SOME TAX TRIVIA: HOW MUCH DO POVERTY-LEVEL INCOME EARNERS PAY IN TAXES

[berni_mccoy]

The poverty level (for a single person) is considered just shy of $10,000 (source: Department of Health and Human Services: http://aspe.hhs.gov/poverty/06poverty.shtml).

That is, by the way, how much you would make per year on minimum wage if you worked 52, 40 hour weeks.

Do you know that these people pay 10% or more in income taxes. They must work 5-6 weeks to pay Uncle Sam.

I say, if they are living in poverty, cut them some slack. What would it take for them to not have to pay taxes?

Well, of the 4.9 million returns filing under $10,000 in income, they generated $931,897,000 in tax revenue (source: IRS http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96981,00.html).

How many returns were filed making $1,000,000 or more? That would be only 180,847 returns. But wait, that's $5,152.95 per million dollar tax return. That's less than 0.52 PERCENT of a 1,000,000 dollar income.

I know, I know, HOW DARE I suggest that 180,847 millionaires should spend 0.52% of their income to save 4.9 MILLION people living in poverty 10 % of their income.

What was I THINKING?!?!

[The Magistrate]

1. Do Not Confuse Taxes With Mere Federal Income Taxes, Sir

Persons on this level pay a tremendous proportion of their income in taxes. Most are renters, and so pay the property tax for theor landlords, as that will be a large portion of the rent they pay. They pay excise taxes on their utilities. They spend virtually all their income that does not go for these items, and so pay sales taxes, and excise taxes on such minor luxuries as alcoholic beverages and tobacco. If they manage to maintain an automobile, they pay taxes on it registration, and on the fuel to run it. There will also be a variety of other state and local imposts daily life and purchases wil involve them in. The total bill approaches half their income, when all this is taken into account.

[berni_mccoy]

2. No confusion here... the point I'm trying to make is why these people even

need to pay fed income taxes when the total revenue could be evened out over the other brackets (and yes, I'm suggesting the top brackets)?

For a single person to live in New England, rent alone is going to eat most of the 10,000 in income. It simply is not a livable wage. Why are we taxing them?

[The Magistrate]

10. There We Are In Agreement, Sir

They should not be taxed.

[blurp]

16. Many of those earning $10,000/year ARE NOT POOR! That's why

Census data shows that just 15% of those earning near minimum wage (within $1.50/hour) are from poor families. 20% are actually from families earning $80,000 per year. The average family income for a minimum wage worker is over $40,000/year.

What this means is that most holding minimum wage jobs are doing it to supplement family income. They file separately but can't claim themselves as a deduction since someone else (like a parent or spouse) already claims the deduction. This makes the tax rate look high.

Anyone with a family income of just $10,000/year will get at least an $8,200 deduction. This means almost no income tax. Anyone with a spouse or dependent will get a deduction of $16,400. So a family of two can earn at least $16,400 and pay zero income tax.

If you want to complain about taxes on the poor, forget income tax. The poor pay very little income tax. The taxes that really punish the poor are payroll taxes. There's no deduction for them and they amount to about a %10 flat tax.

[blogslut]

25. can u xplain further

Census data shows that just 15% of those earning near minimum wage (within $1.50/hour) are from poor families. 20% are actually from families earning $80,000 per year. The average family income for a minimum wage worker is over $40,000/year.

How can a minimum wage worker make $40,000 a year when minimum is $5.15 per hour? When you say "family income" are you including more than one imcome into the formula? One person with three full-time jobs @ 40 hours per week @ $5.15 per hour would still only make $29,664 annually.

Anyone with a family income of just $10,000/year will get at least an $8,200 deduction. This means almost no income tax. Anyone with a spouse or dependent will get a deduction of $16,400. So a family of two can earn at least $16,400 and pay zero income tax.

Basically true. However, this "pays no tax" situation only happens after a tax return is filed. In essence, the Fed borrows that amount for the year from the individual. The only way the individual can reclaim their loan to the government is by filing a tax return.

