Friday, November 12, 2010

Is The Discussion About The Bush Tax Cuts Just A Diversion?

The argument over the Bush tax cuts has come down to whether or not the top 3% of wage earners should continue to have their taxable income over $250,000 taxed at 35% or should it go to 39%.

This statement is really an oversimplification.  Actually the two top tax bracket will be increased under the Democrats plan.  Here are the tax brackets from 1992 through 2007.

The brackets for 2008 - 2010 are the same as 2007.  The Democrat plan is to roll back the two highest brackets to the 1993-2000 level while keeping the bottom four brackets at their current levels.

The next table shows the taxable income levels that these tax bracket are applied.

These levels are for 2009.  Both of these tables are from here.  Check here if you want to see the 2010 income levels.  They are very similar.

So, essentially it looks like we are talking about having the highest 3% of income earners, not necessarily the top 3% wealthiest people, paying about 10% more in federal income tax on taxable income over $250,000.  There is total agreement on federal taxes below $250,000 taxable income
But for many people, the additional amount will be substantially less than 10%.  Let's use the 2009 taxable income level for this example.  Let's say you have a $250,000  taxable income. (Remember, this is taxable income.  You may have earned $400,000 but have $150,000 in deductions and exemptions.)  Your first $208,850 will be taxed at the new lower level under the Democratic plan, so the increase from 33% to 36% will only apply to income above $208,850.  In other words, the 3% increase in apply to only $41,150.  Your tax increase will be $1235 or about 0.5% of your taxable, not total, income.

Not exactly a budget buster!

Why is so much effort being put into this effort to extend the Bush tax cut for everyone?    We are not talking huge sums of money here.  They are amounts that can easily be paid. 

That's not the whole story.  There is something that people are not talking about.  Capital Gains and Dividends.  The majority of people, the poor and middle class, don't get much of their annual income from capital gains and dividends.  They don't have much invested in the stock market.

Right now, capital gains and dividends are taxed at 15%.  That is the primary reason the top 400 wage earners in the US pay only about 15% - 20% federal income tax while the rate on earned income is over 30%.  The top 10 hedge fund managers earned an average of 2 Billion dollars last year.  They paid 15%.

Well, if the Bush tax cuts are not extended, capital gains will increase to 20% and dividends will increase to 39.6%.  Obama has proposed increasing dividend to 20% rather than 39.6%.  Republicans want them both to stay at 15%.  So, the republican are not only trying to keep the wealthy from paying more on earned income, they are trying to keep the wealthy from paying more on capital gains and dividends.

There is one other thing that we never hear about.  It is call PAYGO.  PAYGO was reinstated earlier this year.  It compels new spending or tax changes not to add to the federal deficit.  Parts of the Bush tax cuts are exempt from PAYGO.  In other words, they can be extended without having to be paid for.

Guess what parts are required to be paid for?
  • Tax cuts on the top two brackets (not allowing them to go up to 36% and 39.6%)
  • A dividend tax rate less than 39.6%
 Republicans are saying that tax cuts for the wealthy don't have to be paid for.  Sorry.  Wrong.  PAYGO says them must be paid for.  We already know that the tax cut for the wealthy will cost about $700,000,000,000 over 10 years.  Setting the dividend rate at 20% rather than 39.6 will cost about another $100,000,000,000. 

So, is the republican plan not only to give the wealthy a $800,000,000,000 gift in payment for a few million dollars in contributions, but also force the Democrats into making severe federal budget cuts which will hurt working Americans and further stall the economic recovery?

Remember, they are looking ahead to 2012 with only one goal in mind -- takeover of the White House.  They are willing to sacrifice you and me in the process.  They will do anything to piss off the average American as long as they can blame it on the Democrats.

It could get interesting. 

Reference dividend  paygo taxcuts


  1. I'll never understand why the working people of this country accept and even support a tax system in which their work is taxed more than someone else's money. I suppose that people really buy into this crap that the the rich create jobs.

