Our tax system explained - so even a liberal can understand it.

[fossten]

Hey, Mr. Congressman ... Where's My Tax Cut?

By Alex Molina

Every once in a while, I find myself pondering the complicated subject of taxation and the economy. Social Security, the deficit, Iraq, oil ... somehow, it's all supposed to make sense. Instead, I get so overwhelmed by all the numbers that I usually just throw my hands up in frustration and forget about it.

Then I came across this little story by David R. Kamerschen, Ph.D., Professor of Economics at the University of Georgia - and it became crystal clear. It's like one of those fables you may have heard when you were a child. The ones that make even the most complex ideas seem very simple.

This story may not leave you with the warm, fuzzy feeling the three little pigs did - but go ahead and read it. See what you think ...

Suppose that, every day, 10 men go out for dinner and the total bill comes to $100. Suppose, too, that they decide to pay the bill the way we pay our taxes. This is what happens:

The first four men (the poorest) pay nothing.

The fifth pays $1.

The sixth pays $3.

The seventh pays $7.

The eighth pays $12.

The ninth pays $18.

The tenth man (the richest) pays $59.

The 10 men are happy with the arrangement. But then, one day, the owner of the restaurant throws them a curve. "Since you are all such good customers," he says, "I'm going to reduce the cost of your daily meal by $20." Dinner for the 10 now costs just $80.

The group still wants to pay their bill the way we pay our taxes, so the first four men are unaffected. They still eat for free. But what about the other six men - the paying customers? How do they divide the $20 windfall so that everyone gets his "fair share"?

They realize that $20 divided by six is $3.33. But if they subtract that amount from everybody's share, the fifth and sixth men would end up being paid to eat their meals.

So the restaurant owner suggests that it would be fair to reduce each man's bill by roughly the same amount - and he proceeds to work out how much each one should pay.

And so:

The fifth man, like the first four, now pays nothing (a 100% savings).

The sixth now pays $2 instead of $3 (a 33% savings).

The seventh now pays $5 instead of $7 (a 28% savings).

The eighth now pays $9 instead of $12 (a 25% savings).

The ninth now pays $14 instead of $18 (a 22% savings).

The tenth now pays $49 instead of $59 (a 16% savings).

All six of these men are now better off than they were before. And the other four continue to eat for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20," declares the sixth man. He points to the tenth man, "But he got $10!"

"Yeah, that's right," exclaims the fifth man. "I only saved a dollar too. It's unfair that he got 10 times more than me. "

"That's true!" shouts the seventh man. "Why should he get $10 back when I get only $2? The wealthy get all the breaks!"

"Wait a minute!" the first four men yell in unison. "We didn't get anything at all. This system exploits the poor!"

The nine men surround the tenth and beat him up.

The next night, the tenth man doesn't show up for dinner, so the nine sit down and eat without him. But when it comes time to pay the bill, they make a disturbing discovery. They don't have enough money between all of them to cover even half of the bill.

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may stop showing up. In fact, they might start eating overseas, where the atmosphere is somewhat friendlier.

(Ed. Note: Alex Molina is president of A&M Financial Service Group Inc., a client-oriented brokerage specializing in strategies for income, real estate, taxes, and retirement. He can be reached by e-mail at ajmolina@bellsouth.net.)

 

[fossten]

WashPost Plays Up Liberal Chart Showing GOP Tax Cuts for the Rich
Posted by Tim Graham on May 10, 2006 - 08:12.

The Washington Post reported on Wednesday's front page that House and Senate Republicans reached agreement on extending "President Bush's deep cuts to tax rates on dividends and capital gains," but the chart they used on the front page was a Democratic talking point. It shows that people with a 2005 income between $10,000 and $50,000 would receive nearly zero, while people making over $100,000 would have much larger returns. The source cited on the page is merely "Tax Policy Center."

But inside, readers learn that this supposedly nonpartisan center is a project of two liberal think tanks:

Middle-income households would receive an average tax cut of $20 from the agreement, according to the joint Urban Institute-Brookings Institution Tax Policy Center, while 0.02 percent of households with incomes over $1 million would receive average tax cuts of $42,000.

And later, the Urban Institute complains about a Roth IRA provision:

over the next 35 years, it would cost the government $36 billion, according to the Urban Institute. "And it's losing the money when we're really going to need it," said Leonard Burman, an economist at the Urban Institute.

The story itself includes both sides of the tax debate, but the Post really ought to have a more forthcoming front-page source citation, instead of trying to create a sense of ideological camouflage.

 

[MrWilson]

great find, thanks for the post.

 

[fossten]

April Tax Revenues 2nd-Highest in History; Will Media Notice?
Posted by Noel Sheppard on May 10, 2006 - 16:19.

