Taxes on Tips, Overtime and Social Security

Kraftyheel89 said:
Actually, the way it works is that you count half of SS income. You then add all other income. I don't have the latest 2024 figures in front of me, but for a married couple those that total less than around 34K pay taxes on 0% of SS. The next band is very tight from like 34K to 37K pay taxes on 50% of SS. Above that amount, everyone else pays taxes on 85% of their SS.

And I think my flat tax scenario went way over your head even with my overly simplistic details. I never stated what the flat tax would need to be. It could be a Federal rate of 40%. The focus would be on giving lower earners vast deductions. It basically flips the model and counts ALL income so you don't have real estate guys like Trump and Hedge fund managers paying ridiculous low rates gaming the system.
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No, it didn’t go over my head. It’s just a stupid idea.
 
CallMeTyler said:
SS was created to assist those most vulnerable by providing some security for the elderly, disabled and those unable to care for themselves due to a deceased family member. People that already have a healthy income, even in retirement, were never the intended recipients for SS benefits.

Thus, if you make over a certain threshold, naturally those benefits would incur some tax.

I'm trying to understand where this starts to become unfair, but I haven't come up with any reasons.
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Social Security doesn't function the way you describe and never has, to my knowledge. The biggest monthly benefits go to those with the highest earnings records, though the lowest earners do get a higher percentage of the base wages on which they did pay social security. No one makes too much money to qualify for SS. Generally, anybody with income over the mid $30k range includes 85% of their SS in their taxable income.
The detailed computation is a bit more complex, of course.. The biggest beneficiaries of not taxing SS would be affluent retired people who have other sources of income (dividends, IRA's, pensions, rentals, pass through entities, etc.) and are thus in higher tax brackets.
 
BubbaOtis said:
Social Security doesn't function the way you describe and never has, to my knowledge. The biggest monthly benefits go to those with the highest earnings records, though the lowest earners do get a higher percentage of the base wages on which they did pay social security. No one makes too much money to qualify for SS. Generally, anybody with income over the mid $30k range includes 85% of their SS in their taxable income.
The detailed computation is a bit more complex, of course.. The biggest beneficiaries of not taxing SS would be affluent retired people who have other sources of income (dividends, IRA's, pensions, rentals, pass through entities, etc.) and are thus in higher tax brackets.
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I never suggested high earners don’t qualify for SS benefits. We’re discussing those benefits being taxed at a higher rate, which does apply based on earned income.
 
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CallMeTyler said:
Average tips in the US equal about $15/hour. That brings an annual income to just over $31k/year. That's just a hair above the threshold for lower income earners in the US.

Why would I want to tax folks riding the line on low income earners who barely cover the margins for surviving in our modern economy? I'm taking pennies on the dollar to barely move the needle. it just doesn't really hold up to a what I would consider smart policy.
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Those people would have minimal or no tax burden anyway based on income level. Exempting tips is just a way to exempt financial services industry folks from tax by calling their commissions tips instead.
 
rodoheel said:
But that means we need no change in the tax laws. We don't need to specifically exempt tips from taxation. We just need to ensure that folks below a certain threshold pay no federal income tax. Which is how it already works.
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True, but isn't the threshold for no federal tax the standard deduction?

I recall one year my daughter made around $16k and paid a couple hundred in federal taxes. Living at home it didn't impact her. But if someone is trying to support themselves off of $25-30k they need every penny.
 
UNCBAdookJD said:
Those people would have minimal or no tax burden anyway based on income level. Exempting tips is just a way to exempt financial services industry folks from tax by calling their commissions tips instead.
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If they’re single and filing with the standard deduction, they would incur some tax. If they’re married, they owe less, but still a burden on folks who already make very little.
 
Kraftyheel89 said:
We need to go to a simple flat tax system. A flat tax rate on ALL income. No gimmicks, no games, no tax dodging, and no tax code that if it were all in one book it would be 10 feet high.

Then deal with the "fairness" or progressive part on the credits and deductions side. Much more for lower earners, phasing out to a certain income where there are 0 credits and deductions beyond that.

Solves everything.
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Okay
What level/rate of flat tax would keep revenue more or less neutral?
 
Cutting taxes on Social Security is stupid because you are cutting a progressive tax on a program almost 100% funded by the one of the most regressive taxes there is, the payroll tax.

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Most Americans pay more in payroll taxes than they do in income taxes. If you want to help people out, leave the income tax in place and lower the payroll tax so the dollar amount is equal to what eliminating the income tax on SS would be.

I say this as an American about to retire within a decade on a decent sized SS payment which would be in my own personal interest to not see taxed.

(source)
 
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mpaer said:
Okay
What level/rate of flat tax would keep revenue more or less neutral?
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A true flat tax is a non starter.

People earning under $20,000 a year are getting a roughly 20% tax credit. Look me in the eye and tell me you want to take their $24,000 yearly income and change it into $16,000.

OK, so then we set up an income level where the tax kicks in. Wait, we already have that! But instead of one blunt level we have 5 or six progressive variations.

