Social security and medicare taxes for small business owners

[esantoro]

I'll jump in so you are not just talking to yourself. This is a few years old but the numbers are still very similar:

Understanding the Tax System This is a VERY simple way to understand the tax laws. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this.

The first four men -- the poorest -- would pay nothing;

The fifth would pay $1:

the sixth would pay $3;

the seventh $7;

the eighth $12;

The ninth $18. >

The tenth man -- the richest -- would pay $59.

That's what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement -- until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20. "So dinner for the ten only cost $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But what about the other six -- the paying customers? How could they divvy up the $20 windfall so that everyone would get his "fairshare?" The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would end up being *paid* to eat their meal. So the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so the fifth man paid nothing,

the sixth pitched in $2,

the seventh paid $5,

the eighth paid $9,

the ninth paid $12,

leaving the tenth Man with a of $52 instead of his earlier $59.

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings. "I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth. "But he got $7!" "Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got seven times more than me!" "That's true!" shouted the seventh man. "Why should he get $7 back when I got only $2? The wealthy get all the breaks!" "Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up. The next night he didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They're $52 short! And that, boys and girls, journalists and college instructors, is how the tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore.

Not the answer to your social security tax question, but addresses your tax percentage part.

Hmmmmmmmmmmmmmmmmm! This challenges my perspective from the other direction. Mine was left of center, maybe further left. Yours right of center, maybe further right.

I'm left wondering where the tenth man ends up eating, and what the restaurant owner has to do to make up for the missing $52, because surely the others will not be able to continue to eat there.

Let me propose that Robert Frank has the answer to this dilemma in _Richistan_.

The tenth man withdraws some of his untaxed income from an offshore account and pays his annual membership to an exclusive club or gated community and whiles away the rest of his days in a top-tiered special economy exclusively for the wealthy. This economy and its functioning is all but separated from the economy in which the nine other men reside.

What if the tenth man decides he no longer likes the American tax structure? Does he really benefit by moving his business to another country, where there is much less income disparity between the top and the bottom? I say let the tenth man out of the restaurant and out of the country. Call his bluff. He'll fold. Something else will come in and assume his place.

This tenth man has been leaving the restaurant since 1980, and is currently all but gone. The nine remaining men and the restaurant owner are deciding how to go forward. This is the situation in which we find ourselves currently. The only problem is that this tenth man is still being subsidized by the $28-economy of the other nine men,yet he no longer eats at the same table. This tenth man did not build his wealth all by himself. He used benefits created by the system to gain leverage, the understanding being that doing so would benefit all at the table. The gains are privatized in the hands of the tenth man but the risks are socialized among the remaining nine.

http://www.timesonline.co.uk/tol/money/tax...icle1996735.ece

One more thing, since the Immigration Act of 1965, the faces at the table are not the same as they were throughout most of the twentieth century. Those darker hued faces at the table were very helpful in doing the poorly remunerated grunt work of the service and financial sectors where our man No. 10 made his wealth. The move away from a predominantly Caucasian table has been further impetus for our tenth man to leave (The film -Mission to Mars_ is a curious metaphor for this flight), but this is something number ten is unable to admit to himself in the light of day but recognizes in the dark of night when he thinks no one is looking (cf. Trent Lott). And it's easy to dismiss, because it is done through passive, indirect action. The orchestration is rather beautiful in its elegance and rational appearance.

Ayn Rand's _Atlas Shrugged_ is about this very dilemma, but it was presumed that her capitalists created REAL value. In her system Microsoft would never have gotten off the ground, as it would have been easily beaten out by a better product from day one. Nike, by now would be gone, too. Gucci, Louis Vuitton, Gone. Gonegonegonegonegonegonegone.................... (Swaine Adeney Brigg, Ghurka, and, of course, Walden Bags would still be around.)

Something of greater value would have taken their places. And things of greater value would never have perished. Cars would be getting 100 miles on a fart. Or something like that.

Ed

[esantoro]

When I was a builder, it was nothing for me to have to pay out FICA/unemployment/etc, in the area of 20,000 a whack, and I was a lttle guy! If you didn't put it aside, you were in trouble when it came due. So consider yourself fortunate, you are only dealing with the one employee. The paperwork alone becomes a two person job!

I read the other day, that in reality, whether you were in the 15% bracket, or the 35%, when all is said and done, the percentage of our taxes, including all the extra fees, sales taxes, etc., approaches the 48% range. This is very close to the 54% or so foreign countries have. So although there is a lot of people who say things like, "Sure they have medical insurance, but look what they have to pay in taxes."

In reality, it's what we get back from paying those taxes that should concern us. We pay out almost as much as they do, but get less back. Although paying out of pocket for taxes, and SS hurts, what really costs business, or the self employed is the medical insurance. $600-$1000 a month for medical insurance should be the thing that really gets everyone's dander up!

With Single Payer Insurance, business, small or otherwise, would see a huge boost to their bottom line. Seems like common sense to me. 15% tax would then seem like a bargain....

