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Thread: Taxes and Wages
11-09-2012, 10:21 PM #1
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Taxes and Wages
Actually, taxes went down quite recently. The Bush taxes were intended to be temporary and were implemented at a time when we had a budget surplus. Also, there were a number of tax cuts that were put into effect to offset the recession. Historically speaking taxes are quite low. Here is a graph with tax rate data since 1945.
There is a growing gap between wages and productivity which actually concerns me a great deal more than taxes.
Graph of the week: USA productivity and real hourly wages 1964-2008 « Real-World Economics Review Blog
This graph may explain were the difference is going
The economy has been very hard on so many people, myself included. I am recovering but I know that is not true for many people. I was seriously motivated to dive into the data and get a better understanding of trends in the U.S. I have had a lay person's interest in macro economics most of my adult life and I am a math/data geek so an understanding of the data is important to my personal decision making process. While I have not verified the numbers behind these specific graphs they are consistent with what I have seen over the years. Of course there are many other economic indicators out there, and these do not explore some of the causes such as automation and the increasing usage of labor in developing nations. We can each draw our own conclusions.
11-09-2012, 11:18 PM #2
I can recall several tax breaks that affected me positively.
The introduction of the Roth 401K.
Raising the IRA contribution limits from $2000 to $5000 (part of the Bush tax cuts).
The Making Work Pay credit.
Elimination of the "marriage penalty" for MFJ
The introduction of FSA's.
The temporary tax deduction for PMI.
The buy a house tax credit.
I know it's not totally related to your post, but I did want to post some POSITIVE tax change information.
11-09-2012, 11:33 PM #3
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In the 80's hubby and I were both full-time professionals, living in an expensive state, and earning really good salaries. We had almost no deductions but lots of expenses. Our taxes were outrageous! By the time we counted in sales tax, state income tax, Social Security / Medicare and federal income taxes, almost 50% of our income went to paying taxes.
It felt like it got worse during the early part of Reagan's term as President which was particularly rough since the economy pretty much sucked during that time, too. However, by the time Reagan was at the end of his second term, life was getting pretty good. Not only were we able to buy a house - thus giving us a decent tax deduction - the economy finally started to improve.
In more recent times, I've been tracking our effective tax rate for all taxes combined and we now pay approximately 16% no matter what we do or what Congress does. I'm hoping that percentage doesn't increase.
Historical Effective Federal Tax Rates for All Households
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11-09-2012, 11:41 PM #4
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well unfortunaltely none of telephus's deductions helped us. By the time the reductions and refinancing hit we owed $20,000 and werent behind,never paid any PMI ever as we put $17,000 on a $48,000 house the first year we were married. No working spouse penalty when I worked and I havent for 5 years. It's not worth increasing our tx bracket for the piddly amt i would make.
We have benefitted from lower taxes on property. Our house of course dropped in price about $150,000 but whatever. We havent lost it until we move. And of course its in disrepair and no one would want it because you can buy so many foreclosures at rock bottom.
11-09-2012, 11:47 PM #5
I would argue the bigger problem is government spending. Look at years 2009, 2010, and 2011. No amount of taxation is going to solve that problem. We need to spend far less than we have been.
Historical Federal Receipt and Outlay Summary
11-10-2012, 01:47 AM #6
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I believe that your assertion is an apples to oranges comparison. I was identifying metrics that are indicators of current financial distress or relief, as the case may be, for Americans. Your concern is more of a long-term one, that while serious does not change how much money is in the bank account of most Americans today.
The recent discussions have been a bit depressing. No wonder they call Economics the dismal science.
Last edited by melodys; 11-10-2012 at 02:09 AM.
11-10-2012, 02:13 AM #7
My sales tax recently recently went down. The project it was raised for was paid off so the tax went back down.
In the recent election, it was voted to lower one of my state's luxury taxes.
11-10-2012, 01:35 PM #8
In college the summer before I started graduate school, I had a job as a research assistant for one my professors who taught tax policy. My job was to go to the Iris.gov site and collect data on execute officer pay from their annual reports. Executives are paid handsomely. I am not convinced that were they paid less, the companies in question would pay the average worker more.
11-10-2012, 04:28 PM #9
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Even a quick look at the federal economic situation reveals that there is no way we can cut enough to balance the budget. We have certain Constitutional and legislative requirements that have to be met. We, obviously, could trim those some - throw people off of Medicaid, tighten food stamp requirements, increase the retirement age to relieve demand for Social Security and Medicare, reduce our military, and most importantly rethink the disability and survivor portions of Social Security. However, that's not the whole solution. Frankly, even if we trim government spending to the bone, we still need to increase tax REVENUE. That doesn't necessarily mean we have to increase tax RATES, but we need to get more money to the government. One way to do that would be to improve the economy, thus creating more tax payers and increase the amount of taxes they pay because their incomes have increased. We could also eliminate certain tax deductions - laddering these so you don't get to take them at all if you have a high income but allowing them for lower incomes. One would be the homeowner's exemption; eventually eliminating it entirely. Along these same lines, I'd eliminate what is commonly called "pork" from the tax code - all those weird little exemptions, deductions and exclusions that various businesses and groups have. Those would be hard fought but a courage Congress could get that done.
11-10-2012, 08:02 PM #10
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There are structural changes in the economy that is resulting in a large segment of the population being left behind. We are changing from a manufacturing based economy to a service and information based economy. This is progress and a good thing. I personally have benefited, but I worry about those that have not done well with the changes.
Taxes hurt and I am enjoying the historically low rates, however I do not object to paying more to benefit this great country. A lot of people consider taxes to be the cause of problems and the reason why the middle class is feeling squeezed, when in reality the tax burden is not as high as it once was. I think the reasons for the economic problems are diverse and we need to have a broader perspective when considering both the causes and potential solutions. I also think the current issues were decades in the making and it will take time to regain our footing.
productivity vs wages
Last edited by melodys; 11-10-2012 at 08:31 PM.
11-10-2012, 10:09 PM #11
Another factor in the growth of CEO income in the 1990-2005 range of years is that it was fairly common to include stock options as a part of CEO pay. Stock price is an indication of how well the company is doing. As the company is more profitable, the stock price goes up and stock options become more valuable, thus increasing CEO income. This is similar to paying a salesman salary plus commission. The graph of CEO income dips around the time of the dot com bubble bursting and the post 9/11 recession, both times when the stock market fell. I think CEO income also fell in 2008 with the drop in stock market values. Many ordinary people also benefited from the raising stock market during the 1990-2005 time period, as they were invested via their 401Ks.
I have no problem with corporations being profitable, as profitable companies generally hire more people than those that aren't.
Anytime there is a change in the basic structure of an economy, there will be those who do not adjust well. I think it would really unrealistic for someone to expect the get a manufacturing job right out of high school paying an amount that could support a family. This was possible in the 1950s and 1960s. Not anymore.
As far as willingness to pay more taxes to improve this country's economy, I would need some serious convincing that what they'd do with the taxes would lead to an actual improvement. I haven't gotten much bang for my buck with the Stimulus or any of the other efforts to improve the current economy.
11-10-2012, 11:15 PM #12
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You are making a thoughtful argument for your position bonnotsm9 and I respect that. I agree that profitable corporations are good. I also think that both corporations and individuals have a responsibility to the common good as well as to their own bottom line. I practice this in my own life and I work for a profitable company that has a culture of giving to the community. (But also has a big disparity between rank and file and execs.)
We have different interpretations of the data, and that conflict is how better ideas develop. It is quite refreshing to have a fact based discussion rather than the slogans and sound bites that too often take the place of true negotiation and discussion that needs to be a part of the problem solving process.
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