My Republican leaning friends often ask me why I stopped supporting the GOP. My answer is always the same; namely, the Bush tax cuts.
The average American does not have a clue when it comes to understanding the IRS tax code. The fact that income is taxed based on how it is earned is foreign to most Americans. Furthermore, the average American does not understand that FICA and Medicare are payroll taxes, not income taxes; thus, one must work to pay these taxes.
As most Americans work for a living, most, if not all, of their income is classified as ordinary income. Ordinary income is subject to the progressive marginal tax rates. The top marginal rate is currently thirty-five percent. On the other hand, the capital class derives their income primarily from capital asset appreciation. The top rate on long-term capital gains is fifteen percent on all but three very specialized transactions.
With the above said, what is the adjusted gross income (AGI) threshold at which working couples are taxed at an effective tax rate that exceeds fifteen percent? For tax year 2008, a working couple with a combined AGI of just seventy-five thousand dollars is taxed at an effective tax rate that exceeds fifteen percent.
10% on the income between $0 and $16,050 = $1,605.00
15% on the income between $16,050 and $65,100 = $7,357.50
25% on the income between $65,100 and $75,000 = $2,475.00
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$11,437.50 / $75,000.00 = 15.25%
Now, consider that a working couple also has to pay FICA and Medicare tax on their income whereas members of the capital class do not pay one penny in FICA or Medicare tax on their capital gains, and we see that the tax code is brutally unfair to workers. The capital class is getting richer because the tax code is rigged against workers, especially high-income workers. The GOP wants to create an America where people who are born into wealth get richer, and those who are smart and work hard get taxed into oblivion.
In closing, those of us who wonder how the GOP has managed to snooker rural white voters into supporting the Bush tax cuts only need to look at the marginal tax rates to find the answer. Bush and company found the sweet spot. Most rural voters live in low cost of living areas of the country where incomes are also much lower than they are in the urban and suburban areas of the country; thus, most rural couples have AGIs of sixty thousand dollars or less. Where I live, a family earning sixty thousand dollars a year is living hand to mouth.