Your Real Tax Rate

by Gerri Willis

Lots of people I know are incensed about Mitt Romney's taxes.

They are ticked off. How dare he pay just 15 percent when I pay 33 percent or 35 percent?

I've got news for you. He's probably paying a higher rate than you are.

The devil here is in the details. Ask anybody what they pay in taxes, and they'll tell you their tax bracket. But that's not the rate you pay on all your earnings.

The U.S. has a progressive tax system. It works like this:

The first $8,700 of your earnings in 2012 will be taxed at 10 percent.

The next $26,650 gets taxed at 15 percent, and so on and so on, until, if you make more than $388,350, anything over that is taxed at 35 percent.

Take all the Americans paying taxes. What do you think the real rate they pay is on all their money (what the pros call their "effective tax rate")?

Just 11 percent.

That's right.

So Romney paying 15 percent is paying more than that.

Then there's the 47 percent of Americans who pay no taxes at all; a group that increasingly includes middle class Americans because of the expanding list of tax credits. Of course Romney is paying more than those folks as well.

The Congressional Budget Office research shows the same trend.

Wealthy Americans, the top one percent, paid an effective tax rate of 18.8 percent compared to 4.2 percent of middle income earners. The poorest didn't pay. They had a negative tax rate of -5.6 percent.

Which means Uncle Sam sent them checks.

Still Romney's tax rate, according to the Tax Foundation, is lower than the average high income American -- who pays 25 percent.

Is it fair though, you might ask, that his income is taxed at 15 percent?

He pays that rate because most of his income comes from capital gains on his investments.

His income doesn't come in the form of a paycheck, but a dividend check; and for all but two years in this country's history, the nation has always taxed capital gains at lower rates to stimulate investment and help the economy.

What's more, these income earners typically pay taxes twice on that income -- once when they earn the money and again when they reap the rewards of investing.

Look, at the end of the day, it's not just the Mitt Romneys who benefit from this. There are also a lot of retirees who benefit as well; people who rely on their investments to fund their golden years. And God love them.

Having said all of that, I also believe this.

Romney needs to release his tax records.

And soon.

Otherwise he may never recover from the steady attack from his Republican rivals.

And this wouldn't be a bad time either to release any kind of thorough-going tax play for the nation he might have in his back pocket.

Because we do need to reform our tax system. It is too complicated, taxes too high.

Best Case for a Flat/Fair Tax

by Gerri Willis

The I.R.S. out with a big report today, charging many of us are scofflaws when it comes to paying our taxes.

In fact, we've underpaid our taxes by 17 percent. That's right -- the I.R.S.’s "tax gap" resulted in tax collections 450 billion dollars below what they should have been. This proportion of individuals and companies who fail to pay their due has stayed pretty consistent at just under 17 percent.

Check out this graphic, based on 2006 year filings (the most up-to-date numbers the government has):

When you add in the fines for paying late, the total tax gap drops to 14.5 percent. Still, in most private businesses, if collections were running 15 percent below schedule, somebody would get fired.

Of course, not everybody in the group is thumbing their nose at Uncle Sam by not filing a tax return at all. Some folks under-report what they owe, others underpay.

And the people with the highest compliance with I.R.S. filings are those of us right in the middle class; the people who file because our employers are submitting W-2s directly to Uncle Sam.

You can't run and you can't hide. In other words, if you work for the man, Uncle Sam will find you. But there was another fact that caught my eye in this report, one that virtually none of the media reported. The fact that the gap -- that $450 billion -- was significantly higher than the federal budget deficit at the time. In other words, there would have been no deficit in 2006, if the I.R.S. had collected all it was due.

So for those of you out there who think we need to raise taxes - Nancy Pelosi, Paul Krugman, President Barack Obama -- the evidence shows otherwise. What we really need is a tax code that people feel is fair -- a tax code that people are more likely to comply with. A simpler tax code.

The sheer fact that nearly half of Americans pay no income taxes at all adds to that feeling the system is unfair and that some people have to pay and others don't at any later.

