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What is a "fair share" in terms of tax paid by someone who makes $1 million per year? (1 Viewer)

Aelfscyne

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I've seen many politicians call for high income earners to "pay their fair share" as they call for higher taxes on such earners. However, I've never seen any of these politicians or their supporters articulate precisely what that fair share amount should be. I realize fair share may be dependent on income so let's take someone who makes $1 million per year. If you agree with these politicians who think the current level of taxation is not sufficient then how much tax should someone making $1 million per year being paying in taxes? I'd like a specific amount or at least a range.
 
I've seen many politicians call for high income earners to "pay their fair share" as they call for higher taxes on such earners. However, I've never seen any of these politicians or their supporters articulate precisely what that fair share amount should be. I realize fair share may be dependent on income so let's take someone who makes $1 million per year. If you agree with these politicians who think the current level of taxation is not sufficient then how much tax should someone making $1 million per year being paying in taxes? I'd like a specific amount or at least a range.

IMHO, a "fair share" of federal income tax is 25% of gross income from all sources above 138% of the federal poverty line for a 4 person household.

($1,000,000 - $34,638) X .25 = $241,341

A federal income tax return does not get much simpler than that (above).
 
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IMHO, a "fair share" of federal income tax is 25% of gross income from all sources above 138% of the federal poverty line for a 4 person household.

$1,000,000 - $34,638 X .25 = $241,341

A federal income tax return does not get much simpler than that (above).

Thanks for the very precise response. But why do you agree with politicians clamoring for higher tax rates on such taxpayers because most taxpayers earning $1 million per year pay more than that in taxes.
 
I've seen many politicians call for high income earners to "pay their fair share" as they call for higher taxes on such earners. However, I've never seen any of these politicians or their supporters articulate precisely what that fair share amount should be. I realize fair share may be dependent on income so let's take someone who makes $1 million per year. If you agree with these politicians who think the current level of taxation is not sufficient then how much tax should someone making $1 million per year being paying in taxes? I'd like a specific amount or at least a range.

All of it. If they can prove that keeping some of it serves social justice, then maybe they can keep a bit. /sarc
 
Thanks for the very precise response. But why do you agree with politicians clamoring for higher tax rates on such taxpayers because most taxpayers earning $1 million per year pay more than that in taxes.

I disagree because of deductions, credits, exclusions and the source of income (e.g. capital gains) may reduce that $1M down to $600K (or less) of AGI.

According to the Tax Foundation only the top 1% (as of 2016) paid an effective rate (tax paid relative to total gross income) of over 25%. The top 5% (where your $1M annual income falls) paid 18.9% according to the follwing link.

https://taxfoundation.org/summary-latest-federal-income-tax-data-2016-update/
 
I've seen many politicians call for high income earners to "pay their fair share" as they call for higher taxes on such earners. However, I've never seen any of these politicians or their supporters articulate precisely what that fair share amount should be. I realize fair share may be dependent on income so let's take someone who makes $1 million per year. If you agree with these politicians who think the current level of taxation is not sufficient then how much tax should someone making $1 million per year being paying in taxes? I'd like a specific amount or at least a range.

Based on what I hear on the news and read about from politician's statements on the matter, "fair" is entirely dependent on government "need". If, for example, government has a compelling interest to even out incomes of the citizens then it might be "fair" to take half to three quarters of that million. "Fair" seems to be whatever government says it is.
 
I disagree because of deductions, credits, exclusions and the source of income (e.g. capital gains) may reduce that $1M down to $600K (or less) of AGI.

According to the Tax Foundation only the top 1% (as of 2016) paid an effective rate (tax paid relative to total gross income) of over 25%. The top 5% (where your $1M annual income falls) paid 18.9% according to the follwing link.

https://taxfoundation.org/summary-latest-federal-income-tax-data-2016-update/

If a person makes $1 million from wages then they are paying in excess of 25% federal income tax. If someone is earning $1 million from tax exempt interest, capital gains, and/or dividends then I agree they won't likely be paying 25% federal income tax.

