Interesting Tax Point? Percentage left for Savings/Non-Essential Spending

I discovered something interesting while playing around with numbers today (I'm bored, what can I say?)

I believe in a progressive tax structure. However, for such a structure to actually be fair, there needs to be a good theory behind how brackets are assigned, the value of each bracket, etc. The whole system should be designed to create analogous burdens on different classes of earners. This is admittedly very difficult and complicated, but there may be one way that is more effective than others.

Let's start with the assumption that, for a single person, it costs about $11,000 a year for necessities. I believe that is the official poverty line in the US for a single person. Under the current system (taking into account only federal income taxes)...

PERSON ONE:

• Makes $35,500 a year
• Pays $5,325 in taxes (income tax rate of 15%)
• $30,175 left after taxes.
• $19,175 left after subtracting the amount necessary for absolute necessities.

• Thus, after subtracting both federal taxes and necessities, PERSON ONE is left with 54% of his income to either save or spend on non-essential items.

PERSON TWO:

• Makes $1,000,000 a year
• Pays $350,000 in taxes (income tax rate of 35%)
• $650,000 left after taxes
• $639,000 left after subtracting the amount necessary just for absolute necessities.

• Thus, after subtracting both federal taxes and necessities, he is left with 64% of his income to either save or spend on non-essential items.

My question is . . . for a progressive tax system to be truly fair, should the percentages highlighted be equal? If so, here are some possible solutions that would equalize that final number.

• (1) PERSON TWO's bracket could be increased to 46%.
• (2) PERSON ONE'S bracket could be decreased to 0.05%.
• (3) You could set the percentage left after taxes and necessities to be somewhere in the middle (e.g., around 56%, which would make PERSON TWO'S bracket 43% and PERSON ONE'S bracket 13%).

If you pick other, please do not simply post that the rates for everyone should be lower/higher. I specifically would like to know whether the percentages I have highlighted are a good way to judge a progressive system's fairness. Many people probably would prefer a flat tax or a sales tax or what-have-you, but that is beyond the scope of where I would like this discussion to go.

If my math is completely off, please tell me that too.

Thanks!

I meant to include a fourth selection in the poll, "Other." Sorry.

A tax system based on what government thinks you are entitled to keep or what government thinks you need is as ass backwards as it gets.

Reg said:

A tax system based on what government thinks you are entitled to keep or what government thinks you need is as ass backwards as it gets.

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The amount you are "entitled to keep" would theoretically be determined by the amount you, through your elected officials, decide the government should be spending. This is just an attempt to set rates in an equitable manner.

No, it's based on government's assessment of your need, and it's wrong.

Government always fails at making things "equitable."

Your numbers are wrong. You list "$30,175 left after taxes." - but that wouldn't be true when you add FICA.

You're also taxing all of the income of both individuals at their marginal tax rate. If you are in the 35% marginal tax bracket, you pay 35% only on the income that is above the lower tax brackets. Everyone pays the same tax on the first $8,500 and so on.

I don't believe it changes your point/argument though, just the numbers you're using. If anything it's skewed more in favor of person two right now than you are making it out to be. Person one's tax will be higher with FICA, person two's tax will be lower since not all their income is taxed at 35%.

vvx said:

Your numbers are wrong. You list "$30,175 left after taxes." - but that wouldn't be true when you add FICA.

You're also taxing all of the income of both individuals at their marginal tax rate. If you are in the 35% marginal tax bracket, you pay 35% only on the income that is above the lower tax brackets. Everyone pays the same tax on the first $8,500 and so on.

I don't believe it changes your point/argument though, just the numbers you're using. If anything it's skewed more in favor of person two right now than you are making it out to be. Person one's tax will be higher with FICA, person two's tax will be lower since not all their income is taxed at 35%.

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Thank you for pointing that out.

Any tax system that tries to tell people what they deserve and taxes people based on what the government find acceptable income is wrong.

Dick Durbin did not know what your ATM card fees would be. Do you trust him to tell you what your income should be?

Reg said:

Dick Durbin did not know what your ATM card fees would be. Do you trust him to tell you what your income should be?

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I don't know what your ATM card fee is. I just checked with my wife, mine is zero. Should I know your's?

You think 11k is enough to pay rent/mortgage, utilities, and supply food/gas for yourself (and family)?