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Tax cuts and fair shares
Posted by: McQ on Thursday, March 08, 2007

One of the most persistent narratives of the Democrats and the left in general has been that the Bush tax cuts have only benefited the rich (and thus, in the name of "tax equity" should be repealed).

But the Tax Foundation disagrees:
Before 2001, almost every tax return with zero liability had adjusted gross income (AGI) under $50,000. Most were under $40,000. Since 2003, however, many tax returns in the $50,000-$75,000 income group are showing up in the non-payer category. This illustrates the dramatic decrease in the tax burdens of low-to-middle income earners that has occurred as a result of the tax cuts. Utah has seen the largest change in this income group: in 2000, about 2 percent of all returns in that income group were non-payers, while in 2004, 12 percent of those middle-income tax returns paid nothing in income taxes. In California, only 1 percent of tax returns in this bracket owed nothing in 2000, but four years later with the tax cuts fully phased in, 7 percent of the tax returns showing AGI of $50,000-$75,000 paid no income taxes to Uncle Sam.
The number of tax payers who ended up with no tax liability after taking advantage of the deductions and credits in the new tax law climbed from 30 million in 2000 to 42 million in 2004. And as the Tax Foundation notes, that increase is a direct result of the tax cuts.

As for the benefit the rich have received? James Pethokoukis of US News and World Report says:
Despite Rangel's comment on tax "equity," the numbers show that the top 1 percent of income earners took home a smaller share of income and paid a higher percentage in taxes in 2004 than they did back in 2000. In 2000, the top 1 percent took home 17.8 percent of income and paid 36.5 percent of taxes. In 2004, they took home 16.3 percent of income and paid 36.7 percent in taxes.
And, amazingly, tax revenues have been surging, so much, in fact, that a surplus is now being forecast in a few years.

What does a surplus mean? No, not more spending. It means overtaxation, and thus should mean more tax cuts. And that's precisely the opposite of what Democrats are claiming is needed.
 
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i have a really dumb question: why is this never an important enough issue to make it past blogs, talk radio, & op-eds? is it because all the constitutionalists & other "reformers" glom on to it?

war isn’t ubiquitous in gen’l elections, but taxes are. what the eff?
 
Written By: window licker
URL: http://
The most scary side of the current state of tax progressivity is that so much of the "income tax burden" is now put on so few people that it makes the revenue stream unreliable.

This is the same problem that businesses with one (or a few) really big customers have. If you lose that customer .. you’re screwed.

In some future economic downturn, or stock market slide, this revenue stream could take a big fall, real fast.
 
Written By: Neo
URL: http://
One of the most persistent narratives of the Democrats and the left in general
You mean lie. Why not call a spade a spade?
 
Written By: shark
URL: http://
window licker:
It’ll be a big story on CNN right after they get done making sure everyone knows that is wasn’t a crime to release Valerie Plame’s name to the press and that Joe Wilson’s research supported Bush’s State of the Union Speech.

Something I found interesting with this data was the total number of taxpayers in each group (calculated backwards from the percentages). Democrats argue that the middle class is disappearing, with the growth in income of the rich being matched by more people being poor. If this were the case, there would be a drop in the number of taxpayers in the middle brackets. In reality, the number of taxpayers in all brackets increased, expect the under $50,000 bracket which lost 1.3 million.

Total number of taxpayers in each bracket:
2000 2004
0-50 93.51 mil 92.28 mil
50-75 17.14 mil 17.92 mil
75-100 8.75 mil 10.00 mil
100-200 8.30 mil 9.75 mil
200+ 2.70 mil 3.10 mil

This doesn’t say anything about the average income of the under $50K group, so a poor person in 2000 may have seen an increase or decrease in income, but the middle class isn’t losing any stregth.
 
Written By: Ted
URL: http://
Ever wonder how readers respond to your posts? Here is one example:

My first thought upon reading this post: “The Tax Foundation is a right-wing propaganda mill. Who else would have anything remotely nice to say about the Bush tax cuts?” So I clicked on the link to check it out; went to “About Us” on their site:
”How Should Journalists Describe Us?
The Tax Foundation is a nonpartisan tax research group based in Washington, D.C.”