We can dig a bit deeper looking at some hard data. In 2016, the latest year we have data available at the moment, there were 192,849 returns filed with AGI between $1m and $1.5m. Now, AGI doesn't necessarily equate to economic income but let's set that aside for the moment. Those taxpayers reported aggregate AGI of $232.6 billion. Those taxpayer reported tax liability after credits of $63.7 billion. That equates to an effective tax rate of 27.4%. Now, back to the question of AGI versus economic income. We can look at the detailed data and compute these taxpayers economic income. Those taxpayers reported total income of $237 billion. The difference between the AGI and total income was $3 billion in tax-exempt interest, $0.2b in exempt social security benefits, $0.2b in foreign-earned income exclusions, and deductions for things like self-employment tax, retirement contributions and alimony payments. So if we take that $63.7 billion amount and dividend by their total income of $237 billion then we get 26.9%.

Now we can run this analysis all the way up the AGI scale but what the cold hard data shows is people with incomes of $1m to $1.5m pay >25% in federal tax on their income. Of course, that doesn't include state and local taxes they pay also.
 
If a person makes $1 million from wages then they are paying in excess of 25% federal income tax. If someone is earning $1 million from tax exempt interest, capital gains, and/or dividends then I agree they won't likely be paying 25% federal income tax.

We can dig a bit deeper looking at some hard data. In 2016, the latest year we have data available at the moment, there were 192,849 returns filed with AGI between $1m and $1.5m. Now, AGI doesn't necessarily equate to economic income but let's set that aside for the moment. Those taxpayers reported aggregate AGI of $232.6 billion. Those taxpayer reported tax liability after credits of $63.7 billion. That equates to an effective tax rate of 27.4%. Now, back to the question of AGI versus economic income. We can look at the detailed data and compute these taxpayers economic income. Those taxpayers reported total income of $237 billion. The difference between the AGI and total income was $3 billion in tax-exempt interest, $0.2b in exempt social security benefits, $0.2b in foreign-earned income exclusions, and deductions for things like self-employment tax, retirement contributions and alimony payments. So if we take that $63.7 billion amount and dividend by their total income of $237 billion then we get 26.9%.

Now we can run this analysis all the way up the AGI scale but what the cold hard data shows is people with incomes of $1m to $1.5m pay >25% in federal tax on their income. Of course, that doesn't include state and local taxes they pay also.

You have not addressed capital gains or carried interest, much less things like depreciation or the myriad of other accounting tricks used to reduce gross income to AGI. The bottom line is that once you leave the reality of gross income and enter the world of AGI then pretty much anything is possible.

The question posed was what I considered a "fair share". IMHO, that must address total gross income from all sources just as is stated in the 16A. The concept that income taxation should consider either the source of the income differently or how, or upon who, that income was later spent is fundamentally wrong.

Once you start lopping off amounts paid in state/local taxes, donated to charity or spent on mortagage interest than you have entered into the fictional income territory known as AGI.
 
I've seen many politicians call for high income earners to "pay their fair share" as they call for higher taxes on such earners. However, I've never seen any of these politicians or their supporters articulate precisely what that fair share amount should be. I realize fair share may be dependent on income so let's take someone who makes $1 million per year. If you agree with these politicians who think the current level of taxation is not sufficient then how much tax should someone making $1 million per year being paying in taxes? I'd like a specific amount or at least a range.

A very imprecise back-of-the-envelop first-pass would suggest ~$375K.
 
I disagree because of deductions, credits, exclusions and the source of income (e.g. capital gains) may reduce that $1M down to $600K (or less) of AGI.

