In the movie, 'Wag the Dog', lies are told by both sides. Once an announcement is made, such as 'the war is over', the other side must accept it as true and spin(lie) from that point to their advantage.
After Bush's tax cuts were passed, we heard so much conflicting information about who benefited (only for the rich) that one of my libertarian associates decided to use his professional software to prepare a return and find out. He prepares taxes for a living. His note is below.
So we know that the cuts did assist low income earners but all democrats 'know' the opposite. Its an untruth that is so prevalent that in 'Wag the Dog' fashion, everyone accepts it -- even the GOP.
Of course, I'm in line with Ron Paul in ending the income tax, but that's another story.
I have been inundated with information, misinformation, and opinion about the Bush tax plan by the media and various Democratic presidential hopefuls since George the junior took the oath of office. The common theme is that the plan only benefits the wealthy and the little guy gets nothing. As a tax professional I know that nearly all taxes are paid by the wealthy, after all they are the ones with the money. According to figures from my 2003 Income Tax Quickfinder Handbook the top 25% of taxpayers (those earning over $52,965) pay 84% of all federal income tax. So any reasonable person could assume that any reduction in tax rates would benefit them the most.
But what about the assertion that the poor people get nothing? For that comparison I turned to my tax preparation software and examined the returns of the mythical couple of Joe and Mary Taxpayer. They are married with two children. Both are in low wage jobs earning only $25,000 annually between them.
They have worked since 2000 without a raise and need every penny to survive so both have elected to have no income tax withheld from their paychecks. By any standards they qualify as working poor. I prepared returns for them for tax years 2000 (the last year of Clinton influenced tax policy) and for 2001 and 2002 (the first two years of Bush influenced tax policy). The results cast serious doubt on the claims that the poor received no benefit from the Bush tax policy.
In 2000 Joe and Mary had $971 tax on their combined income of $25,000. They were entitled to a Child Tax Credit of $500 per child, which reduced their tax to $0. The remaining $29 of the credit was lost. The Earned Income Tax Credit (EITC) then gave them a refundable tax credit of $1,290, which was their refund. Nebraska, being less generous, insisted on $212 in tax.
In 2001, the first year of the Bush tax plan, Joe and Mary had only $874 in tax on their combined income of $25,000. This year they qualify for a child tax credit of $600 per child. This again reduces their tax to $0 but now the remaining $326 of the credit ($1200 - $874 = $326) has become refundable. That amount adds to the EITC of $1,494 to give them a total refund of $1,820. Still the spoiler, Nebraska wants $192 in income tax.
This year, the second of the Bush tax plan, their income tax has fallen to $518, only 53% of the tax burden under Clinton. Again, the total available Child Tax Credit of $1,200 reduces this to $0. The remaining $682 of the credit is again refundable and adds to the EITC of $1,928 for a total refund of $2,610. Still not caught up in the spirit of giving, Nebraska insists on $171 of income tax.
So in only two years under a president whose tax policies presumably only benefit the wealthy, Joe and Mary Taxpayer have had a net 103% increase in the amount of free money the government hands them every tax season. (Refundable tax credits are not counted as income and are tax free) Now could someone please explain to me again how the Bush tax plan only benefits the rich?
David O., EA
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