Heh. They all say that. I looked at the endorsements of the foundation. Hmmm. John Kennedy. Of course, today he would be practically a right-winger, but that is another whole story. Nowadays there is no such thing as a “nonpartisan” anything; the word has as much real world application as bustle technology for ‘ladies’ (another obsolete term) dresses. OK (grudgingly) probably not too much spin in these numbers.

So, I read on until I come to “US News and World Report”. Uh-Oh, the dreaded MSM. Likely BS. So I clicked on the link to check it out; looks like a column rather than a claimed “straight news” story:
” This week, I am going to finish answering questions sent to me by contributors to the wonderful Carnival of the Capitalists,”
“Capitalists”? “Wonderful”? Definitely right wing spin. Possibly USN&WR is still the right-wing rag that I remember it as from when I used to read the MSM.

OK. Now that I have passed through “security” and I know the players, I can proceed to read the comment.
”…more tax cuts. And that’s precisely the opposite of what Democrats are claiming is needed. “
Yawn. First point: Democrats are not recommending tax cuts. Second point: Democrats are wrong. Yes, the dog is biting the man today.

My thoughts: “Yes, the world is a funny place. Stupid liberals won’t take the time to read and understand a post like this, but instead will plug into the LN. They will then vote for disingenuous politicians who will increase their taxes to provide more money to the government for payoffs to support unions and public employees and other special interests who produce and publish the LN in order to keep the ponzi process going.”

Printing and calling attention to facts is a waste of time if stupid liberals will not read and attempt to understand them. One more sad example of preaching to the choir.
 
Written By: notherbob2/robert fulton
URL: http://
Great, now more and more people are getting a free lunch. That’s a recipe for more "entitlements" since the poor and middle class don’t have to pay for it.
 
Written By: Nuclear
URL: http://
Great, now more and more people are getting a free lunch. That’s a recipe for more "entitlements" since the poor and middle class don’t have to pay for it.
Not necessarily. Those who pay taxes VOTE, and those who don’t don’t tned to...so it does NOT follow that more taxation on the rich will lead to more entitlements. The Rich will be voting and contributing more so than the less affluent. I really don’t see the Rich suffering. I say this as a Conservative Republican, just one who is a little cynical.
 
Written By: Joe
URL: http://
I tend to agree with Nuclear. While I am first and foremost for lower taxes, I do think it helps our democratic process if everyone pays at least something in income taxes. If not, people will not care as much how tax dollars are spent and that is a bad thing.
 
Written By: Bruce
URL: http://
You all seem to be forgetting the "earned income tax credit" scam. That’s where non-payers get money back (that they didn’t pay) on their tax returns.

Couple that with the "alternative minimum tax" scam - and the middle class is getting a royal screw job out of the the tax code. When I had stock in a company that took a nose-dive when the Internet bubble burst, I had to choose between selling all my options at a fraction of what they had previously been worth, or paying taxes on what they had been worth on the day I exercised them. Had I not sold out, I would have owed the government more in taxes than I actually got from the stock. I have several friends who had used their exercised options to leverage additional shares. If they had sold, they would have been bankrupted by the margin call on the leveraged shared. But when they didn’t sell - they ended up owing hundreds of thousands of $$ to the IRS - for stock that wasn’t worth as much as taxes they owed on it - thanks the the AMT.

So the AMT took what should have been a net win for a lot of good people who invested their time and effort into a startup company, and took a big career risk with it - and ended up costing them everything they owned to get out of hock to the Federal Government. What a scam!

We need a _fair_ and consistent tax system. I propose the following:

1) Flat tax rate - for everyone - say 20%.

2) Standard deduction of some reasonable amount - for all legal adults in a family - say $15K per person.

3) Standard dependent deduction for each child in a family - say $7.5K per kid.

4) Every person pays 20% Federal tax on all remaining income.

5) Abolish sales taxes (ALL of them!).

6) Abolish property taxes.

7) Abolish corporate taxes (they are passed on to the citizens anyway - so let’s just stop fooling ourselves).

8) Abolish all other forms of taxation, fees, etc.

9) Anyone who takes "free" hand-outs from the Government (at any level) would not be allowed to vote in the next election of that level of office. (I.e., if they take a hand-out from the Federal Government, they can’t vote for federal level offices - President/VP, US Congress, US Senate. If they take a hand-out from a state, they can’t vote for state-level offices, etc.)

10) Earmarks on legislation would be abolished.

