Tax: No Child Care Credit Increase for $10-26K families

[DraconisRex]

Originally posted by Arvon: Most if not all of the people in that income bracket don't pay taxes anyway, how can there be a tax credit?

Well, that's not necessarily the truth. In fact, it could be a bald-face lie passed off as a quasi-truth. There are three types of individual income categories: Total Income, Adjusted Gross Income, Taxable Income

For TY ending 12/31/2002 if you have $5 of taxable income, your tax is $1. You can easily look this up yourself. So obviously, we're not talking taxable income individuals being left out in this bill. Rather, we're looking at "total income."

Working backwards, we add standard deduction (7850) plus three exemptions (9000). So, married couples with one child don't pay income taxes until they earn at least $19,855. Add 3000 to this for every child/dependent above 1. So, there is some truth to the above.

But it is a very incomplete truth:

Single parents (mostly mothers) making $24,000 a year are hit hard by this (typcial) lack of republican empathy in their big tax giveaway. A single mother of that income will have a taxable income of about $11,000. She will pay almost $1200 in taxes. She would normally get the $600 (now $1000) tax credit. Meaning $500 out of pocket, which means she's out the $400 she could have received. And I'm sure she could have used that $400 that she won't get.

Something obviously over-looked in the non-understanding presented in the referenced post is the difference in tax credits. Tax credits are of two types: refundable and non-refundable.

One of the republican struck-down provisions was making this credit refundable. Thus all low-income taxpayers would have benefited from this provision.

Which brings us to stimulus. My years and years of experience as a CPA with high net worth clients is that these types of tax cuts are re-invested or, with non-earned income set, allows the client to aviod taxes by not converting capital to income. That is, since they don't have to pay taxes on income, there is no point in selling stock (mutual funds, etc.) to pay taxes. Thus, capital is accumulated instead of being redistributed through taxation.

[Timber Loftis]

Elric, you misunderstand. If your tax burden decreases but spending doesn't, you may keep the $$ in your pocket this year but Uncle Sam has taken out a loan in your name and you will pay more $$ in a future year. Thus, you really were not allowed to keep the money at all. Don't buy the illusion proferred by the gov-mint.

Someone who makes $20 K does pay taxes, probably about $3K worth. Now that $3K means much more to them than $5K does to someone making $50K. Moreover, the real unfairness is evident when you look at the following scenario:

Family A: Makes $27K/yr, has 2 kids, gets $2K back in taxes.
Family B: Makes $26K/yr, has 2 kids, gets $1200 back in taxes.

You have given the family that makes $1K more $800 more dollars. Since that family only paid $150 more in taxes, you've given them an unfair windfall. I'm not all for taxes, but I am all for a fair tax system if you are going to have taxes in the first instance.

Moreover, I can't morally live with myself if I allow you guys to berate those who likely work just as hard as we do and just sadly happen to be less fortunate monetarily. While they may not pay as much tax as me, I'm not going to adopts some superiority complex. Especially since on a % per dollar basis, they will miss the money much more.

[DraconisRex]

Now, this is a marginal tax rate table for 2002. What "marginal tax rate" means is the tax on the "last dollar earned" instead of the average tax rate which is the total tax/total income.

Marginal Income Tax Rates
for a Married Couple, 2002 Taxable Income* Marginal Income Tax Rate

$0 to $12,000 10 percent
$12,001 to $46,700 15 percent
$46,701 to $112,850 27 percent
$112,851 to $171,950 30 percent
$171,951 to $307,050 35 percent
over $307,050 38.6 percent

*Income after subtracting allowable deductions and exemptions.


Which brings us to Bush's last tax cut:

In a televised appearance with Republican Congressional leaders and three Democratic senators last month, the President declared that this rate reduction "affects those making $27,000 to $65,000 a year."(1)

The President's statement conveys the impression that many or all families in this income range would benefit, while families above this income range would not. For families with children, however, almost the opposite is true. The President's statement was misleading for several reasons.

(A) The $27,000 figure is the level of taxable income at which the 27 percent begins for a single individual. The level of taxable income at which the 27 percent bracket begins is higher than this for other tax filers — married couples filing jointly and single parents.

