Tuesday, September 11th, 2007

Tax and Spend

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Get ready for it folks, it’s coming. To make it work, without cutting benefits or raising the retirement age, we’ll need about a 4-6% increase in payrol tax rates (assuming the rate isn’t converted to a progressive tax, in which case the increase will be much higher on higher income earners) and the removal of the 90K cap on social security taxes. Figure that into your current salary and see how it effects your savings rate. A quick back of the napkin calculation based on a 3% increase and raising the cap to $150,000 yeilds –

Salary: $125,000.00
Current: $90,000.00 taxed / $35,000.00 not taxed – $5,580.00 in taxes
No Cap, Same Rate: $125,000.00 taxed – $7,750.00 in taxes (difference: $2,170.00 annually)
No Cap, 3% Tax Increase: $125,000.00 taxed – $11,500.00 in taxes (difference: $5,920.00 annually)

Salary: $150,000.00
Current: $90,000.00 taxed / $60,000.00 not taxed – $5,580.00 in taxes
No Cap, Same Rate: $150,000.00 taxed – $9,300.00 in taxes (difference: $3,720.00 annually)
No Cap, 3% Tax Increase: $150,000.00 taxed – $13,800.00 in taxes (difference: $8,220.00 annually)

This would hit people who live in areas that have a high cost of living the most, since their savings rates tend to be the lowest.

Posted by Jim Mathies on September 11th, 2007 | Filed in Big Government, Politics, Taxes | Comment now »



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