According to the Tax Foundation only the top 1% (as of 2016) paid an effective rate (tax paid relative to total gross income) of over 25%. The top 5% (where your $1M annual income falls) paid 18.9% according to the follwing link.

https://taxfoundation.org/summary-latest-federal-income-tax-data-2016-update/

I don't remember what year it was but The Federal Government made large Corporations Entities giving them not only all the rights Corporations already had but also the same rights as a person
in doing that these large Corporations still get all their deductions and more.
When they did this a lot of Corporations that ( 42% ) made over a million dollars in US Profits did not have to pay any US income taxes.
and with the Trump tax cut the GAO has estimated that that percentage will be going up to about 65%
Ex. is GE who has an army of tax lawyers on staff just to make sure they do take every little deduction they can get
in doing this they have not had to pay any ( NOT one cent ) US income taxes and in some years get a tax credit they can carry over to the next year
There have been years that they have made Billions in US profits and did not pay a cent in US income taxes
I feel that that is wrong, When people that are retired and on SS are paying more in US Income taxes and living just above the poverty level are paying more then these large Corporations do something is wrong and it should be fixed.
I believe that if they took away most of these tax deductions and had a flat Corporate income tax of say a 7 to 10% every large Corporation would be paying something and not be using the Infrastructure paid for by those income taxes to make their millions if not billions in US profits and not paying a cent.
and in doing this the Corporations that are not paying anything now would be paying a share of those taxes and the ones that are paying US income taxes now would be paying less and they could grow and reinvest more in the US creating more jobs and increasing the tax base
Have a nice day
 
You have not addressed capital gains or carried interest, much less things like depreciation or the myriad of other accounting tricks used to reduce gross income to AGI. The bottom line is that once you leave the reality of gross income and enter the world of AGI then pretty much anything is possible.

The question posed was what I considered a "fair share". IMHO, that must address total gross income from all sources just as is stated in the 16A. The concept that income taxation should consider either the source of the income differently or how, or upon who, that income was later spent is fundamentally wrong.

Once you start lopping off amounts paid in state/local taxes, donated to charity or spent on mortagage interest than you have entered into the fictional income territory known as AGI.

I've addressed all of those in the data I'm using. The data is directly from the IRS Statistics of Income site. Capital gains and carried interest amounts are all included in total income and adjusted gross income. And total income and adjusted gross income is computed before taking into account itemized deductions such as charitable deductions, mortgage interest, etc. And the tax liability amounts I quoted incorporate the lower tax rates on those items and reflect the benefit of itemized deductions. It's all taken into account in the numbers I quoted.
 
If a person makes $1 million from wages then they are paying in excess of 25% federal income tax. If someone is earning $1 million from tax exempt interest, capital gains, and/or dividends then I agree they won't likely be paying 25% federal income tax.

We can dig a bit deeper looking at some hard data. In 2016, the latest year we have data available at the moment, there were 192,849 returns filed with AGI between $1m and $1.5m. Now, AGI doesn't necessarily equate to economic income but let's set that aside for the moment. Those taxpayers reported aggregate AGI of $232.6 billion. Those taxpayer reported tax liability after credits of $63.7 billion. That equates to an effective tax rate of 27.4%. Now, back to the question of AGI versus economic income. We can look at the detailed data and compute these taxpayers economic income. Those taxpayers reported total income of $237 billion. The difference between the AGI and total income was $3 billion in tax-exempt interest, $0.2b in exempt social security benefits, $0.2b in foreign-earned income exclusions, and deductions for things like self-employment tax, retirement contributions and alimony payments. So if we take that $63.7 billion amount and dividend by their total income of $237 billion then we get 26.9%.

Now we can run this analysis all the way up the AGI scale but what the cold hard data shows is people with incomes of $1m to $1.5m pay >25% in federal tax on their income. Of course, that doesn't include state and local taxes they pay also.

