Buffett Thread Continued

Aero, Chris,
When companies claim X% total taxes paid, how easy is it, whether by accident or not, to include the taxes withheld from employee paychecks? If an employer makes a statement that his company pays, say 45% in taxes, what in reality does it actually include?

Also - I've noticed that whenever the comparison comes up between the high wage earners and the middle class, they include a payroll tax in the high wage tax total, presumable since they have people working for them. Middle class blue collar workers don't pay a payroll tax. They aren't making an honest comparison. In other words, part of that high wage tax total they continually publish appears to include employer type taxes, not just personal taxes. The 29.1% tax for millionaires includes the payroll tax. My tax rate is in the 20's and I'm not paying a payroll tax. So what's the true comparison here?

This may answer some of your questions:
Steve Forbes: Flat Tax is Best Economic Fix

Best way to answer is:
- the US has a federal tax rate, which is graduated, the more you earn, the more you pay. Top rate is 35 or 40% (can't remember because its close to the UK).
- most US states have state income tax. Illinois is one of the highest taxed states.
- there is corporate income tax, and this is broken into two levels:
= corporate taxes which pay up to 35% plus the state's corporate income tax rate.
= Chapter S companies which are taxed on the owners 1040. As the Forbes article says, small companies up to say 50 employees use this system. This avoids the company paying the owner a wage, and then taxing the company itself, and effectively paying tax twice.

Note I am not an accountant, and this is what I know.
 
Aero, Chris,
When companies claim X% total taxes paid, how easy is it, whether by accident or not, to include the taxes withheld from employee paychecks? If an employer makes a statement that his company pays, say 45% in taxes, what in reality does it actually include?

Also - I've noticed that whenever the comparison comes up between the high wage earners and the middle class, they include a payroll tax in the high wage tax total, presumable since they have people working for them. Middle class blue collar workers don't pay a payroll tax. They aren't making an honest comparison. In other words, part of that high wage tax total they continually publish appears to include employer type taxes, not just personal taxes. The 29.1% tax for millionaires includes the payroll tax. My tax rate is in the 20's and I'm not paying a payroll tax. So what's the true comparison here?

This may answer some of your questions:
Steve Forbes: Flat Tax is Best Economic Fix

Best way to answer is:
- the US has a federal tax rate, which is graduated, the more you earn, the more you pay. Top rate is 35 or 40% (can't remember because its close to the UK).
- most US states have state income tax. Illinois is one of the highest taxed states.
- there is corporate income tax, and this is broken into two levels:
= corporate taxes which pay up to 35% plus the state's corporate income tax rate.
= Chapter S companies which are taxed on the owners 1040. As the Forbes article says, small companies up to say 50 employees use this system. This avoids the company paying the owner a wage, and then taxing the company itself, and effectively paying tax twice.

Note I am not an accountant, and this is what I know.

Thanks, and I don't mean this in any bad way, but that didn't help.

I am all for a simple tax system (as I'm sure pretty much every one is, much to some peoples' chagrin), however I am not convinced that it should be absolutely flat across the entire board. Percentage is percentage, but you have to keep in mind the mechanism of the rich / poor gap getting too broad. If the system is set up where the people on the bottom (who are, effectively, allowing the people on the top to make their money - heck they are the ones making it for them) can never get their chance to progress (buy a house, send their kids to college...) then our society as a whole doesn't seem balanced and mutually beneficial.

I know for a damn fact that if I were making millions a year, I would have no problem having to pay just a little more than someone making $20,000 a year (or, think of it as a $20,000 earner paying a little less), in the effort to keep things truly balanced in the larger picture. We all live together, it's called society. Let's make sure we don't break it back down into the aristocracy and serfs...
 
Thanks, and I don't mean this in any bad way, but that didn't help.

