Thursday, July 19, 2012
What Is "Good" Income ?
Currently wage and salary income up to $110,000 per year is SS/FICA taxed at a total rate of 10.4% down 4.2% from the previous rate. It is true that the employee and employer each pay half, unless you happen to be both (self-employed). Somehow the fact that the employer writes the check seems to mean to some people that it isn't a tax on the worker - the self-employed rate would seem to make that a lie. On the other hand, if you hold, say stocks, for more than a year your tax rate on the capital gains is 15% if your tax bracket is 25% or above and zero below that. Short term (less than a year) gets taxed at your bracket level. Dividends are taxed at your normal tax rate unless you've held the stocks for a specified period previous to the issue. Neither of these types of income is taxed for SS/FICA. So here's the deal, SS/FICA is applied to wages or salary up to $110,000, after that you're out of it and if you don't take a wage or salary you don't pay it at all. It isn't a very complicated matter to make a gadzillion dollars per year and be at the 15% Federal Tax Rate - period. It is important to remember that there are no deductions affecting SS/FICA and the other tax brackets are subject to them. It makes no difference how little wage you take, you are taxed at (currently) 10.4% and then you get to take what ever modifications to your income you can to reduce your income tax bracket. From $8700 to 35,350 your tax bracket is 15%, that is how little you can make to get to the one year capital gains rate - but you're also being taxed at 10.4% so really you're at 25.4%, $0 to 8700 gets you down to the 10% rate which if you toss out the employer contribution on SS/FICA (and make some idjits happy) you're finally close to the capital gains rate. Since the brackets and total SS/FICA rates make it clear that making any wage in a year is taxed at a higher rate than one year + capital gains, one of these kinds of income is less desirable to the nation since, to use Teabaggery rhetoric, one is punished more. You worker bees must only exist because the queen bees get their nectar. This is St Ronnie-ism writ large. The logic is that jobs don't exist without the investor class putting money into the system. That whole thing starts to fall apart when you ask just where it is that the investor class got that money. None of that money just magically appeared, somewhere someone actually worked to generate it, even if you inherited it. Without work there is no money - also, too. (h/t to Sarah) The Teabaggery crowd (plutocratic enablers and plutocrats) would have you believe that we punish success when the actual reality is that we punish work. At $110,000 per year wage you pay an effective rate of 38.4% while if your income is from 1+ year capital gains is $110,000 your rate is 15%. Who the hell is being punished here, the person who goes to work or the person who has enough money to realize a $110,000 profit from selling stock held for a year? None of this discussion relates to deductions or who gets real use from them, and yes, putting deductions in would modify the wage/salary amounts pretty considerably but is too wildly variable to include. Yup, it apparently is socialism/leftism to think work is something like the equal to wealth.