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This has already been addressed, but since you missed it...
FICA tax effective rate is a function of total FICA wages, not income. Total income has NOTHING to do with FICA.
And I am saying that the separation of FICA and total income is precisely why FICA taxes are regressive: Because high earners are disproportionately able to structure their income so as to shield income from FICA taxes.
e,g, someone who structures their income as $1 ordinary income and $127,200 capital gain pretty much
avoids paying FICA tax entirely. The cap of $127,200 on FICA wages also enables many to earn income without paying FICA taxes on it.
I'm sure you think you've made some sort of point but this is meaningless in determining an effective FICA rate.
I don't consider an effective FICA rate meaningful in the context of the disproportionate ability of high earners to shield income from FICA taxes. I don't think I have ever calculated an effective FICA rate; what matters to me is "effective federal tax rate".
Warren Buffett's taxes provide an excellent example of why "Total FICA taxes paid as a percentage of total income" IS meaningful. His secretary is in a higher marginal federal tax rate than he does precisely because he is able to structure his income to shield most of it from FICA taxes.
Given that the maximum earnings affected by FICA is $127,200 it is unlikely that anything Buffett does shields him from paying the maximum SS tax.
Buffett refers to income tax, not FICA, when he makes his assertions. He has probably paid maximum FICA most of his life and will receive benefits according to that. Benefits and contributions are capped for both Warren and his secretary. Their total income is not relevant unless one of them has less than 127,200 in FICA wages. Then they will pay less and receive less. Pretty sure that won't be Warren.
And I am saying that the separation of FICA and total income is precisely why FICA taxes are regressive: Because high earners are disproportionately able to structure their income so as to shield income from FICA taxes.
e,g, someone who structures their income as $1 ordinary income and $127,200 capital gain pretty much
avoids paying FICA tax entirely. The cap of $127,200 on FICA wages also enables many to earn income without paying FICA taxes on it.
They will not get benefits either. Google "Social Security earnings history".
if you want to complicate it even more, look up "Social Security survivor's benefits". Some people who never pay in at all receive "widow's benefits" and they can receive these benefits as early as age 60. A woman age 60 , that never worked a day in her life, can get benefits based on a deceased husband's contributions starting at age 60. This is true even if her husband started receiving his own benefits at age 62 and died at 90 years of age.
Given that the maximum earnings affected by FICA is $127,200 it is unlikely that anything Buffett does shields him from paying the maximum SS tax.
Buffett refers to income tax, not FICA, when he makes his assertions. He has probably paid maximum FICA most of his life and will receive benefits according to that. Benefits and contributions are capped for both Warren and his secretary. Their total income is not relevant unless one of them has less than 127,200 in FICA wages. Then they will pay less and receive less. Pretty sure that won't be Warren.
That's incorrect in the discussion about his secretary and other employees he includes payroll taxes in his example because it widens the discrepancy
Buffett's income comes largely from investments which are taxed at a favorable rate. He pulls down a small salary from Berkshire Hathaway and takes 80% of his pay from the company in other forms. Dividends, long-term capital gains, and carried interest are all taxed at lower rates compared to the marginal rate for ordinary income. Because he structured most of his income in that way, many of his tax-deductible expenditures can bring his marginal tax rate down to 15 percent. He's also not subject to the AMT. Since he is in the 10 or 15 percent marginal tax brackets, there is no tax on long-term capital gains.
If you really want to re-hash it, I'm happy to do so.
Like old-time western movie clips, you can re-run these various misadventures of yours as many times as you like. The ending will always be the same however. Ashes to ashes. Dust to dust. Pound the makeshift cross into the dust and cue the tumbleweed.
Just pointing out that population studies have used AGI to compare effective tax rates. It may be that the difference in using total income vs AGI is small, or it may be a legacy issue to maintain studies that are comparable.
In any event, the Investopedia link is subject to confusion if the reader isn't able to exercise independent judgment and analysis. It is merely presenting a discussion of the tax rate schedule and the marginal tax rate, and the effective tax rate discussed in the article is something entirely different from what's normally used in financial analysis.
The Investopedia materials might be seen as confusing by those who were confused to begin with. Otherwise, they are certainly a better source of clarifying information than the ramblings of assorted Red Caps and other wannabes.
"An individual's effective tax rate is calculated by dividing total tax expense from line 63 of his 1040 Form by his taxable income from line 43 of that form. For corporations, the effective tax rate is computed by dividing total tax expenses by the firm's earnings before taxes."
And I am saying that the separation of FICA and total income is precisely why FICA taxes are regressive: Because high earners are disproportionately able to structure their income so as to shield income from FICA taxes.
e,g, someone who structures their income as $1 ordinary income and $127,200 capital gain pretty much
avoids paying FICA tax entirely. The cap of $127,200 on FICA wages also enables many to earn income without paying FICA taxes on it.
Sorry, but that isn't what a regressive tax is.
Again:
Regressive Tax = Tax rate increases as the amount subject to the tax decreases.
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