(B) Furthermore, a filer's taxable income is considerably lower than his or her full income. Taxable income is a tax term that refers to a tax filer's income after either the standard deduction or itemized deductions, as well as all of the personal exemptions for which the tax filer qualifies, are subtracted. To have a level of taxable income of $27,000 in 2002, a single person would need actual income of at least $34,700. For tax filers who are not single individuals, the difference between their taxable income and their full income is considerably greater, because they qualify for larger standard deductions and more personal exemptions.

(C)For example, a married couple with two children does not face the 27 percent tax rate (that is, does not have taxable income of at least $46,700) until its full income exceeds $66,550. (An income of $66,550 minus the standard deduction of $7,850 for a married couple and $12,000 for four personal exemptions equals $46,700.) If such a family itemizes its deductions rather than taking the standard deduction, the level of income at which it first becomes subject to the 27 percent rate generally is higher than $66,550.

[DraconisRex]

The President's statement also implied that those with incomes above $65,000 would not benefit from the rate reduction. A literal reading of Mr. Bush's statement would lead one to believe this is a tax cut from which the wealthy would not secure a gain. Yet taxpayers in higher brackets would benefit. In fact, the group of taxpayers that would benefit the most are those in tax brackets higher than the 27 percent bracket — a group that consists of the five percent of Americans with the highest incomes. (Why these individuals would benefit most is explained in the box on below.)

As a result, a married couple with two children would not benefit significantly unless it had a substantial income.

A married couple with two children that had income of less than $66,550 would receive no benefit from acceleration of the 25 percent rate.
If such a family had income of $70,000, it would receive a tax cut of just $70 in 2002 — and $210 over the next four years.
But if the family had income more than $135,000, it would receive a tax cut of $1,300 in 2002 and nearly $4,000 over four years.

[ElricMorlockin]

Originally posted by DraconisRex: Unless you're a multi-millionaire heavily invested in dividend paying stocks, you won't materially benifit from this. Further, it is unlikely it will stimulate the economy (sorry about that luxury service providers) as advertised because most dividends are reinvested. [/QB]

I hear what you are saying, but I disagree with your overall premise in this instance, as stated in your very last sentence. If money is invested in "paper wealth" that means that a security was purchased. Dependent upon interest rates and the health of stocks it is typically invested in an "aggressive" manner dependent upon the person, and normally more in particular said persons age. This then equals the purchase of a corporate stock certificate versus the purchase of say a treasury bond/note et al. That means several things the first of which, is that said corporation in question just potentially raised revenues from the sale of its stock. Now what does a successful corporation do with an increase in revenue? Typically they use revenue to make more money, most often times the end result of which is the need for additional employees to help manage this new revenue in a plethora of forms. Sure the holder of the stock certificate benefits too, that is the whole idea of owning stock in the first place. An investment to return a profit on such.
Reinvestment of dividends is the natural thing to do for someone desiring to diversify and investment portfolio. Any stock trader worth their salt will want you to have a very diverse portfolio even if the short term return would not be greater than say investing all of your money into techs etc. Thats because any stock trader worth their salt wants to keep you as a client for more than several months, they want you buying other securities with your profit twenty years down the road as well. Reinvestment also helps other corporations who may not potentially have gotten your investment elsewise. For instance, lets say we bought some P&G, which returned a tidy little dividend. To diversify it may be a good idea for me, to take some of my profits and invest it in Lucent technologies or perhaps an Intel? (Obviously you are going to want dividends on an investment so arent likely going to buy Joe's Computer Company, unless of course it is a phenomenal opportunity). At this juncture alone, you have now provided capital to two corporations that will have the ability to increase business or take advantage of business opportunities, that they may not have been able to prior to this. What follows is the need for employees to help manage such. You also mentioned, "well unemployment is at 6%, so the last one didnt do diddly-squat" Being in the line of work you are, you have to understand how long it takes an economic motor to get churning. Its like a weighted freight train to get the momentum and inertia going. These things do not magically happen overnight, they are ALL driven by a corporation persuing additional profits et al. That only occurs when its stock is trading at a decent level. Lets face it, consumers may be price driven to beat hell, but they also have a tendency to "kick a product or service when its down." Look at AOL and how many people piled on to the class action suit, yet really didnt have much of a true bitch.