I am all for a simple tax system (as I'm sure pretty much every one is, much to some peoples' chagrin), however I am not convinced that it should be absolutely flat across the entire board. Percentage is percentage, but you have to keep in mind the mechanism of the rich / poor gap getting too broad. If the system is set up where the people on the bottom (who are, effectively, allowing the people on the top to make their money - heck they are the ones making it for them) can never get their chance to progress (buy a house, send their kids to college...) then our society as a whole doesn't seem balanced and mutually beneficial.

I know for a damn fact that if I were making millions a year, I would have no problem having to pay just a little more than someone making $20,000 a year (or, think of it as a $20,000 earner paying a little less), in the effort to keep things truly balanced in the larger picture. We all live together, it's called society. Let's make sure we don't break it back down into the aristocracy and serfs...

The flat tax is one in which everyone wins. And you can have different, graduated bands, and eliminate the bulk of the deductions. And to make that worthwhile, the bands have to be low.

Now for people making a million dollars a year, I'll bet they don't have as much money not committed as you think. I don't make that kind of money, but I have some friends who do, and believe me, they live a good life, have a lot of business stress, and one has 5 daughters to maintain. He doesn't have much money at the end of the month.

Back onto the flat tax. One of my friends from the Saturday Night Beer Drinking Society drives trucks for a living. He has driven all over the world. His comment of those countries which he has seen that have gone to the flat tax have had favourable results and prosperity.

If you look at dividends from corporations, the corporation pays 35% income tax, gives the money to its stockholders, who are then taxed at 15%. That means 50% of the corporate profits are taxed. That sure works against any investment.
 
The flat tax is one in which everyone wins. And you can have different, graduated bands, and eliminate the bulk of the deductions. And to make that worthwhile, the bands have to be low.

Now for people making a million dollars a year, I'll bet they don't have as much money not committed as you think. I don't make that kind of money, but I have some friends who do, and believe me, they live a good life, have a lot of business stress, and one has 5 daughters to maintain. He doesn't have much money at the end of the month.

Back onto the flat tax. One of my friends from the Saturday Night Beer Drinking Society drives trucks for a living. He has driven all over the world. His comment of those countries which he has seen that have gone to the flat tax have had favourable results and prosperity.

If you look at dividends from corporations, the corporation pays 35% income tax, gives the money to its stockholders, who are then taxed at 15%. That means 50% of the corporate profits are taxed. That sure works against any investment.

I don't think you can simply add the 35% and 15% in that case since they are percentages of different chunks of the total amount... but you're point still stands, and understood.

I think your example of your millionaire friend might do more to support my argument here. The reason he doesn't have much left in the end is the same as everyone else: he's spending his money. The key thing is how much is left over after paying for the necessities, and how much is available for bettering one's position in society and life (or just maintaining whatever position they may be in.) There's a huge difference in the stress factors of living dollar to dollar just to keep a roof over your head compared with living dollar to dollar to keep 4 Ferraris in the garage. It's kind of like the argument that the richest pay the largest chunk in total taxes as an example that their tax rate is too high. The rate and the end total are two different things, because the total depends upon not just the rate, but also how many wealthy people there are and how much they actually make. Mathematically it is very possible (and may actually be - I want to actually go calculate that) that with a flat tax the wealthy will still be paying the most in total taxes. Then what, lower their taxes? Of course not.
 
I don't think you can simply add the 35% and 15% in that case since they are percentages of different chunks of the total amount... but you're point still stands, and understood.

I think your example of your millionaire friend might do more to support my argument here. The reason he doesn't have much left in the end is the same as everyone else: he's spending his money. The key thing is how much is left over after paying for the necessities, and how much is available for bettering one's position in society and life (or just maintaining whatever position they may be in.) There's a huge difference in the stress factors of living dollar to dollar just to keep a roof over your head compared with living dollar to dollar to keep 4 Ferraris in the garage. It's kind of like the argument that the richest pay the largest chunk in total taxes as an example that their tax rate is too high. The rate and the end total are two different things, because the total depends upon not just the rate, but also how many wealthy people there are and how much they actually make. Mathematically it is very possible (and may actually be - I want to actually go calculate that) that with a flat tax the wealthy will still be paying the most in total taxes. Then what, lower their taxes? Of course not.

