Summing the Moments

I recently heard an anonymous discussion regarding income taxes. Because I intend to be incredulously rich someday, I decided to do some research to uncover based on the current 2007 tax schedules, at what point will my taxes exceed 50% of my income. This has been a hot topic in the recent election.

I first researched the federal and state income tax rate schedules. I found the federal rates in the 2007 instruction booklet to the form 1040. By the way I have the instruction booklet (all 155 pages) because I did our own taxes by hand earlier this year and it was really cool! Way more awesome than the tax programs. The booklet can be downloaded at irs.org.

I then found the state tax brackets on the state website (http://incometax.utah.gov/rates.php).

After glancing at the information shown in those tables, before any calculations were done, I quickly observed that one would have to be in the highest bracket (over $350,000) to come even close to paying 50% of your income.

I did some quick calcs and observed that the amount of taxed income obviously converges on the percentages of 35% Federal + 6.98% State = 42% total.

I then remembered that I was omitting Social security and medicaid. So i found those rates at this website: http://www.ssa.gov/pressoffice/colafacts.htm. The website gives 2009 rates in which Medicaid has remained a constant 1.45% and Social Security is increased to 7.65% for employees and 13.85% for the self employed, of the first $102,000 only. Based on my work experience, if I intend to be so ridiculously rich I'm going to have to be self employed.

After adding those additional taxes I came up with the following graph:

As can be seen in the graph, based on Married, Filing Jointly status, even with zero deductions, it is impossible to pay over 50% of your income to taxes if the taxes to which you are referring include Federal, State, Medicaid and Social Security. The graph will once again converge at 35% Federal + 6.98% State + 1.45% Medicaid = 43.43% total

I'll be honest: I don't know if I will ever make over $1,000,000 per year, so I cut the table down to the first million as shown below. Interesting how the burden really levels out.
I don't know how to end this post. I think taxes are cool. I mean, it's hard paying for them, but we have a lot of benefits and protection as a result of them. I guess that's why their always automatically deducted and most people just never think of them. Awesome.