[DraconisRex]

So, anyway. Basically all of Bush's tax cuts have been for the wealthy (top 3 brackets). Simply because only 4.4% of americans are in the tax brackets of Bush's first tax cuts. While 76.8% of americans are in the lowest tax bracket, which includes the more than 50% of the "middle class".

Source: Congressional Budget Office


And yet, we have 6% unemployement. I've got friends who can't get a job. I've had five clients go out of business, including three chapter 7's, and a sixth is barely hanging in there.

And somehow, this giveaway to the rich is going to somehow miraculously improve things, despite it failing twice already.

[DraconisRex]

Congressional Budget Office data demonstrate that more than three-quarters of all tax filers would receive no benefit from this proposal.(2) The CBO data show that in 2000, some 76.7 percent of all tax filers either had income too low to owe federal income tax or were in the 15 percent tax bracket.(3) These tax filers would be unaffected by changes in the 27 percent tax bracket.

In its recent report "Economic Stimulus: Evaluating Proposed Changes in Tax Policy," the Congressional Budget Office finds that the proposal to implement the 25 percent rate beginning in 2002 would not be effective stimulus. It states that "compared with other personal tax cuts, the first-year stimulus that this proposal would generate relative to its total revenue loss is probably small."

CBO reaches this conclusion for two principal reasons. First, these rate cuts would only benefit the top one-quarter of taxpayers, leaving out lower-income households that would be more likely to spend additional income and thus boost the economy.(4) Second, the costs of this provision extend through 2006, with the result that three-quarters of the total cost occurs in 2003 through 2006, years after the economic downturn is expected to be over.

[Timber Loftis]

Hey, Draconis, I certainly appreaciate the lengthy tax lesson, but you still didn't address my question (which you may not have seen) regarding lauded benefits to the middle class and whether or not they are "real."

1. Dividend tax cut
2. 2% payroll tax cut
3. reduced marriage penalty
4. The well-discusses child credit (btw, is this the "Child Care Credit" that you only get if you hire a babysitter??)

What about these??

Originally posted by pritchke: I agree there should be no taxes what so ever. For each paved road or bridge that is built set up a troll booth to force people to pay to move onto the next road. For your military they should just send you a bill each month to pay for the cost. etc. etc. etc. I think after awhile you will see that some taxes are necessary.

Pritchke, I am going to answer you and Donut at the same time....
I didn't say NO TAXES, I said NO INCOME TAXES [img]smile.gif[/img]
A persons income should be inviolate and belonging unto them alone.
If there are costs inherent with running a government and maintaining a military (and there are) you institute a tax levied on consumer products, roads, and infrastructure. if a person wants to use these things (roads and such..pay the toll, if a person wants a Television, there will be a tax on it. The only Items I would elimiante any taxes from would be food stuffs and water.
Goods and services other than food and water would be taxed....hmmm medical care and medicines would also have to be exempt too...but that is just off the top of my head..I haven't actually worked out an entire National Economic Plan while on my coffee break [img]smile.gif[/img]

[ 05-30-2003, 02:25 PM: Message edited by: MagiK ]

[DraconisRex]

Originally posted by Timber Loftis: The new changes sunset, or end, in 2006. There has never been a sunset provision in the tax code before. Thus, if Congress does not reauthorize these changes in 2006, the tax code reverts to how it read day before yesterday. [/QB]

Obviously you're not a tax accountant and you, like a vast majority of the americans supporting this tax cut, are spouting off about things for which you know nothing.

There are quite a few sunset provisions in the tax code. Some of them have been in effect for over 20 years now, like the 0.8% FUTA tax enacted in the 1970's. It was a "temporary" "emergency" tax. It was supposed to run a few years to help replenish bankrupt state unemployment coffers, like in Michigan.

There are others. Don't get me wrong because I don't post them. There are many, many more. I just don't see the need to go through the code and regs.