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Wednesday, May 26, 2010

Tax Liabilities for Sample Families Under Bush & Obama Tax Law

The Tax Foundation today released Taxpayers Face Uncertainty in 2011 as Bush and Obama Tax Cuts Expire:

Below are tax calculations for a few sample taxpayers. Since it's not clear how Congress and the President will deal with the expiration of all the tax cuts, we calculate them in three ways. The first is what taxes would have been in 2011 if neither the Bush nor Obama tax cuts ever existed (what we call 'Pre-Bush' policy). This is essentially the tax law that was in effect when President Bush was elected and what tax law would be if all the Bush tax cuts were allowed to expire on schedule at the end of 2010. The second scenario is what taxes would be if all Bush-era tax policies were still in effect in 2011. Finally, we look at what taxes would be in 2011 under Obama's proposed tax policies.

Table 1 Summary: Taxes Owed (+ or -) on Typical Tax Returns


Pre-Bush

Bush

Obama

Single Parent, One child, $25,000

- $928

- $1,881

- $2,281

Married couple, two earners, three children, $45,000

$1,020

- $1,510

- $3,183

Married couple, one earner, two children, $50,000

$2,825

$688

$288

Married couple, two earners, two children, $85,000

$7,235

$5,383

$4,583

Single, no children, $60,000

$8,236

$7,484

$7,084

Single, no children, $150,000

$29,962

$26,996

$26,996

Married couple, two earners, two children, $150,000

$22,776

$19,268

$18,468

Married couple, two earners, two children, $300,000

$64,181

$61,292

$61,292

Married couple, two earners, no children, $500,000

$130,210

$123,900

$130,342

Married couple, two earners, no children, $1,000,000

$298,510

$254,167

$307,342

 

Table 2 Summary: Effective Tax Rates (Taxes as a % of Income) of Typical Tax Returns


Pre-Bush

Bush

Obama

Single Parent, One child, $25,000

- 3.7%

- 7.5%

- 9.1%

Married couple, two earners, three children, $45,000

2.3%

- 3.4%

- 7.1%

Married couple, one earner, two children, $50,000

5.7%

1.4%

0.6%

Married couple, two earners, two children, $85,000

8.5%

6.3%

5.4%

Single, no children, $60,000

13.7%

12.5%

11.8%

Single, no children, $150,000

20.0%

18.0%

18.0%

Married couple, two earners, two children, $150,000

15.2%

12.8%

12.3%

Married couple, two earners, two children, $300,000

21.4%

20.4%

20.4%

Married couple, two earners, no children, $500,000

26.0%

24.8%

26.1%

Married couple, two earners, no children, $1,000,000

29.9%

25.4%

30.7%

 

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Comments

The Pew Economic Policy Group just released a cost estimate of different JGTRRA/EGTRRA extensions going forward:

http://www.pewtrusts.org/our_work_report_detail.aspx?id=59098

Posted by: DreadGazebo | May 26, 2010 3:40:32 PM

Um, one problem here is that it is not clear what zero would be. Or in other words, there is no description of the baseline.

Posted by: hah | May 26, 2010 5:52:24 PM

I didn't see a column for taxes that penalize people who don't want to pay for health insurance.

Posted by: Woody | May 26, 2010 9:11:25 PM

The assumption that the AMT patch is in the baseline and the same in all cases significantly affects the comparison for higher income households (although probably not the family earning $1 million). My guess is that tax liability would be about the same in all three scenarios for those earning $300,000 or $500,000 if the AMT were at levels prescribed by current law, since AMT would set tax liability and higher rates and Obama's itemized deduction phaseout would be irrelevant.

Also, the assumption that all income is from earnings significantly affects the high-income comparison. For millionaires, a large proportion of income comes from capital gains and dividends. Dividends would be taxed at 20% for high-income families under the Obama plan, rather than 39.6% as under pre-JGTRRA law.

Posted by: Len | May 27, 2010 9:18:34 AM


Effective tax rates are relatively meaningless.

Marginal is all I care about.

Posted by: Chester White | May 27, 2010 11:08:04 AM

Great! I'm getting a tax cut. Besides, what's $50,000 to someone who makes a million a year?

Posted by: robert | May 27, 2010 11:08:40 AM

Nice Table. Can you show it with Soc Security and Medicare taxes. I hate taxes just as much as the next guy, but the federal tax pot includes these taxes as well. Show all of them for a better take home pay comparison.

Posted by: Kevin | May 27, 2010 11:09:36 AM

"Besides, what's $50,000 to someone who makes a million a year? "

$50,000.

