Its Tuesday. Which means yesterday the NRO gave us another Kudlow kolumn. His latest has this gem:
A middle-class tax cut to help families and small businesses would also work wonders. This can be done by collapsing the three middle-income tax brackets of 15 percent ($15,650), 25 percent ($63,700), and 28 percent ($128,500) into one 15 percent bracket.
This table from the IRS tells us that in 2005, the top 5% of taxpayers had incomes of $152,048 or up. The top 10% had incomes of $105,958 and up. Thus, someone earning $128,500 is somewhere between the top 10% and top 5% when it comes to income. That, to Kudlow, is middle-income.
What about at the bottom? Well, there’s this other table from the IRS, which tells us that in 2005, 27.5% of all taxpayers had incomes below $15,000. They wouldn’t get helped by this proposal of Kudlow’s.
So Kudlow’s middle income tax cut would help everyone except the bottom 27.5%, and the top seven or eight percent. Actually, strike that… the top seven or eight percent would benefit too… the first $128,500 of their income would now be taxed at only 15%. Right now, as per Kudlow’s numbers, they pay $2,348 on the first $15,650, $12,013 on the next $48,050, and $18,144 on the next $64,900, for a total of $32,504 on their first $128,500 – or about a 25% effective rate. Kudlow’s proposal would mean their income taxes would drop to $19,275…
In other words, their income taxes would drop by $13,229. Someone who makes $13,229 a year, of course, would get nothing.
Which leads me to a comment and a modest proposal. The comment… Kudlow calls it a “middle-class tax cut” but it seems to be clearly an attempt to get just about everyone’s tax rate down to the rate paid by those with lowest incomes. Why not have the honesty to simply call it what it is: a flat tax?
But now, a modest proposal for how Kudlow can improve his tax cut. See, he can collapse the rates for incomes between $15K and $128.5K… but why not raise the rates on the those who make below $15K? Because if cutting taxes on people with middle and high incomes – excuse me, apparently they’re all middle-income folks to Kudlow – will encourage them to do more of what they’re doing, raising rates on those making less than $15K will encourage them to get off their behinds and earn more money to get into the lower tax brackets, right? Because the current policy of pandering to the poor isn’t doing it. I’d say 90% is a good starting point – a nice bit of encouragement, and what’s really cool is that he could then cut tax rates below 15% on income between $15K and $128.5K to make the whole thing revenue neutral.