Five Things I Learned About Taxes Today

Posted on January 24, 2012 4 Comments

Today, thanks to a non-stop media blitz about the effective tax rates of presidential candidates past and current, I managed to learn something about income taxes. Turns out, taxes are not nearly as boring nor as frustrating a subject as I thought. Here, friends, are friends things I learned today:

1. Importantly, I learned the definition of effective tax rate. Your effective tax rate is the average of all the percentages that your income is taxed.  My highest tax rate, which is called my marginal tax rate, is 28 percent. But, not all of my income gets taxed at that rate (phew!). Various levels of income are taxed at different rates, for instance, your first $17,000 may be taxed at 10%, then up to $69,000 may be taxed at 15%, and so on. (It varies based on whether you file jointly, single, etc.) The average of all your taxed rates is your effective tax rate. (I hope I got that right.)
2.  I pay a higher tax rate than some super rich people! My effective tax rate was 17.63 percent in my last filing. That’s higher than Mitt Romney, who makes about $20 million a year, and even higher than Warren Buffett – ok, only by about two tenths of a percentage point. But it’s lower than most of the other candidates – including Newt Gingrich and Barack Obama. (I’m not sure about Ron Paul or Rick Santorum. But The Atlantic has a handy chart with some other comparisons to past presidents and candidates.)
3. More than 80 percent of Americans pay less than a 15 percent effective tax rate. That was kind of surprising to me!  That means I pay in the 20th percentile of highest tax rates. Kind of a head scratcher. Too bad I’m not in the top 20 percent of earners.
4. Married people have different marginal tax rates than single people. I’m not married or engaged, so I never have looked into this. But it doesn’t seem right. Why should anybody be taxed differently from other people based on the status of their relationship? Especially when there are certain groups that aren’t allowed to marry?  I read there are actually disincentives to filing jointly, because the benefit really kicks in when one person earns a lot and the other earns a little, but that’s a pretty outdated rule because so many people have to have dual incomes these days. Sigh.
5. I’m OK with my tax rate. Here’s the thing about me. I have benefited from government programs throughout most of my life. My father is a retired police officer, which means the taxes I pay in Chicago go to support his pension and the salaries of our family friends, who are putting their lives on the line every day. His salary supported all my education, and my entire childhood. I went to college on government loans, which I’ve since paid off. I had academic scholarships too, and I worked throughout school, but there’s no way I could have gone without loans.  And I paid them off before my 10 year due date – yahoo!  In my professional career, I’ve worked in private industry – but I steered towards government clients like the US Army and the US Postal service because they were stable pieces of business. Now I work for a medical research university, which is supported by a LOT of federal research dollars. And I love my job — it’s interesting, challenging, and supports critical research that saves lives. Without federal funding at our university, who knows where I’d be working (or if I’d even have a job!).

I guess in retrospect, it’s not all bad that the media are focusing so heavily on Mitt’s tax returns. It provided me with a great opportunity today to learn something about myself and my money. Did you learn anything new about your taxes today? Are you ready to file your 2011 return?

Category: Money
   Tags: taxes

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