Can I give you the layman’s summary of the ongoing debate over the “Bush era tax cuts”? Most of my readers understand this intuitively, but I offer the following in the unlikely event that an intellectually honest Democrat or “Progressive” might drop by. It really is no more complicated than this:
The U.S. has a progressive income tax system. That means that lower-income taxpayers pay a lower percentage of their income than do higher-income taxpayers. Those with income up to $100,000 might pay 15% of their income; those with income from $100,001 to $250,000 might pay 28%; and those with income over $250,000 pay 35%. Those reporting under $30,000 might not pay any tax at all (not the correct rates and income brackets… just for illustration).
Early in his term, President Bush and the Congress voted to reduce the tax percentage rates from those of a previous administration. Taxpayers from top to bottom have paid a lower income tax rate for about 10 years. That the Bush administration changed the income tax rates was not unusual; income tax rates have moved up and down numerous times for various reasons under both Democrat and Republican Presidents.
To secure the votes required to pass the tax rate reduction, the Bush administration agreed to a time limit; the rates would remain at the lower level for a specific time period, subject to renewal. The law establishing the lower rates is set to expire at the end of this year. Unless an agreement is reached, the tax rates will return to the levels at which they were prior to the reduction.
(Incidentally, the “Bush tax cuts” are not the only tax benefits expiring on December 31. Unless extended, the so-called “death tax” (a tax on the value of your estate at your death) will return to the prior level of 55% from the current 0%.)
You should now understand that many of the arguments by the Democrats against extending the tax rates are not valid at all. In fact, some rise to the level of outright deception:
- Extending the current tax rates is not a “tax cut for the rich.” It is not “giving more money to millionaires.” It is simply extending the current tax rates– for everybody– for longer than the 10 years that they have been in place.
- Extending the current tax rates does not “give more money to the millionaires.” It allows them to keep more of what they have earned. There’s a difference.
- There is no definitive, permanent, “official” or even optimal tax rate. For that reason alone, extending the current rates cannot be called a “cut.”
- Failing to extend the rates will result in a tax increase; an individual earning $47,000 will see his income tax increase in 2011 by $2,600.
- Regardless of whether or not the current tax rates are extended, those with a higher income will continue to pay a higher tax rate than do those earning less. As long as we have a progressive tax system, “the rich” will always pay more (for the same services… unless you include tax credits, welfare and other entitlements. Then “the rich” pay more for less return from the government!).
- Republicans want to do nothing more at this moment than maintain the status quo. Democrats want to raise the tax rate for one segment of the population, if not for all.
- Extending the current tax rates will not “cost” the government $700 billion. There is no definitive or “official” tax revenue level. The government does not have a right to your money. It is not first the government’s to “spend,” so there cannot be a “cost.” Finally, if the tax rates are extended, the government will not receive any less tax revenue than it has in the previous ten years (as a result of the extension).
- Extending the current tax rates will not “add $700 billion to the deficit.” As just noted, extending the current rates will not result in any less income tax revenue to the government than was received last year or in any year of the previous decade.