11) Line-item-veto for the President would be allowed for all spending clauses on any federal legislation.

12) Taxation bills would have to pass both houses of congress by at least 3/4 majority vote.
 
Written By: RW
URL: http://
RW -
Some good points, some way off. Stocks are a risk, options on stock even riskier. The money was lost when the stock went down, not in the AMT. As you said, the options could have been sold. If someone is scammed in a stock deal, whoever sold them the stock without letting them know the risks did the scamming, not the Federal government.
1-4) Flat tax and deductions -good concepts.
5) Sales tax - as explained in other posts, taxes on groceries and necessities are worst for those with the lowest incomes, eliminating them should be supported by all.
5,6) Property, sales tax on non-essentials - States and local governments need funding from somewhere. Income taxes at every level?
Point 9) - voting tied to handouts: No chance Ther isn’t a constitutional right to vote? The blind, people on workman’s comp, medically retired vets all receive government handouts, they shouldn’t ever vote? Farmers that recieve crop subsidies? Even limiting only to those on welfare is going to be seen as identical to the Jim Crow voting laws the South enacted during reconstruction.
11)Line-item veto is a valid concept, but it’ll be tough to approve because spending is the easiest way for Congress get needed votes when legislation needs a few more votes to pass.
12) I’m all for it.
 
Written By: Ted
URL: http://
Ther isn’t a constitutional right to vote?
No, there isn’t.
 
Written By: MichaelW
URL: http://asecondhandconjecture.com
Every person pays 20% Federal tax on all remaining income.
Why does the Federal Government require that much money?
 
Written By: Mark A. Flacy
URL: http://
The Alternative Minimum Tax, is a bend over and grab your ankles, Government screwing. It is not adjusted for inflation so eventually anybody that makes any money will be subjected to it.
Arguing with your congressman is futile. Congressmen have two ends. The thinking end and the sitting end. Since his whole career depends upon his seat, why bother friend.
 
Written By: James E. Fish
URL: http://
The right to vote is secured by the “Voting Rights Act” of ‘64. Not the Constitution. Considering the lack of knowledge of Americas history, Political, Legal, and constitutional system by most of the Boobwazee, the fewer that vote the better. Democracy can only last until the voters realize they can vote themselves bread and Circuses.

The Government needs so much money because they have the power to extort it from the citizens.
 
Written By: James E. Fish
URL: http://
It is not adjusted for inflation so eventually anybody that makes any money will be subjected to it.
With the plus side it gradually becomes a flat tax.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
Sorry, I had Amnedment 14 wrong. It allowed states to deny a man a vote, but they would lose a share of their respresentation in Congress. The Federal budget to the states is far greater now than when this was enacted. While this doesn’t grant the right to vote, no state with a large number of people recieving government aid would be willing to lose the number of Congressman or Electoral Votes that cutting down the numbers would entail. A guarantee of the ability to vote, but not a direct right.
 
Written By: Ted
URL: http://
One of the most persistent narratives of the Democrats and the left in general has been that the Bush tax cuts have only benefited the rich (and thus, in the name of "tax equity" should be repealed).
So dosen’t mean that you should support the repeal of the tax cuts, so that the middle class will pay their fair share and a smaller portion of the country will be free-loading from the tax dollars of the rich? ;)
 
Written By: Rosensteel
URL: http://
Actually, before we just accept Voting Rights Act vice Constitution on actual right to vote, we need to check the Act itself.

Original act (1965)
AN ACT To enforce the fifteenth amendment to the Constitution of the United States and other purposes.
Latest extension (2006)
Section 2 CONGRESSIONAL PUTPOSE AND FINDINGS
(a) Purpose.- The purpose of this Act is to ensure that the right of all citizens to vote, including the right to register and vote, is preserved and protected as guaranteed by the Constitution.
The VRA, by its own accord, is a mechanism to enforce rights granted by the Constitution. It never states that all citizens have a right to vote, but mirrors the 15th Amendment in stating that the right to vote shall not denied on basis of color. It made it much easier to enforce the Amendments allowing all citizens to vote; but if those rights are not in the Constitution, the VRA has no purpose.
 
Written By: Ted
URL: http://
Earned Income Credit is not a "scam" but a transparent transfer payment to those who are working at low end jobs to have an incentive to work instead of collecting other benefits that require the person to be unemployed...basically a bribe to say its better to have you work at McDonalds than sit at home waiting for welfare checks.

