----- Original Message ----- From: "Erik Reuter" <[EMAIL PROTECTED]> To: "Killer Bs Discussion" <brin-l@mccmedia.com> Sent: Thursday, January 13, 2005 9:45 PM Subject: Re: Social Security
* Dan Minette ([EMAIL PROTECTED]) wrote: > (taxes paid to government over one's lifetime- cash benefits received > from government over ones lifetime)/total income over one's lifetime. >I just realized the source of the difference. We are both writing out >the formula for lifetime net tax rate, but the numbers in the chart, and >the idea I have in mind, is MARGINAL lifetime net tax rate. OK, I can work with that. I'm glad we have the same formula...that's progress. I should have labeled that chart marginal, to be clear (by the way, I copied it from Kotlikoff's book, not the website -- in the book only the website is referenced, not a specific location) >When people talk about being in the 37% tax bracket, they mean that >their marginal tax rate is 37%, in other words, $0.37 of every >additional dollar they earn (above their current income) goes to taxes. OK, that's fine. I'll explictly adress marginal tax rate when I revisit my example. >With a non-working spouse considering working, the marginal lifetime net >tax rate can be very high, since SS benefits increase very little until >the newly working spouse begins to make quite a bit more money than the >long-working spouse. But, I still don't see it getting above 40 %. Let's look at the last $1k of earnings of the spouse looking at a 20k/year job. She's in the 15% marginal income tax bracket, her SS tax is 7.65%, and she is working for too few years to qualify for SS on her own. That gives a marginal federal tax rate on that last $1k to 22.765%. We'll also assume her net tax is her gross tax, since she gets no extra SS from working. They will spend more money, and on some of that spending they'll have to pay sales tax. But, another 3%-4% should cover that. With taxes on the phone bill and what-not, I can see the marginal tax rate rise to 30%, but not much more unless they now buy a new house with higher real estate taxes....but that pretty problematic when one is just considering the last $1000. I think it is fair to consider only step ups in the same spending patterns for marginal rates, not major changes like buying a bigger house. Further, we keep pretty close tabs on our family budget, and we have often calculated when it would be worthwhile for Teri to work. The Continental job was worthwhile, because we were beyond the need for day care, mostly, and because the hours were not bad for part time work. But, our marginal return on Teri's pay was far more than 20%. It was over 60% by my calculations. When you get time, can you show me how they get to 80%+ in their example? Are they defining marginal taxes differently than I do? Dan M. _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