This gentleman's business is metal finishing. It uses electricity, water, and gas. The building is self contained so nothing goes into the sewers (huge investment in processing equipment).

A few years ago, the utilities and water were to be raised by 33%, or enough to take away all his profit. And Cook County wanted to raise the property tax on a vacant lot from a reasonable amount to something absurd.

While you note the poor have that stress factor of meeting their commitments, he has not only his family to attend, but also the families of the 50 or so employees he has. When times get tough, he doesn't take a salary.

I do believe that entrepreneurs really earn their money, and should be allowed to keep it. Its not as easy as you think.
 
This gentleman's business is metal finishing. It uses electricity, water, and gas. The building is self contained so nothing goes into the sewers (huge investment in processing equipment).

A few years ago, the utilities and water were to be raised by 33%, or enough to take away all his profit. And Cook County wanted to raise the property tax on a vacant lot from a reasonable amount to something absurd.

While you note the poor have that stress factor of meeting their commitments, he has not only his family to attend, but also the families of the 50 or so employees he has. When times get tough, he doesn't take a salary.

I do believe that entrepreneurs really earn their money, and should be allowed to keep it. Its not as easy as you think.

Understood - and anyone with an ounce of intelligence would agree with your point there. However, this whole thread is centered around personal income taxes. I understand the two become intertwined when an entrepreneur like him decides to not pull in a salary for some period of time due to circumstances (I have a friend in the same situation), but look at it this way: If he lived like someone making $20,000 a year, he wouldn't even notice those down times when he didn't pull in a salary. That's an unrealistic extreme, but my point is it still comes down to taking care of the bare necessities first (a 2 bedroom house is still a roof just like a 5 bedroom house with a 3 car garage is). I'm not saying he's not deserving of a big house - he sure is (if he even has one), but how much weight does it really carry when someone with way more luxuries is complaining about being able to pay for those same necessities?

I need to back up a lot of what I said with some more so some people don't assume I'm saying things I really am not, but I need to get back to work, I'm going to leave this hanging for now...
 
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Understood - and anyone with an ounce of intelligence would agree with your point there. However, this whole thread is centered around personal income taxes. I understand the two become intertwined when an entrepreneur like him decides to not pull in a salary for some period of time due to circumstances (I have a friend in the same situation), but look at it this way: If he lived like someone making $20,000 a year, he wouldn't even notice those down times when he didn't pull in a salary. That's an unrealistic extreme, but my point is it still comes down to taking care of the bare necessities first (a 2 bedroom house is still a roof just like a 5 bedroom house with a 3 car garage is). I'm not saying he's not deserving of a big house - he sure is (if he even has one), but how much weight does it really carry when someone with way more luxuries is complaining about being able to pay for those same necessities?

I need to back up a lot of what I said with some more so some people don't assume I'm saying things I really am not, but I need to get back to work, I'm going to leave this hanging for now...

Let me address one issue here. The person quoted doesn't compare himself to his neighbors who have a lot more. He would live in a much smaller place had he not had his 5 daughters. What he is doing is for them, and trying to give them the best launching pad to their adult life.

Now I worked for a guy who graduated from an IVY league school, and one of his classmates was the son of the founder of a well known internet company. My old boss (actually he is 40 now) came from a family of successful entrepreneurs. Their private family business is huge. But he compared his fortunes to his classmate's fortune, and the success seem to cover overnight to his classmate's famiily.

I thought he was too interested in his self interests instead of looking out for mine, and his business here would be bigger now than it actually is. I think he was actually more interested in his own pocket book than his employees, but he is still president of a $250M company, and employs a good 3000 people. That's alot of responsibility and I doubt many people can handle that pressure. And I wonder if my critique is accurate?
 
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