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To be fair on the 1099s their income is often higher because of that designation, at least that's how it was in the software development industry where I spent my career. A company might have average software dev salary of $110k but have contractors in there making $75/hour for same work, who really makes more depends on a lot of factors including (lack of) benefits and how much value you place on job stability.
I'm really curious where these proposed brackets are going to fall, both sides can talk all they want about who is going to save/lose what but in the end we have no idea on hard numbers other than the doubling of the std deduction.
Not really compared to W-2 employees. 1099 contractors get zero benefits. You don't work? You don't get paid. It's pretty unusual to invoice a high enough hourly rate to make back the weeks of company paid holidays, the weeks of paid vacation time, paid sick time, medical/dental/vision, long term disability, etc. That's on top of having to pay both sides of payroll taxes.
Reminds me, I have to submit an invoice for some 1099 contracting work.
GeoffD, we, (you, FreeMkt, and I) apparently concur, federal taxe's aint that progressive.
My head almost exploded.
Nope. We don't agree. I just pointed out a class of worker who gets nailed pretty hard by self employment taxes. If you work for yourself and pay taxes on $125K, you see a high effective tax rate and you likely get hosed on medical insurance premiums and things like long term disability that are far cheaper in corporate group plans. Joe-The-Plumber making $125K gets taxed harder and pays more for worse benefits than Fred the software engineer with the corporate job paying $125K.
If you're corporate W-2 and make $300K, you have a much higher effective tax rate than Joe-The-Plumber making $125K. You're in a much higher tax bracket. Your Schedule A itemized deductions phase out.
It's the passive income people who get the low tax rate because they pay the low capital gains/dividends rate. That's Warren Buffett saying his effective tax rate is lower than his administrative assistant. Warren Buffett still pays a ton of taxes. He's paying 20%. His admin is probably W-2 at $250K with a 25% effective tax rate.
Nope. We don't agree. I just pointed out a class of worker who gets nailed pretty hard by self employment taxes. If you work for yourself and pay taxes on $125K, you see a high effective tax rate and you likely get hosed on medical insurance premiums and things like long term disability that are far cheaper in corporate group plans. Joe-The-Plumber making $125K gets taxed harder and pays more for worse benefits than Fred the software engineer with the corporate job paying $125K.
If you're corporate W-2 and make $300K, you have a much higher effective tax rate than Joe-The-Plumber making $125K. You're in a much higher tax bracket. Your Schedule A itemized deductions phase out. ...
GeoffD, no. You pointed out a class of taxpayer's wearing both employee and an employer hats at the same time; they're independent contractors. Independents are by definition their own employer. They're paying both the employee and the employer's tax rate on only their own wages as an employee and as an employer.
When independents retire, they do not receive less benefits because they were independents. You expect independents to be subsidized by other taxpayers? Your contention of inequity due to regulations application upon independent contractors is without merit.
Independents contracted to any enterprise, (e.g. independent contractor, partnership or corporate entrerprises) pay their own taxes. Independents employing others have the responsibilities as do any other employers but their employees pay the taxes levied upon employees.
If a higher income earner believes their retaining independent contractor status is to their disadvantage, they should be speaking to an accountant or tax attorney. We should all do what we believe is best for ourselves. Independent contractors chose that status for themselves.
As the discussion of tax reform and tax simplification winds its way through Congress, it is important to remember the following.
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.
***********
Once a week, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this...
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
And the tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men drank in the bar every week and seemed quite happy with the arrangement until, one day, the owner caused them a little problem. "Since you are all such good customers," he said, "I'm going to reduce the cost of your weekly beer by $20." Drinks for the ten men would now cost just $80.
The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free but what about the other six men? The paying customers? How could they divide the $20 windfall so that everyone would get his fair share? They realized that $20 divided by six is $3.33 but if they subtracted that from everybody's share then not only would the first four men still be drinking for free but the fifth and sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fairer to reduce each man's bill by a higher percentage. They decided to follow the principle of the tax system they had been using and he proceeded to work out the amounts he suggested that each should now pay.
And so, the fifth man, like the first four, now paid nothing (a 100% saving).
The sixth man now paid $2 instead of $3 (a 33% saving).
The seventh man now paid $5 instead of $7 (a 28% saving).
The eighth man now paid $9 instead of $12 (a 25% saving).
The ninth man now paid $14 instead of $18 (a 22% saving).
And the tenth man now paid $49 instead of $59 (a 16% saving).
Each of the last six was better off than before with the first four continuing to drink for free.
But, once outside the bar, the men began to compare their savings. "I only got $1 out of the $20 saving," declared the sixth man. He pointed to the tenth man, "but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a $1 too. It's unfair that he got ten times more benefit than me!"
"That's true!" shouted the seventh man. "Why should he get $10 back, when I only got $2? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!" The nine men surrounded the tenth and forcibly confiscated his $10 of tax savings, because he was rich and didn't need it.
The next week the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important - they didn't have enough money between all of them to pay for even half of the bill!
And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy and they just might not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.
Um, no. I can go right now to many places around the world and pay zero tax.
I'm talking about developed countries with actual economies and governments. Not little tax haven refuges that could not exist without stealing funds from elsewhere.
I'm talking about developed countries with actual economies and governments. Not little tax haven refuges that could not exist without stealing funds from elsewhere.
Some people argue from the preponderance of the data, while some will only mention the exceptions to the rule.
With respect to the thread title, the impacts of personal and corporate income taxes tend to be progressive at the federal level. Other federal taxes and nearly all state and local taxes tend in the opposite direction.
Even less so when you figure that, although you get back your FICA on retirement, those at the bottom don't live as long.
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