My husband, Bob U., wrote a series of articles, which I think are really insightful. This is Part 14. I invite your comments.You can visit Bob at http://bobuhlar.gather.com/
Another problem with the Bush tax cuts is that they shift the tax burden from the wealthiest to the middle class. Let's take a look at the tax rates for the 2004 tax year.
Our Income Tax is a progressive tax system. Essentially, the more you make, the more you are taxed.
For a married couple filing jointly in the 2004 tax year, the first $9,700 was tax-free because of the "standard deduction." Everything above that was taxable income.
Here were the rates for taxable income in the 2004 tax year:
$0 to $14,300 was taxed at 10%
$14,300 to 58,100 was taxed at 15%
58,100 to 117,250 was taxed at 25%
117,250 to 178,650 was taxed at 28%
178,650 to 319,100 was taxed at 33%
319,100 and above was taxed at 35%
But these tax rates apply only to paychecks. What if you are making your money through investments?
The wealthiest taxpayers pay lower taxes on capital gains - the profits made off rents, royalties, dividends, stocks and bonds.
Here were the tax rates in the 2004 tax year for capital gains:
Capital Gains held less than one year - 28%
Capital Gains held longer than one year - 15%
As billionaire Warren Buffet noted, he pays a lower percentage on his earnings than his secretaries do on their wages. Buffet says that is not fair.
Less than five percent of taxpayers who earned less than $100,000 earned any capital gains. In fact, 75-percent of all stocks are owned by those earning more than $100,000 - the wealthiest ten-percent of American taxpayers.[i]
Yet, Republicans insist that capital gains be taxed at lower rates than wages.
Oddly, our economy was stronger and less volatile when the wealthy paid a higher percentage.
In 1954, all earnings above $200,000 per year (equal to $1.5 million in 2006 dollars) were taxed at 91 percent.[ii] By the way, when the 1954 tax law was passed, both houses of Congress had a Republican majority and we had a Republican President.
In 1964, following through on a JFK campaign promise, Congress eliminated many tax loopholes and the top tax bracket was lowered to 70 percent. It remained there until Ronald Reagan took office in January 1981 and Congress lowered it to 50 percent and, a few years later, to 28 percent.
Under President Clinton, the top bracket was raised to 39 percent. But under George W. Bush, the top bracket was lowered to 35 percent.
Any time the tax rates on the wealthiest Americans are lowered, taxes on all other Americans need to rise to make up the difference.[iii] The median family is spending 38 percent more on taxes than it did 30 years ago.
Tomorrow - Part 15: The Rich Get Richer
[i] Paul Krugman, "The Great Wealth Transfer." Rolling Stone, November 30, 2006. http://www.rollingstone.com/politics/story/12699486/paul_krugman_on_the_great_wealth_transfer
[ii] See http://en.wikipedia.org/wiki/Internal_Revenue_Code_of_1954 . Then go to http://minneapolisfed.org/Research/data/us/calc/index.cfm to adjust the amount for inflation in 2006 dollars
[iii] Of course, this assumes that Congress won't raise taxes on corporations or raise tariffs or duties.