Monday, November 08, 2010

Repeal tax cuts for rich

GOP elephant pooping
Republicans want to extend all the Bush tax cuts, including the tax cuts for people making over $250,000. This would be $250,000 of taxable income, after deductions, etc.

Their argument is that many of the people affected are small business owners and the extra tax burden would cause them not to grow their businesses.

Let's think about this.

First of all the, these high income people would still get the tax cut on the first $250,000 of their income. Assuming that the current tax rates on income under $250,000 are extended, the higher rate after January 1 would only be on any income over $250,000.

So if I understand the rates correctly, the rate for income over $250,000 will change on January 1, 2011 from 35% to 39.6%.

Let's say you are a small business owner, have $250,000 of taxable income and starting 01/01/2011 you have the opportunity to grow your business and raise your income from $250,000 to $350,000. At the end of the 2011, your tax bill will be $4,600 greater if the Bush tax cuts for the rich are not extended. The federal tax on that $100,000 would be $35,000 if the tax cuts are extended and $39,600 if they are not.

So Republicans think this business person would not grow their business by $100,000 and increase their after tax income by roughly $60,000 because they would have to pay an extra $4,600 a year in federal taxes. That doesn't make sense.

I know that $39,600 in taxes on $100,000 sounds like a lot, but these rates would be the rates that were in effect in 2000. Not exactly a bad year for business.

When the current lower tax rates were passed:
1) They were not paid for. These tax cuts were paid for by increasing the debt. The Chinese and others loaned us the money to cover the increased debt these tax cuts caused. Everybody got a tax cut that would have to be paid for by tax payers in the future when that debt (plus interest) was paid off.

2) The tax cuts were not made permanent when they were initially passed as part of a political ploy. The tax cuts were designed to expire in 2011 because they were so damaging to the debt. Republics used a gimmick based on how the actual cost of the cuts were calculated and reported at that time. Politicians made the total effect of these tax cuts look lower than they would actually be by making them expire in 2011 rather than making them permanent. Secretly they figured politicians in 2010 would be politically forced to extend them.

We can debate whether or not a tax rate of 39.6% on adjusted income over $250,000 is reasonable or excessive, but to argue that this change would hurt job creation is Elephant Shit.

This will be a fight. We need to balance the budget and not extending the tax cuts for income over $250,000 can help us get there. Democrats need to clearly explain why it makes sense that we do not extend the tax cuts for the rich.

1 comment:

Bill said...

I would take this increase in a heart beat. This reminds me of the 'thinkless' that gripe about a pay raise because it puts them in a higher tax bracket. Okay, give ME your raise, I will gladly pay the higher taxes on the new money.