A stunning announcement was made by the Treasury Department today. As reported by the Associated Press: “A flood of income tax payments pushed up government receipts to the second-highest level in history in April, giving the country a sizable surplus for the month.”

Of course, this quite flies in the face of the regular media carping and whining about the president’s 2001 and 2003 tax cuts negatively impacting federal revenues, doesn’t it?

Regardless, the article continued: “In its monthly accounting of the government's books, the Treasury Department said Wednesday that revenue for the month totaled $315.1 billion as Americans filed their tax returns by the April deadline. The gusher of tax revenue pushed total receipts up by 13.4 percent from April 2005.”

And which April in history is actually in first place? If you said April 2000, you’d be wrong: “It marked the largest one-month receipt total since the government collected $332 billion in revenue in April 2001, reflecting a boom in capital gains from stock investors lucky enough to cash out their investments before the bursting of the stock market bubble in early 2000.”

Of course, given the drive-by media’s penchant against tax cuts, the question is whether or not this fabulous news will be widely reported. Not much of a stretch here, but my guess is “No.”

 

[MonsterMark]

According to Democrats, worst economy in 50 years.

 

[MonsterMark]

From Rasmussen...

May 9, 2006--A quarter century after Ronald Reagan rode the tax revolt to the White House, Americans continue to believe that tax cuts help the economy and tax hikes hurt.

Since early April, Rasmussen Reports has polled about general tax issues in 33 states. All 33 conform to the national trend, varying only in degree (see State-by-State Tax Data).

Massachusetts, not surprisingly, was the least enthusiastic state concerning the economic benefits of tax cuts. Just 44% of Bay Staters believe tax cuts are good for the economy while 25% say they hurt.

Michigan has the highest percentage who believe that tax cuts hurt the economy--28%. Gee, I know somebody on this forum that lives in Michigan. No wonder so glum.

At the other extreme are Georgia and Oklahoma--in both states 63% say tax cuts are good for the economy and 15% take the opposite view.

In 24 of the 33 states, a majority believe that tax cuts are beneficial.

In 29 of 33 states, a plurality or majority said that the tax preparation is worse than a trip to the dentist.

See State-by-State Tax Data.

 

[fossten]

The beat goes on...

CBS & NBC Paint Tax Cuts Through Liberal Prism of Higher Dollar Savings for Rich
Posted by Brent Baker on May 11, 2006 - 00:01.

CBS and NBC on Wednesday night painted the tax cut extensions passed by the House through a liberal prism, relaying liberal spin meant to portray the cuts as unfair by citing the dollar amounts of expected cuts for the rich versus those earning lower incomes, without any regard for how an incredible 41 percent pay no income tax and so can't get a tax cut while the wealthier pay huge dollar amounts and so even a small percentage reduction represents a big dollar number. CBS's Sharyl Attkisson put on screen, without any attribution, how “for incomes of $50,000 or less, you'll average no more than $46 in savings. Up to $100,000, average is no more than 400 bucks saved. $100,000 to a million saves anywhere from about $1,300 to a little more than $5,500. Over a million, your savings will average nearly $42,000 a year.” After Attkisson, anchor Bob Schieffer set up a piece from Anthony Mason, on how the national debt will reach $10 trillion by the end of the Bush presidency and the National Debt clock in Manhattan is running out of space, by declaring that “critics...remind us that any tax cut is just going to drive the national debt higher."

On the NBC Nightly News, Chip Reid recounted how Republicans claimed tax cuts have helped the economy before he picked up the left-wing numbers without offering any context about the dollar amounts of the cuts compared to the rate paid at various income levels, but at least he identified the source as “liberal.” Reid highlighted how “Democratic critics say the overall bill is heavily tilted in favor of the very wealthy" and passed along how “according to the liberal-leaning Tax Policy Center, those earning more than $1 million a year would save an average of about $42,000 a year. But families earning between $50,000 and $75,000 would save only $110 a year. And the savings are even smaller for those making between $40,000 and $50,000." (Transcripts and tax burden facts follow)

Of course, since outside of a small adjustment to the Alternative Minimum Tax, what the House passed was a two-year extension of the current tax rates, the tax cut numbers cited by CBS and NBC are really the amounts people would otherwise have to pay in a tax hike.

Attkisson's numbers, like Reid's, came from the joint Urban Institute-Brookings Institution Tax Policy Center and were lifted from a table on the front page of Wednesday's Washington Post, as noted in Tim Graham's NewsBusters item. (ABC's World News Tonight limited coverage of the tax vote to a couple of sentences from anchor Elizabeth Vargas.)