[blurp]

35. Wealth is not the same as income. You can be rich and earn $10,000/year.

How can a minimum wage worker make $40,000 a year when minimum is $5.15 per hour?

The minimum wage worker doesn't make $40,000. His/her family does. Consider the teenager with a job that still lives at home with his parents.

He doesn't live in poverty because his parents pay for the house/food/electric ty, etc. This makes him a dependent. That means he has no deduction and must pay income tax on that $10,000.

Another example might be the spouse of a retiree working at walmart. If he/she owns their own home and car and has a spouse with a fair retirement, then they earn poverty wages but don't live in poverty.

This all goes back to the difference between wealth and income. Suppose you own your own home and car, have no house payment or car payment, and don't have to commute to work so you save on gas, and you have $1,000,000 in the bank earning just 1% interest ($10,000/year). Does that mean you're poor? Your income is just $10,000/year, but you're obviously rich.

The census data suggest that most people earning near minimum wage are not poor. They're using these jobs as supplemental income.

[berni_mccoy]

30. What blogslut said in post #25 above...

Can you provide at least links to that data...

Thanks.

Regardless, the principal is the same and poverty levels vary by the number of people in the household, though they don't scale much beyond $20K annual income.

And there are obviously MILLIONS of people trying to live off of poverty level income. The point is why do we tax them at all when the burden could be placed on those where the money won't matter.

[EVDebs]

36. Overall taxes, state+federal+local yeild around 20% for EVERYBODY

and therefore the entire tax system is very regressive overall. R's will only stress the federal in their 'talking points' ('the rich pay most of the taxes and therefore deserve most of the tax relief').

David Cay Johnston's book Perfectly Legal shows this. A great read btw.

[dysfunctional press]

7. renters do not "pay the property tax for their landlords"...

if the taxes aren't paid the tenant isn't the one with legal problems.

that's like saying that your employer is the one who pays all your bills- after all, that's where your money comes from.

the landlord earns the rent money in return for giving up a certain amount of the space/property that he owns.

[The Magistrate]

9. Actually, Sir

If you were to read Mr. Smith's "Wealth of Nations", you would find the gentleman making precisely the point you scoff at, for he views any tax on a laborer's income as a tax on the employer, with the sum of the tax merely advanced by the employer to the laborer to be turned over to the government by the latter, reasoning that without the tax on the laborer, the price the laborer's work must command would be lower by the amount of the tax demanded. Similarly, he takes the view that, where the payment of a tax is a cost a businessman must meet from the price he collects, that tax is actually paid not by him but by the persons who pay the price for his goods, since otherwise, that price would be lessened by the amount of the tax. This is why people often make the quite sensible point that businesses never really pay taxes at all, but rather consumers pay their taxes for them, and it certainly applies to renters of accomodations. The property tax is one of the chief costs of doing business for a landlord, and it is met from the renty reciepts, the rent being set to a sum that provides for this cost, and obviously it would be lower by that amount if that cost were absent. You will look long and hard for anyone knowledgeable about economics who would undertake to dispute this....

[dysfunctional press]

20. i'm a landlord, -the propert tax bill did not enter into settinng the rent

to determine how much we would charge, we found out what the going rate for similar apartments was/is, and set our asking price- and we haven't raised it in over 5 years...at the same time- our property taxes have increased. the amount of the taxes, the mortgage, the bills- none of those EVER entered in to the discussion over how much rent to charge.

[lumberjack_jeff]

40. You charge the rent that your local market will bear.

The local market rate for rent (like any commodity) is set by factoring in all the cost drivers, including taxes.

If you hire a plumber, the price you pay is directly affected by his expenses.

Just because there's elasticity in the rent you charge does not mean that rent is unaffected by property taxes.

It's not at all a stretch to say that tenants pay for utilities and property taxes, because if they didn't - no one would go into the landlord business.

[tirechewer]

14. There's one small problem here...

People who own rental properties can deduct from their income taxes all of the expenses incurred while the property is used as a rental. They can also deduct depreciation on the structure which is generally quite a large amount depending on the class life of the rental, and is actually a paper loss. In other words it is not an expense that comes out of their pockets.

