The Effective Tax Rate And What Is Real And What Is A Political Puzzle

Mitt Romney‘s 2012 taxes have been subject to extensive scrutiny and he has been cast a one of the wealthy elite. The truth is percentage wise he pays more in taxes than most American households, which is an effective tax rate.

The average middle class household may be taxed at thirty-five percent, but with deductions and other tax exemptions, a family making between fifty to seventy-five thousand dollars may only pay around six percent. Many families owe no taxes or pay extremely low taxes. Conversely, the tax rates for people making over one-million dollars per year is approximately nineteen percent. Many families in this country benefit from the same tax rates as Romney. Anyone who has investment income is taxed at fifteen percent. He does not belong to a special group with unique privileges; he is taxed at the same rate on capital gains, as any other investor. Tax rates can be interpreted in many ways to make them look as though someone is not paying their share. The truth can become obscured and a regular taxpaying citizen can be painted as a greedy capitalist. The average person works hard and the percentage of their income that goes to taxes is often examined carefully.

Mitt Romney pays his taxes and he may actually pay more than most citizens. The government is currently faced with a huge deficit, unemployment, and myriad economic problems. Instead of looking at his tax rate, people should look at his success rate and how he plans to move this economy forward.

Lower Capital Gains Taxes Can Influence Voters

The current capital gains taxes on investment income are fifteen percent. While the taxes on the middle class wages are around thirty-five percent. Mitt Romney admitted recently that he pays only fifteen percent on his total yearly income. The Occupy Wall Street movement has not faded from voters’ memories or the specter of the wealthy one-percent. Romney found himself identified as a member of this affluent group.

There has been serious debate as to whether lower capital gains taxes will help the economy. Top economists do not agree on the effect of lower taxes investment income. Some contend that lower taxes on investment income will generate economic growth. Other studies do not confirm there is a correlation between lower taxes and increased investment activity. Over the years capital gains tax has fluctuated from almost forty percent during the mid-seventies to the present fifteen percent. It is noted that savvy investors will not be deterred from a good investment opportunity, even when there is a higher tax rate. There is no suggestion that a higher investment income tax reduces investment activity.

A down market can shape investment activity, when it comes to the buying and selling of stocks. A major concern of the average American is whether the Romney’s of the world, pay their share of the taxes. High unemployment and a poor economy have the non-investors questioning their higher tax rates and 2012 taxes. Lowering the capital gains tax may not alter the market, but it may influence how people vote.

More IRS Audits Planned

Nobody likes being audited by the IRS, although the chances of being audited are now actually higher as there are more of them planned.

For those filing who had an income of over $200,000, IRS audits were increased by around 34 percent between 2010 and 2011. Despite this hefty increase, audit rates in general are still low, regardless of income amount.

For those earning over $200,000, almost 4 percent were audited for the 2011 year, and for those earning over a million dollars, audits were increased by 24 percent, with around 12.5 percent of those taxpayers being audited. The Washington Post, The Wall Street Journal and Bloomberg all noticed this and commented on it.

In actuality, you have a two percent chance of being audited, although the Treasury Department still requires tax advisers and preparers to assume that all returns will be audited.

Of course, the chance of being audited affects the advice given, and if a tax preparer tells you that something will probably be accepted, he or she has to assume the return may be audited. Although there is no sure way to avoid being audited, take a look at our 10 ways to audit proof your return.

Various things can trigger an audit, in addition to your actual income, including which items are claimed, your deductions and any tax credits. If you claimed the earned income tax credit (EITC) you generally have more chance of being audited.

A large income alone draws attention, but does not necessarily mean that you will be audited. However, for those of us who are lucky enough to be very wealthy, the IRS actually has a special task frce to handle those tax returns.