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      11-15-2012, 06:59 PM   #27

Drives: M3
Join Date: Jul 2010
Location: sitting down, facing the keyboard

iTrader: (0)

Originally Posted by kmarei View Post
as for the 40% rate
i am taxed at 40% on my annual bonus, but only 22% on my salary
is that fair?
never understood why my bonus is taxed at a higher rate than my salary
Most payroll programs calculate the tax rate by extrapolating the current amount over the year to guess the annual income and thus the rate.

If you make the same amount each period, the program's assumption is very accurate, 3K twice a month is 72K a year, which yields a tax rate of X. However, if your bonus is larger than the normal paycheck, say 5K, the computer still takes that amount, multiplies it by 24, which then suggests you make 120K a year, so it applies a higher tax rate accordingly.

Obviously the technology exists to make the logic more sophisticated, but surprisingly many programs lack this ability. There's nothing sinister going on there. In the end, if you paid too much tax on your bonus, you'll get that back when your taxes are filed.

Originally Posted by kmarei View Post
so if you choose to invest in the stock market, you don't get a break
but if you choose to hire people, or reduce energy usage etc
then you get a break
Investing in the stock market DOES enable others to hire people. That's why the tax code favors investment income over labor income as investment income leads to more overall economic growth.

If you earn 100K at a "job", that's great, you'll buy stuff with those earnings and help to employ others (ie: the guy who services the M3 you just bought).

If you earn 100K on your investments, you can still use that 100K to buy a BMW and keep the service tech employed, but on top of that, your investment income means that you dumped capital (more than 100K) into the system, so that some other entity can leverage that investment so that they can also employ people (ie: your shares in ABC widget company allows ABC to hire people, who can then go buy their own BMW's too, so now the dealer has to hire 2 service techs). There's a very desired multiplier effect there.

If you tax that the same as regular income, people will then be inclined to pull the money out of the markets, and then the folks at ABC dont have capital to keep their staff.