Saturday, May 19, 2012

Cut-Rate: Getting Ready For The End of the Bush Tax Rates

If there's one bit of conventional wisdom I know, it's that the "Bush Tax Cuts" were "for the rich" and "exploded the deficit" on the "backs of the poor." (the phrases in quote marks are intend to demarcate crass left-wing demagoguery from rigid Free Will-ian analysis). So what's up with this article about how the non-rich will see their taxes go up next year when the Bush rates end and the Obama/Clinton rates return?
You might think only individuals in the top two brackets will face higher federal income taxes if the Bush cuts evaporate as scheduled on Jan. 1, 2013. But unless Congress takes action and the president (whoever that is) goes along, rates will go up for everyone. 
Specifically, the existing 10% bracket will go away, and the lowest "new" bracket will be 15%. The existing 25% bracket will be replaced by the new 28% bracket; the existing 28% bracket will be replaced by the new 31% bracket; the existing 33% bracket will be replaced by the 36% bracket; and the existing 35% bracket will be replaced by the 39.6% bracket. 
Right now, the maximum federal rate on long-term capital gains and dividends is 15%. Starting next year, the maximum rate on long-term gains is scheduled to increase to 20% (or 18% on gains from assets acquired after Dec. 31, 2000, and held for over five years). The maximum rate on dividends will skyrocket to 39.6%. 
People in the lowest two rate brackets of 10% and 15% currently pay 0% on long-term gains and dividends. Starting next year, they will pay 10% on long-term gains (or 8% on gains from assets acquired after Dec. 31, 2000, and held for over five years) and 15% and 28%, respectively, on dividends. 
The Bush tax cuts included several provisions to ease the so-called marriage penalty, which can cause a married couple to pay more in taxes than when they were single.
Right now, the bottom two tax brackets for married joint-filing couples are twice as wide as those for singles. This helps keep the marriage penalty from biting lower- and middle-income couples. Starting next year, the joint-filer tax brackets will contract, causing higher tax bills for many couples.
This, of course, is at odds with the Dem/MSM talking points, summarized above. Even calling them the "Bush Tax Cuts" is an attack, suggesting that the Clinton-era rates were somehow "correct" until rascal Bush came and cut them, no doubt shredding the Constitution as he did so. The fact is that the Bush rates made economic sense at the time, and benefited everybody, whether directly or indirectly. 

(as a long aside, I am getting tired of the right-wing talking point that says almost half of working population pays little or no tax, which often gets elided to "50% of the country doesn't pay tax." The implication is that taxes for these untaxed multitudes should go up. This is a winning message? The "almost 50%" certainly do pay taxes, even if their taxes are not income taxes. These folks pay an enormous amount of tax, much of it regressive and without off-set. They pay sales tax. They pay gas tax. They pay those taxes on the phone bill (including that "temporary" tax passed to pay for the Spanish-American War). They pay fees to the DMV, which are high enough in CA to constitute a near-penalty. And, they get socked when they run afoul of the dozens of government ministries whose jobs are less about regulating behavior/enforcing the law, and more about raising revenue. A middle class guy who gets ticketed in San Francisco might be annoyed, but a parking ticket for a poor person can ruin their week. A small laundromat owner might not be paying income tax, but he'll get killed if he's got the wrong kind of pipes. Plus, the lower-income crowd gets hit worse by the hidden tax of inflation. And don't get me started on things like housing, energy, education and health care, which are becoming priced out of reach due to incompetent government policy. The almost-50% are burdened just as much as the over-50%).

Agreed that the Bush Administration did a piss-poor job of defending their tax policies. Everyone thinks "tax cuts for the rich" not "lower tax rates for everybody." As with the Iraq War, the Bush folks were great at implementation, awful at follow through. It didn't help that the Bush-era Treasury Secretaries were, to a man, not up to the task of effectively defending their pro-growth policies. 

Still, you won't find a better example of sheer propaganda and lies becoming the truth. Dems have been yelling tax cuts for the rich since 2001. Even as the Bush rates are set to expire, we will no doubt continue to hear about the (hisssss) "rich" even as ordinary folks are getting creamed, and wondering when they became rich. 

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