They are also allowed to deduct rental losses beyond income and net other passive losses with it on a Schedule E in an amount up to $25,000, I believe, over the amount of rental income if they have other passive activity losses. Passive activity losses other than rental property are a tax give away program for the rich. You and I don't have enough money to generate businesses and activities which are designed to lose money so that it can be used to offset income.

Short simple way of saying what I'm saying is that landlords have the tenants paying property taxes and mortgage interest, but then they can turn around and take a big fat deduction on their federal taxes against the income the tenants pay for rent with a special $25,000 dollars in extra loss to lower other sources of income they are declaring on their tax returns.

The landlord also gets to deduct any legal fees he has to pay out to secure his property and protect his investment or to evict tenants. All they have to do is say that they have "actively" participated in the rental. That means they say that they decide on who the tenants are and approve expenses when asked by their property managers. Real tough life if you can get it.

So please don't sing me any sad songs about the hard life of landlords. I audited their tax returns for a looooong time, and they have one of the best free rides going anywhere.

[dysfunctional press]

21. as a landlord- property taxes and bills do not enter into our rent price

we own a two-flat, and we live on the first floor, rent out the second- the rent we charge is a reflection of what the neighborhood will support- the going rate...the amount of our bills has no bearing on what we charge- it's determined by what people will pay.

[Gormy Cuss]

26. How do you think the going rate is set?

The going rate in your neighborhood was not set without other owners considering the cost of property taxes and other expenses when they set the rate. Investor-owners who don't live in the property are sensitive to the rate of return. If the going rate in your neighborhood is high, you may not need to think about your costs because the rental will bring in excess income. If the market rate instead is close to the cost rate, the prices will either increase to reflect increased tax costs or the investors will take a tax loss. Either way, the renter is reducing the tax burden for the owner.

[dysfunctional press]

27. supply and demand.

pretty simple economics.

the renter is also reducing my available living space by half.

[Gormy Cuss]

28. Yes, and the economics includes costs.

Why do you allow the renter to reduce your living space by half? Are you just a generous sort, or is the ability to shift your cost burden a motivating factor? If it's the latter, then your renter is indirectly paying for some portion of your property tax.

[dysfunctional press]

39. we own a two-flat, the tenant lives on the second floor-

we live on the first. when we bought it, our original intent was to convert it to single family- but in the first year we owned it, i started having bad medical problems and had to quit working, so we really needed whatever money we could get- when we set the rent price, the ONLY FACTOR that we used was looking at what similar properties (comps) were charging.
and sure, since all of our income goes into the same account that all of our bills are paid out of, the tenant pays some portion of the property taxes...and our income taxes, and our groceries, and our clothes, and gas in our car- but they never figured into the rental price.

[FlaGranny]

31. You seem to be saying

that your expenses on the rental property do not even enter into the decision on what you charge for rent. Did you not check to see if the going rent in your neighborhood would be enough to cover your expenses and to see if your profit would be high enough to make rental worth while? If you did, then you did consider taxes and other expenses before deciding whether to rent or setting your rental fees.

It's just not realistic to say that mortages and taxes do not figure into rental fees. They absolutely do, whether you personally consider them individually or not.

[dysfunctional press]

37. there is no "profit"- we're building equity.

it was worthwhile, because we NEED the money, more than we WANT to use the living space(although- when we bought it, i wanted to turn the back-half (mostly kitchen)of the upstairs unit into a master suite...but we needed(then moreso than now) the money the unit could bring in.
but- as i said, we didn't consider the mortgage($900/month) or the taxes(currently about $300/month) or the insurance, or the heat(included in the rent), or anything else when setting the rent- we got a feel for the going rates in our area, took a shot at a price we thought was fair, and got a tenant.

as far as the bills- here's how our system works- we have one checking account- all income goes into that, and all bills are paid out of that.

our property taxes have gone up several times since we bought the house- so has the cost of heating it and insuring it- but we've never raised the rent to cover the increases, mostly because we feel that it would make it too expensive for the area.

