Anonymous

# Tax cuts for the wealthy?

How are tax cuts across the board considered tax cuts for the rich? Is it because of all the loopholes? The loopholes which are only present because of all the tax legislation the democrats have been piling on?

Update:

Thank you for your thoughtful answers gentlemen! This has definitely shed some light on how tax cuts are perceived.

Update 2:

Oops, I mean madam and sir :)

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• Judy
Lv 7

"Tax cuts for the wealthy" has a lot nicer ring to politicians than just "tax cuts".

Here's a story that illustrates the cuts:

HOW OUR TAX SYSTEM WORKS

Suppose that every day, ten men go out for beer and

the bill for all ten comes to \$100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.

The fifth would pay \$1.

The sixth would pay \$3.

The seventh would pay \$7.

The eighth would pay \$12.

The ninth would pay \$18.

The tenth man (the richest) would pay \$59.

So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. 'Since you are all such good

customers, he said, 'I'm going to reduce the cost of your daily beer by \$20.

Drinks for the ten now cost just \$80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers?

How could they divide the \$20 windfall so that everyone would get his 'fair share?'

They realized that \$20 divided by six is \$3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay!

And so:

The fifth man, like the first four, now paid nothing (100% savings).

The sixth now paid \$2 instead of \$3 (33%savings).

The seventh now pay \$5 instead of \$7 (28%savings).

The eighth now paid \$9 instead of \$12 (25% savings).

The ninth now paid \$14 instead of \$18 (22% savings).

The tenth now paid \$49 instead of \$59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

'I only got a dollar out of the \$20,'declared the sixth man.

He pointed to the tenth man,' but he got \$10!'

'Yeah, that's right,' exclaimed the fifth man. 'I only saved a dollar, too. It's unfair that he got ten times more than I!'

'That's true!!' shouted the seventh man. 'Why should he get \$10 back when I got only two? The wealthy get all the breaks!'

'Wait a minute,' yelled the first four men in unison. 'We didn't get anything at all. The system exploits the poor!'

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something importan t .

They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them

for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

An across the board tax cut affects the wealthy more as it comes off of the highest income first. The highest tax rate is currently 35%. Any reduction of that bracket only affects the wealthy as the poor and middle class never earn enough money to pay tax at that rate.

The Bush tax cuts were substantially targeted at the wealthy. Bill Clinton thanked W at the 2004 Democratic convention for the \$50k tax savings but said that he really didn't need it. My income back then was around \$55k and I got about enough for a six-pack of beer a week -- and cheap rotgut beer at that.

Don't confuse "loopholes" with across the board cuts. Loopholes are sometimes targeted at special interest groups and come from BOTH side of the aisle. More typically though, "loopholes" are the result of unintended consequences of poorly written laws than the specific intent of Congress.

One "loophole" in the law right now concerns losses on the sale of real estate. If you own investment property and sell it at a loss, you can use that loss against capital gains income without limit, with any excess loss used first against other income in \$3,000 "chunks" with the remainder carried forward to future years where the process repeats -- against capital gains without limit and then other income in \$3,000 chunks and carry forward again until it's used up. This applies to investment property only, NOT on your personal residence. However, if you convert a personal residence to rental property, it becomes investment property and guess what? Yep, any loss is now deductible! That probably wasn't Congress original intent when the law was passed, but they've never closed the loophole so it remains available to anyone who can afford to "feed the alligator" for a while. I've done it myself!

The rationale on cutting taxes is that if you target the cuts at the wealthy it will free up capital for investment, resulting in economic growth, the creation of jobs and (eventually) higher tax revenues. That's true up to a point but often fails in application.

The Reagan tax cuts did little to spur economic growth; real spendable income dropped during the Reagan era. They were too large and the growth of the deficit outweighed any economic benefit. It failed with the Bush tax cuts as well as spending went off the chart, in part due to natural forces (Katrina) and an expensive war of extremely dubious merit (Iraq).

Taxes actually rose during most of the Clinton era, and deficits had started to shrink late in his administration. Even so, REAL spendable income rose during most of his term as did REAL economic growth. Even the economic sag following the so-called "Dot Com Bust" was of surprisingly short duration and the economy was on the rebound when Bush took office.

The real problem with the Bush tax cuts is that even factoring out the war and Katrina, there are at least \$3 TRILLION dollars in deficits that are unaccounted for. Added back in, the war and Katrina bring the total deficit to between \$7 trillion and \$9 trillion, or about \$28,000 to \$36,000 for every man, woman, and child living in the US today. Bush was the ONLY president in HISTORY to cut taxes or retain tax cuts during an expensive war. Wartime is the time to RAISE taxes -- especially on the wealthy -- to prevent the economic cesspool conditions that we're mired down with now.