Amazingly, fewer than six in ten Americans actually pays any income tax. As Scott Hodge recounted in a March 30 Tax Foundation report:


“During 2006, Tax Foundation economists estimate that roughly 43.4 million tax returns, representing 91 million individuals, will face a zero or negative tax liability. That's out of a total of 136 million federal tax returns that will be filed. Adding to this figure the 15 million households and individuals who file no tax return at all, roughly 121 million Americans -- or 41 percent of the U.S. population -- will be completely outside the federal income tax system in 2006. This total includes those who pay no tax, and those who pay some tax upfront and are later refunded the full amount of the tax paid or more....

“The number of tax returns with zero or negative tax liability has risen steadily over the past decade. However, it accelerated sharply between 2000 and 2004 due to the effects of tax changes during President Bush's first term of office.”

In an October Tax Foundation report, William Ahern and Gerald Prante looked at the latest numbers from the IRS, from the 2003 tax year, and observed the greater burden on the wealthier: “The top-earning 25 percent of taxpayers (AGI over $57,343) earned 64.9 percent of nation's income, but they paid more than four out of every five dollars collected by the federal income tax (83.9 percent).”

Indeed, the bottom 50 percent, those earning below $29,000, represented 14 percent of all reported income but paid a piddling 3.46 percent of all income taxes collected. Those making more than $95,000 earned 42 percent of the income, yet paid 64 percent of all taxes collected and those earning more than $295,000 paid an average 24.3 percent tax rate, eight times the minimal 2.95 percent rate paid by those making under $29,000. We have a Marxist tax system.

Transcripts of the May 10 CBS and NBC stories, as corrected against the closed-captioning by the MRC's Brad Wilmouth:

CBS Evening News. Bob Schieffer led:


"Good evening. Gas prices are high, the war in Iraq won't go away, so it is no wonder the Republican-controlled Congress has been looking for something it can brag on as the fall election approaches. And today it found one -- that old favorite, tax cuts. Or, to be more specific, an extension of some of the President's previous tax cuts which were due to expire. We go first to Sharyl Attkisson on Capitol Hill. Sharyl?"
Sharyl Attkisson began from Capitol Hill:

"Bob, well, with the Congress on the verge of handing the President a major victory, the House has now passed the tax cuts. The Senate is expected to follow suit. It's $70 billion worth of cuts over five years, and today Republicans were crowing."

Rep. David Dreier (R-CA), on the House floor: "I was born to cut taxes, and I'm proud of the fact that I was born to cut taxes."

Attkisson: "What's the bottom line? The more taxes you pay, the more you save. The Morrises, a Washington couple with two small children, earn around $100,000 a year. They'll save about as thousand bucks."

Mr. Morris: "It'll be nice, but I don't even know if we'll notice it. I guess most people who pay taxes would benefit a little bit."

Attkisson, over on screen table: "Some more than others. For incomes of $50,000 or less, you'll average no more than $46 in savings. Up to $100,000, average is no more than 400 bucks saved. $100,000 to a million saves anywhere from about $1,300 to a little more than $5,500. Over a million, your savings will average nearly $42,000 a year. It's all but a done deal, even though not everyone supports it."

Rep. Jim McDermott (D-WA), on the House floor: "There is nothing in what we will do today that is useful for anybody who is at the middle class or below."

Attkisson: "Democrat Max Baucus helped craft the tax cut package, but says some crucial features got axed at the last minute. Not in the plan, the ability to deduct state and local sales tax, the college tuition tax deduction, deductions for teachers who spend their own money on school supplies, and tax credits for businesses that hire welfare-to-work employees. Are tax cuts and is tax relief in general very popular with most Americans?"

Senator Max Baucus (D-MT): "Americans like tax cuts, but Americans, more than that, want to do what's right and want us and Congress to do what we think is right for the country."

Attkisson: "The tax breaks could pass the Senate as early as tomorrow and be on the President's desk for signing by week's end."

NBC Nightly News. Anchor Brian Williams announced:


"Now to Capitol Hill and a bill to extend tax cuts for investors and create a temporary fix for the alternative minimum tax. Republicans say the tax cuts are helping the economy, but Democrats argue most of the benefits go to the wealthiest Americans. Joining us tonight from Capitol Hill, NBC's Chip Reid. Chip, good evening."

Chip Reid began from Capitol Hill:

"Well, good evening, Brian. Late today a sharply divided House of Representatives passed that tax cut bill by a vote of 244 to 185. With much of their agenda mired in gridlock, House Republicans found reason to celebrate today. After reaching agreement on tax cuts of nearly $70 billion requested by President Bush."

Rep. David Dreier (R-CA), at outdoor celebration: "We are Republicans, and by virtue of being Republicans, we were born to cut taxes."

