Questing for Atlantis

To begin with, the tax cuts actually made the tax code more progressive, not less. In 2007 the top 20% of taxpayers paid 73% of taxes compared to the 72.4% they would have paid without them. The difference might be numerically small, but it is huge in terms of principle.

There’s an even better way to get this point across though, and that’s by putting a face to it. Here are some examples:

Mike and Susan Davis live in Canton, OH. They have two children: Tommie is 5, and Christine is 3. They have a household income of $65,000 (the median amount for a family of four). They take the standard deduction. How much are their taxes scheduled to rise?

If the Present Tax Code Remains in Place

The Davis’ will have a federal tax bill of $3000.

Under the 2011 Tax Hike

The Davis’ standard deduction is shrunk because of the return of the marriage penalty.

This means that their taxable income goes up.

The tax rate on the first several thousand dollars of their taxable income has grown by 50%.

The child tax credit has been cut in half, so Tommie and Christine don’t help as much.

The Davis’ tax bill will be over $5000—a full $2000 higher than if present law were simply kept in place.

Here’s another:

Butch Miller started Miller Manufacturing, Inc. back in the early 1990s. He built it up from a small tool making shop in a rented garage to a 10-employee business. Like many small manufacturers, Miller Manufacturing is a Subchapter-S corporation. That means the business profits pass through to Butch Miller’s 1040. In 2011, Miller Manufacturing will make a profit of $450,000. What will its taxes be?

If the Present Tax Code Remains in Place

Miller Manufacturing’s profit will flow through to Butch Miller’s tax return, where he will pay a federal income tax of $157,500.

Under the 2011 Tax Hike

Because the top marginal income tax rate has been raised from 35% to 39.6%, the Miller Manufacturing tax rate has gone up.

Miller Manufacturing can no longer expense all their equipment purchases the first year. Rather, the company has to spread the deduction for most items over seven years.

Miller Manufacturing’s tax bill will be at least $178,200—a difference of $20,700. As a result, Miller Manufacturing has to lay off the most junior employee to make ends meet.

Or perhaps this might sway you:

Betty and George Jones worked hard all their lives. Betty stayed home to raise the kids, and George worked for the phone company. For all thirty years he was there, he set aside 2% of his salary in an employee stock purchase plan. He now has $250,000 in utility stock, which throws off $10,000 in annual dividends. He also sells some of the stock every year to live on, generating annual long-term capital gains of $5000. The rest of the Jones’ $50,000 in income comes from the utility’s pension plan and the taxable portion of their Social Security benefit.

If the Present Tax Code Remains in Place

The Jones’ will have a tax liability of $1500

Under the 2011 Tax Hike

The dividend tax rate for the Jones’ has gone from 0% to 15%.

The capital gains tax rate for the Jones’ has gone from 0% to 20%.

The standard deduction for the Jones’ has fallen because of the re-introduction of the marriage penalty.

The Jones’ tax bill has grown to $5013, an increase of over $4000. They have to pay the difference from their nest egg.

And one final one:

Since he was a boy, Pete Handel always enjoyed having a glass of orange juice from the citrus groves on his family farm. His grandfather, Mike, bought the land cheap after he got back from The War, and struggled to get a good citrus crop ever since. The farm never made a lot of money, but the land certainly went up in value over time. It’s now worth $10 million, which always made old Mike laugh, considering he paid off his original $10,000 mortgage back in the 1970s. As he sipped on his glass of O.J.,, Mike’s grandson Pete wonders: will he have to pay the death tax when Grandpa dies?

If the Present Tax Code Remains in Place

The death tax will be eliminated. Pete will inherit the citrus farm with modified carryover basis on the land. He owes no taxes when his Grandpa Mike dies.

Under the 2011 Tax Hike

The death tax has come back in full force: a 55% top rate, and a $1 million exemption.

Pete has to come up with a ghastly $4,590,800 in order to pay the death tax.

Pete doesn’t have that kind of money, so he sells the farm to pay the death tax and keeps the rest for himself. The farm’s 50 seasonal employees all lose their job, and the farm is turned into a shopping mall with overpriced retail products people don’t need

The simple fact is that the Bush tax cuts were far more progressive than anyone gave them credit for, and that we can’t afford to let them expire. The costs will fall disproportionately onto the middle class – the rich have access to accountants and tax lawyers to lower their liability and the poor have such a low tax liability as to not be overly affected. But the middle class have neither, have benefited the most and will proportionately be hit the hardest. It might sound illogical, but the progressive thing to do would be to maintain the tax cuts.

Even more interesting though, is this post by Pushback editor Rob Anderson. In describing just what Pushback is, he had this to say:

When it comes down to it, that’s what Pushback is all about. You won’t see many posts on this blog claiming to successfully characterize millions of young Americans. What you will see, though, is a collection of posts on everything from politics to fashion written and edited by a diverse group of young people. These posts will record in real time the developing thoughts and ideas of a cross-section of Millennials.

But apparently “a cross-section of Millennials” just means the Millennials that think the same way that we do.

And if you wanted to read the post I submitted, click on the Read More.