[tirechewer]

34. Right....

The amount of your rent is Fair Market Value, defined as the price agreed upon between a willing buyer and seller based on amounts of comparable value in the area. The transaction is at arms length between unrelated parties. I'm familiar with that.

I was pointing out that whatever your rental expenses are you are entitled to deduct them from your rental income and up to a special rental allowance for passive activities of $25,000. So though you pay the expenses, you claim deductions for those payments which offset them with the proper tax treatment.

The income you receive from tenants can be offset with expenses you pay on the rental, to less than nothing, thanks to distributions from other passive activities and losses which are netted on a Schedule E when you file. The resulting reduced rental income or loss is brought forward on your tax return to reduce your taxable income. This is why rentals are known as a legal tax shelter.

In your case you would have to be careful to separate your personal part of the expenses from the amounts you deduct as expenses you pay to maintain and protect your rental property. I'm sure your accountant sees to this for you.

I'm not sure what you're asking or saying here, so I just answered it as if it were a question. If I'm missing the point, we can try again. ;)

[dysfunctional press]

38. the closest thing i have to an accountant is turbo tax-

and the reply would be the same one i gave to the post below.

[tirechewer]

41. I know it's confusing......

If you have a specific question, I can try to answer it. If you want a good reference to help you fill out your taxes, get a copy of Publication 17. It's a good general reference IRS puts out for taxpayers. It used to be free; probably still is. It's written in a way that is easier to understand than their gobbldygook pubs. The other pubs used to make me want to hit my head on the table when I tried to explain things to people during audits. Pub 17 gives a good overview to changes in tax law and how to treat most situations you encounter as you do your return.

Best thing this time of year is to go into the lobby of your nearest IRS office and pick one up. because it used to take them about a month to get things out in the mail. I haven't worked there in a while. It's probably harder now because they have cut back on people who used to help taxpayers.

I use Tax Cut for my returns. I think it's a little easier to use than Turbo Tax, though both are good.

I'm glad I don't work there anymore. It was bad enough under Clinton who was a relatively benign president. I can't even imagine being a government worker under Bush. I think I would jump out of a window. ;)

[SoCalDem]

18. Landlord primer

Let's say that a property's mortgage payment PITI is $500 a month and he rents it for $750.00 a month.. That's enough to make the entire mortgage paymnent and $250 extra....so the rent DOES in fact, "pay the property taxes, the mortgage, the interest and insurance"..

The risk is that the tenant may damage the home, steal the plumbing & cabinets, move out in the middle of the night, or just bail and leave the property unrented, during which time the landlord must shoulder all the expenses..

There are landlords who own the property outright (making extra payments out of rent profit or doubling the PITI as rent makes it pretty easy to pay off a property)...

The landlord also gets to deduct the interest from his taxes..

I have known lots of people who BUY a property for their college kid to live in one part and rent the other out to make the payments.. It's cheaper than dorms or renting a place for the kid..after they graduate, they sell it :)

[dysfunctional press]

22. you can say "what if" al you want-

but unless you use real world examples/figures- you're just talking thru your hat.

[SoCalDem]

32. My mother had 4 rentals which basically supported us

while I was growing up..but I guess that's just using my "hat"..:)

[On the Road]

12. Hi, Magistrate

Do you have a source for the "half of their income" figure? It is a great figure to use.

I am shocked that the effective federal tax rate is that high on an income of $10,000. You would think that the standard personal exemptions and deductions would take more of an edge off it. For one thing, it shows they're way too low.

[The Magistrate]

13. It Is A Guess, Sir

But does seem to me likely to be in the ball=park. It will certainly vary from jurisdiction to jurisdiction. But paying half an income for rent is not unusual, and a large portion of that is property tax. Sales taxes run up to eight or nine cents on the dollar, and the whole sum of it must approach half, it seems to me. Doubtless someone will ahve done a serious study on the matter.

[On the Road]

15. Someone Must Have

I'll have to check it out (in the morning)

[ProfessorGAC]

23. It's A Little On The High Side

Because of variability of local and excise taxes, and spending habits, the value floats. But, they are at around 10% off the top for non-income taxes (UEI, SSDI, WCI), and then they pay state and federal taxes. When one adds the fraction of sales taxes etc, to the balance of their income, the total comes to about 30%. Still, 30% of $10k is very high, and unfair.
The Professor

[The Magistrate]

29. Thank You, Professor!

Your instruction is such matters is always a pleasure to receive!

