There is a discussion going on in Washington DC about the Bush tax cuts that are set to expire at the end of this year. The Democrats want to make the tax cuts permanent for people making under $250,000 while letting the tax cuts for income over $250,000 expire. The Republicans want to make all of the tax cuts permanent. Republicans like Rep. Paul Ryan (R-WI) and Rep. Cantor (R-VA) have said there will be no compromise on the Bush tax cuts. Extend them all or they all will expire. They have even signaled their willingness to shut down the government to get their way.
The actual statement by Mitch McConnell was: ” … the President is going to have to move our way if he wants to get anything done.” Meanwhile Representative Cantor has said that shutting down the government wasn’t off of the table.
From the way President Obama was talking on 60 Minutes last Sunday, it sounds like he is going to cave. He couldn’t be making a bigger mistake. Again, the Democrats are faced with a situation where they have the facts and public opinion on their side. This is a slam-dunk, folks. All the Democrats have to do is come out and say that the Republicans are holding the middle class tax cuts hostage so they can get their rich buddies more money. Also point out the fact that extending the tax cuts for the rich is going to add $700 billion to the deficit. Allowing them to expire would go a long way towards paying to extend the tax cuts for the middle class.
First of all: How much money are we talking about here? How much does the wealthy pay in taxes already? Well, I am so glad you asked.
A little background information here and then we will get to the math. The economic theory known as the “Trickle Down Theory” suggests that if you put more money into the hands of the wealthy, it will trickle down through the rest of the economy through jobs, investment and the like. The Republicans took this theory on as their mantra. Since 1980 when the theory was first instituted, the Republican’s main goal has been to cut taxes for the rich. Even now with a huge deficit they are talking about tax cuts for the rich and adding that money to the debt.
If you want to know how well Reaganomics works, look around. The mess we are in right now can be laid at the doorstep of the Republicans and their failed economic policies. According to this report from the Center on Budget and Policy Priorities: “The gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007 (the period for which these data are available), according to data the Congressional Budget Office (CBO) issued last week. Taken together with prior research, the new data suggest greater income concentration at the top of the income scale than at any time since 1928.” Do you remember what happened in 1929 and 2008? This is history repeating itself. If we don’t learn from our history and reinstate all the policies put into place after 1930 that prevented America from having an economic meltdown like we had in 2008 for the past 70+ years we are going to have another, and soon.
Economists and other “experts” complicate matters as to make them not understandable to the average person. They do this partially as a job security matter, I believe. If you can’t understand what someone else is doing and can’t do it for yourself than you need that other person to do it, ergo, they keep their jobs. The fact of the matter is that it isn’t complicated at all. Look at history. We had the Great Depression starting in 1929. Many policies, regulations and oversight were implemented and we had a pretty good economy for 70 years. Over the past thirty years the Republicans have been chipping away at those policies, regulations and oversight until it led to the crash of 2008. Put back the policies, regulations and oversight that have been removed since 1980 and we will go back to having a robust economy again. Or at the very least we won’t be facing another economic collapse that is heading our way if the Republicans succeed in repealing the small amount of regulations the lobbyists and special interest groups allowed the Democrats to put into their financial reform bill.
Okay, now onto the math. This is a little complicated so I have simplified it as much as possible:
According to this article, only 6.5% of the top 400’s income is derived from income that can be taxed at top marginal tax rate. Let’s figure out how much a person’s taxes will go up if the Bush tax rates for the over $250,000 a year crowd were allowed to expire. Let’s say you make $100 million a year, (just to make it easily understood and easy to figure out). 6.5% of that income, or $6.5 million would be taxed at the higher rate of 39.6%.
The first $6.5 million, because of our progressive tax structure would be taxed like this: First $8,350 at 10% ($835), the next $25,600 ($33,950 – $8,350) at 15% ($3840) the next $48,300, ($82,250 - $33,950), at 25% ($12,075) the next $89,300, ($171,550 - $82,250), at 28% ($25,004) the next $78,450, ($250,000 - $171,550) at 33% ($25,888.5). Add all of those together and then divide by $250,000 and you come out with an effective rate on the first $250,000 of 28.257% ($70,642.5/$250,000). So we have the first $250,000 in taxes would be $70,642.5. The rest of the $6,500,000 would be taxed at 39.6% which comes out to $2,475,000 in tax liability. The rest of the $100,000,000, $93,500,000 would be taxed at an effective tax rate of 16.5%, (according to the article). That would come out to $15,521,000. So, we have $15,521,000 + $2,475,000 = $17,996,000/$100,000,000 = 17.9% Their effective tax rate will go up 1.4%. Not something that is going to cause economic collapse as the Republicans are suggesting.
You also might want to compare their rate to the income tax rate you are paying. If you make $250,000 a year you pay 28.257% in federal taxes and if you make over $250,000, you pay an effective tax rate of 17.9%. Is this fair? I don’t think so. At the very least everyone that can should shoulder close to the same percentage of the tax burden.
A little aside here: Saying that if you make $250,000 a year you are middle class is ridiculous to start with. The median income in this country is $52,059 which would put middle class wages at around up to $100,000 or a little more. Those that make $100,000 - $250,000 are rich. Plain and simple.
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