Wednesday, November 14, 2012

Don't Drink the Kool-Aid... Again.

In his State of the Union address, Bush made the argument when he proposed tax cuts in 2001 that the average American family would see a tax decrease of approximately $1800.  Everyone cheered and middle class America said “thank you”!  The only problem was that most middle and low income households received little to nothing from the Bush tax cuts while the top 1% of households saved tens of thousands.  Shame on us for not understanding basic math.

Now we face the "Fiscal Cliff" and part of that cliff involves the expiration of the Bush tax cuts for all taxpayers thus reverting us back to the tax rate schedule of the Clinton Administration.  Now opponents of higher taxes (especially on the wealthy given they benefited the most from the tax cuts in the first place) are using the same math gimmick, and the assumption that most Americans aren't going to think about what "average" means, to suggest that if we do nothing and let the Bush tax cuts expire, tax rates for the average American household will go up $1800*... and if you listen to the media, it appears most Americans are going to drink the same Kool-Aid again.... thank you sir, may I have another?

(*reported today on CNBC)

In addition, most media outlets are quoting a recent Tax Policy Center Report that states the expiration of almost every tax cut enacted since 2001 could raise the average U.S. household's tax burden by $3,500 and that middle income families would have to pay an average of about $2,000 more next year.  The problem is that most media outlets are equating the Bush tax cuts with every tax change passed by Bush AND Obama since 2001.  This [intentionally?] creates confusion over the ramifications of allowing the Bush era tax cuts to expire and the impact on taxpayers and the economy when it is wrapped up with every tax policy change for the last decade.

It is clear and irrefutable math.  If the Bush era tax cuts expire and we revert back to Clinton era marginal and average tax rates, most American household would see a relatively small increase in taxes (because they benefited so little from the original tax cuts!).

  • 81% of the country has household income under $100,000 resulting in an average tax increase of $823...within the 81%, 37% of households make $30,000 or less and would have an average tax increase of $224 (roughly 5 tanks of gas?).
  • 17% of the country has a household income above 100,000 resulting in an average tax increase of $6,140.
  • 2% of the country has a household income above 500,000 resulting in an average tax increase of $79,232.
 Below are summary tables showing the average dollar tax cut and average percentage change in after-tax income from the Bush tax cuts, by cash income class and percentiles for each of the years 2004 to 2012.  In other words, the 2012 column gives you an idea of how taxes would rise by income group if the Bush era tax cuts were to expire.

 Source: Center for Budget and Policy Priorities

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