I agree that we end up paying about just as much as Europeans do, but get about half as much or less in return. Propaganda is what makes many Americans think it is otherwise.

If we are getting so little in return, where is it going? To cross reference posts, No. 10 at the table has his hands on some of it. Why does he need this boost from the rest of us, if he's not willing to pay his share.

Again, I refer you to Warren Buffet:

http://www.timesonline.co.uk/tol/money/tax...icle1996735.ece

ed

[esantoro]

Something else is peculiar about No. 10 at the table, if I haven't already expressed it. I would argue that in the last thirty years, he has not had to work as hard for his wealth, but that much of that wealth was generated through tax structures. The government gave him a hand up, up, up, up. What is this, a socialist country?

Why not return to the tax structures of 1970? I do think the Immigration Act of 1965 plays a lot into this. A lot. Yet journalists and politicians are not pushing that button.

ed

Edited May 28, 2009 by esantoro

[esantoro]

here are some different numbers I found:

Top 1%, $364,000, pay 40% of income taxes.

Top 5%, $145,000 pay 60% of ".

Top 10%, $103,000 pay 70% of ".

Top 25%, $62,000 pay 86% of ".

Top 50%, $30,000 pay 97% of ".

These numbers seem to fit my understanding of things, but I'm unclear on how one can come up with 353 percent for 100 percent of income.

Supposedly this info comes from the IRS in 2005.

Ed

[electrathon]

here are some different numbers I found:

Top 1%, $364,000, pay 40% of income taxes.

Top 5%, $145,000 pay 60% of ".

Top 10%, $103,000 pay 70% of ".

Top 25%, $62,000 pay 86% of ".

Top 50%, $30,000 pay 97% of ".

These numbers seem to fit my understanding of things, but I'm unclear on how one can come up with 353 percent for 100 percent of income.

Supposedly this info comes from the IRS in 2005.

Ed

The numbers overlap. Without looking up any numbers, I think yours look pretty close.

the 1% at the top pay 40% of all taxes

the 5% at the top pay 60% of all taxes

the 10% at the top pay 70% of all taxes

the 5% includes the 1%, and so on.

In your example, the bottom 50% of all people pay only 3% of all collected taxes.

Remember, we have social welfare unheard of in other countries. In openly socialistic countries, they do not have the "free" things available to them that our "poor" or non-working have here. The tax system we now have supports those people. These are the 4 in the story that pay nothing for dinner, they are supported by the others (mainly the one) who pay more. If other countries gave away what we do, their tax structure would be far higher than it is.

And yes, the top percent are very afraid of what is taking place in this country. Yes, they have stopped coming to dinner. Yes, it is a crippling blow to the country. Yes, the rest of us are having a very tough time paying for dinner without them.

Just to clarify too, I am not wealthy. Very far from it. I would fall low into the lower middle class. I just understand how socialism has damaged so many countries around the world, and how it is destroying us here.

[esantoro]

I lived in Europe for six years and never worried about getting sick. I always felt I had enough. My salary was localized, not American.

To my understanding and from my research, when you factor in health care, vacation days, education, leisure time, overall quality of life, life seems better in Germany, Denmark, and quite a few other countries. I suppose if one has a certain type of discipline, he or she could make a similar life here in the U.S., though people tend to conform to the climbing and consuming that goes on around them, which could lead many Americans to reach beyond their means.

The numbers overlap. Without looking up any numbers, I think yours look pretty close.

the 1% at the top pay 40% of all taxes

the 5% at the top pay 60% of all taxes

the 10% at the top pay 70% of all taxes

the 5% includes the 1%, and so on.

In your example, the bottom 50% of all people pay only 3% of all collected taxes.

Remember, we have social welfare unheard of in other countries. In openly socialistic countries, they do not have the "free" things available to them that our "poor" or non-working have here. The tax system we now have supports those people. These are the 4 in the story that pay nothing for dinner, they are supported by the others (mainly the one) who pay more. If other countries gave away what we do, their tax structure would be far higher than it is.

And yes, the top percent are very afraid of what is taking place in this country. Yes, they have stopped coming to dinner. Yes, it is a crippling blow to the country. Yes, the rest of us are having a very tough time paying for dinner without them.

Just to clarify too, I am not wealthy. Very far from it. I would fall low into the lower middle class. I just understand how socialism has damaged so many countries around the world, and how it is destroying us here.

[electrathon]

If we are getting so little in return, where is it going? To cross reference posts, No. 10 at the table has his hands on some of it. Why does he need this boost from the rest of us, if he's not willing to pay his share.

So easy. It is going to pay the way of the 4 men who do not pay for dinner. The guy who "is not willing to pay his share" is already supporting almost every man at the table.

Something else is peculiar about No. 10 at the table, if I haven't already expressed it. I would argue that in the last thirty years, he has not had to work as hard for his wealth, but that much of that wealth was generated through tax structures. The government gave him a hand up, up, up, up. What is this, a socialist country?

