I took the dogs to the groomers today. I told them:
"Please try to take as little fur as possible off of Penny. She is only 15 pounds and looks like a strange, skinny ferret creature when freshly groomed. Not cute at all. The neighborhood dogs are probably laughing at her."
Fingers crossed.
Chris is loving his newfound freedom as a licensed driver. Yesterday, he drove to Publix, bought supplies, and returned to make a homemade pizza. I asked him, "Did you buy junk food too?" He sheepishly nodded yes. I think he deserves some Twix and chocolate Pop-Tarts.
I previously mentioned that our pediatrician was concerned about my youngest's weight and advised putting him on a diet of nightly chocolate milkshakes. He's gained ten pounds, which is 15% of his body weight!
Senay went up to her soon-to-be home- the University of Florida. She entered yet another pickleball tournament. After two days of matches (on Friday, the games lasted until 11:30PM), she emerged victorious!
Are you ready for an exciting tale of taxes and intrigue? As we slog through tax season, it's the perfect time to dive into this fascinating story. Let's explore the twists and turns of this gripping saga together. At least it is interesting to me, but I’m kind of a math nerd.
Warren Buffett famously pointed out that he paid a lower tax rate than his secretary, highlighting the tax code's bias towards the wealthy.
It is a compelling idea and gets many people riled up (understandably so). But let’s look at precisely what he means.
Let’s say his secretary is getting paid $50,000 a year. We work under a progressive tax system, which means the more you earn, the higher the percentage of your income you pay in federal taxes. Using current tax tables, we estimate that the secretary's tax payment would be approximately 12% of her salary, which translates to around $4000. The secretary must also pay into Social Security and Medicare, which are 6.2% and 1.45%, respectively; this adds up to another $4000. Therefore, the secretary paid approximately 20% of her salary in taxes. $8000 of her $50,000 went to Uncle Sam.
Warren Buffett doesn’t need a salary since he is already a billionaire. However, given how his company is structured, he has to pay a small amount of $20,000 into Social Security and Medicare. He earns most of his income from two sources: dividends from his investments and capital appreciation from his investments.
Dividends are generally taxed at your ordinary income tax bracket. He would clearly fall under the highest bracket and pay 37% on those earnings. In his tax bracket, long-term capital gains are taxed at 20%. In addition to that, he is liable for the Net Investment Income Tax. When Barack Obama created the Affordable Healthcare Act in 2013, all wealthy investors had to pay an additional 3.8% on long-term capital gains.
With all this in mind, Warren Buffett pays around 24% on the investments he sells, a little bit into Social Security and Medicare, and 37% on all the dividends. The estate tax is the most significant tax liability because when he dies, up to 40% of his fortune will be subject to "death taxes." Warren’s estate will pay tens of billions of dollars at his passing.
When you do the math, Warren’s statements start to look a little disingenuous. In this example, his secretary pays 20% of her income in taxes, and Warren pays between 25% and 30% (plus 40% when he dies). I think Warren should be paying more taxes than his secretary, but he makes it sound like he pays no taxes at all, and she pays half her income.
This brings me to a more significant point. If I were to ask you: Do the rich pay their fair share in taxes? What would you say? I imagine almost all of you would say "no." It seems like the middle class gets stuck with everything while the rich use their power to influence Congress.
Let's examine the data more closely and ask another question: What percentage of the total federal income taxes do the top 1% of earners pay? In simpler terms, if one trillion dollars is collected in taxes, how much of that amount comes from the wealthiest individuals?
Four hundred billion (40%).
That can’t be true! Actually, yes, it is a fact. The top 1% pay almost half of all taxes.
How about the top 10%? How much do they kick into the total?
71%.
How about the top 50%?
97%.
That’s right. The bottom half of U.S. earners add almost nothing to the federal tax system. How is this possible?
We already discussed progressive income tax rates. Many in the lower 50% benefit from various tax credits and deductions. These include the Earned Income Tax Credit and the Child Tax Credit, which can significantly reduce or eliminate federal income tax liability for low—to moderate-income families.
The standard deduction reduces taxable income and may cover a substantial portion of income for those in the lower 50%. in 2024, the standard deduction is $14,600 for single filers and $29,200 for those married filing jointly,
In addition, Social Security is only taxed if your income reaches certain limits.
We can even take this a step further. Many assistance programs exist for this country's low—to moderate-income citizens. These people fall into what is called a "negative federal tax rate." These people get more from government programs and tax credits than they pay in taxes.
Of the bottom 25% of income earners, 60% pay a negative federal income tax rate- which equals around twenty million people. I am not suggesting this is unfair. Those less fortunate need help, and we are blessed to have the means in this country to offer some assistance.
Before you start applauding the rich and their supposed generosity with taxes, let's not forget one minor detail - the top 1% of earners controls a whopping 20% of all the money in this country.
Be Blessed,
Dave