. so when my wife made that 8k she had to pay three grand in ssi and fica taxes?

 

[AirDancer]

Self-employment taxes are 12-13 % for SS & Medicare....and then she would have federal taxes on her adjusted gross income (net).

If she didn't make estimated (quarterly) payments during the year, then at tax time, final judgment would be rendered.

Her net income would have been added to your net income, plus any additional interest/income, less any credits which would include 1/2 of your wife's self-employment taxes.

From this would be deducted either standard deduction or itemized deduction total ... minus personal exemptions (a set amount for each person listed on the tax return). Your final total taxes due would be established based on the final amount after deduction/exemptions.

From tax money due would be deducted any further subtractions, like child care, additional child tax credit, retirement savings credit, etc.

So, yes, your wife could have easily owed up to $3K for self-employment taxes & federal taxes on net income.

 

[jasoncran]

Self-employment taxes are 12-13 % for SS & Medicare....and then she would have federal taxes on her adjusted gross income (net).

If she didn't make estimated (quarterly) payments during the year, then at tax time, final judgment would be rendered.

Her net income would have been added to your net income, plus any additional interest/income, less any credits which would include 1/2 of your wife's self-employment taxes.

From this would be deducted either standard deduction or itemized deduction total ... minus personal exemptions (a set amount for each person listed on the tax return). Your final total taxes due would be established based on the final amount after deduction/exemptions.

From tax money due would be deducted any further subtractions, like child care, additional child tax credit, retirement savings credit, etc.

So, yes, your wife could have easily owed up to $3K for self-employment taxes & federal taxes on net income.

we were married for two months in 2001. she owed more the year before. i will ask, and i know who and he worked for the irs and arrested men for cheating. he will know. i may be wrong.

 

[AirDancer]

Something to keep in mind, Jason -

Back in 2000 & 2001, Federal tax rates on income were higher than they are today.
Those years were before the Bush Admin's tax cuts & tax credits.

The only area of my tax returns that were lower in 2000/2001 was the Capital Gains Tax (Scedule D) on investments. At least there, the Clinton Admin lowered the tax rates on investment income. I appreciated those savings on income that I didn't see .... all dividends were reinvested.

 

[jasoncran]

actually last year i got back the most. under bush i broke even after say 2004 or i got at the most 500 bucks back.keep in mind i have to pay from my wife ssi check to avoid owing money to the irs.