[jbooth]

Well, the wikipedia cites the WSJ, which is behind a paywall. I suspect that they're either wrong or creatively fudging things.

After 100k your FICA payments taper off to nothing. That's money off the top, right into your pocket. Additionally, the capital gains taxes are only 15% compared to much higher for income. This means that the wealthy have a hugely advantageous tax situation.

Although, I thought that the bottom of the top 5% was higher than 137k. Another wiki here: http://en.wikipedia.org/wiki/Household_income_in_the_United_... puts it at 157k, which is probably high enough to tilt the math towards what I was saying. Certainly over 150-200k your tax burden as a % of income starts going down, due to the decreased FICA contribution and potentially a share of income from capital gains.

[anamax]

> After 100k your FICA payments taper off to nothing. That's money off the top, right into your pocket.

Since your SS benefits are also capped, it's unclear why you think that capping the taxes is wrong.

The folks who set up SS thought that the tax and payout cap was a good thing beause it kept rich people from caring about SS. If you uncap both taxes and payout, you end up paying Ross Perot $400k/year in retirement. If you uncap taxes but cap payout, rich people start caring about SS.

What is your alternative to capped payout and taxes?

FWIW, SS payouts are progressive - the less you contribute, the better your return.

[zamfi]

If your income comes from capital gains or creative accounting, yes.

But if you're a salaried worker earning over 150-200k, the percentage of your income going to federal income tax is greater as your income increases - more of your income falls into a higher bracket. (Also, FICA doesn't drop to nothing, it drops to 1.45% from 7.65%, saving you 6.2%.) See e.g. http://en.wikipedia.org/wiki/File:US_income_tax_2008.svg

You are assuming that as income rises above 150-200k, it takes forms that are taxed at a lower rate, not just "potentially".

[jbooth]

Hm, you actually may be right, assuming no accounting and no income from capital gains, high-paid salaried workers do pay more in taxes. And they're probably earning their pay. So I was wrong on that part of the math.

Meanwhile, people who are supremely highly paid (in the > 500k -> millions range) usually get a big chunk of it in options. That's fine as a payment plan, I even agree with it, but they should pay the going rate on their income. And that's not even getting into my real beef, which is the culture of "tax avoidance is honorable" that's pervasive in higher-end business - it diverts labor into parlor tricks and disadvantages actual innovation.

[zamfi]

Option grants are taxed as income too, the advantage to options is that any increase in stock price can be taxed as capital gains if you exercise the option immediately and hold the stock for more than 1 year.

Direct stock grants are also taxed as income, with the same caveat that stock value appreciation can be taxed at the lower capital gains rate.

It sounds like your beef is with the capital gains tax rate, not income tax itself. :)

I can't speak to the culture of "tax avoidance is honorable", but if the federal government is trying to incentivize people to behave in a certain way (say, to invest in stocks in the long-term) by giving folks who do that a tax break...then your beef is really with the government wanting people to invest long-term in stocks. That seems like a more difficult argument to make.

[jbooth]

My beef is precisely with the culture of tax avoidance and the loopholes that you're so neatly sidestepping in this conversation. Ok, maybe it's not quite so bad as I'm making it out until you consider the loopholes and everything. In reality, the overwhelming majority of people earning > $1 million are probably paying a lower % of their income in taxes than I am, after deductions, spending a significant chunk of my yearly salary on accountants, the whole mess. That's ridiculous.