Posts tagged ‘income taxes’

April 16, 2015

Should the rich pay more taxes?

by Grace

Top 20% of Earners Pay 84% of Income Tax

When people claim that the rich don’t pay their fair share of taxes, do they believe that top earners should pay 90% or more of taxes?

The bottom 40% of earners pay no taxes, and actually pay negative income taxes through government transfer payments.

Why is the share of income taxes negative for 40% of Americans? In recent decades Congress has chosen to funnel important benefits for lower-income earners through the income tax rather than other channels. Some of these benefits, such as the Earned Income Tax Credit and the American Opportunity Credit for education, make cash payments to people who don’t owe income tax.


The top 1% of earners pay “nearly half the income tax”.

20150413.COCIncomeTaxesTop20Earners1


The average tax rate for those earning more than $1 million is 27.4%.

20150413.COCIncomeTaxesRatesByIncomeGroup1

Professor Mark Perry says we should “thank top 20% for shouldering 84% of the income tax burden”.  So are the top earners villains or heroes?

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Laura Saunders, “Top 20% of Earners Pay 84% of Income Tax”, Wall Street Journal, April 10, 2015.

April 15, 2015

You could lose your tax refund if you have a past-due student loan

by Grace

Say good-bye to your tax refund if you have past-due student loans.

In most cases, creditors are unable to touch tax refunds. Not so with student loans.

While credit card companies and other private debt collectors are barred from garnishing money coming to taxpayers from Uncle Sam, some federal and state creditors can help themselves to tax refunds via a process known as ‘offsetting.’ Under the Treasury Offset Program, these entities get a whack at your tax refund if you have an outstanding debt in certain categories, including:

  • past-due child support payments
  • back taxes
  • any unemployment compensation owed to the state
  • past-due student loans

This is another reason to pay your student loans on time, or better yet, make sure you only take on as much debt as you can afford to pay back.

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Aron Macarow, “You Can Lose Your Tax Refund if You Have Student Loans”, Attn:, March 21, 2015.

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November 28, 2013

Should tax policy encourage two-parent families?

by Grace

Tax policy has often been used as an incentive for certain desired behaviors, and now it’s being considered as a way to strengthen two-parent families.

“The problem of poverty is linked to family breakdown and the erosion of marriage among low-income families and communities.”

Those are the words of Utah Senator Mike Lee in a speech to the Heritage Foundation.

Lee is careful not to cast opprobrium on single or divorced parents. But he insists on pointing to the uncomfortable but undeniable fact that economic outcomes for their children have been far worse than those of children raised in two-parent families.

That produces many personal tragedies. And in cold economic terms, it means that society is losing gross domestic product because of less than optimal development of human capital.

Government policy can’t force people to get or stay married. But it may be able to encourage them to do so.

That happened in the years after World War II. A steeply progressive income tax combined with generous dependent deductions ($500 originally, later raised to $600) played some unquantifiable part in stimulating the Baby Boom and family stability for a generation after the war.

Over the years, more tax policies have been implemented to encourage retirement savings, home ownership, energy savings, and other behaviors.  In addition, a profusion of tax incentives exist on a corporate level.  Would tax incentives actually work in encouraging parents to marry?

Lee proposes a $2,500 child tax credit — less in real dollars than the postwar deduction — applied to both payroll and income taxes.

He also proposes allowing employees to claim flex time when they have worked overtime, as federal employees can do. He wants Congress to hack away at the marriage penalties embedded in various benefits programs and Obamacare.

Would it work?

While I am a strong advocate of two-parent families, I’m not convinced these proposed changes would encourage marriage.  Additionally, with the tax code already burdened by complicated rules and regulations that often promote inequity, I tend to favor simplifying the process.  Social engineering through government intervention has too many unintended consequences for me to place much faith in ideas like Lee’s.

Related:  Missing fathers are at the core of a ‘vicious cycle’ of poverty (Cost of College)


Thank you for reading my blog!  I hope you have a happy Thanksgiving.

November 15, 2013

Cynical Colorado voters turn down higher school taxes

by Grace

Earlier this month, Colorado “voters resoundingly rejected an effort to raise taxes by $1 billion a year to pay for a sweeping school overhaul”.

The outcome, a warning to Democrats nationally, was a drubbing for teachers unions as well as wealthy philanthropists like Mayor Michael R. Bloomberg of New York and Bill and Melinda Gates, who pumped millions of dollars into the measure, and it offered a sharp rebuke to Gov. John W. Hickenlooper and the Democratically led legislature, who have recently tugged Colorado to the left with laws on gun control and clean energy.

Is Colorado more liberal or libertarian?

Waves of newcomers and growth across Denver and its suburbs have made Colorado fertile ground for Democrats in local and national elections in recent years, burnishing its reputation as a liberal outpost flanked by more traditionally rural and conservative states, a place where craft beer abounds, marijuana is legal and same-sex couples can get civil unions. But analysts say those changes belie a bedrock of libertarian disdain for higher taxes and overarching government reforms….

Democrats thought a 28% increase in taxes on middle-class families would be approved.

Had the referendum passed, the current flat state income tax rate of 4.6 percent would have been replaced with a two-tier system. Residents with taxable incomes below $75,000 would have paid 5 percent; taxable incomes above $75,000 would have been taxed at 5.9 percent. The measure would have poured money into poor, rural school districts, expanded preschool, bought new technology and encouraged local innovations like longer school days and school years, supporters said.

Obama supporter realized that more money doesn’t always solve problems.

“I felt a little guilty when I voted against it,” she said. “It tugged at my heartstrings. I just don’t always believe that money solves problems. It’s difficult for me to write a blank check to the government.”

She may have been thinking of this:

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March 25, 2013

Reminder – college scholarships that pay for room and board are taxable

by Grace

College scholarships that pay for room and board are taxable.  Here are more details from IRS Publication 970 on the types of scholarships and fellowships that are tax exempt.

Tax-Free Scholarships and Fellowships
A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution.

A scholarship or fellowship is tax free only to the extent:

  • It does not exceed your expenses;
  • It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and
  • It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship….

Worksheet 1–1 is used to calculate the amount of scholarship aid that can be excluded from gross income.  If your only income is a tax-free scholarship, you do not need to file a tax return.

Work-study earnings are taxable, included in the IRS category of payment for services.

A summary from the IRS:  Parents and Students: Check Out College Tax Benefits for 2012 and Years Ahead

Related:  Tax season reminders about education tax benefits (Cost of College)

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