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July 22, 2004
LET'S KICK IT UP A NOTCH, SHALL WE!
If you look off to the left side of this page you'll notice a series of ironic numbers. One of the entries reads:
$42,000.00
Average amount of money that a Bush Cabinet member will save this year due to cuts in capital-gains and dividend taxes.
$42,409.00
Median household income in the U.S in 2002.
Since it's easy to miss out on the great discussions that occur within some of these "By The Numbers" postings, I figured it'd be worth bringing this one forward for everyone to benefit from (and perhaps to comment on, also). The presentation of those numbers prompted Dave to post the following comment:
Better stated, the average amount of money that a Bush Cabinet member will be able to REINVEST this year due to cuts in capital-gains and dividend taxes.
Incidentally, a married couple filing jointly with a taxable income of $52,000 SAVED $739 in 2003 as compared to 2002 due to changes in taxable income rates. These rates helped everyone, not just the rich as is widely reported inaccurately.
The old rates for 2002 were as follows:
$0 - $12,000 taxed at 10%
$12,001 - $46,700 taxed at 15%
$46,701 - $112,850 taxed at 27%
$112,851 - $171,950 taxed at 30%
$171,951 - $307,050 taxed at 35%
Over $307,050 taxed at 38.6%
The new rates for 2003 were as follows:
$0 - $14,000 taxed at 10%
$14,001 - $56,800 taxed at 15%
$56,801 - $114,650 taxed at 25%
$114,651 - $174,700 taxed at 28%
$174,701 - $311,950 taxed at 33%
Over $311,950 taxed at 35%
2001 had no tax rate of 10% instead having the lowest rate at 15%. 2002 added this rate and reduced every rate by 0.5%. Our couple mentioned above would have saved even more from 2001 to 2002.
These changes in the rates do not include the vast number of benefits in credits and deductions afforded to all individuals and especially businesses in all tax brackets.
After 9/11 a Special Deprciation Allowance allowed businesses to deduct an addtional 30% of the depreciable basis in the first year of use. This is HUGE for all sizes of businesses allowing to purchase capital they may not have been able to afford to do.
For example, suppose I had a small pizza restaurant and desperately needed a new oven since the current one had too many hot spots, consumed to much energy, took 20% longer time to cook a pizza, and required costly maintenance and repairs. With the new SPA, I would be able to justify purchasing a newer, environmentally friendly, faster, and required significantly less maintenance and repairs. If this new unit cost $50,000, I would able to deduct $15,000 immediately the first year which helps me tremendously offset the payments on the new oven.
My customers are happier that their pizzas are more evenly cooked and done more quickly. The environment is better off since I am using less energy which further reduces my stress level since I'm not paying so much run the old dinosaur. I start to make more money which means I can open another store on the other side of town. I'll have to hire more people to run that other store since I can't be in two places at once. More people working is less unemployment which leads to more taxpayers and more commerce... I could go on but essentially everyone wins in this scenario except for the guy keeping this costly beast working. Maybe I'll hire him to be the manager of my new store. ;)
Dave's thoughts resulted in my good buddy Ford Church posting the following thoughts for Dave to consider:
Dave, for the past two years I have been in an income bracket where my tax rate has not changed. Therefore, I don't understand your comment: "These rates helped everyone, not just the rich as is widely reported inaccurately." Please help point out how the reduction in taxes to the rich benefit households in the two lowest income brackets - and I am not interested in a lecture on trickle down economics.
Bottom line is the tax burden for the lower two income brackets hasn't changed, therefore the tax burden for struggling lower income households has NOT helped everyone. How would a family of 4 with a household income of $20,000 per year use a $739 refund (which they would never see because the government's priority is to give tax breaks to the rich who don't need them as much as the poor starving people in this country)? They would probably spend it on food and clothes for their family or maybe to fix their truck so they can get to work and not on a family vacation to the Bahamas or a new home computer.
When you live in the privileged house, the tax breaks are wonderful for America. When you live in the poor house, tax breaks for the rich cause animosity and mistrust in the leadership of our government.
Dave--and anyone else who dares to share an opinion--you're up!
Posted by Mikal at July 22, 2004 6:52 AM
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Ford,
In direct response to your assertions, I have taken the time to download and analyze the tax tables for years 2001, 2002, & 2003 from www.irs.gov. This rudimentary audit examines taxable income only irrespective of personal deductions and credit which were increased during this same period.
For the sake of this argument, I have deduced that you are single with an annual income between $1,000 and $100,000. If this is an incorrect assumption, I apologize in advance however it does not invalidate the basis of this argument.
