The taxpayer making $350,000.00 (or more) is already enjoying a 7.65% tax advantage over the majority of Americans on $244,000.00 of his income. That is the money he does not have to pay because of the cap on the FICA payroll tax at roughly $106,000.00. This means he is paying roughly $18,000.00 less in taxes than if the cap were removed. The removal of this cap would probably solve Social Security and Medicare's financial straits for the foreseeable future.Â
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Most Americans do not understand how our marginal progressive income tax works. You take your basic income, after deductions for children, taxes, mortgages, business expenses, etc., and then compare it to a group of values that is your tax liability or bracket.Â
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These brackets are compiled sums of a percentage of your income owed for each level of income that you have achieved. For example (and since I do not have an actual IRS tax table to work from, this is purely hypothetical) you might be required to pay 10% of your income after your exemptions and deductions (which I shall simply combine under the term ??deductions, ? for the sake of brevity) for any income up to $10,000.00. In other words, if you are a single taxpayer making $18,000.00 per year, and you take only the standard deduction that all taxpayers receive of $9,000.00, you would owe $900.00 in taxes for the year.Â
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If you make $32,000.00 under this hypothetical system, you might be required to pay 15% of your income on any income between $10,000.00 and $35,000.00 per year after deductions, you would owe $2950.00 in taxes for that year ($32,000.00-9,000.00=$23,000.00, first $10,000.00 at a 10% tax liability equals $1000.00 tax owed; $23,000.00-10,000.00=$13,0000.00 at a 15% tax liability equals $1950.00 tax owed; $1000.00+1950.00=$2950.00 total tax owed). If you have dependents, business expenses and improvements, a mortgage, etc.; that you can itemize on your return, rather than take the standard deduction, and reduce your tax liability even further.Â
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I would like to note here that under the House of Representatives' healthcare reformbill that Congressman Jared Polis (Colorado Second District) is so upset about (H.B. 3200), the four percent of the small business owners who might be liable for the healthcare surtax on their profits over $350,000.00 can reduce their tax exposure by hiring additional employees, or investing in business improvements.Â
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Now we have the last two pieces of our individual income/government funding puzzle: the capital gains and estate taxes.Â
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Capital gains are those you supposedly realize on long term investments: real estate (including extraction of minerals), government and corporate bonds, common and preferred stock.Â
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Corporations only receive money from the sale of their stock at the time of the initial stock offering. They only benefit from the increase in the price of their stock if they: offer additional stock for sale; use the stock that they retain as collateral for loans; or use it as leverage to buy other businesses. Once a share of stock has been sold to its initial investor, it is of no further direct value to its corporation, and is merely the stakes of what is little more than a complex game of chance.Â
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