Are taxes really highest on the middle class?

Question

Once you consider the social security taxes, largely unpaid by the wealthy, and lower capital gains and inheritance taxes that allow the rich to get income at lower rates just because they have money?

Answer 1

No.  It's true that the highest income pay lower Social Security taxes, but when you take into account ALL federal taxes, the system is still somewhat progressive.

Here are the numbers (effective tax rate, all federal taxes, 2005), from http://www.cbo.gov/ftpdocs/88xx/doc8885/... :

Lowest Quintile  4.3

Second Quintile 9.9

Middle Quintile  14.2  

Fourth Quintile  17.4

Highest Quintile  25.5                                        

Top 10%  27.4  

Top 5%  28.9  

Top 1%  31.2                                        

Answer 2

offcourse, the govt enjoys drinking our blood;)

Answer 3

Maybe!

Answer 4

Most of the top financial pundits say so, and their arguments make sense.

Lower-income people (which generally corresponds to the lower and lower-middle classes) pays very little in taxes because they don't make enough to pay much in income or Social Security tax, and they don't have much in property to be taxed on.

Rich people do pay Social Security tax, but I believe there's a limit that they have to pay, so once they reach that limit, it's not a percentage of their income any more. Income tax still applies, but it's usually offset by tax deductions. A wealthy person can actually make more and pay less in taxes (less total, not just a lesser percentage) because of all the deductions they can take.

So the middle class, which is taxed on income, etc. but doesn't offset it with deductions, ends up paying most of the taxes.

It's not just individuals, though. Business corporations, even major ones, also avoid paying taxes by offsetting business expenses against profits. Not to mention how they get the best rates (purchase prices as well as interest rates) because they have the power to buy in bulk and the clout to negotiate.

Answer 5

This is a very fair, and very relevant, question.

Short answer is: generally yes, depending on how you define the middle class, because we dont' have the means to avoid tax liability.

Let's look at the taxes paid in the U.S.

1) Social Security is assessed at 6.2% on the first $102,000.

2) Medicare is assessed at 1.45% with no upper limit.

3) Employers pay an equal amount as the employee (meaning you double those rates if you're self-employed).

If we arbitrarily call $102,001+ "wealthy" and $102,000 and less "middle class", then the wealthy get a slight break here.

4) Federal income tax on wages, salary, tips and interest is assessed on a progressive scale based on total income. You pay 10% of the first $7,825, 15% of the next $24,024, etc, on up to 35% of every dollar over $349,700. But that's not counting other sources of income, and various deductions and credits.Those who are wealthy by salary pay a higher overall tax rate, all other things equal. Historically, the rates are pretty low - at one point in the 1960s, the top marginal tax rate was 90%.

5) Federal income tax on capital gains, investment income, dividends, non-recuring income, etc., is more complicated. The rates were decreased in 2002 as part of economic stimulus incentives, and will likely be raised again in the near future. Twenty years ago you could say that the wealthy were generally the only ones who benefitted from dividends and capital gains, however when you consider that a large portion of retirees (who are now middle class by income) live primarily off of investments and pensions (which themselves exist because of investment income), there is a substantial portion of the middle class who draw income from dividends and capital gains.

6) Deductions and credits lower taxable income and tax liability, respectively. Generally, the wealthier you are, the more of these you are in a position to enjoy. Some are not unfair. A single person making $80,000 could be wealthy, but if he or she is the sole income provider for a family of 6, they're much closer to middle class. But very few middle-class families could afford to benefit from the tax write offs of mortgage interest on a $485,000 home (unless you're in California, in which case that home is a one-bedroom, one-bath).

7) Property taxes. There are generally no exemptions for these. The wealthy are more likely to pay them because they're more likely to earn more. And these can be painful. My parents' home is valued at roughly thrice our home, but they pay seven times the property taxes that we do, and it amounts to one-tenth of their combined annual income (which is equal to ours).

8) Sales taxes. Here's the tricky part because no one can seem to get exact figures. In theory, these taxes hurt the lower class the most because consumption goods make up the largest part of their expenditures - and the bigger portion of their income. At the same time, the wealthy tend to spend more and so pay more overall in taxes (and in consumption). It also matters where you live. If you're in Kirksville, Mo, you pay 3% on all items, except food which is 1.25%. If you're in Chicago, IL, you pay a little over 10% on most things, although that's closer to 20% for movie tickets and mini-golf, etc., things that are considered 'entertainment'.