Monday, September 08, 2008

More Tax Reality

There is widespread misunderstanding and lying about the reality of the Bush tax cuts. Some, like CBS, are trying to use 2001 figures to defend their story that the Bush tax cuts favored the wealthy:

The study found that the effective tax rate for the top 1 percent of taxpayers dropped from 33 percent in 2001 to 26.7 percent this year, a decline of 19 percent.

Okay, I make some big mistakes due to some degree of number dyslexia, but I'm pretty sure that 33 - 26.7 does not = 19. And I don't even have the benefits of any editors or proofreaders. [Okay, I've had that explained to me why it isn't incorrect math, but still, the way it's stated is pretty vague and misleading. And it doesn't really change the gist of my arguments.]

People in the top 20 percent of incomes, averaging $182,700 a year, saw their share of federal taxes decline from 65.3 percent of total payments in 2001 to 63.5 percent this year, according to the study by congressional budget analysts.

In contrast, middle-class taxpayers — with incomes ranging from $51,500 to $75,600 — bear a greater tax burden. Those making an average of $75,600 had the biggest jump in their share of taxes, from 18.5 percent of all payments in 2001 to 19.5 percent this year.

Does it not seem pretty outrageous that the top 20% of earners, most of whom are not really so "wealthy" after all with an average income of $182,700, should have to bear such a large percentage of the tax burden in the first place? Instead of hating these "selfish rich people" maybe it would be much better to say a big "Thank You!" for their contributing over 60% of the taxes. And the one percent increase of the "middle class" might actually mean that there is a bigger middle class due to the better economy stimulated by the tax cuts, so it would be natural for there to look like a slight increase in their "burden." Isn't a bigger middle class what all the Bush tax cut critics actually want?

Okay, so the CBS story is from 4 years ago, but still we hear all these same lies about the tax cuts hurting the middle class. And that "The study is based on figures in 2001 and assumes no changes in wealth distribution from increases in income, dividends or capital gains". I think it should be obvious that their assumptions are questionable.

Now let's look at the other side of the equation as reported by the National Center for Policy Analysis.

The top 1 percent of income earners pay more than one in every three dollars the IRS collects in taxes. From 1986 to 2004, the total share of the income tax burden paid by the top 1 percent of earners grew from 25.8 percent to 36.9 percent, while the total share of the tax burden paid by the bottom half of earners fell from 6.5 percent to only 3.3 percent.

During the same period, the percentage of income the top 1 percent of tax filers paid in federal income taxes rose from 18.3 percent to 19.6 percent. By contrast, the percentage of income the bottom fifth of tax filers paid in federal income taxes dropped from 0.4 percent to zero.

The income share of the top 1 percent rose 7.7 percentage points, from 11.3 percent to 19 percent, while their income tax burden rose even more, by 11 percentage points, from 26 percent to 37 percent.

Okay, can you see what all of that means? It means that the actuality is that the wealthiest Americans have all had big tax increases, even despite the Bush Tax Cuts that have supposedly benefited them. Well, I really don't begrudge wealthy people their hard-earned money because I have enough real life experience to know how difficult it is to make money. But I also don't really have too much guilt about expecting the wealthy to "give back" or contribute more to their communities and society. But let's be fair. Let's not believe all these lies that the wealthy are getting all kinds of nonexistent tax breaks and decreases. And let's not be too greedy ourselves and expect them to give back such huge percentages of their wealth. After all, even God only asks for a tithe. ;-) Anything above and beyond that should be seen as generosity and charity and not some kind of forced social responsibility.

Now back to the other side, let's look at how some groups are misrepresenting the "Bush tax cuts" by picking just one tiny aspect of it and showing that this one tiny part of it has only benefited a tiny percentage of those who claim small business income. The CBPP focuses only on the reduction of the "top income tax rate" (top tax bracket), which is only a tiny part of the whole of the Tax Cuts.

Few small businesses will see any benefit at all from the reduction in the top income-tax rates.

While standing alone that statement is basically true, but their "lies of omission" and other false conclusions attached to it reveal that they are not looking at the whole picture at all. By looking only at those statistics they try to present the Tax Cuts as only benefiting a tiny group, but that is very misleading and dishonest because there are other aspects of the Tax Cuts that have benefited most 'average' small businesses. The biggest example is the increase in the expense allowances/deductions for investment in new equipment such as trucks and other vital big purchases, "capital expenses," as allowed by Section 179.