You once again are missing the 4 who pay nothing. Yes, we are already so close to socialism is is frightining. The 4 men at the bottom have beem living off the milk of the public nipple so long they have no ability to go and harvest thier own meat. Socialism weakens peoopel that way. It weakens the whole economy. Yes, there are those that have physical reasons to be nipple fed, but the majority just find it easier. As another clarification, I personally have lost magor usage in one of my legs from an accident when I was 15. If I pushed for it I could be collectig Social Security Disability, I do not.

Imagine how great our economy would be if most of us were producers in one form or another. If those 4 men paid into the system, we could move so far so forward so fast.

[electrathon]

I suppose if one has a certain type of discipline, he or she could make a similar life here in the U.S., though people tend to conform to the climbing and consuming that goes on around them, which could lead many Americans to reach beyond their means.

I think that is a major part of the answer, almost prophetic. The American people now feel entitled to things they did not earn and can not afford. This debt brings everyone down. If people would live within their means, we would all have more.

When you were in Europe, did you see people living beyone their means like people do here? Was it even possible to live outside your means like it is here?

[esantoro]

So easy. It is going to pay the way of the 4 men who do not pay for dinner. The guy who "is not willing to pay his share" is already supporting almost every man at the table.

You once again are missing the 4 who pay nothing. Yes, we are already so close to socialism is is frightining. The 4 men at the bottom have beem living off the milk of the public nipple so long they have no ability to go and harvest thier own meat. Socialism weakens peoopel that way. It weakens the whole economy. Yes, there are those that have physical reasons to be nipple fed, but the majority just find it easier. As another clarification, I personally have lost magor usage in one of my legs from an accident when I was 15. If I pushed for it I could be collectig Social Security Disability, I do not.

Imagine how great our economy would be if most of us were producers in one form or another. If those 4 men paid into the system, we could move so far so forward so fast.

I think there is an economic theory somewhere that argues that in order for No. 10 to be able and willing to pay a significant portion of the tab, Nos. 1 through 4 have to be manufactured to be unable to pay their share. This is what keeps Nos. 5 through 9 showing up eagerly to work Mondays through Fridays. They don't want to be like 1-4. They are happy in the feeling that their lots are better, and if they work hard enough maybe some day No. 10 will ask them over for Fourth of July barbecue, where 1-4 serve the guests and pick up the trash as their second or third job away from McDonalds and Wal-Mart, in order to make a bit of money to be trained as IT technicians, only to see that when they finally graduate, No. 10 has shipped the IT jobs to India, as the cost savings allows (or once allowed) him more easily to stomach the 59 percent at the restaurant table. The alternative is more educated people and a more level playing field of competition, which would make No. 10 work much harder to maintain his position. Who would then pick up No. 10's trash? I think No. 10 was happy paying the $59; the once Caucasian table made it even more palatable. Just how does No. 10 feel about the shift of ethnic demographics in this country? Can we say that this shift is not playing into the economic mechanisms of the last 20 years? For the record, my ancestry is from Italy, Sicily, to be exact.

I understand the position you're supporting. I think I see it differently. I know I'm playing with the analogies, but in playing with them I am able to further express just how I see the economic mechanisms working. And I could be dead wrong.

Ed

[electrathon]

Remember, in our system, the bottom 3-4 do not pick up the trash of the wealthy. They live off the government nipple. It is a step or two up that are the honest, hard (often increadibly hard) working people that do that. If they do well, and work correctly, they get to move up. If not, they never make it any higher. The bottom 3 sucking off the nipple are the ones that complain they are not getting more from the gready rich. They are held back by drugs, alchol, attitude, and the inability to wean themselves and go and fend for themselves.

I also feel it increadibly sad that the tax structure and other issues has made it necessary for the top to leave the table and eat elsewhere. Yes, they left the table. It was necessary for them to do in order to be about to support the rest of us. So sad.

I personally do not care the color of ones skin. I am a mutt personally (but would definatly be considered white). I do not know where I come from, except maybe Oklahoma. If one wants to work, they should be paid. If one wants to sit at home and reherse to be on Jerry Springsr, he deserves to be hungry. Yes, differant jobs pay differant amounts.

Ed, you are a good example of this. You have a very nice product that you market to the top couple percent of income earners. Very few average people (likely no below average people) could ever afford to purchase from you. The government could step in and force you to lower your price so that the masses could afford your work. That would make it "fair" for everyone looking to buy. I am betting that the quality of your work would suffer with that sort of government assistance. Think of all the people it would help. I am guessing you would either stop producing or start selling elsewhere. You would be the man at the table that has to leave. I hope and pray that this does not happen. I personally feel that you should be able to price your work as you see fit and let the market decide if it is over or underpriced.

I do agree that we see this diferantly. That is OK, maybe even good. It does surprise me that someone who relies on the wealthy to make a living would want them to be less wealthy, as your income will drop in relationship with their wealth. Possibly if that happens you will be able to find a new market, selling to the masses instead. I think that choice should be up to you though and not up to the government.