Because, believe me, the tax code right now is far from simple. The code is more than 72,000 pages long. Stacked on top of each other that would be 24 feet high! It wasn't always so. Take a look at the 1913 tax code at just some 38 pages... 38!

This new report is the best argument for a flatter, fairer tax code in this country, even the I.R.S. admits that.

Simplify the code, make it more effective and compliance might not be such a joke!

Obama's Three Card Monte

by Gerri Willis

We warned you about it, and now it’s happening.

The Federal Government is going to pay for its payroll tax cut by charging homebuyers higher fees on mortgages.

Mortgages, that is, issued by Fannie Mae and Freddie Mac.

Normally, the payroll tax goes to pay for Social Security. But Congress and the President, trying to goose the economy, decided to continue charging lower payroll taxes.

So we are stealing from your long-term financial security to ensure your short term financial security and to do that we have to charge you a fee.

It’s a giant game of Three Card Monte in which the only source of funds is yours -- taxpayer dollars -- which are getting moved around seemingly to nobody's benefit -- except maybe politicians.

Here's how the fee works: it amounts to one-tenth of one percent of every mortgage loan backed by Fannie Mae and Freddie Mac. You've already backed Fannie and Freddie with 150 billion of your taxpayer dollars, so I am sure you'll be happy to pay a little extra to cover the payroll tax -- that's the way Washington thinks about this fee.

It amounts to 15 dollars per month on a 200,000 dollar mortgage or 5,400 dollars over the life of a 30-year mortgage. Fan and Fred already charge 26 basis points of the loan's value for every loan they back -- but this will roughly triple this charge.

Worse, the two mortgage giants say they will increase fees more over the next two years. This is exactly the reason we've been calling for the end of Fannie and Freddie -- because they are a giant sucking hole for taxpayer money -- more is never enough.

Strangely -- Ben Bernanke the head of the Federal Reserve is okay with that. The Fed wants more aggressive use of Fan and Fred to support the housing recovery -- even if it means sinking more taxpayer dollars into these leviathans. That's outrageous!

Pouring more money after bad seems like the very definition of insanity! Let's face it, there is no leadership on this problem!

The President is said to be considering a huge new program that would allow virtually all homeowners to lock in today's bargain basement rates -- sounds fantastic doesn't it?

That's because it is a dream -- what the President forgets and what all of Washington can't seem to remember is that somebody has to pay for these programs.

There's no free lunch. And no free economic or housing or bank bailout.

Tax increases? No way -- cut the spending

by Gerri Willis And now the hard work begins! With the 2011 budget in the rear view window, Congress has to get serious about a 2012 budget and the debt ceiling. And, it couldn't start a minute too soon. The country is on an unsustainable path of spending more and more and more. According to the Wall Street Journal, domestic discretionary spending grew by 6 percent in 2008, 11 percent in 2009 and 14 percent in 2010. Thanks to the work of Congress the 2011 budget spending shrinks by 4 percent. But there is more work to do. We need spending limits that force Congress to do the right thing and revisions of the budget baseline so that each year's budget begins at last year's spending levels, not with automatic increases. Budget discipline isn't a Republican or a Democratic issue, it's a common sense issue. American families know how to keep their budgets under control, it's time the government did too.

Unions PR Campaign For Your Tax Dollars

by Gerri Willis

The rally in downtown Manhattan commemorating the 100th anniversary of the Triangle Shirtwaist Factory fire is sure to get lots of media attention today.

The fire killed 146 workers and the tragedy spurred the creation of a myriad federal agencies to make sure nothing like that ever happened again. Union activists were also expected to use the event as a forum for criticizing Wisconsin Gov. Scott Walker and others who are attempting to reign in the exhorbitant costs of union pay and benefit packages --the costs of which is bankrupting state budgets across the country.

But here's what nobody is likely to mention at today's event: The biggest enemy of today's unions aren't abusive American corporate bosses. No, it's the 13-year-old Chinese girl willing to work long hours for pennies an hour.

Union leaders are constantly evoking the nostalgia of their earlier days as a way of convincing the broader public of their relevancy now. But nostalgia can't be the basis of an economic policy. Our leaders need to stop looking backwards for answers to today' problems.

 

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