From the 2009 IRS data organized at tax foundation PDF and tax.com, there are about 100 million personal federal tax returns each year. The AGI of the 98th, 99th, 99.9th, and 99.9999th percentile incomes are 250,000, 380,000, 1.8 million and 500 million, respectively. That means for an additional 3% Bush tax cut, the annual savings for those people are 0, 4,000, 46,000 and 15 million.
From a purely economic point of view, the 98th percentile earner gets the tax-cut under the current democratic or republican plan -- they are politically indifferent. Even the 99th percentile earner gets only an additional 4,000 savings. That extra 4,000 isn't going to affect their decision making, especially if they are in the meat earning years and know that they will usually be below that income. Even the people at the 99.9th percentile (one in a thousand) earning 1.8 million a year -- they will save 46,000 with the additional tax-cut. Maybe they might create one additional job, maybe not. It's not going to affect the economy in any significant way. Moreover any republican senator isn't going to put their neck on the line for perhaps getting a political contribtion from that 46,000 savings for that one-in-a-thousand individual.
Now look at those people in the 99.9999th precentile. Those are looking to save an average of 15 million dollars a year under the Bush-era tax-cuts. If you were one of those people, how much would you donate to the republican party in order to keep your tax cut? Perhaps you would donate one or two million in order to save 15 million? That would be a pretty good "return on investment" in a republican PAC.
If the republican party can get each of those 100 people in the top 99.9999th percentile to donate about 2 million dollars to save those people 15 million. Well, then that means 100 people x 2 million / year x 4 year = $800 million in campaign contributions over a 4-year presidential cycle.
This explains the need for national PACs because these top earners can't donate individually $2000 to each candidate and make a dent in the total they really want to contribute. This also explains why the republican senators are dependent financially, not to their constituents, but rather to these national PACs.
Who are these 100 people in the top 99.9999th perctile of AGI in 2009? Well, we know 25 of them are hedge-fund managers -- which makes the situation even more sicker. Those people had an average of $1 billion AGI in 2009. The income of these hedge-fund managers is taxed, not at the top marginal levels, but rather at the 15% carried interest rate. The loop-hole idea of carried interest is that these hot-money-managers are paid 2+20% of the returns of their investors money. The investors have locked up their money for at least one year, and so therefore any return of that money (however actively traded) would have been taxed to the investor at the capital-gains rate. Since the money managers are taking their income as a percentage of that long-term money, they argue that that long-term interest be carried over to their income for that year. "Hence" they take a 15% tax-rate, not the top-marginal rate.
What's the economic effect of being taxed at a 15% instead of a 35% rate on an AGI of 1 billion dollars? 200 million, on average, in one year, for each of those 25 money managers. How much of that money would they be willing to give in order so that they keep their tax loop-hole? A lot. How much of that money would they be willing to give so that the national media argument is that no tax increase is ever good? A lot. And it's largely going to the national republican PACs.
How much of that hedge-fund $200 million per person Bush-era tax-cut savings of those top-earners tax-cut savings (or the $15 million per person for the others) is going toward additional jobs? Yeah, right. That money is largely going into government bonds -- the same goverment debt that is being created in order to fund those savings. The republican argument is that there's no use for the federal government. Yet, in a sick way, those top earners (and eventually, their heirs) are using that money to gain an additional income stream from the guaranteed government dividend checks. Forever.
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