Bottom line it's not the tax brackets that are the problem, it's all the deductions and exceptions.

Out tax code is labyrinthine precisely because allows all the giveaways to be hidden in all the exceptions.

We want to get rid of the exceptions. No need to get rid of the 5 or 6 progressive tax brackets we have today.

I'd say eyes on the prize. A flat tax is just another shiny object to keep you from focusing on whats important.

Any application of a true flat tax would devastate lower and middle income Americans.
 
Ddseddse said:
A true flat tax is a non starter.

People earning under $20,000 a year are getting a roughly 20% tax credit. Look me in the eye and tell me you want to take their $24,000 yearly income and change it into $16,000.

OK, so then we set up an income level where the tax kicks in. Wait, we already have that! But instead of one blunt level we have 5 or six progressive variations.

Bottom line it's not the tax brackets that are the problem, it's all the deductions and exceptions.

Out tax code is labyrinthine precisely because allows all the giveaways to be hidden in all the exceptions.

We want to get rid of the exceptions. No need to get rid of the 5 or 6 progressive tax brackets we have today.

I'd say eyes on the prize. A flat tax is just another shiny object to keep you from focusing on whats important.

Any application of a true flat tax would devastate lower and middle income Americans.
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I don't disagree
I wanted to Krafty to tell is what level works in his favored plan
 
Kraftyheel89 said:
And I think my flat tax scenario went way over your head even with my overly simplistic details. I never stated what the flat tax would need to be. It could be a Federal rate of 40%. The focus would be on giving lower earners vast deductions. It basically flips the model and counts ALL income so you don't have real estate guys like Trump and Hedge fund managers paying ridiculous low rates gaming the system.
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Deductions/credits/etc are where the rubber meets the road, though. I don't think you can just waive your hands and say "give certain people vast deductions." That's exactly where all the complexity and equity issues are going to arise, flat tax or progressive bracket system. What are the deductions? Are they capped? Who gets them? Is there an income threshold? Do they phase out? If so, at what income level? Would a credit be better mechanism? If so, should the credit be refundable?

Simplicity and fairness are opposing forces in the Code. The simplest income tax is not fair. The fairest income tax is not simple. It's a sliding scale and reasonable minds can differ on where we should aim for on that scale.

And if you really want to take on the ultra-wealthy and the low effective tax rates many are paying, you will likely need to address the realization requirement, capital vs ordinary, and tax free step up in basis at death (among other things). A simple flat tax, at least as you've described so far, doesn't address those things.
 
TangledUpInBlue06 said:
Deductions/credits/etc are where the rubber meets the road, though. I don't think you can just waive your hands and say "give certain people vast deductions." That's exactly where all the complexity and equity issues are going to arise, flat tax or progressive bracket system. What are the deductions? Are they capped? Who gets them? Is there an income threshold? Do they phase out? If so, at what income level? Would a credit be better mechanism? If so, should the credit be refundable?

Simplicity and fairness are opposing forces in the Code. The simplest income tax is not fair. The fairest income tax is not simple. It's a sliding scale and reasonable minds can differ on where we should aim for on that scale.

And if you really want to take on the ultra-wealthy and the low effective tax rates many are paying, you will likely need to address the realization requirement, capital vs ordinary, and tax free step up in basis at death (among other things). A simple flat tax, at least as you've described so far, doesn't address those things.
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Clearly his plan went way over your head.
 
UNCatTech said:
True, but isn't the threshold for no federal tax the standard deduction?

I recall one year my daughter made around $16k and paid a couple hundred in federal taxes. Living at home it didn't impact her. But if someone is trying to support themselves off of $25-30k they need every penny.
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I don’t disagree with you from a policy perspective. I’m just echoing others in saying that excluding tips, specifically, from taxation is not the right way to do it. If anything, it would be raising the income threshold for paying federal tax.

And I might be wrong about this but I don’t think the minimum income threshold would be the amount of the standard deduction - at the very least it would be the standard deduction plus like $11k since that first $11k isn’t taxable. Right?
 
No. Ot could
UNCatTech said:
That seems just as complicated.

Plus, how many people miss tax credits or don't have the money to pay to have their taxes prepared to get the full benefit?
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No, it could actually be set up as a a larger version of handy tax tables that already exist. Completing your taxes would be as simple as finding your filing status and dependants, total income from ALL sources (which must be reported to the IRS), finding your spot on the grid and there is your effective tax rate.

It would require a lot of intelligent number crunching to set up and then adjust every few years. But basically, you would want it to come out to a married family of 5 with total income of 40K paying about 4% Fed tax. Married family of four making 100K paying 15 effective tax. Married childless couple making 500K paying 25%, Married couple making 750K paying 30%, Married couple earning over 1.3MM+ 40%.

Very, very rough estimates. But that is the idea. No exemptions. no writeoffs, different treatment by types of income. The only thing that would have to be excluded is personal capital gains income so as not to crush capital investments in our economy.

This addresses income taxation only. Not wealth taxation or wealth redistribution which is unamerican.
 
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