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For a Single filer
$1,000
2001 - 152
2002 - 1,01
2003 - 1,01
Two year tax cut of 33.6%
$10,000
2001 - 754
2002 - 503
2003 - 503
Two year tax cut of 33.3%
$10,000
2001 - 1,504
2002 - 1,204
2003 - 1,154
Two year tax cut of 23.3%
$20,000
2001 - 3,004
2002 - 2,704
2003 - 2,654
Two year tax cut of 11.7%
$30,000
2001 - 4,876
2002 - 4,453
2003 - 4,316
Two year tax cut of 11.5%
$40,000
2001 - 7,626
2002 - 7,153
2003 - 6,816
Two year tax cut of 10.6%
$50,000
2001 - 10,376
2002 - 9,853
2003 - 9,316
Two year tax cut of 10.2%
$60,000
2001 - 13,126
2002 - 12,553
2003 - 11,816
Two year tax cut of 10.0%
$70,000
2001 - 16,010
2002 - 15,323
2003 - 14,353
Two year tax cut of 10.3%
$80,000
2001 - 19,060
2002 - 18,323
2003 - 17,153
Two year tax cut of 9.8%
$90,000
2001 - 22,110
2002 - 21,323
2003 - 19,953
Two year tax cut of 9.8%
$100,000
2001 - 25,145
2002 - 24,308
2003 - 22,739
Two year tax cut of 9.6%
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Therefore, a single person with a taxable income of $10,000 received 23.3% tax cut whereas a single person with a taxable income of $100,000 only received a 9.6% tax cut.
Your statement, "Bottom line is the tax burden for the lower two income brackets hasn't changed, therefore the tax burden for struggling lower income households has NOT helped everyone" contains a false premise based on the above evidence. Perhaps when you were concluding this argument you were merely looking at the two percentages 10% and 15% wihout looking at the dollar amounts associated with those graduated rates.
The remainder of your second paragraph is littered with so many errors and misjudgements that it is hardly worth addressing, nevertheless I will try. Firstly, you inaccurately state that it is a family of four with a $20,000 that gets a refund of $739 which you immediately negate parenthetically by saying "they would never see because the government's priority is to give tax breaks to the rich who don't need them as much as the poor starving people in this country."
My original post cited a married couple filing jointly with a taxable income of $52,000 would save $739. There was no mention of children. In your example of a family of 4 with a household income of $20,000, due to increased child credits and other deductions this family would likely pay a negative tax, that is get back more than what they paid.
The kooky conjecture in the last sentence in this second paragraph makes no logical sense. Please elaborate specifically on how you know what goods and services other people will spend their money on and why you think you are uniquely qualified to judge the worthiness of those purchases.
Thanks MEB for putting this debate on the big table.
After more analysis of the IRS Tax Tables from 1992 through 2003 I have found some additional interesting facts everyone should learn about. Once again, this does not account for increased deductions, credit increases, or annual reductions in the marriage penalty over the last 12 years.
The Effective Tax Rates from 1992 - 2000 during the Clinton Administrationcompared with 2001 - 2003 during The Bush Administration. For these purposes, the ETR = Tax / Taxable Income (i.e. if a taxpayers' income was $30,000 in 1992 the tax would have been $5,619 and therefore the ETR would be 18.7%).
The percentages below show the rate at the beginning of each term, at the end or current of term, and the change if any. Note that all percentages are rounded to tenths.
$5,000
Clinton - 15.1% - 15.1% - No change
Bush - 15.1% - 10.1% - 5.0%
$10,000
Clinton - 15.0% - 15.0% - No change
Bush - 15.0% - 11.5% - 3.5%
$20,000
Clinton - 15.0% - 15.0% - No change
Bush - 15.0% - 13.3% - 1.8%
$30,000
Clinton - 18.7% - 16.7% - 2.1%
Bush - 16.7% - 14.4% - 2.3%
$40,000
Clinton - 21.0% - 19.5% - 1.6%
Bush - 19.5% - 17.0% - 2.4%
$50,000
Clinton - 22.4% - 21.2% - 1.2%
Bush - 21.2% - 18.6% - 2.6%
$60,000
Clinton - 23.8% - 22.3% - 1.4%
Bush - 22.3% - 19.7% - 2.6%
$70,000
Clinton - 24.8% - 23.4% - 1.4%
Bush - 23.4% - 20.5% - 2.9%
$80,000
Clinton - 25.6% - 24.4% - 1.2%
Bush - 24.4% - 21.4% - 2.9%
$90,000
Clinton - 26.2% - 25.1% - 1.1%
Bush - 25.1% - 22.2% - 2.9%
$100,000
Clinton - 26.6% - 25.7% - 1.0%
Bush - 25.7% - 22.7% - 2.9%
==========================
In the years 1992 through 2000 a single taxpayer with a taxable income of $21,450 paid $3,214. Tax on all income levels BELOW this amount were UNCHANGED thus Mr. Church is correct when he wrote: "Bottom line is the tax burden for the lower two income brackets hasn't changed, therefore the tax burden for struggling lower income households has NOT helped everyone." Only, Bill Clinton was President then.
