What if you change jobs? Or get promoted? It’s a cluster.
Why not? Just over 20 years ago we even had budget surpluses. If we’re so prosperous and successful lately, how come we cannot spend within our means?
Ultimately, what’s the exit strategy for this trend otherwise? Default like Greece and others like it? Extended period of high inflation to reduce our debt burden? The longer we continue the higher toll on the budget the servicing of this debt will become and thus the more difficult it’ll be to curb it.
If you get promoted, it would not matter much. Payroll will know how much they failed to collect in FICA taxes over the months they stopped collecting them. So whatever your pay is after January, they’ll deduct that amount split into however many pay periods you have until April.
If you change jobs, it’s the same as retiring or getting fired. The FICA taxes will all be deducted at once from your final paycheck. So it’s all possible to get it figured out, just totally not worth it for any company to bother with. Which is why the vast majority won’t implement it. There’s nothing in it for them because they’re not benefiting from the extra cash-flow and it’s just unnecessary accounting hassle.
I think you missed the point of my reply to your previous message. You claimed that one cannot in good faith promise to not raise taxes for anyone making less than $400K/yr. But only if they also promise to broaden the base and balance the budget. I haven’t heard that second promise from anyone lately, including Biden, therefore the first promise of not raising taxes can still be made in good faith.
I just think he will need to broaden the tax base because we’re already running huge deficits as it is and I don’t see how even keeping them at this level is vaguely sustainable.
But at the same time, he’s also promising a lot of social programs which have little ways to pay for themselves otherwise. Student debt relief, universal healthcare (or whatever form the ACA expansion takes), climate change investment plans, lower prescription drug costs - especially for seniors -, increasing social security benefits, increased child tax credits, etc … (basically things from the Biden-Sanders unity plan) are all highly costly. I have not seen a single credible analysis showing that those can be implemented without raising taxes on at least some folks earning less than $400k/yr.
We’re told that the extra tax revenues from taxing the 1% and corporations will pay for all that but in my opinion and all the data I’ve seen of how much revenues could actually be derived vs the costs of new programs, it’s a bit like the mirage of the Trump tax cuts paying for themselves in extra GDP growth. Those has not worked before, so I don’t see how we’re now supposed to believe it’ll work next time.
P.S.: I’m not saying I don’t support higher taxation if it’ll benefit the country as a whole but I’d prefer if Biden told it as it is rather than promising stuff that’s just not possible.
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Marginally related:
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Here’s a very good article covering the likely / proposed Biden tax plan.
My quick takes
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pretax 401k’s for high earners would be vastly worse, and somewhat worse for normal people who use them for tax planning / income reduction as well ( such as to keep AGI low enough for credit thresholds). This is because the proposal replaces the current non-taxability of such retirement contributions with a flat 26%(?) credit regardless of income. This gives more benefit to those in tax brackets lower than that, and less to those higher. However, it also has the consequence of making those previously pretax contributions 1) now fully taxable at the state level (since you don’t get a federal AGI deduction, just a credit), and 2) fully taxable when withdrawal as well, despite having only gotten a partial credit when made in a higher tax bracket. This is much worse than breakeven if you are in the same high bracket at contribution and withdrawal, making Roth’s much better.
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estate taxes gets a lot worse, due to both the reduction from roughly $12M per person to $6M for the estate exemption, and removal entirely of the step up in basis at death. This suggests giving away the extra $6M this year, which apparently the IRS has said they wouldn’t come after. Also, it would suggest giving away assets incrementally over your life to avoid a huge tax and liquidity hit when all your assets, including possibly illiquid things like family homes, private or family business stakes, and of course stocks’ appreciation over the long term, all come due at once.
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those in high tax brackets would see much higher capital gains taxes due to the elimination of the long term / qualified dividend rates and instead taxing these at the (also increased) top ordinary income brackets plus the Obamacare investment tax as well. This would suggest selling any appreciated long term liquid holdings this year to avoid a near doubling of the tax rate on those gains.
