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cpaswr October 20th, 2013 4:24pm

A family of 4 that earns $100k would pay $10k in Federal Income Tax if a 10% flat tax is implemented. Under the current system, and assuming no tax credits and they don't itemize, would their Federal Income Taxes be higher or lower than $10k?

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steelcity Pittsburgh
10/20/13 11:15 am

So what's the point of this question? Any decent family earning this much would itemize thereby paying less in tax. Are you advocating a tax increase?

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cpaswr just say the letters
10/20/13 11:18 am

I'm showing how a flat tax sounds good in theory while it doesn't work as well in practice because the vast majority will pay more in taxes.

cpaswr just say the letters
10/20/13 11:21 am

The example I used shows that when the family of 4 would have the highest tax liability possible, they would still pay less in taxes.

Add additional deductions because if itemizing and the likely Child Tax Credit and the gap becomes that much wider

cpaswr just say the letters
10/20/13 11:22 am

No. I'm not advocating a tax increase.

steelcity Pittsburgh
10/20/13 12:29 pm

I see. You are advocating against a fair tax law. Now that we are on the same page I agree.

cpaswr just say the letters
10/20/13 12:35 pm

The problem is that it isn't a "fair" tax. This shows that 85%-90% would see a tax increase.

cpaswr just say the letters
10/20/13 10:47 am

The tax liability would be $9,937.50.

100,000
-12,200 standard deduction for MFJ
-15,600 4 personal exemptions
=72,200 taxable income

Reply
cpaswr just say the letters
10/20/13 10:48 am

Out of $72,200, the first $17,850 is taxed at 10% or $1,785.
The rest ($54,350) is taxed at 15% or $8,152.50
Tax is $9,937.50.

Arya8
10/20/13 10:59 am

Are you a CPA? I assume that's what CPA stands for in your name. :)

I was going to answer in a similar way. Ha. I'm sure this family would itemize, but as you said, this is the most they would pay, under MFJ.

cpaswr just say the letters
10/20/13 11:09 am

Yes I am. I passed the May 1992 exam.

Arya8
10/20/13 11:51 am

Awesome. I worked for a CPA as a staff accountant for years and have worked during tax season even longer. Becoming a CPA is my goal. :) I graduate college in December.

cpaswr just say the letters
10/20/13 11:57 am

Good luck. Be sure to take a good CPA Review class. I recommend Northern Illinois University's class. But, I'm biased that way.

Arya8
10/20/13 1:07 pm

Thank you! :)

shellybaxter1234 Peaceful Place
10/20/13 10:20 am

Assuming a family of four making $100,000 doesn't itemize is like reading a fairytale

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cpaswr just say the letters
10/20/13 10:23 am

I know. But I need to keep the math simple. This scenario assumes that the family of four would pay the most taxes possible.

cpaswr just say the letters
10/20/13 10:25 am

Under the current system.

But, they would still pay less than if a flat tax was implemented.

BusinessJustin Tamriel
10/20/13 10:11 am

I've tried using examples like this, but people fail to see the drastic shift of the tax burden from the rich to the poor with a flat or fair tax.

Mattwall1
10/20/13 10:15 am

Why do you hobo I'm against a flat tax. It's anything but fair. It overburdens the poor completely

Mattwall1
10/20/13 10:15 am

Think. Where on earth did it get hobo?

BusinessJustin Tamriel
10/20/13 10:18 am

Oh lovely autocorrect, always has the best suggestions. Even from that statement it seems that you're against flat tax: 'anything but fair', 'overburdens the poor'.

Mattwall1
10/20/13 10:21 am

Yes I don't find it practical, especially Ina modern and changing world. Ido think in the end it will end up hurting the poor in the long run, because you either make a low rate that brings in nothing, or a high rate that destroys the poor

BusinessJustin Tamriel
10/20/13 10:30 am

Exactly. The fact if the matter is that 10% would not be high enough to bring in the same level of revenue since the rich would be paying so much less, especially since we can't get anyone to agree on spending cuts.

Mattwall1
10/20/13 10:32 am

I wish more people understood this

BusinessJustin Tamriel
10/20/13 10:33 am

I know. I'm thinking about petitioning Tony tonight for a SOHOA just for taxes. Haha, I think it'd be quite the firestorm

Mattwall1
10/20/13 10:35 am

Of I could ever figure google+ out id apply.

BusinessJustin Tamriel
10/20/13 10:38 am

Haha, it's the only thing I use G+ for.

cpaswr just say the letters
10/20/13 10:55 am

Just don't ask the tax protestors to join the conversation.

Mattwall1
10/20/13 10:58 am

You mean the people that don't want ANY taxes? Or the ones that object to the amount that's taxed?

BusinessJustin Tamriel
10/20/13 11:02 am

Haha no, I think we would try to keep it just to people who advocate some form of taxes. Maybe give them a week to prepare some solid arguments.

cpaswr just say the letters
10/20/13 11:08 am

The ones that think all taxes are evil and the government doesn't deserve any funding. I wouldn't object if they had a logical argument.

2katz I live in Nebraska
10/20/13 12:24 pm

Nice, cpaswr, "just don't ask the tax protestors to join the conversation." I'm not one of them, but that's not an attitude I respect. Especially not on SOH.

BusinessJustin Tamriel
10/20/13 12:31 pm

Well, I don't say we should exclude them, but we need to find one with a serious argument and some sort of research. It'll be a lot harder among that group than others, or so it would seem.

Mattwall1
10/20/13 12:31 pm

I agree they should be included. I think there views are wrong but they should be included

cpaswr just say the letters
10/20/13 12:33 pm

2katz, did you read the comment that your comment appeared under?

LochnessMonster Milky way
10/20/13 10:07 am

It would be 27,000 - 28,000 with out any deductions. Reason I know this most of the people I work with make at or just over 100,000 a year and would pay that much with no deductions. We talk about taxes and stuff a lot.

cpaswr just say the letters
10/20/13 10:19 am

Actually, the Federal Income Tax would be $9,937.50.

BusinessJustin Tamriel
10/20/13 10:37 am

Actually, it would be $21,303.75. How did you do your math? I used to work in a tax office...

BusinessJustin Tamriel
10/20/13 10:40 am

Crap, and then I used married filing separately rates. Correct that to $16,857.50.

BusinessJustin Tamriel
10/20/13 10:47 am

Okay, you still gave them standard deduction and personal exemptions. It's one of the few scenarios in which it would balance out. Try a family of 4 making nearly the median income at $50k: $5,000 flat tax versus $2,434.50 using the same measures.

BusinessJustin Tamriel
10/20/13 10:50 am

Suddenly the flat tax doesn't look so rosy when it doubles the tax on a family that is much more average, making nearly the median income. I think flat tax sounds good in theory, but I don't think it will have the effect that proponents argue.

cpaswr just say the letters
10/20/13 10:52 am

I used $100k in income as the beginning base. Most flat tax argue with no deductions because they want to keep it simple. So, my example is valid.

BusinessJustin Tamriel
10/20/13 10:54 am

No, I agree that it's valid. It shows what would happen at $100K. Try comparing a family of four making $50K and one making $250K. That's when we realize the real effect of flat tax.

cpaswr just say the letters
10/20/13 11:04 am

I'm well aware of that fact. The problem is that most people don't realize that they would pay more in taxes if a flat tax was implemented.

If people want everyone to pay some taxes, don't make tax credits refundable or carry over losses.

BusinessJustin Tamriel
10/20/13 11:12 am

Okay, I see where you're going with this and I agree. I also agree that we have too many tax credits and deductions. I personally feel we should just simplify the current tax code. I feel like it's pretty fair.