Any CPA's ? Or someone good with #'s

 I'm wanting to write a rebuttal to an opinion in our local paper section
called _Voice of the People_.  Frankly I don't know how to work percentages
(sad I know)and also don't know if there is a cheat sheet for income tax
liability which can be accessed quickly to find out a truer example.

Basically, someone (a CPA) wrote an editorial saying how good the middle
class has it.  Here are their examples, which I see some holes, but don't
know how to plug them.  Now what I see holes in is, they compare taxes on
over triple the middle class income, but the deductions for an upper class
income they are not even doubling the deductions.  Boy, I hope I explained
that right! I would like to know using a 3.3% (approx, this is something I
can't figure out) times the middle class deduction would be appropriate,
since the upper class income being used is approx. 3.3% times the middle
class income. What would tax liability be using the appropriate deduction
level.  Hey, any help I can get with a rebuttal I sure would appreciate, I
sure can use it!

In part the editorial:
"For example, a married couple with two children earning $60,000 with
itemized deductions (state and local taxes, property taxes, mortgage
interest and contributions) totaling $13,500 will pay only $2,400 in federal
income taxes.  This represents 4% tax liability.

Now let's take the same family making $200,000 using the current tax rates
with itemized deductions of $25,000 will pay $35,903 in federal income tax
or 18% of their income."
::END::

Now anyone can see the family making 200k does not even have double the
deductions, in all fairness to compare tax liability with deductions.
Shouldn't the family making 200k be given a hypothetical deduction of 3.3% X
the deduction of $13,500 of the middle class?  I'm looking at the 200k is
approx. 3.3% X the middle class income of 60k.  Anyone have any idea the
percent would be for tax liability for the upper class when deducting the
hypothetical 3.3% from the 200k?

I know, maybe I should've paid more attention in math class, or learn to use
a calculator!!

 
I can do the math for you, but I'm not really sure that's the issue here.
What you are disputing is that a couple making $200K has only twice the
deductions of a couple making $60K. That could very well be true. Or not.
For many people, a mortgage deduction is the single biggest deduction.
If the people making $200K have a house twice as expensive as the people
making $60K and/or owe less on it (by putting down more money, which they
can afford) then this scenario *could* be completely accurate. What makes
sense is to look at real figures. We can both make up scenarios that
show anything if we choose the right figures in our examples.


What drives *all* of these examples is that the tax rate is higher for
high-income people than lower-income people - given the same deductions or
even (usually) the same proportion of deductions. Of course the people making
$200K, $500K, $3000K are going to pay more as a percentage. It's how our
tax system is setup.


The rebuttal is that there is a certain "living wage" which all people
must earn to sustain the minimum standards of living (rent, utilities,
food). Anything beyond that can be saved/invested or spent on luxuries.
This extra disposable income is going to be much, much more for the family
making $200K than for the family making $60K - even after the tax
disparity. It's why the tax system is setup to be progressive. The people
making more can afford to pay more and still maintain a higher standard
of living.


Dimitri

 
"D. Gerasimatos"  wrote in message

Exactly!

I'm not disputing whether or not the couple making more has less or more
deductions.  Of course the tax liability will be a greater % with less
deductions.  I'm saying the CPA should be able to give a more fair example.
He is trying to drive home the point of the 200k couple being liable for 18%
of their income and the 60k couple being liable for 4%. But, he is using the
60k couple with a deduction of $13,500 and the 200k couple with a $25,000
worth of deductions.  His hypothetical example is not fair based on using
approx 3.3X income and a less than double deductions.  He is just juggling
the numbers he wants without increasing deductions by the same % value.  He
was comparing a 18% vs. 4% tax liability based on deductions he chose.  If
he was going to increase income by 3.3 X the amount, why less than double
the deductions? It would be interesting to know the percentage difference of
liability when deductions are increased/decreased by the same % as income.
Maybe I'm still not getting my point across, I dunno.  But, I'll keep trying
:o) .

 
I'm not sure "appropriate" is the right word.  Deductions and income
really don't scale together.  But here is the math that shows what it
would look like if they did.  Not sure it will make a great rebuttal.

It looks like the CPA was using 2004 rates.

First CPA example:
$60,000 - (4 x $3100 personal exemptions) - $13500 item deduction = $34100
taxable income.  MFJ tax on $34100 is $4400, less (2 x $1000 child tax
credit) = Total Fed tax of $2400 or 4%.

Second CPA example:
$200000 - (4 x $3100 personal exemptions) - $25000 item deduction = $162600
taxable income.  MFJ tax on $162600 is $35486.  Income too high for
child tax credit so Total Fed tax of $35486 or 18% (slightly lower than
what the CPA had, possibly due to phaseouts I didn't consider).

Scaling the itemized deductions at the same rate as income:
$200000 - (4 x $3100 personal exemptions) - $45000 item deduction = $142600
taxable income.  MFJ tax on $142600 is $29886.  Income too high for
child tax credit so Total Fed tax of $29886 or 15%.

I find that http://www.fairmark.com/refrence/index.htm  gives a fairly
clear picture on how taxes work.  Basically, after you subtract out
exemptions and deductions, each chunk of income is taxed at a different
rate.  The $0 through $14300 chunk is taxed at 10%, the $14301 through
$58100 chunk is taxed at 15%, the $58101 through $117250 chunk at 25%
and so on, up to the final chunk of everything over $319100 which is
taxed at 35%.

The CPAs point is generally right.  Incometaxwise the middle class has
it pretty good.  The issue is whether they have it slightly less good,
relative to the upper class, than they did before the recent tax cuts.
--
Jim Prescott - Computing and Networking Group    jgp@seas.rochester.edu
School of Engineering and Applied Sciences, University of Rochester, NY

 
"Jim Prescott"wrote


Thank you for the detailed explanation, along with the link.  Scaling the
itemized deductions at the same rate as income is exactly what I was looking
for.  I guess the 3% difference between the 18% & 15% isn't that great of a
difference, but it is almost enough for another middle class person's tax
liability.  This is the figure I was after.  I don't know if I will write a
rebuttal or not for just 3%, after all I'm not that great of a writer!

Further in his editorial was about the middle class has it pretty good.
Hey, I'd be willing to pay tax on 200K, but it looks like I'm not worth that
kind of money :o( . Oh well, maybe in my next life.

Thanks again.