It's the same thing if that's all you make or if it's 1/20th of your income.

Posted by: Rob Crawford | May 27, 2010 11:26:43 AM

@Chester
Well it's 50K that he won't spend on a new car at the dealership or a new boat or the local restaurants. Instead it's 50K that will go into the maw of the great beast and get doled out to the favored cronies of the party in power. Which right now means most likely a payoff to the unions in the form of bailouts for their lavish pension benefits. I like to look on the bright side though; since their aren't enough people making that much money, they'll soon be coming down the income ladder to you to collect their payola.

Posted by: David | May 27, 2010 11:31:39 AM

Either the Bush or the Obama scenario doesn't look too bad to me.

The main complaint I have against the Obama scenario is it increases the 'tax welfare' system that has gradually come about. The Obama table is doing a stealth Wealth transfer that does nothing to help the budget by transfering the money directly from the other half to the lower half without creating any common goods. I'd be happy comprimising with the pro-Obama group by keeping the bottom half of the Bush table and the top half of the Obama table.

Posted by: celebrim | May 27, 2010 11:41:26 AM

Good point, Woody. AMT renders the six-figure income rows largely theoretical, and especially the 300 and 500k stages. If, however, the Obama phaseout includes the mortgage deduction, then it could affect the AMT calculation.

Posted by: Jim | May 27, 2010 11:41:41 AM

What? Bush cut taxes for everyone? I thought he only cut taxes for the wealthiest 1% of Americans?

/sarcasm

Posted by: The Den Mother | May 27, 2010 11:53:50 AM

Yeah, I want to see it with SS and Medicare taxes included, and it would also be nice to see how it works out for various states when sales taxes, state income taxes, and property taxes are included.

The implication that poor families pay no tax is misleading, when I work out the numbers for Tennessee, the tax totals are barely progressive taxation up to the really high incomes.

Posted by: Tim McD | May 27, 2010 11:54:26 AM

"what's $50,000 to someone who makes a million a year? "

Just look at the chart:
It's the ability to pay two more employees at the low end.

Now you know WHY the unemployment rate is so high...

Posted by: anon | May 27, 2010 12:03:11 PM

Chester--it's always easy to say that when it's not your money. $50,000 might not mean much to a millionaire couple with one child who live in a low-cost/low tax part of the country. On the other hand, if the millionaire couple lives in New York City, has three kids, two in private school and one in college(with no financial aid, of course) and is also paying some of the highest real estate prices and property taxes in the US, it might mean a great deal. In either case, it might be $50,000 that is currently going to very effective private charity, but that will now be siphoned off into the sea of red tape that is the Federal government. Your hypothetical millionaire might be working a punishing schedule now so he/she can retire early later, in which casea logical response would be to reduce current work hours-and income--and retire a little later.

Posted by: Burke | May 27, 2010 12:11:03 PM

Great! I'm getting a tax cut. Besides, what's $50,000 to someone who makes a million a year?

The same as paying an extra $2250 would feel to you. What's $2250 to someone who makes $45K?

Posted by: JN | May 27, 2010 12:12:39 PM

The Socialist is taking my money... wait, I'm getting a tax cut?

The Socialist is giving me someone else's money! Viva Che Obama!

Posted by: CJ_n_PA | May 27, 2010 1:05:30 PM

Very nice. The problem - as is usually the case with these sorts of comparisons - is that we're acting as if Social Security and Medicare are something other than taxes, right?. The negative numbers for the low-income earners should be positive, and the others are actually higher. Given that only the first $80,000 is taxed in that manner, showing the number honestly also shows that the percentages aren't as widely spread as the table makes them.

Posted by: Michael Chaney | May 27, 2010 1:14:29 PM

this is just for ordinary income. gains from investments, hedge funds, stock options, etc are taxed at a MUCH lower rate.. do you think people with 10 million dollar professionaly managed trust funds sitting there spinning off a million in income can afford to pay 15% tax on that income?

http://www.irs.gov/newsroom/article/0,,id=106799,00.html

Posted by: ginger | May 27, 2010 1:18:48 PM

Given that the very wealthy can choose to move elsewhere--and invest their money elsewhere--isn't it safe to say that higher taxes is equivalent to a government policy favoring higher unemployment?

Posted by: setnaffa | May 27, 2010 1:31:25 PM

Maybe someday these tables will show proposals on PROGRAMS to be cut instead of taxes to be raised...

but not with these dummies in Congress and the White House

what's 50K to a program that cost $1 million... oh the howling

Posted by: Mark | May 27, 2010 1:38:55 PM

"Besides, what's $50,000 to someone who makes a million a year? "

Well it might not mean much to my millionaire boss, but that $50,000 is what he would have used to pay employee bonuses. My boss will take home the same amount either way, but I get no year end bonus thanks to Obama. Hooray for wealth redistribution!