Reid: "The bill would extend for another two years reduced tax rates of 15 percent on stock dividends and capital gains. Supporters say those tax breaks for investors have played a major role in the nation's economic recovery."

Rep. Eric Cantor (R-VA), on the House floor: "Unemployment is at 4.7 percent. These cuts have spurred spectacular economic growth."

Reid: "The bill would also protect millions of taxpayers from the alternative minimum tax for one year. That tax was created more than three decades ago to make sure the super-wealthy paid their fair share, but now threatens to ensnare the middle and upper middle class, especially families with children in states with high taxes. But Democratic critics say the overall bill is heavily tilted in favor of the very wealthy."

Rep. Peter DeFazio (D-OR), on the House floor: "And tonight rivers of champagne will flow in corporate boardrooms across America."

Reid, over an on-screen graphic with matching numbers: "According to the liberal-leaning Tax Policy Center, those earning more than $1 million a year would save an average of about $42,000 a year. But families earning between $50,000 and $75,000 would save only $110 a year. And the savings are even smaller for those making between $40,000 and $50,000."

Rep. Alcee Hastings (D-FL), on the House floor: "Their average tax saving under this particular measure would be $46. That amounts to just a little bit more than a tank of gas of you ain't driving an SUV."

Reid: "And some Democrats say they opposed it because it adds about $70 billion to the deficit. But now that it's passed the House, it goes to the Senate. Republicans in the Senate say they have the votes to pass it. If they're right, it will then go to the President for his signature."

Boy do we need to pass the FairTax!

 

[fossten]

Yet another example of media stupidity...

Profiles in Class Warfare: Snow Flashes $20 Bill to Demagogue Tax Cut
Posted by Mark Finkelstein on May 11, 2006 - 07:53.

Maybe the ABC show should change its name to 'Demagogue Morning America'. Earlier this week, Charlie Gibson trotted out windfall-profit taxes and limits on executive compensation as 'solutions' to high gas prices.

This morning, Kate Snow took the demagoguery up-close-and-personal, flashing a $20 bill in the faces of modest-income Americans to elict predictable responses about the tax cut they would be receiving under a Republican-backed plan.

Snow set the tone by announcing that the proposed extension of the tax cuts "would cost the federal government $70 billion." Of course tax cuts don't cost the government anything . . . since it's not the government's money. But that's not the way the MSM or liberals in Congress see it. Everything really does belong to the government, so that when it extends a tax cut, it is "spending" money.

In any case, the current tax proposal would extend a number of tax reductions, including the 15% tax on capital gains and dividends, and provisions helping people avoid the Alternative Minimum Tax.

Relying on data from what, to GMA's credit, was acknowledged to be the "left-leaning" Tax Policy Center, Snow stated that the top 1/10th of 1% got an average tax break of $82,000, while "middle-income" families would get $20.

That's when Snow went into Demagogue-Con 1. She literally trailed a twenty through a New Jersey shopping mall, waving it in the face of a number of people, informing them that this is what they'd get in a tax cut, and obtaining the predictable responses.

Snow: "If I told you that this would be your tax cut, don't spend it all in one place . . "

Woman: "They could keep it."

Snow to another person: "Could you do anything with this?"

Person: "I can't even fill my tank up with gas!" [Nice two-fer for ABC, getting in a free shot at high gas prices.]

Snow to a third person: "I wanted to give you a check for $82,000, but only if you make $1.8 million a year."

Person [indicating his modest clothing outfit]: "You see what I got on?"

Of course what ABC didn't tell us is that tax cuts would be modest for lower-income Americans because under measures adopted early in the Bush administration, most of them already pay little or no federal income taxes. A family of four with income in the $30-40 thousand range pays virtually no federal income taxes, for example.

Snow also failed to mention that another tax bill that will soon be coming forward will directly benefit the middle class by preserving tax deductions for state and local sales taxes, a tuition tax deduction and a tax break for teachers who buy their own supplies.

Instead, Snow and GMA resorted to the worst kind of demagoguery in aid of Democrat proposals to kill the tax cut extension, thereby effectively raising taxes on the most productive members of society. How that would spur the economy and create more jobs ABC didn't tell us.

 

[fossten]

Breitbart
April Tax Revenue 2nd-Highest in History

It marked the largest one-month receipt total since the government collected $332 billion in revenue in April 2001.

See that? Tax cuts = more tax revenue. So the only logical reason to complain about "tax cuts for the rich" is that you really want the economy to tank or that you don't really care about getting the most tax money you can but rather you hate that others are doing so well and want to punish them.

Hey Big Media, don't punish others just because you chose a profession that doesn't pay squat. In fact, you should go after your CEOs who take food out of your mouths with multi-million dollar retirement packages (that sounds familiar.)

http://newsbusters.org/node/5348