Total Taxes Paid "Rich" Actuary

[daaaave]

Originally Posted by SamCook

THe corporation makes 390K and pays 23% + 7% or 140K

Why is the corporation paying corporate tax on the salary? Don't they know that is deductible? They should higher better tax advisors. Corporate income tax as a % of GDP has ranged from 1% to 3% over the past 30 years, while it would be an order of magnitude higher the way you are calculating it.

You are also still double counting capital gains and estate taxes. As people have pointed out to you multiple times, when you die any unrealized gains get a step up in basis so no capital gains remain.

And you are still sticking with the $50,000 expenses assumption? If you have an 8 figure net worth, are working 40 hours a week, give nothing to charity, and only spend $50K a year, then you are living life wrong.

I'm too lazy to figure out if you are deducting state and property taxes from your federal tax number.

[SamCook]

Originally Posted by daaaave

Why is the corporation paying corporate tax on the salary? Don't they know that is deductible? They should higher better tax advisors. Corporate income tax as a % of GDP has ranged from 1% to 3% over the past 30 years, while it would be an order of magnitude higher the way you are calculating it.

You are also still double counting capital gains and estate taxes. As people have pointed out to you multiple times, when you die any unrealized gains get a step up in basis so no capital gains remain.

And you are still sticking with the $50,000 expenses assumption? If you have an 8 figure net worth, are working 40 hours a week, give nothing to charity, and only spend $50K a year, then you are living life wrong.

I'm too lazy to figure out if you are deducting state and property taxes from your federal tax number.

The corporation doesn't pay tax on the salary. The corporation earns money and pays 30% on their earnings. After the taxes they pay the employee.

Microsoft average tax rate was 23% and the state tax rate is 7%
30% x 390K = 140K
Remaining = 390-140 = 250K

This 140K is the employees tax burden. Does this make sense?

I did not include capital gains in the calculation since this was on their saved earnings. The taxes on their savings amount to another 60%.

I just noted that the taxes up to the point where they spend their money is 66% and 76% for a high income earner.

[Gandalf]

Originally Posted by SamCook

The corporation doesn't pay tax on the salary. The corporation earns money and pays 30% on their earnings. After the taxes they pay the employee.

I thought you were talking about a company subject to US taxes. Please continue, and I'll just ignore the results since they don't apply to the US.

[asymp_normal]

Originally Posted by SamCook

Tax burden income 250K per year is about 66% in new york state.
Tax burden income +700K is about 76% (because federal rate increases by about 10%)

Under 9 9 9 taxes are only 27%

Does 9-9-9 repeal all state and local taxes? I thought it was an alternative federal tax proposal, and state/city sales taxes, state/city income taxes, gas taxes, property taxes, etc. would still apply.

[Academic Actuary]

Originally Posted by SamCook

Everyone likes to argue about taxes and in these threads I have heard all sorts of excuses by liberals about how the wealthy don't pay their fair share.

Here is a simple calculation of a rich actuary's tax burden. In the state of New York.

Microsoft - average tax rate 23.83%, State Tax Rate 7.1%: Company Makes $390,198 and pays employee 250,000

Corporate Taxes = 140,198
Income (after corporate taxes) - 250,000
Federal Taxes = 62,556
Social Security = 6,826 employee 6,826 employer
Medicare = 3,625 employee 3,625 employer
State Tax = 17,397
Property Tax = 8,000
Uemployment Insurance: 0.8% = 2,000

Total Taxes: 100,414 + 140,198
Total Earnings: 390,198
Remaining Savings: 149,586
Net Tax% (So Far!): 61.0%

Assume He Spends $50,000
Sales Tax: 4% = $2,000

100,223 Savings each year for 35 years at 8%, assume he returns 11% and inflation is 3%. Assume Dividends are 3%

Total = $17,270,042
Pmts = 35 x 100,223 = $3,507,792

Your Capital Gain as a percent of savings is 80%. To calculate the capital gains for 1 year...

Gain for 1 year = 17,270,042 / 35 = $493,429 and we note our income is 20% of this number because the total gain is 80%.

Cap Gain Tax = (493,429 - 100,223) * (15% + 7% state) * (5/8) + dividends (493,429 - 100,223) * (25% + 7% state) * (3/8)

Cap Gain Tax = $101,251

Net Income = (493,429 - 101,251) = $392,179

Now the calculation gets a little tricky

Your Annual Tax Rate is effectively 61% all your extra earnings from now on are taxes at about 25% from capital gains and at the end of 35 years 80% of your savings are taxable.

The estate tax is 35% over 5 million dollars and your total savings was 17 million, so this works out to an effective tax rate of 35% * (12/17) = 24%

Then when you spend your money you get a 4% sales tax.

Its hard to say what "earnings" are here. You get taxed at a rate of 66% to get the money and spend it on something. When you invest the money the corporation Microsoft pays about 30% tax state and federal and you end up paying about 24% on estate taxes and 4% on sales taxes.

So net taxes on your savings is about 60% again on savings.

Inflation will eat up your savings as well. I think this example proves that ...

Tax burden income 250K per year is about 66% in new york state.
Tax burden income +700K is about 76% (because federal rate increases by about 10%)

Under 9 9 9 taxes are only 27%

The poor meanwhile get a tax refund so their taxes are negative!


Links:
Federal Tax
http://www.calcxml.com/calculators/f...-tax-estimator

State Tax
http://webinfocentral.com/RESOURCES/TaxCalculator.aspx

Microsoft Tax
http://ycharts.com/companies/MSFT/effective_tax_rate

Unemployment Insurance
http://www.labor.ny.gov/ui/employeri...creditfaq.shtm

Corporate Tax Rates
http://taxfoundation.org/article/sta...ates-2000-2012

Estate Tax
http://en.wikipedia.org/wiki/Estate_...ral_estate_tax

I stopped reading after the line where you said the company pays the employee with after tax income.

[asdfasdf]

Originally Posted by SamCook

THe corporation makes 390K and pays 23% + 7% or 140K

So, the way you understand corporate tax, is that it's charged on gross income before expenses. Ok, have fun with that.

[asdfasdf]

Originally Posted by Academic Actuary

I stopped reading after the line where you said the company pays the employee with after tax income.

My company pays tax on gross income, then pays all expenses afterwards. Are you saying I should have a talk with our accounting department about that? Our ROE certainly hasn't been great lately, and the government keeps on sending us these weird thank you letters.....

[MountainHawk]

Charging tax on a gross revenue basis would be a good way to avoid the tax loophole issue where Congressmen get paid to have one single company get a tax credit.

Of course, it would have to be less than 35% of gross revenue.

[Academic Actuary]

Originally Posted by asdfasdf

My company pays tax on gross income, then pays all expenses afterwards. Are you saying I should have a talk with our accounting department about that? Our ROE certainly hasn't been great lately, and the government keeps on sending us these weird thank you letters.....

You should talk to your accounting department.

[ADoubleDot]

Originally Posted by MountainHawk

Charging tax on a gross revenue basis would be a good way to avoid the tax loophole issue where Congressmen get paid to have one single company get a tax credit.

Of course, it would have to be less than 35% of gross revenue.

Wouldn't that be overly tough on startup businesses?