I believe economists like such programs (EIC) because its very clear cut and not hidden.
 
Written By: Harun
URL: http://
I believe economists like such programs (EIC) because its very clear cut and not hidden
It may not be hidden in the grand scheme of things, but calling it a tax credit? It is a payment. The only way that thing should pass muster is if it reduced tax liability to zero but could never become a refund (BLAH - refund my A$$ - a ’refund’ implies you paid something to begin with!).
 
Written By: meagain
URL: http://
I assume this is what you were referring to last night.
 
Written By: Jason
URL: http://www.jasonpye.com
It may not be hidden in the grand scheme of things, but calling it a tax credit? It is a payment. The only way that thing should pass muster is if it reduced tax liability to zero but could never become a refund (BLAH - refund my A$$ - a ’refund’ implies you paid something to begin with!).
No less than Milton Friedman advocated a negative tax bracket for the poor. It’s the most efficient way to transfer money to them: they can buy the services they need or want, and there’s no massive bureaucracy to feed.

I think Friedman’s right on this point.
 
Written By: Steverino
URL: http://steverino.journalspace.com/
First, the idea that options are risky and therefore anyone who didn’t sell them got what they deserved is somewhat offensive to me. I join a company that has a few employees - knowing that 9-of-10 such companies will fail. This puts my career and my family at risk - for the potential of a substantial payoff if the company succeeds. I have _earned_ the right to benefit from my risk. (If you believe otherwise, then you must also agree that I shouldn’t be punished if the company fails - and someone else would have to bear the burden of that failure - right?)

How all of this is affected by AMT is key. If I exercise 1000 shares and their price differential (between my option price and fair market value on the day of exercise) is ... say ... $100, then I have realized a gain of "$100,000". The AMT says: "you earned $100,000 in additional salary on the day you exercised those shares"... But on December 31 of that same year, those same shares have dropped in value to only be worth $1,000 difference in the price I paid (option price) and the fair market value (on Dec. 31) - I still owe taxes on the $100,000 - EVEN THOUGH I NEVER ACTUALLY TOOK THE MONEY... So now I owe ~$30,000 in taxes on stock that’s worth $1,000... That is a _SCAM_! I’m losing $29,000 for my risk in working for a company that was successful for a while - but has now fallen on hard times. (Talk about kicking someone when they are down.)

Now, if I sell the shares on Dec. 31 - I can mitigate my tax liability. I can convert the $100,000 "salary" gain into a "$1,000" capital gain, because I sold the shares during the same year. But if I hold on to the shares until Jan. 1 (or whenever the market re-opens), I owe AMT on the $100,000 of _UNREALIZED_ gains. When I sell the shares (for $1,000), I can report a $99,000 capital loss - but capital losses can only be deducted from my tax returns at a rate of about $3000 per year. So it will take me 33 years to recover the taxes I paid... Now multiply the loss by 5 or 10 and you can see that some people (including me) will be reporting capital losses for the rest of our lives, and will still leave the IRS with multiple $100s of Ks of money that I never should have had to pay taxes on (since I never actually had the money).

The reason this AMT was put into effect was because tax-dodgers were using "stock" as a way to avoid paying taxes. A company would reward officers with millions of shares of stock, and the officer would never sell the shares - but would take loans on their value. So the "loan" would be the income, but the shares would never be sold, so the gain wouldn’t be realized - hence no tax burden. The solution (of course) is to disallow loans on unrealized assets. Instead, the AMT was devised - and it will eventually get everyone. As salaries rise, the minimum salaries that are affected stay the same. So before long - everyone in the country will earn enough that they will be under the AMT burden, and they will all lose _all_ deductions.
 
Written By: RW
URL: http://
Ted responded to my earlier post:
Point 9) - voting tied to handouts: No chance Ther isn’t a constitutional right to vote? The blind, people on workman’s comp, medically retired vets all receive government handouts, they shouldn’t ever vote? Farmers that recieve crop subsidies? Even limiting only to those on welfare is going to be seen as identical to the Jim Crow voting laws the South enacted during reconstruction.
Please note that my proposal for a new tax system would require constitutional changes (perhaps multiple changes). The abolishment of other forms of taxation would require an amendment. The line-item veto would require and amendment. So would the voting changes.