[skids]

33. Yeah, take a look at this.

http://www.ctj.org/html/whopays.htm

I'd love to see an updated report like the one linked above if anyone can find one.

[Oilwellian]

3. Also...

if they get daycare through the Dept. of Social Services, and their income is just above the poverty level, 10% of that income goes towards the costs. I don't see how the working poor make it in today's economy.

[pansypoo53219]

4. but but but

you are talkiung class warfare!


time we fucking attacked them back. TO THE RAMPARTS!

[Yupster]

5. Not to be picky, but

a single person making $ 10,000 per year would claim a standard deduction of $ 5,000 so only half his income would be subject to the 10 % tax bracket, so the most he could pay would be 5 % assuming no other reductions.

[Harald Ragnarsson]

6. For many years I worked at that income level

both married and as a single parent.

Back around 1990, I sat down and figured up al our taxes, fed, ss, state, local, gas, sales, cig, etc etc etc and as a married couple making about 25K, we paid OVER 50 % of our income in one tax or another.

I defy any top 1%er to show me they pay 50% of their income in taxes. It doesn't happen.

As our Prez said, "It makes no sense to tax the rich, they just get out of paying their taxes anyway".

I'm tired of the bill for all this largely resting on the middle class and poor.

Leona Helmsley: Only little people pay taxes.

Wake up America!

[SlipperySlope]

8. Makes me want a flat tax even more...

A flat tax of 25% would have been half off what you were paying...

[Yupster]

11. The flat tax is just for income tax

The flat 25 % tax would have raised his tax from about 10 % to 25 % and then added in the other 40 % of stuff he was talking about like phone taxes, property taxes, sales taxes, etc. So it would have gone up from 50 to 65 %.

However, most of the flat tax ideas only have you start paying tax after the first 30,000 or so of income.

[Harald Ragnarsson]

17. That's assuming all things remain the same

I'm operating under the assumption that the have mores start paying not only what they owe, but even what they deserve to pay, rather than have a ridiculously low tax rate and cheat their way out of that was well.

I would be for a flat tax if it kicked in after $20K or $25K and there were no loopholes what so ever. Capital gains taxed the same rate as income from the sweat of your brow. No more giant giveaways to big business.

Then talk to me about raising my rates 40% on the other taxes, pard.

Edit: I wanted to add, that's how dumb Americans are. Not only do we pay nearly as much as all these "socialist" countries where they have health care and education, the people here don't even want it for themselves, they'd rather see it gobbled up by halliburton and Bush and Cheney.

It's kinda hard to imagine why I'd want to stay and contribute to a country like that. If all our freedoms finally go, and I think they will, there isn't an America anymore to fight for.

[Tsiyu]

19. Don't forget the Earned Income Credit

This affects "heads of households" who have qualifying dependents and basically is a credit or payment to the wage earner.

I agree - as a low-income earner - that sales taxes and payroll taxes are where my tax dollars go. Then there are property and vehicle taxes, but in Tennessee these are slight. The sales tax at close to 10% bites, but we have no state income tax. I don't mind sharing that much. Just wish I made more so I could share more.

Presently I work for a company that believes a 14 cent an hour raise is something to be happy about.

Help us all.

[catmandu57]

24. We pay taxes on every dollar that comes in

Our income puts us in the working poor catagory, low but not poverty stricken, we pay and so does everyone who can't salt money away a tax on every dollar, there is sales taxes, out state is at .07 on every dollar then there are city sales taxes, then there are gasoline taxes, property tax, personal tax, we don't smoke so we don't pay tobacco tax, but for every thing we do there is another tax to be paid.
I don't mind if the money is going to the common good, education, upkeep and so on, I do get tired of rodney richpiggie enjoying all of the services we help pay for and not kick anything into the pot.
All the while bitching about taxes.