SS works out to ~15.3% add Medicare etc, and they are at ~20% the absolute top tax rate is 35% assuming zero deductions but capital gains is only 15%. With 16k * .2 we get 3,200$ in tax.
Earned income tax credit = $428 with no qualifying children wow that helps.
An employee's share of SS tax is 6.4%, not 15.3%. (The full amount is twice that, or 12.4%, so I'm not sure where 15.3% comes from.) Add Medicare tax (1.45%, not 5%, and the employer pays a matching amount). You get 6.4% + 1.45% = 7.85%, not 20%. That's ~$1250. Add a 15% tax rate for a $2,000 federal tax, not 20%. We both arrive at $3,200 but I think my numbers are more accurate. Where you working backwards from a known number?
I was working back from ~20% which I had worked out before but I dropped an import etc so the numbers looked off. Anyway, we could argue about the numbers game, but self employed people pay the same effective rate so it's all BS IMO. You are correct about Medicare but wrong about SS.
For 2008, your employer withholds Social Security at the rate of 7.65% of your first $102,200 of income. For Medicare, the withholding rate is 1.45% of your income, regardless of how much you earn. (http://www.walletpop.com/taxes/article/_a/bbdp/withholding-y...)
7.65 * 2 = 15.3% but it's 15.3% of 100 not (100 + 7.65 + 1.45) = 109.1. Anyway, adding state income tax or it's equivalent's and the numbers start to go up but 20% seems like a reasonable number for federal.
If your income is low enough you do get government services which offset your cost of living, but your effective tax rate on you next dollar of earnings is still fairly high.
PS: I built a little Javascript calculator to work this out I should probably post this somewhere.
For low-income folks, SS is an okay investment in their retirement. Given that, why are we counting it as a tax?
For upper-income folks, SS is a really crappy investment. (The difference is because benefits are not proportional to pay-in.) The cap keeps them from caring, much.
If you move to the US at 55 work for 10 years and then retire SS is an great return on investment but it's still a tax. What you pay in and what you get out are somewhat related, but there is no advantage to working from 18 - 67 at minimum wage and paying into SS over investing that money in the same time period. They just look at your 30 highest income years which is great for people who don't enter the job market till mid 20's but it sucks for those who skip collage and work till retirement age. They have almost 50 years to save and invest and SS still does not fully replace their salary.
