By Michael L. McDonald
Introduction
There has been long and frequent disagreement on the taxpayers' benefits from the tax cut of 2000, often called the Bush Tax cut, and tax cuts for the rich. The tax cut proposed by President Bush and passed by Congress provided tax cuts that affects all who have a taxable income.
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Tax Comparison
The tax cut changed the lowest taxable income tax rate from 15% to 10% This had the effect of lowering the tax on all taxable income. For instance, comparing taxes in 2000 to 2008 shows the tax savings for those years. The tax on $10,000 taxable income went from $1500 to $1000, a savings of $500. This savings is a reduction of 33.3% in taxes on a $10,000 taxable income. See Table 1, Federal Income Tax Rate Comparison Summary Table, below.
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For $30,000, there is a similar savings. The rate cut from 15% to 10% in the lowest bracket reduces all taxable income above the 10% bracket. The tax on $30,000 taxable income went from $4500 to $3698, a savings of $803, or 26.8%. See Table 1, above. The table shows several different levels of taxable income. The effective rate is the tax for the taxable income (Tax/Taxable Income).
The graph below shows the same information as Table 1.
Considerations
Taxable income is used in this analysis to provide a comparison. Taxable income includes all income, like wages, tips, interest, investments, and other adjustments to income. There, also, can be other adjustments to taxes based on each individual's credits and additional taxes. So, the use of Taxable Income provides a reasonable, though not perfect comparison of taxes paid based on taxable income.
The $30,000 taxable income is approximately the median income in the United States. So, half of all taxpayers would be higher than this income and half would be lower.
This table ends at $100,000 as the effect of the AMT (Alternative Minimum Tax) begins to occur and increase the tax due above that value as some deduction are lost and other adjustments in the IRS code. So, the tax paid above $100,000 is a minimum with many taxpayers owing significantly more. The EIC (Earned Income Credit) actually reduces the taxes in the lower brackets for those with qualifying child expenses. Both the AMT and the EIC affect individual taxes due in personal ways that a tax table comparison can not include.
These examples are using Married and Filing Joint Tax Tables. Using another filing status would give similar results of a tax reduction. The tables and graphs in this article are based on Internal Revenue tax rates published each year. Click here to see those schedules.
In Closing
The Bush Tax cuts are set to expire in 2010. If the tax cuts expire all taxpayers will see a tax increase. Considering the economy, and how a tax increase hurts everyone, this tax increase should not be allowed. The tax increase would be the reverse of the tax savings shown in the tables and graphs above. See Table 1.
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(c) 2008 MLMcDonald |