So I really pay no income tax?

What about homeowners without kids? Doesn't that mean that they're paying for other people's kids? How far can we go with this? Why do people who are married get a tax credit? It always cracked me up that people got away with calling it a "marriage penalty" before. What do they think was the penalty? Why should they pay less tax because they got married, a free-will decision?

 

Married people do not get a tax credit. They get --- in some cases --- a lower rate if they file jointly.

The reason is simple.

Single man makes $70,000. Pays a decent tax rate (because $70,000 for one person is deemed a good income).

Man gets married, Wife only makes $5,000. Household income of $75,000 will be taxed at a lower rate (because $75,000 for two people is deemed a poor income).

The "marriage penalty" only applied to couples when each had good, similar-paying jobs because the combined incomes bumped them into a higher bracket and often made them ineligible for certain deductions they could have had if filing as a single person.

Even at its peak, the "penalty" affected only 42% of couples (with an average "penalty" of $1,300 over what they would have been paying if they were single). It was simply caused by our progressive system, which couuld not account for every variable to make everything 100 percent fair for everyone.

 

I had someone in my office last week grousing about being penalized financially because of marriage. Um, yeah ...

 

Standard deduction for marrieds is so high, it's hard to legitimately itemize, which basically wipes out a lot of deductions.

My paltry $2,000 mortgage interest, $3,000 property tax and $500 charitable deductions aren't going to approach the $11,000 standard deduction.


If, however, you were making 80-90% of the household income, you likely would not be penalized. Similar incomes is what triggers it.

 

I always thought the "Marriage Penalty" was considered that because a standard deduction for two unmarried people was higher than a standard deduction for a married couple? (Didn't Congress change it, or was debating it?)

 

Yup. How does one get one of those jobs ... prove you can crash and burn faster than the other candidates?

 

How can it be that Warren Buffet pays a smaller percentage of taxes on his income than his secretary?

He's paying big bucks to someone--several someones, no doubt--making far more than his secretary to study the tax code and use it to Buffet's advantage.

I ask you--why don't our political leaders (of both parties) choose to simplify the tax code to correct the inequities rather than to jigger around with the mammoth system we have?

Could special interests--again, of both parties--have anything to do with it?

I ask this question as a non-specialist who tackles the tax code head on every spring, to the tune of a couple of days worth of extra work for which I am not paid and cannot claim as an expense.

 

That's true that the standard deduction used to be higher for two single people, by about $1,200. But the tax rate for single people is $2,000-$3,000 higher (for most income groups), so there was still usually a tax advantage to being married. Usually.

Today the standard deduction for single is $5,700, and married is $11,400. So Congress did take care of that problem. And they also made the tax rate for "married filing separately" equal to "single" for most income groups (used to be about $500 higher), so that wiped out the marriage penalty for some people. And the tax rate for marrieds is still substantially lower if they file jointly.

The penalty comes if/when the combined incomes bump the marrieds into a higher tax bracket. Doesn't happen very often any more (Congress tweaked those tax rate schedules), but it still dings a few people.

Example:

In 1999, two married people, each with $32,500 in income but with no deductions and no itemizing, would have each paid $3,821 if filing single ($7,642 total) and $9,055 if filing jointly.

That's because of the standard deduction issue shown above, and because their $65,000 bumped them into the 28% bracket for much of their income (vs. 15% top bracket for $32,500 filing single). The penalty was much worse if each was a six-figure earner.

 

I figured he meant because he has a lot more deductions than she does. Corporate deductions, etc. I do my own taxes, too, and I do long form so I know a little about it. I once figured out what I'd save if we went to a flat tax. I figured about $14,000. And if we went to the VAT, I'd be golden because I have an old car, old TV, etc. All those people who pay hardly any income tax but have plenty of money to drop at Best Buy on the newest flat-screen TV would be dinged. The reason nothing is done about it is because it's politically expedient to have the middle class who pay the greatest percentage of their income to tax carry the load. If we actually started getting the money we should from corporate taxes, then we'd be getting somewhere.

 

I can't imagine anyone taking two days to complete the short form.

Just checked a Wikipedia chart--I'm no expert on corporate tax rates, but I had a notion--for 2010, only Japan shows higher corporate INCOME TAX rates than the U.S. So I'm guessing if you're correct, Magic, you're talking about other forms of taxation and/or loopholes.

I do know that it's very expensive, taxwise, for U.S. corporations to open offices overseas--that's one reason so much offshoring is by contract--and that U.S. execs overseas pay far more taxes at home than their counterparts from most other countries. Companies often make up the difference for expats--tax adjustments, they're sometimes called--which is another corporate expense and an extra reason U. S. companies usually prefer foreign citizens to work in their foreign offices.

 

Lots of loopholes. And like NFL teams, these companies demand tax breaks from states they're located in or threaten to move the company. I think there was an AP story last year that half of all U.S. corporations paid zero income tax for that year.

 

A really good case could be made for dropping corporate income taxes altogether. Besides the issue of double taxation, there are the market distortions that accompany corporate income taxes (or the efforts to avoid them).