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tax deductions would be reduced in value for those in several of the higher tax brackets via capping their deduction benefit at 28% instead of being deducted at your marginal rate. This suggests accelerating deductions into this year, in addition to also accelerating income if possible into this year where the tax rates would also be more favorable (an odd combination)
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social security taxes on wages would be uncapped, so wages over $400k would continue to be taxed at 12% instead of that maximum stopping any further taxes. Hard to due much here other than delay income to the extent possible until a more friendly administration might be elected.
In short, those in the top brackets would face a roughly 1/5 hit to their current take home and marginal tax brackets of around half their income (before additional state taxes). 60% marginal combined rates would be common for high earners in high tax states, and edge cases could be closer to 70%.
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Should that 12% be 6.2%? The employer’s portion was never capped AFAIK.
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I’m not an expert on payroll taxes, but this discussion of the current and proposed payroll taxes says both sides currently stop at the $137k wage base for SS (although Medicare tax continues). Biden’s proposal is to resume the full 12.x% SS tax starting again at $400k, leaving no extra tax between $137k-400k.
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You don’t have to be an expert to kbow that the employer pays 6.2% and the employee pays 6.2%.
if the cap is removed, then the employee would have 6.2% of their entire wages fund OASDI. Not a bad move IMO considering the state of SS.
That wasn’t the question, I thought the cap did not apply to employers, only to employees. I could be wrong.
I’m actually not sure about that.
Do self employed people have a copy on only the employee half, or, all of it?
It would be the same for FICA.
Self-employed pay “self-employment tax”, which is both halves of SS+Medicare. I’m pretty sure when I added my SE income to my W-2 income, the self-employment tax was less when the combination exceeded the cap…
How much less?
IIRC it was 6.2% less, which is why I keep thinking that the employer’s portion is not capped.
The employer’s portion was never capped, unless a cap was recently (within the last decade) added.
I’m glad to see that was labeled “Opinion” because it was sure full of it, no surprise from the NYT.
All taxpayer income groups with incomes of $75,000 and under — that’s about 65 percent of taxpayers — will face a higher tax rate in 2027 than in 2019.
Did they just admit people have been better off under Trump? You see, since Trump’s tax cuts were so good for the common taxpayer, when they start to sunset in 2027, nearly every taxpayer who saw lower net taxes over these recent years will see higher ones when the tax laws revert. Here are some examples of how this might effect you.
As for Biden, even if you believe his headlines about his income tax proposals only hurting The Evil $400k+ Rich, you can bet his other policies will hurt the average person. For example,
- he has pledged to restore the Obamacare individual mandate, a tax penalty that disproportionately hit low to moderate income Americans who couldn’t afford healthcare but weren’t poor enough to get it with heavy subsidies/credits for being very close to the poverty level. Here’s the NYT telling you how under the old laws millions of poor Americans who couldn’t afford healthcare were slapped with several thousands (single) to potentially over $10k (larger families) in penalties. Trump got rid of all that - over $3B in penalties that were paid in vast majority by people earning less than $50k per year.
That’s before you get to proposed carbon taxes raising the price of things made with or transported with fossil fuels, which is pretty much everything. Raising the price of consumer goods is in effect a regressive tax.
However, you’ve established in the other thread that opinion writers’ “conclusions” count as reported facts.
No, and you know this. The new brackets are higher rates than they would have been without the “tax cut” legislation. Nothing about people earning more making it higher. Their higher on equal earnings…
That the rates would rise on all normal people were built into the bill is not any surprise, it was discussed (both the pros and the cons of the various details) on this forum back when the bill was passed… People either with short memory or intentionally misleading currently. So were some of the carveouts that were scribbled in the margins on the final “legislation” like the one Trump used to not pay US income tax where he would have previously had to.
That’s assuming Congress does not make those temporary cuts permanent.
The GA runoff situation will further complicate EOY tax planning moves, since we won’t know until next year if the Democrats will control the Senate. Their very large tax changes could still be implemented effective as of Jan 2021, but people for example with large long term capital gains will have to decide if they want to sell this year while LTCGs still get the 23% tax rate rather than being taxed at the ordinary rate (plus Obamacare surtax as well).