I support this argument with the following assertion: those who live off of the government have forfeit their right to vote for it. The only way to get the government to stop taking our money and giving it to other people is to eliminate the benefit gained by elected officials doing so...

Eventually welfare and government entitlements would dwindle to nothing - since nobody would be rewarded for handing them out. Charities would resume their role in supplying a safety net to people who are unable to support themselves, and all would be right with the world again. Daisies bloom, birds chirp, it’s always sunny (except at night), and everyone loves each other... ;-)
 
Written By: RW
URL: http://
To Mark A. Flacy:
Why does the Federal Government require that much money?
(Referring to the 20% flat tax rate I suggested...)

Keep in mind that’s after the standard deductions. So the actual tax burden for a family of 4 making $45,000/year is still _0_. If they made $95,000, they would pay $10,000 in taxes (95000 (income) - 45000 (deduction) = 50000 x 20% = 10000).

The idea is to make the transition (from old tax system to new) as neutral as possible. Over time, the other suggestions I made would slowly reduce the need for this much money, so perhaps the standard deductions would be persistently raised, or the rate could be reduced. Of course, my recommendations for standard deductions and flat rate were just "off-the-cuff" suggestions. There was no financial model behind them. So the calculations would need to be run first to determine what the actual deduction and flat rates should really be...

The more appropriate question: why does the Federal Government need as much as it is taking in right now?
 
Written By: RW
URL: http://
RW;
Just because the value of the work you and you coworkers put into the company was at risk from the point you started working until the time the stock was sold does not mean that you only made one major risk decision.
You did get $100,000 worth of compensation the day you exercised those options, just the same as someone that gets a Mercedes for being a brokerage’s top seller is taxed as if he got $100,000 in cash. Your gains were realized in the form of stock. Both of you could sell the same day for the full value; or keep the property, collect dividends, and hope to sell for more later. In the case of the Mercedes, the dividend is getting to drive the car instead of cash. You did have the right to benefit from that risk, and you did.
You decided to take an entirely separate risk by not selling those shares, just as the salesman takes a monetary risk by not selling the car before it’s driven.
There is a key difference. If the Mercedes in an accident and loses a lot of value, he’s getting taxed on $100,000 in extra income. The driver still has the option of selling at current value or hoping it can be restored but it doesn’t change his tax liability. The tax code gives a way out that someone receiving another type of property in lieu of salary does not get.
 
Written By: Ted
URL: http://
RW
I should have divided up my points about government handout equaling no vote. You’ve already answered the constitutional issue, some of the other things I mentioned were separate issues.

Military and Federal employees that receive their retirement benefits from the Federal government. Would they still be able to vote?

The blind and physically disabled receive money from the government. I assume this is one of the main classes where charities would resume their role.

Crop subsidies are sometimes used to ensure that farms remain viable in the face of low prices (or competition from overseas farmers supplemented by their gov’t) just to ensure we have enough capability to produce food in harsh times. One or two bad seasons could cause a lot of farms to shut down. This is very similar to the reasons why not all Defense contracts really go to the lowest bidder. If one company gets all the contracts, overall production capability is reduced. Long term national strategic interests are sometimes best served with government spending.

WIC is a program that gives a supplement of nutritional food to expectant and nursing women and children under 5. (Unlike food stamps, the allowable items are printed on each check along with the name of the Mother/Guardian. So it’s not a system that’s just intended to do good, it works.) I don’t feel someone that is working at the low end of the scale should have to choose between voting and feeding their kids correctly. More importantly for this discussion: by enhancing children’s nutrition during early development, the number of those children that grow into productive members of society is increased and the government saves a bundle by not having do deal with as many cases of child neglect through poor nutrition.

 
Written By: Ted
URL: http://
With the plus side it gradually becomes a flat tax.
That flat tax occures at 100% of income. The reason federal income increases is explained by the Laffer curve. Lower taxes mean more economic activity which produces more revenue for the government. During the Regan administration, after tax cuts, federal revenue increased from about 550-Billion to just under one trillion dollars, More than enough to cover his military expansion. Unfortunately the democratic congress spent money “like a drunken sailor” on domestic programs so the deficit increased.
 
Written By: James E. Fish
URL: http://

 
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