The 3 Different Categorizations of Taxpayers
When it comes to formulating tax policy, one of the statistics that plays a major role is the categories of various taxpayers.
Various tax laws, policies, and strategies target people in different categorizes.
Some categories seem to be more hit by economic instability while other categories seem to be more aggressive with avoiding taxes legally.
There are three main ways that taxpayers are categorized in terms of the incomes that they earn: 1.
The Rich and the Middle Class The categorization of the rich and the middle class has been on the limelight especially with the proposed move by the Obama government to increase the taxes paid by the rich.
The Alternative Minimum Tax that was introduced as a parallel taxation model targeted the rich in an attempt to ensure that they paid a given minimum tax rate on their incomes.
There is still a lot of debate on the taxation of the rich on Capitol Hill but there seems to be a consensus that the highest income earners should pay some level of tax rate on their income.
The so called Warren Buffet Tax that is targeting the rich is named after Warren Buffet, who argued that he paid a lower tax rate than his secretary due to the tax loopholes that favored the rich.
However, one of the main areas of contention is determining the threshold of the rich.
Currently, this category - for tax policy purposes - includes taxpayers who earn an income of over $100,065.
This constitutes 20% of taxpayers.
However, the Tax Policy Center has sort to have the number moved to $532,613.
Another category that is at times, considered is that of the very rich.
This includes the top 1% income earners who earn over $1 million a year.
These income earners earn about 17% of all of U.
S.
wages.
This group is said to be least affected by recessions and depressions as they have more control over their incomes.
2.
Those who Pay Income Taxes and Those who do Not Another categorization of taxpayers is between those who pay income tax and those who do not pay the tax.
This has been an area of much debate in the recent past as politicians seek a way forward to resolve the large government deficit.
The argument posed by many tax professionals and tax stakeholders was that the high percentage of taxpayers who did not pay income taxes only showed that the tax system was not effective.
There have been a lot of recommendations and talk about having a tax reform that would address such inefficiencies.
Most of the taxpayers who do not pay income tax get to avoid paying by applying numerous tax deductions and tax credits available in the tax law.
Though initially set to assist the poorer taxpayers, these tax reliefs have turned out to be more political.
According to the 2010 tax statistics, 47% of taxpayers did not pay income taxes.
This means that about a half of the Americans do not pay taxes on their incomes.
This has been seen by many as a major contributor to the deficit issues that are being faced by America today.
3.
The Poor, the Average Earners, and the High Income Bracket Finally, the other categorization of taxpayers is through the normal curve that separates taxpayers into 20-60-20.
20% of the poorer taxpayers earn an annual income of $20,000 and below.
The average earners who contribute to 60% of taxpayers earn between $20,001 and $100,065 annually.
The final group of rich income earners, who account for 20% of the taxpayers earn above $100,065 a year.
The 60% average income earners were the most hit by the recession as many were affected by income freezes, foreclosures, layoffs, business closure and high unemployment rate.
The 20% low income earners did not have mortgages and were less affected by unemployment while Social Security remains constant even with recession.
On the other hand, the very rich seemed to survive better with the recession with the incomes of those in the top 20% slice of taxpayers, increasing their incomes from 50% to 60% of all incomes made by the whole economy.
Various tax laws, policies, and strategies target people in different categorizes.
Some categories seem to be more hit by economic instability while other categories seem to be more aggressive with avoiding taxes legally.
There are three main ways that taxpayers are categorized in terms of the incomes that they earn: 1.
The Rich and the Middle Class The categorization of the rich and the middle class has been on the limelight especially with the proposed move by the Obama government to increase the taxes paid by the rich.
The Alternative Minimum Tax that was introduced as a parallel taxation model targeted the rich in an attempt to ensure that they paid a given minimum tax rate on their incomes.
There is still a lot of debate on the taxation of the rich on Capitol Hill but there seems to be a consensus that the highest income earners should pay some level of tax rate on their income.
The so called Warren Buffet Tax that is targeting the rich is named after Warren Buffet, who argued that he paid a lower tax rate than his secretary due to the tax loopholes that favored the rich.
However, one of the main areas of contention is determining the threshold of the rich.
Currently, this category - for tax policy purposes - includes taxpayers who earn an income of over $100,065.
This constitutes 20% of taxpayers.
However, the Tax Policy Center has sort to have the number moved to $532,613.
Another category that is at times, considered is that of the very rich.
This includes the top 1% income earners who earn over $1 million a year.
These income earners earn about 17% of all of U.
S.
wages.
This group is said to be least affected by recessions and depressions as they have more control over their incomes.
2.
Those who Pay Income Taxes and Those who do Not Another categorization of taxpayers is between those who pay income tax and those who do not pay the tax.
This has been an area of much debate in the recent past as politicians seek a way forward to resolve the large government deficit.
The argument posed by many tax professionals and tax stakeholders was that the high percentage of taxpayers who did not pay income taxes only showed that the tax system was not effective.
There have been a lot of recommendations and talk about having a tax reform that would address such inefficiencies.
Most of the taxpayers who do not pay income tax get to avoid paying by applying numerous tax deductions and tax credits available in the tax law.
Though initially set to assist the poorer taxpayers, these tax reliefs have turned out to be more political.
According to the 2010 tax statistics, 47% of taxpayers did not pay income taxes.
This means that about a half of the Americans do not pay taxes on their incomes.
This has been seen by many as a major contributor to the deficit issues that are being faced by America today.
3.
The Poor, the Average Earners, and the High Income Bracket Finally, the other categorization of taxpayers is through the normal curve that separates taxpayers into 20-60-20.
20% of the poorer taxpayers earn an annual income of $20,000 and below.
The average earners who contribute to 60% of taxpayers earn between $20,001 and $100,065 annually.
The final group of rich income earners, who account for 20% of the taxpayers earn above $100,065 a year.
The 60% average income earners were the most hit by the recession as many were affected by income freezes, foreclosures, layoffs, business closure and high unemployment rate.
The 20% low income earners did not have mortgages and were less affected by unemployment while Social Security remains constant even with recession.
On the other hand, the very rich seemed to survive better with the recession with the incomes of those in the top 20% slice of taxpayers, increasing their incomes from 50% to 60% of all incomes made by the whole economy.
