Fair tax rate would truly be fair to all taxpayers [UPDATED]Published 10:08am Monday, September 17, 2012 Updated 12:13pm Monday, September 17, 2012
President Obama and many of his supporters say the wealthy aren’t paying their fair share of taxes, but what’s fair?
When you look at the Federal tax tables, it looks as though almost everyone should pay federal tax, and yet the IRS tells us that about one half of taxpayers pay no federal income tax at all; mostly for the following reasons.
The first is that a married couple with three children filing jointly can take the standard deduction of $11,900 plus five personal deductions of $3,800 each for a total deduction of $30,900.
Their taxable income is lowered by that amount. All income levels can take advantage of these deductions.
At low income levels, these deductions lower their tax liability and can even eliminate it.
The second reason many people pay no income tax is because of the Earned Income Tax Credit.
For example, if you earn less than $49,000 and have three children, you may be eligible for an earned income tax credit of up to $5,751.
This offsets income tax that you would otherwise owe and could result in a refund from the IRS.
Let’s say a couple with three children earns $40,000, their taxable income is lowered by $30,900 because of deductions to $9,100.
They would be in the 10 percent tax bracket and owe $910 to IRS. This would be offset by the earned income tax credit and they should also get a refund from IRS.
The tax brackets on taxable income for a married couple are as follows: $0 to $17,400 is 10 percent: $17,400 to $70,700 is 15 percent: $70,700 to $142,700 is 25 percent: $142,700 to $217,450 is 28 percent: $217,450 to $388,350 is 33 percent and everything over $388,350 is taxed at 35 percent.
If a married couple with no children, using the standard deduction, were to have a gross income of $500,000, they would pay a $137,314 tax to the IRS which is an effective rate of about 27 percent of total income.
At a million, they would pay about $312,000 or 31 percent of total income to the IRS.
A lot of people who pay no taxes or pay at low rates are complaining that people, who pay at high rates, aren’t paying enough.
It’s true that the tax code is long, complicated and unfair, but higher income earners are paying more than their fair share.
If you’re looking for fairness in the tax code, you should support a single rate flat tax with no deductions.