Perhaps it would be helpful for people to actually read about what are business expenses according to the IRS. When a small business owner needs a new truck in order to stay in business he is allowed to deduct the cost of that truck, which must meet certain technical requirements and can't be just any old vehicle, from his gross profit, thus reducing his "taxable income." Do you think that is unfair to those who don't have their own small business? Or can you see that it actually stimulates the economy for someone to buy something made by employees of other businesses? Or do you think it is better for the small business guy to send that money to the black hole of the government? Seems to me that it's more efficient and more logical to allow people to spend their money on what they know they need instead of making them give it over to an insatiable beast.

I recommend anyone who wishes to be fully informed of the true facts of how small business taxation and tax relief work do some research beyond the lies and convolutions of such places as the CBPP and CBS news. Here is a good place to start which clearly explains the importance of the Section 179 deductions:

The section 179 deduction can provide a substantial measure of financial relief for small businesses struggling to keep up with America’s rapidly changing economic environment. With the funds that become available more readily through this deduction, businesses can extend their budgets and other resources to become more competitive in their marketplace.

Another good explanation of Section 179 is here. I would like to challenge the CBPP and other propagandists to study how this Section 179 has actually stimulated the economy and helped many more small businesses than they would ever like to admit. But make no mistake, I won't bet money on the chance that they will ever even look at it.

So if you ever read some nonsense that says something like only 4% or 2% or whatever % of small businesses have ever benefited from the Bush Tax Cuts, please use your brain to consider that their X% is completely made up and has no basis in the whole true reality.

PS My best unsolicited advice to any small business owner, or anyone wanting to start a small business, is to find a really good accountant whose job is to help you understand your expenses and taxes. Don't try to do it all yourself because you will spend too much time trying to figure it all out instead of actually doing the real work that creates income for your small business.


crestcap said...

Entertaining post - I like your style as well as your philosophy! Anyone interested in an easy-to-understand resource (for non-accountants) on Section 179, it's http://www.Section179.Org

Anonymous said...

I don't hate rich people in general; I applaud those whose wealth has come to them through hard work and sacrifice, and I don't think they should suffer an unfair tax burden. But I do hate some of the loopholes and strategies that a) the mega-super-rich and b) corporations employ to get out of paying their fair share of taxes.

I also think it's important to keep in mind that if it weren't for the people who lack either the resources or the education to launch money-making ventures of their own, businesses--large or small, but mainly here I'm referring to the larger ones--would have no workers.

Maybe it's worth considering (and maybe not, let the reader decide) that while the truly wealthy seem to make money by investing or "developing" (regardless of true need, unlike small business owners) or playing the kind of market-games that brought us the current housing crisis, most "normal" people (i.e., those of us like myself who despite hard work and education have yet to break into the middle class money-wise, not to mention those who work two or even three jobs and are still at or below the woefully outdated "poverty level") devote the vast majority of our time to working for those who make much, much more than we can ever hope to enjoy. That is, we make even more money for those who had more than enough already--and barely scrape by ourselves.

(Oops, are my anti-unrestrained-capitalism stripes showing? I guess so...)


Rae Ann said...

I hope you got from my post that I am also very bothered by the large corporate corruption that is crippling our economy. And actually, I think that it could be argued that corporations aren't true capitalism anyway, not like small business is. As you know, David didn't have any big start up money and no degrees at all when he started his business. And we never got any SBA loans or other help from the government. It is possible to have successful, ethical capitalism, and I would say that most small businesses that survive more than a few years are like us. Also, we aren't in business to make it bigger and bigger and bigger and to get richer and richer. We just want to be able to support our family comfortably, as well as our one employee. He's doing much better economically working for us than he was working for the big corporation, Clayton Homes. What really hurts small business is when people assume that "tax breaks" only benefit the very wealthy. In the ten years we've been in business we've broken the six figure mark for taxable income only once. And let me tell you that it is almost crippling to be bumped up to that next tax bracket. That's why I think that the current tax plan (as well as Obama's) is insanely unfair and prevents people from being able to climb the income ladder. I know you're not a numbers person, but I hope it was easily enough to see how someone making $250,000 isn't really so rich after paying so much in income taxes. (on another post)

I think we are closer to agreement on much of this than on some other issues.

Rae Ann said...

crestcap, thanks for your kind words.

ellyodd said...

Do you know that number dyslexia is real? It's called dyscalculia.

If you ever want to talk to other dyscalculics, go to :)