OK...but -
-Tax exempt interest comes from investment in municipal bonds. Basically, it's from funding government projects with private money. That's a good thing, right?
-Exempt social security benefits for someone in the million dollar AGI range means 15% of their social security WASN'T taxed. They were forced to pay into a social insurance program and may well not have recovered the principle they paid in yet but, because the government "needs" that money, 85% of their benefit gets taxed.
-I didn't look at the SOI that your numbers appear to be taken from but I suspect that the foreign earned income exclusion amount you cite is high and may have been foreign tax credit instead. The foreign earned income exclusion wouldn't make a lot of difference on a return with a million dollar AGI because everything above the exclusion threshold (roughly $100k, depending on the year) is taxed at the marginal rate applied as if the exclusion didn't exist. The foreign tax credit, however, could make a lot of difference if the taxpayer had income from sources which were taxed in a foreign country. For example, an American earning $500k while working in Germany for a German corporation that withholds German taxes at 40% would have paid more in German taxes than they would have under US rules. So, to avoid taxing the same income in both Germany and the US, the US gives a credit for the amount of foreign tax paid. On the US return the taxpayer would have an AGI of $500k and zero US tax due but that's only because they paid their tax to Germany. If we don't count that German tax toward the taxpayer's overall rate we're kind of fudging the numbers, don't you think?
 
I've addressed all of those in the data I'm using. The data is directly from the IRS Statistics of Income site. Capital gains and carried interest amounts are all included in total income and adjusted gross income. And total income and adjusted gross income is computed before taking into account itemized deductions such as charitable deductions, mortgage interest, etc. And the tax liability amounts I quoted incorporate the lower tax rates on those items and reflect the benefit of itemized deductions. It's all taken into account in the numbers I quoted.

IIRC, you listed $237B adjusted down to $232B as the total change between gross income and adjusted gross income which seemed awfully low for that change. In any event, my figure (of about 24%) was easily within about 10% of your stated current effective taxation rates (of about 27%).
 
IMHO, a "fair share" of federal income tax is 25% of gross income from all sources above 138% of the federal poverty line for a 4 person household.

($1,000,000 - $34,638) X .25 = $241,341

A federal income tax return does not get much simpler than that (above).

In my view fair share should mean defining budget requirements and dividing that number by total population. Anything else is some sort of wealth redistribution.

i find it hard to understand how someone who pays no taxes can make the claim that someone else is not paying enough.
 
In my view fair share should mean defining budget requirements and dividing that number by total population. Anything else is some sort of wealth redistribution.

i find it hard to understand how someone who pays no taxes can make the claim that someone else is not paying enough.

That is simply ridiculous because it has nothing to do with the 16A.
 
IIRC, you listed $237B adjusted down to $232B as the total change between gross income and adjusted gross income which seemed awfully low for that change. In any event, my figure (of about 24%) was easily within about 10% of your stated current effective taxation rates (of about 27%).

The $237B and $232B figures come directly from the IRS for what its worth. And my only point if you think 25% is what they should pay and given they are paying 27% then we shouldn't be raising tax rates on people earnings $1m to $1.5m per year. We can look at higher incomes and see how they fare though.
 
I've seen many politicians call for high income earners to "pay their fair share" as they call for higher taxes on such earners. However, I've never seen any of these politicians or their supporters articulate precisely what that fair share amount should be. I realize fair share may be dependent on income so let's take someone who makes $1 million per year. If you agree with these politicians who think the current level of taxation is not sufficient then how much tax should someone making $1 million per year being paying in taxes? I'd like a specific amount or at least a range.

As far as the politicians talking about it, the bills they propose state exactly what numbers they would expect. For Joe Blow Public the term "fair share" is much more nebulous.
 
Personally, I think we need to get rid of the term "fair share" as I don't actually think such a thing exists. The only people paying their "fair share" are people who, by coincidence, happen to pay the same amount in taxes as they consume in government services, benefits, and protections. But it would be pretty difficult to calculate that.
 
That is simply ridiculous because it has nothing to do with the 16A.

The question was what is a fair share? As it stands now 9% pay half and half pay none, and the none half are busy trying to figure out how to get more out of the 9%.

