47% will pay no federal income tax

Harshaw said:

Correct. My company is an S corporation, and I am taxed directly, as personal income, on my half of the yearly profits. This is on top of the income tax on the salary that I pay myself.

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It's not like the first tax is on top of the second tax for the same dollars though. The money received as salary is taxed as a salary and allowed as a deduction for the s-corporation. You only pay tax on your share of the remainder of the S corporation income after deducting the salaries. In fact, one of the reasons people form S-corps is to reduce their tax liability, because shifting income off the W-2 eliminates the social security/medicare taxes on that income.

obvious Child said:

I suppose, but ignoring close to 50% of the federal budget doesn't suggest a meaningful discussion.


I guess, but to ignore close to 50% of the federal budget is rather...ludicrous. Conversely, we could argue that the super rich are getting a free ride on FICA when their incomes are not subject to those withholding due to tax structuring.

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I say that because there are many on here who argue that SS/Medicare are their own entities that should be evaluated separately from general revenues. I do not believe this, but if we take their argument to its logical conclusion, then the top half of the country is paying for everything else while the bottom half simply covers their share of SS/Medicare.

vvx said:

It's not like the first tax is on top of the second tax for the same dollars though. The money received as salary is taxed as a salary and allowed as a deduction for the s-corporation. You only pay tax on your share of the remainder of the S corporation income after deducting the salaries. In fact, one of the reasons people form S-corps is to reduce their tax liability, because shifting income off the W-2 eliminates the social security/medicare taxes on that income.

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But that corporate income would still be classified as "gross income," which is the reason why that article is absolutely misleading. They even make an effort to acknowledge it:

But the GAO report is misleading and unfair to U.S. businesses, according to Tad D. Ransopher, assistant professor in the School of Accountancy at Georgia State University's J. Mack Robinson College of Business. For example, take a company with $100 million in gross income, says Ransopher. Figure the company has $80 million in legitimate deductions, including wages paid and cost of goods sold. That leaves $20 million in taxable income. If the company pays tax on 30 percent of that income, that's a $6 million tax bill, or 6 percent of its total income. If the company can achieve a 20 percent tax rate, something most people try to get, then it pays $4 million in taxes, or 4 percent of its gross income in taxes.

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vvx said:

It's not like the first tax is on top of the second tax for the same dollars though. The money received as salary is taxed as a salary and allowed as a deduction for the s-corporation. You only pay tax on your share of the remainder of the S corporation income after deducting the salaries. In fact, one of the reasons people form S-corps is to reduce their tax liability, because shifting income off the W-2 eliminates the social security/medicare taxes on that income.

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I don't mean to imply it's a double taxation. In fact, one of the reasons to set up as an S corp is to avoid that.

obvious Child said:

As does the entitlement taxes. Interestingly enough, the CBO data suggests that the level of wealth is somewhat correlated to the level of taxes (with a few exceptions, namely the group between the top 15% and top 5%).

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Except it's not correlated to income. The top earners have a higher amount of wealth because they can accumulate it without spending all of their income. Yet taxation, particularly in the top percentages follows the percentage of wealth owned, not the income earned. To look at wealth as the measure by which taxes should be correlated means you are taxing the same earned dollars multiple times. For example, the top 1% pay 40% of income taxes, hold 40% of the wealth, but earn 20% of the income.

That is a misunderstanding of what it actually said:

"When considerising federal income taxes in combination with payroll taxes, the percent of households with a net liability of zero or less is estimated to be 24% th year, according to the Tax Policy Center's estimates."

They have a tax liability that is initially positive. They still have to file. Except that they qualify for enough refundable taxes to have income from the government.

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I didn't misunderstand anything. I didn't say a quarter of people didn't file. I said they have ZERO tax liability, which is exactly what happens. In fact, a good number of those people not only have no tax liability, they are actually paid back by the US government. Rather than paying any income tax, they are given money by the US government simply for filling out their taxes.