Interestingly, in 2003, under Bush's plan, that same taxpayer would only pay $2,864, a difference of $350 or roughly 30 bucks per month to spend however they wish.
Moving on the up the income ladders, Bush's tax cuts put more money back into the pockets of taxpayers at EVERY income level as shown above. For example, at the $40,000 level it took 8 years under Clinton to get a 1.6% reduction in ETR whereas they had to wait only 3 years under Bush to get a 2.4% reduction.
Regarding Federal taxes, the evidence is clear; if "you live in the poor house" you are financially better off NOW than you were during Clinton Administration.
Hi Dave, et al, I have been out of town, so I have been missing out on the discussion. I am not a tax attorney, so I cannot speak to Bushís tax cuts with professional expertise, nor do I have the time or energy to analyze tax code. But kudos to you for doing your homework as this is a very important issue. I am also not interested in comparisons to the Clinton Administration, because operating in the past does not serve anyone. Clinton is not president - George Bush is so lets deal with the present. All I can offer is the opinions I form based on what I read. And thank you for calling me out on my hypothetical situation regarding the family of 4 with a household income of $20,000 per year. I created this example to make a point, but it wasnít realistic given the child tax credit. However, I would challenge you to find an example of an American family with a household income of $20,000 or less buying a vacation to the Bahamas or other luxury items. I donít think that assumption is too far fetched.
But more importantly, why are we cutting taxes for wealthy Americans when we have chronic problems with education, health care, homelessness, poverty, unemployment, etc.? Wouldnít it make sense to invest our tax revenue in Americaís infrastructure and address our problems at home? I am a teacher and with budget cuts in secondary and higher education, the programming I offer is not a priority. Instead, our priority is to go back to basics (i.e. devoting more time to the things that arenít working), and cutting art, music, physical education, and innovative programming that promotes critical thinking and experiential learning. I donít think that cutting taxes and increasing our national debt at an alarming rate is the key to making the world a better place.
yeah but uhm....
http://quote.bloomberg.com/apps/news?pid=10000087&sid=anZ.kYpKOIzw&refer=top_world_news
"Interestingly, in 2003, under Bush's plan, that same taxpayer would only pay $2,864, a difference of $350 or roughly 30 bucks per month to spend however they wish."
Yeah...however I wish...like on the .40+ more per gallon of gas and the minimum $50 per week more I spend to feed my kids. Property tax increase? State/City sales tax increases? Tuition/fee hikes? Nah let's not go there.
Ford wrote: "However, I would challenge you to find an example of an American family with a household income of $20,000 or less buying a vacation to the Bahamas or other luxury items. I donít think that assumption is too far fetched." Why on earth would a family go on an expensive vacation or purchase luxury items when they are making only $20,000? This makes no sense. Are you saying that other hard-working Americans should fork over more money to the federal government which will in turn be redistributed to poor families in order to go to the Bahamas or buy a big screen TV? Anybody making this little amount of money doesn't need or even deserve to splurge by living large on luxury items.
But, then again I just can't resist a challenge. If you are making $20,000 a year and absolutely, positively need a new leather sofa here's a few resources:
http://www.aaronrents.com
http://www.rentacenter.com
Caveat - Renting depreciable assets such as furniture or financing expensive vacations will send you ROCKETING to the poor house, or guarantee you remain if you are already there.
Your second paragraph infers incorrectly that there is a direct link between taxation on the rich and "chronic problems with education, health care, homelessness, poverty, unemployment, etc." At the risk of introducing trends prior to 2000 and perhaps to your chagrin, can you identify a period in our history when higher taxation on the rich has had a direct long-term reduction on the chronic problems which you cite?
Bad River and Dave, I have a question I do not know the answer to: Why have we seen property tax hikes, sales tax increases, tuition hikes? I am pretty sure people vote on sales taxes, but aren't state and local taxes increasing because Federal revenue streams are drying up because of Federal tax cuts? Money has to come from somewhere to pay for public services.
I think Boulder, CO has consistently voted to raise their sales taxes to pay for much needed public services, but large mega super whammy malls outside of Boulder are sucking out all the local business and tax revenue. What's the solution?
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