US and Taxes

[JudgeDredd]

What happens with you lot and taxes?

In the UK Value Added Tax is added to items. Income Tax is removed on a monthly/weekly basis at source. You only have to fill in tax forms when you are self employed.

I was just watching an episode of The Wonder Years online and the mum was worried because she had lost the receipts. But the man was employed - not self employed...so even if you are employed, do you have to fill out tax receipts?

[LongBlade]

Our tax code is a nightmare.

It's probably better left explained by people who know what they're doing.

This seems like a good one to start with. Keep in mind that not only is our tax code huge, but it changes from year to year. It was originally created to be a tax only on the most wealthy Americans. Slowly it grew over time to cover everyone. Then it blossomed into more than a tax code, but a system of incentives to reward and punish certain behavior.

Good summary: http://www.cstr.org/commentaries/taxreform/IBD-complicated2005.html

Simple answers: https://answers.yahoo.com/question/index?qid=20130517072111AAYMUBj

More complicated answers: http://www.taxpolicycenter.org/briefing-book/improve/simplification/why.cfm

There are, however, people who would like to change it. Some would like a flat tax: http://www.heritage.org/research/factsheets/2012/01/the-new-flat-tax-encourages-growth-and-job-creation

Others would like to go to a VAT system like you Euros have.

The key is not to allow both a VAT and an income tax. Having both would simply be too much.

[bayonetbrant]

added to that, we have multiple layers of taxation here that don't exist in many other countries b/c of the differences in federal, state, and local jurisdictions.

[JasonPratt]

Remember, the battle cry of the revolution was TAXATION WITH REPRESENTATION!

:))

Tennessee isn't so bad. We have a decent fuel tax, paid at the pump (though pretty harsh 'sin' taxes on tobacco and booze, but not a problem for those who don't smoke or drink, which in a state largely composed of at least nominal Baptists is a significant number); local and county sales tax, just under 10% total in my county, paid at the point of purchase for items received in state (TN doesn't charge sales tax on items shipped in from out of state); no state income tax; and then the federal social security and medicare taxes and income tax (which are deducted by employers, unless self-employed). Those have to be filed every year, to prove you've paid them, but unless you're trying to game the system or are self-employed (or the equivalent thereof, like doing a lot of day trading) it's pretty easy.

Mom keeps some tax receipts for large-dollar purchases, and we check those each year to see if collating them gives her and Dad a better deduction than a standard deduction, but it rarely does and no one really needs to do that: you can just opt to take the standard deduction.

Tax software is cheap or even free if you're filing an EZ form, and the software leads a person through the hoops in about an hour.

If you're trying to get out of paying income taxes, then there are more hoops to jump through to prove you have an exemption; or if you're earning enough money as an individual that you might as well be a business, that can get a bit complex. Otherwise it isn't a big deal. My employees don't even bother filing themselves: they take their W-forms in mid-to-late January showing what they got paid and how much we already held out of their checks for taxes, go to a tax hut, and in fifteen minutes get a check cut for their full rebate on income tax bang, zoom (minus a commission for instant rebate of course). True, they have to lend the money to the federal government over the year at no return interest, but they get it all back at the start of the year. (What they don't get back is social security and medicare taxes, which our company has to pay a matching tax on; but in theory they get that back later, too, for retirement. Or other people's medicare and ss, rather. ;) )

Things are naturally a little more complex for states with income taxes, but I doubt it's much moreso.

Again, what complicates matters is (a) looking for ways to NOT pay tax (or to get a rebate on tax held out) -- and even that's pretty simple from lower-middle class downward; and/or (b) being legally or practically self-employed, in which case you're taxed as or like a business.

[LongBlade]

Here's an example of how crazy the tax system can be here. In this case it's a state level tax:

When it came time last year to move his family back to Pennsylvania from North Carolina to care for aging relatives, Jeffrey Sutton bought a larger truck to haul their belongings.

Sutton never realized a bigger truck would leave him with a bigger tax bill once he returned to the Keystone State a few months after buying it. But that's what happened when he went to get his new license plate.

Even though Sutton paid North Carolina's 4.75 percent sales tax on the truck, Pennsylvania law requires he pay the difference between the two state's rates. Pennsylvania has a 6 percent sales and use tax, so Sutton had to fork over about a grand to make up the gap, he said.

source: http://www.foxnews.com/politics/2015/02/02/pennsylvania-tax-law-wallops-man-who-bought-truck-before-moving

[OJsDad]

At the Federal level, we have income taxed.  We also have payroll taxes on Social Security and Medicaid/Medicare and fuel tax.

In Ohio, we also have income taxes, fuel tax, both on top of whatever we pay to the feds. 

I don't live in town, but we do have an income tax for our school district.  If I lived in town, I would also have to pay income tax.  If I don't live in town, but work in one, I have to pay their income tax.  If I work in one town and live in another, I may have to pay both of their income taxes.

Then there are the sales taxes.  Both the state and the county have their own taxes.  You pay both when you make purchase.  Some things like food are exempt.

Oh, and lets not forget the property taxes.  Those can vary based on where you live.  School districts all have a property tax.  Then you may have ones for safety, libraries, help for those with mental & physical disabilities, museums, zoo's, ditch cleaning, etc.  The rates are based on the value of the property you own. 

That's just ones that I can think of and what applies most to me.

Just so you know, For taxes and fees, the Federal's get $3.1 T, States collect $1.6 T, and locals get $1.1 T.  That's just over 33.8% of GDP. 
Total spending is $6.4T or 37.1%

[GDS_Starfury]

http://www.kiplinger.com/slideshow/taxes/T054-S001-10-most-tax-friendly-states-in-the-u-s/index.html

[GDS_Starfury]

[Staggerwing]

So basically one half of the country is paying for the other half.

Maybe we owe the EU an apology for some of the things we said.

[JudgeDredd]

Why would some states be producing $0 in Income Tax? I presume people are in employment, right? 

[bayonetbrant]

Those income taxes are state-level income taxes.  Several states charge no income tax, preferring instead to use a combination of sales taxes and corporate taxes to fund the state gov't.

[JudgeDredd]

wow. I had no idea the States in the US had such autonomy.

I suppose given the vastness of the country and the population diversity and spread it makes sense that once size doesn't fit all.

[Staggerwing]

Some states are definitely getting more than their fair share of the federal tax pie (compared to what they pay in) so there isn't much incentive to piss off voters by bringing in state taxes. Florida's tax deficit is especially notable.

http://en.wikipedia.org/wiki/Federal_taxation_and_spending_by_state#Tables_of_Federal_Taxation_and_Spending_by_State

[OJsDad]

JD, when you hear about battles over the budge and taxes, it's at the federal level.  It's not one party hating a group or a program, but wanting to push it to the state and local level, where in a lot of cases they are already spending money on those programs.  All the federal level does is to add a layer of bureaucracy and rules.   

[LongBlade]

Those income taxes are state-level income taxes.  Several states charge no income tax, preferring instead to use a combination of sales taxes and corporate taxes to fund the state gov't.

Yeah.

New Hampshire, for instance, has no income tax, but they do have a state sales tax and their property taxes (taxes on houses and cars) is quite high.

The bottom line is: nothing is free. The roads, schools, cops, firefighters, teachers et al have to be paid for somehow. Just because a state has no income tax doesn't mean there aren't taxes in the state.