Taxes -> Who pays, and doesn't?

^{The Weekly Habit}

^{Only 7 people in last week’s selected the right answer! The most marijuana dispensaries per capita is Oklahama. It’s due to high quantity and low population density.}

^Taxes

This blog post is the perfect example of “productive procrastination” as I write about taxes yet ignore my need to contact my CPA.

Quick Background

In 2023 (2022 taxes due), Uncle Sam collected about $2.33 trillion from 178 million individuals and families, but that only accounts for 48.5% of total receipts.

Marginal vs. Effective

Marginal tax brackets are determined and passed into law, but your effective rate is what you actually pay to Uncle Sam.

In other words, two people at the same income levels or “marginal tax brackets” may end up with very different effective tax rates. See Why.

Effective Tax Rates vs. Income Groups

Trivia Answer: The average effective rax rate for $200k - $500k adjusted gross income group is 16.77%.

The highest taxpayers ($10M+) are not #1, mainly because their other (reported) sources of income from dividends or selling stocks are taxed at lower rates.

Millions of Americans actually receive money from the IRS, largely due to tax credits (e.g. childcare) or high paycheck tax withholding rates.

The Three Major Tax Overhauls

• Bush tax cuts of 2001 and 2003, benefitted highest income taxpayers the most.

• Obamacare and 2013 provisions introduced a new net investment income tax, medicare surtax, which helped raise the average effective rax rate on the highest earning taxpayers from 20.7% (2012) to 27% the following year.

• Trump tax cuts of 2017 aimed to simplify tax filing and had their biggest impact on AGIs of at least $200k but less than $500k.

Curious How Uncle Sam Gets Paid?

Let this blog post be a reminder that you (and I…) have 3-ish weeks to file your taxes or an extension.

My Key Takeaway

At JPM, we often joked that CPAs were the key to wealth creation. Sometimes it’s not about how much money you make, but how much you save!

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Thanks for reading, Habits fam. See you back here next week for more.

-JB

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