Sunday, January 20, 2008

Tax Cuts For the Rich?

I was never able to figure out what these "tax cuts 'for the rich'" were that the politicians kept blabbing about. Perhaps y’all can help me out here. I know this talk is all in reference to the Tax Relief Act of 2004. What I can't seem to figure out is how anyone can think this was simply for the rich. It completely did away with the marriage penalty and made the standard deduction for Married Filing Joint twice the standard deduction of filing single, like it always should have been. This helps everyone, and since it is a flat deduction (e.g. a poor couple gets to deduct $10,000 just like a rich couple gets to deduct $10,000) it could really be argued that it is a regressive tax benefitting the poor more than the rich. It also upped the Child Relief credit from $600 to $1000 per child. It's a refundable credit so even once your taxes paid for the year reaches $0, you still get the money back (effectively giving you money from someone else's pocket)... and for every $1000 over $100,000 a family earned, the tax credit begins to drop off until it hits $0, also making it a regressive tax benefitting lower income families. The Act also implemented a 10% tax bracket for those making less than about $7150 per year (from the 15% bracket), benefitting the very poor. On top of that, it lowered all the other tax brackets (25% from 28%, 28 from 30, 33 from 35, and 35 from 38.6). In effect, some people got a 5% tax break, a vast, vast majority got a 2% break, and some got a 3.6% break. There are also a truckload of other tax credits for teachers and low income workers that I won't even begin to delve into.

The politicians, when they talk about these "tax cuts for the rich," I believe are referencing the 3.6% tax cut that those families making over $326,000 per year received. We have to keep in mind that this tax relief package was designed to stimulate a stagnant economy, and the best way to do that is to free money up with the big investors and small business owners (those making over $326,000), to encourage them to invest into new business ventures and hire more employees. Four years down the road we can see that the plan worked very well, almost too well... but I just don't see how anyone running for national office could stand up and with a straight face say Bush's tax cuts were "for the rich." Sure, the rich got more money back than the poor, but that's only because the rich paid in exponentially more than the poor. The top 25% paid 86% of the total income taxes collected by the government. In 2006, the top 1% paid 39% of the total income taxes. When Bush took office, the top 1% paid 37% of the income taxes. Thus, as a tax base, those in the highest tax bracket contributed 2% more to the federal coffers than they did before the tax cut. This is where it boils down to the science of tax cuts ("for the rich," if you will). The tax cuts given 'to the rich,' that increased investment and hiring succeeded in creating more "rich," who in turn also had to pay the evil reduced 3.6% tax rate - but the more rich people still produced from the 3.6% tax break increased the government's revenue on rich people that were created from the successful investments made from those tax cuts... summarily causing the rich to pay more of the federal income tax than they were before the tax cut...