Death of the American Taxpayer by Marginal Tax Rate

Death of the American Taxpayer

by “MARGINAL TAX RATES”

as told by Larrythetaxguy

The concept of marginal tax rate is not taught in schools, nor understood by most of us. I truly believe that governments do not want us to know the impact. I also believe that collectively they do not understand what it is.

We are generally not taught to spend from our after tax income, line 43 of your tax return. I would like to discuss a serious financial matter. MARGINAL TAX RATE = WHAT YOUR NEXT DOLLAR EARNED IS TAXED. The next dollar earned by a single person with taxable income of $33,950 (married at $67,900) may be taxed at 49.8%. Their federal tax rate is 25%, he will pay 7.65% social security, if he is self employed he will pay an additional 7.65%, his state tax rate is 6.5% and when he spends that dollar the sales tax will be 5.6% . Travel and communication dollars are usually taxed at an additional 5-6%.

To buy A loaf of bread at $2.25 one would need to earn $4.25

A gallon of gas at $2.75 one would need to earn $5.19

A flat screen TV at $760 one would need to earn $1434

A new car at $28,000 one would need to earn $52,830

A vacation at $6500 one would need to earn $12,264

Daycare at $10,000 one would need to earn $18,867

Do you understand why it may seem impossible to get out of debt, especially credit card debt at 15-21%.

Wage and self employment income is taxed at 6.2% on the first $106,800. Taxes are paid on all earnings for medicare at 1.45%. This is paid from the time you earn income (age 16) through any age, regardless if you are collecting social security yourself.

Cities and counties add taxes (cities in Michigan, New York and New Jersey) which increases the marginal tax rate. Many communities add fees for services, rather than calling them taxes. Regardless, its money taken from each dollar we earn. What happens when the federal rates return to 70% and the state and local fees creep to 30%. Fuel tax is currently over 20%.

I am providing you with a valuable tool (attached) to build a financially successful family and household. Information is used from your current tax return to determine your monthly available cash, after federal, state and social security taxes. Insert your adjusted gross income, then subtract your taxes as listed. Divide the net spendable by 12 to determine your monthly cash available. Set your budget from this amount.

This should be taught in second grade. When your child comes home with their Halloween candy you can begin to explain this concept. Let’s say they bring home 100 pieces of candy. Explain that they were very successful and they need to give you 25 of them for the federal tax. This money goes to keep us safe and able to drive to grandma’s house at Christmas. It also goes to people who do not earn enough to take care of their family so we give them our money, called earned income credit. Next explain that they must pay 15 candy bars for social security. This means that these pieces go to pay grandma and grandpa. Even though grandma and grandpa paid money in while they worked, it was given to others. They must also give you 6.5 pieces of candy for the State of Wisconsin. This goes to plow our roads and pay for our education. You can now explain the math.

Your child came home with 100 pieces of candy. 46.5 pieces go to allow us to live free as Americans, but some goes to other people who do not work as hard as you do. That leaves you 53.5 pieces of candy for yourself. Please enjoy them.