Taxes and tax effects from the tax cut extensions
Update: (hat tip Robert Waldmann) Senate.gov voting record on middle class tax cut bill
Excerpted from Linda Beale’s piece (7/25) on the numbers for the action taken by the Senate:
…After threatening to filibuster the Obama tax cut proposal, Mitch CcConnell pulled back. See Lori Montgomery, McConnell pulls back from filibuster on Senate tax-cut vote, Washington Post, July 25, 2012. The Republicans want to pass a deficit-expanding tax cut for the wealthiest Americans who have garnered the most from this lopsided economy in which companies lay off workers to diminish service but achieve ever greater (short-term?) profit margins for those at the top.
(Aside: That’s not the only way that megacorporations are trying to syphon off all the productivity gains for the few at the top. See the story about a bank analyst’s conclusion that Wells Fargo was making more money for shareholders by providing lousier service to its customers. Nathaniel Popper, Bank Analyst Sees No Payoff in Customer Friendly Focus, New York Times (July 24, 2012).)
If the Bush tax cuts were to be extended without modification (as the GOP proposal would have it), the average reduction in taxes for Americans in the three lower quintiles (who make less than 75 thousand a year) would be considerably less than $1000. See Citizens for Tax Justice, U.S. Taxpayers and the Bush Tax Cuts: Obama’s Approach vs. Congressional GOP’s Approach (July 2012). So the typical American who earns between 40 and 50 thousand dollars a year will get less than a thousand dollars from an extension of the Bush tax cuts.
Compare the result for the wealthiest Americans under the GOP proposal.
Another year of the Bush tax cuts for the wealthiest taxpayers in the richest 1% would give them an average tax cut of about $71,000. See Citizens for Tax Justice, U.S. Taxpayers and the Bush Tax Cuts: Obama’s Approach vs. Congressional GOP’s Approach (July 2012). That means that the Republican plan gives a 7000% larger tax cut to the wealthy than to those ordinary folk making 40-50 thousand.
Note that the wealthy still get a tax cut of about $20,000, even under Obama’s plan to cut the additional breaks at $250,000. That’s because of the way the graduated income tax brackets work. Everybody–rich or poor–is taxed at the 10% rate on the first $17,400 of income in 2012. Everybody, rich or poor, is taxed at the 15% rate on any income they earn above $17,400 up to $70,700. The rate increases to 25% for income in excess of $70,700 up to $142,700 (already in the upper middle class quintile) and to 28% for income above that up to $217,m450, with the rate going to 33% on the excess up to 388,350 (obviously now we’re talking about only the marginal income earned by the wealthy) and then 35% on the excess above that, to whatever millions or billions it may reach. Accordingly, the very wealthiest millionaries would get the same tax break ordinary folk do on the income they receive in the lower rate brackets up to $250,000. And as a result, only 1.9%–the very few richest Americans in the ultra-elite–would have less of a tax cut than otherwise under the Obama proposal.
from cross post with ataxingmatter
Hi Linda:
What you do not say and maybe you did elsewhere, this is a marginal increase in payroll wage taxes. The rich in income enjoy other tax breaks which will not be reduced such as “capital gains,” etc. Many of the 1 percenters pay tax under capital gains tax structure. I paid a higher percentage on my gross income in Federal Income Taxes than Mitt Romney did in Capital Gains taxes.
My $.02.
A large percentage of businesses, medium and small are taxed through their owner(s) personal tax returns. Therefore raising the personal tax rates is a tax on small business. Almost 100% of our reporting news media forget this fact or ignore it.
I mentor small businesses and I would like to remind everyone that anyone can start a business. Rather than complain about the success of others, go start one yourself. Did you know you can start a sole proprietorship without filing a single piece of paperwork?
From my comment on EconoSpeak on much the same subject:
“This issue doesn’t really need a lot of complex measures of who earned what and what it all costs to keep it flying. One point only need be focused upon. A geo-political entity incurs significant costs maintaining itself in the world today. It’s citizens must live in reasonable peace togather. They must be educated. We must all be protected from foreign incursion or the threat thereof. Roads, harbors, bridges, infrastucture, etc. It has its costs, but the returns, the benefits, to its citizens in well being and wealth in their pursuit of happiness are even greater than are those costs.
So who is it that benefits to the greatest degree? Who is it that needs the protections of its government more than others? Who is it that lives the best quality of life available within its sphere of influence? The wealthiest citizens benefit to a far greater, virtually immesurable, extent. So what’s the beef? If you’re earning $500,000 annually and more, what is the complaint? You’re enjoying the fruits of the country’s labors and efforts. Stop whining about the cost when you enjoy the sweetest fruits.”
First of all I sincerely doubt the assumption that the rich receive more benefits from government than the poor.
Secondly I think that everyone in this country would benefit from a flatter, more stable and simpler tax code. For the past years I don’t think anyone could know what his taxes were going to be six months down the road. That’s not good for any economy. Plus close to 50% of the population do not pay any income taxes at all.
Thirdly I don’t like the rich against poor tone our tax debate has taken recently. I reminds me of the scapegoating that was done in prewar Germany to help Hitler gain power. If a person rich or poor earned their money legally, it should be theirs to keep.
I don’t think a single poor or middle class man would want to pay in actual dollars the taxes that many a rich man pays. That I am sure would also apply to Warren Buffett’s secretary. That in itself should end the tax debate on who pays more. But people want to ignore this and to stir up class envy therefore they they make the tax rate the argument.
I personally would like to see the same rate for all with the elimination of almost all deductions and loopholes.