That has nothing to do with the 16th.
 
I've seen many politicians call for high income earners to "pay their fair share" as they call for higher taxes on such earners. However, I've never seen any of these politicians or their supporters articulate precisely what that fair share amount should be. I realize fair share may be dependent on income so let's take someone who makes $1 million per year. If you agree with these politicians who think the current level of taxation is not sufficient then how much tax should someone making $1 million per year being paying in taxes? I'd like a specific amount or at least a range.

When they discuss things like people paying their fair share typically means getting money from those who are wealthier than the multi-millionaire's that are many members of the Democrat party. Just go ahead and put in a liberal politicians name and google their net worth.
 
The question was what is a fair share? As it stands now 9% pay half and half pay none, and the none half are busy trying to figure out how to get more out of the 9%.

That has nothing to do with the 16th.
It isn't quite true that half pay none. Anyone who works pays at least 7.65% of their income in Social Security and Medicare taxes. True, that is not the "income tax" per se, but it is still a tax on income. But to the larger point that a minority of Americans pay a majority of federal taxes, that is true.
 
As for what is "fair share" I think the reason that term is used now is because of effective tax rates. Many super wealthy individuals end up with an effective tax rate that is lower than the effective tax rate of Americans making less (see this for example). And many corporations raking in billions pay effective tax rates of 0 because of various loopholes. That's the fairness issue being pointed to.

I think "fair share" arguments also are pointed at the disparity in income vs. capital gains tax rates. What the "fairest" rate for each income level is I don't know, but I also don't think that's the point. If the wealthiest are paying rates lower than those who are less wealthy, that simply is not their "fair share" whatever the ideal rate may be.
 
In my view fair share should mean defining budget requirements and dividing that number by total population. Anything else is some sort of wealth redistribution.

i find it hard to understand how someone who pays no taxes can make the claim that someone else is not paying enough.

Exactly. The only problem with your formula is that there is no checking of budget expenditures. Say, if Democratic Socialists took control of the government then they could give "free" education and Medicare for all and just divide all of the expenses by the number of tax payers and that would be their tax rate. Somehow we have to get control of the dollars spent. But, it is totally insane for 50% of the population who pay zero in federal income taxes to claim that the rich aren't paying their fair share.
 
When they discuss things like people paying their fair share typically means getting money from those who are wealthier than the multi-millionaire's that are many members of the Democrat party. Just go ahead and put in a liberal politicians name and google their net worth.

Yes, it is pretty amazing that Democrats are all for the other side paying more in taxes as long as it doesn't apply to them. In fact, most of the billionaires are actually liberal. As long as people like Michael Moore, George Soros, Warren Buffet, Bill Gates, Oprah Winfrey, et al, along with all of the multi-millionaires in Hollywood give lip service to liberal causes, they are to be exempt from tax increases. To simplify it, these people say that anyone on Wall Street should be paying much more in taxes but they themselves shouldn't have to. If someone is getting rich off restaurant, retail, or banking they are the bad guy but if they get rich off being an entertainer then they are the good guy. I mean just look at rich Democrats and their home states griping and complaining that their state, local, and property tax deductions are capped at $10,000 and California even tried circumventing the law by trying to claim property taxes were actually a charitable contribution and not really property taxes. It just makes we want to cry at their misery.
 
It isn't quite true that half pay none. Anyone who works pays at least 7.65% of their income in Social Security and Medicare taxes. True, that is not the "income tax" per se, but it is still a tax on income. But to the larger point that a minority of Americans pay a majority of federal taxes, that is true.

Actually, the figure was around 47% to 48% but with the Republican's new tax law changes, that percentage is expected to now top 50%. And, we are talking about federal income taxes, not FICA and not if you bought a burger at McDonalds and paid taxes on it. Do you really want to compare the 7.65% taken out of Joe Shmoe's paycheck to all of the 7.65%'s paid by Walmart?
 
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