Posted by: wooga | May 27, 2010 1:46:11 PM

I'd like to know how this will impact the INTEREST income of the older retired couple who scrimped their whole lives to save up and now have interest income and dividend income giving them a modest 30,000 a year.

I suspect that people whose income is not a regular paycheck--like your older retired workers--will be hard hit by the changes.

Of course, perhaps not RIGHT NOW....give it a year or two when we MUST raise taxes on everybody to pay to maintain the exorbitant debt the expanded welfare state has racked up.

Posted by: KAS | May 27, 2010 1:59:34 PM

That's amazing -- half the country is now on welfare in the form of negative taxes.

Of course, with Obama's spending plans this means about a trillion a year in deficits, which are sort of a shadow tax

Posted by: TallDave | May 27, 2010 2:01:28 PM

I have no problem with the cap on payroll taxes because there is also a cap on how much someone gets in social security payments and medicare coverage. And don't forget that the negative federal income tax rates mean that those people are getting a refund on some of their payroll taxes, without suffering form a cut in benefits when they retire (except the cut that will happen when the government can no longer afford the program).

Posted by: The Den Mother | May 27, 2010 2:57:05 PM

This chart would be great it if wasn't for the fact that we all know the Obama numbers are bogus. The Bush and pre-Bush numbers are known factors. How can you possibly know what numbers to use in Obama's column? Any intellectually honest person knows we cannot possibly pay for his proposed programs with his "proposed tax policies". With our debt at 90+% of GDP and no chance that the liberals in power will quit raising spending, much less lower it, taxes are going to go up no matter what they are claiming now, as well as the value of the dollar going down. Now lets talk about the added taxation that is going to happen once we have to start paying for the abomination of a health bill that just past. The one where they admit they fudged the numbers, that will cost billions more to fund. Then there's the cap and tax err trade policy they would love to shove down our throats too.

Posted by: Allen | May 27, 2010 4:57:23 PM

"what's $50,000 to someone who makes a million a year?"

Gravy, that's what. If you own a business and you're pulling in seven figures, you either have a business model that would profit from hiring an additional employee or you don't. If you're paying your employees more than they add to the value of your business, you're doing it wrong.

Posted by: Aden Nak | May 27, 2010 5:47:15 PM

It's interesting how you don't show all of the classifications that don't support your point.

Also it's interesting how this doesn't include tax credits and deductions. With these, almost EVERY class you mention would benefit under Obama.

Where's the "Making work pay" credit information?

Where's a married couple with one child and $100000, even in your horribly rigged scenarios?

This is a HORRIBLY MISLEADING article. If you make less than 200,000 your taxes ARE LESS.

You are a liar.

Posted by: BayonneNJ | May 27, 2010 7:35:26 PM

"It's the same thing if that's all you make or if it's 1/20th of your income."

Not necessarily:
http://en.wikipedia.org/wiki/Marginal_utility

Posted by: Tom Wilson | May 27, 2010 8:10:02 PM

Well, the Repubs are having the last laugh: we're all unemployed. Obama is going to have a heck of a time collecting income taxes from 300 million unemployed Americans.

Maybe we should impose an import duty on the cheap crap imported from China, et. al. - as sort of an indirect income tax on the people now doing what used to be our jobs, in Third World factories (in a half-assed, incompetent manner, for 0.01 times as much pay and no benefits or job security).

Posted by: AC | May 27, 2010 8:50:16 PM

The biggest problem here is that the last column is "under Obama's proposed tax policies," which we know are lies. He's already backed away from his tax "promise" about tax reductions and now calls it his tax "preference."

Posted by: Woody | May 27, 2010 11:20:14 PM

Well, if this thread's not dead yet...There seems to be lockstep response to the comment on the $50,000 in gravy that everybody thinks Obama is stealing from Mr. Galt.

I believe this chart refers to personal income tax, not corporate tax. If this hypothetical John Galt doesn't hire those 2 extra employees because he can't waste the money on non-essential future-junk [on which our economy is based], then he's not much of a business person anyway and should probably move over to make way for those who know how to run their business lives in balance with their personal materialist appetites. If material things are the reason a person's in business - if it's ONLY about material returns, then that business person's life cannot be balanced. Is the principle at stake here merely our desire to spend money as we please?

Posted by: robert | May 28, 2010 6:43:22 PM