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  3. Excellent post.
    A two year extension of the tax cuts for the rich seems to be in the works. This should then awaken any true progressive of how corrupt our government is.
    QE2 was a major mistake.
    Yet we blame China for manipulating their currency. We just lowered the value of the $ by printing even more money out of thin air.
    Our financial system is based on DEBT. This is what has been unsustainable, and they know it.
    When you hear and or use the word credit replace it with the word DEBT.

    When will the voters from both sides of the aisle figure out that they have been sold down the river.

  4. Jerry this is an excellent post. The average American doesn't bother to educate themselves on this tax issue, it's far too much work, they would rather listen to Limbaugh and Beck. Its very simple to understand really but righties don't talk about it. They want the people deaf, dumb, and blind to their antics. The president should be explaining this in a televised broadcast across the nation, right before he gives us his answer on what he plans to do about the tax cuts expiring. I think he will cave and give the fuckers a 2 yr extension....

  5. Sue, RZ,
    Thanks for your comments.

    What does a 2-year extension mean?

    I think it means that Obama is afraid that the Democrats cannot get the message out that extending the tax cuts for the poor and middle class is the right thing to do, while extending them for the rich is not the right thing to do and he will become a one-term president.


    He actually agrees that the wealthy should get a tax cut also. After all, his largest corporate presidential contributor was Goldman-Sachs. He does not want his big-money interests to dry up. He will continue to say one thing but do another in hopes that he will not become a one-term president.

    The republicans say their number 1 priority is making Obama a one-term president. I think Obama's number one priority is being a two-term president.

    Doing what is right may take a back seat.

  6. Jerry I hope you don't mind, I copied and pasted and sent to Obama!! YES I DID!!

  7. JC
    RE"Doing what is right may take a back seat."

    This president did not take a back seat. After he gave this speech he knew he was a walking dead man.
    Yet, he gave it any way.
    He paid the ultimate price willingly.

  8. "I think it means that Obama is afraid that the Democrats cannot get the message out that extending the tax cuts for the poor and middle class is the right thing to do,"

    The second anyone says the word "poor," 2/3's of the whites in this country immediately translate it to "black" and "illegal immigrant." Never mind that it's irrational: No one ever associated bigotry with rationality.

    Any time a Democrat says "middle-class," 2/3's of whites assume it is a smokescreen for "poor." A hundred per cent of conservative white men figure it also means pregnant single girls and women who would rather get an abortion that take responsibility for their own lives.

    If this all didn't affect my kids and other innocent people, I would tell these people to go ahead and stuff their own lives into a rathole.

  9. Sue,
    No problem. Feel free to do whatever you want with it. If I suddenly disappear from cyberspace, please check Guantanamo.

  10. RZ,
    What a fantastic speech. It should be required listening for everyone. Looking at what has happened over the last decade, it is hard to dispute what he said.

    And, yes, he paid the ultimate price.


    I am sure they already have my number and I will be there to greet you at Gitmo.
    I will save you a nice cot.

  12. K,
    Talk about cutting off your own nose to spite your face. Racism and bigotry are alive and well.

  13. It has always been thus.

    People who haven't lived around racism can't grasp how deeply instilled it and the extent to which it informs everything these people "think" and believe.

    That's why the Robert Scheers and John Nichols's of the world drive me nuts when they talking about the teabaggers as reflecting populist anger over corporatism.

    Nonsense. The average teabagger might not like it that he makes 60K while someone on Wall Street makes 5M, but in some deep dark psychological racist dungeon, he's willing to chalk it up as the necessary price of keeping the blacks and browns at 30K.

    That's what we're up against now, and it's what we've always been up against.

  14. The tax cuts for the rich have been proven to NOT create jobs.
    These tax cuts and austerity that is coming to our shores is not about creating jobs, or balancing the budget.

    It is about cutting most, if not all social programs.

    Their culture crusade never went away, it was just under the covers.

    When will America come to terms with one simple fact?

    The Corps and Banksters are/have been writing the laws and the loopholes.
    Let just face it and be honest.
    America needs democratic socialism.

  15. you're safe, I didn't disclose your name, rank, and telephone number! LOL