Tax Package Will Aid Nearly All, Especially Highest Earners

[EpyonXero]

http://www.nytimes.com/2010/12/08/us...er=rss&emc=rss

Tax Package Will Aid Nearly All, Especially Highest Earners
By DAVID KOCIENIEWSKI
The deal to extend the Bush-era tax cuts for two years includes a bevy of additional credits and deductions that will reduce the burden on nearly all households.

But the tax benefits will flow most heavily to the highest earners, just as the original cuts did when they were passed in 2001 and 2003. At least a quarter of the tax savings will go to the wealthiest 1 percent of the population.

The tentative deal includes a two-year patch for the alternative minimum tax, a reduction in the payroll tax and a plan to reinstate the estate tax with lower rates and higher exemptions than in 2009 — all of which will offer far more savings for high earners than those in the low- or middle-income bracket.

The wealthiest Americans will also reap tax savings from the proposal’s plan to keep the cap on dividend and capital gains taxes at 15 percent, well below the highest rates on ordinary income.

And negotiators have agreed that the estimated $900 billion cost of the cuts will simply be added to the deficit — not covered by reductions in spending or increases in other taxes. That is good news for hedge fund managers and private equity investors, who appear to have withstood an effort to get them to pay more by eliminating a quirk in the tax code that allows most of their income to be taxed at just 15 percent.

In fact, the only groups likely to face a tax increase are those near the bottom of the income scale — individuals who make less than $20,000 and families with earnings below $40,000.

“It’s going to look like the rich are getting richer again,” said Anne Mathias, an analyst for MF Global Inc.

In the agreement, which breaks a campaign pledge to eliminate some tax breaks for the top 2 percent of American earners, President Obama won a few concessions from Republicans, including a 13-month extension in government benefits for the long-term unemployed. After several extensions, the maximum has been 99 weeks.

The administration also succeeded in extending several of the tax credits in last year’s stimulus plan to aid low- and moderate-income Americans: the earned-income tax credit, the child credit, the child and dependent-care credit and the tuition deduction.

As a result, families with an income near the median of $55,000 would owe about $2,700 less in taxes than if the Bush-era cuts had been allowed to expire.

A two-income couple earning $146,000 would owe about $7,000 less than if the tax cuts were allowed to expire, and about $3,400 less than they did in 2009.

The proposal does not include an extension of Mr. Obama’s signature tax cut, the Making Work Pay credit, which provided a credit of up to $400 for individuals and $800 for families of low and moderate income. Instead, the plan creates a one-year reduction in Social Security payroll taxes, which are generally levied on the first $106,800 of income. For an individual earning $110,000, that provision would reduce payroll taxes by $2,136.

Although the $120 billion payroll tax reduction offers nearly twice the tax savings of the credit it replaces, it will nonetheless lead to higher tax bills for individuals with incomes below $20,000 and families that make less than $40,000. That is because their payroll tax savings are less than the $400 or $800 they will lose from the Making Work Pay credit.

“It will come to a few dollars a week,” said Roberton Williams, an analyst at the nonpartisan Tax Policy Center, “but it is an increase.”

To the wealthiest Americans, however, an assortment of breaks is available.

The plan includes a two-year “patch” for the alternative minimum tax, which is now paid by about 4 million taxpayers with income in the mid- to high six figures. Without the patch, more than 20 million additional taxpayers would have been liable for that tax.

The estate tax — which was allowed to lapse this year and was scheduled to resume at a rate of 55 percent on most assets above $1 million — will be reinstated under less onerous terms. Estates over $5 million will be subject to a 35 percent tax.

The proposal will also maintain the current rates on dividends and capital gains, averting scheduled increases to ordinary income and 20 percent, respectively.

The marginal tax rate on high incomes will also remain unchanged. The top brackets had been scheduled to increase to 36 percent and 39.6 percent, from 33 percent and 35 percent.

Under Mr. Obama’s failed proposal, which would have raised the rates on income over $250,000 for families and $200,000 for individuals, the taxpayers at the top 1 percent of the income scale — those with incomes above $564,000 — would have received an average tax break of $28,000. Under the agreement reached with Republicans, the top 1 percent will receive breaks of about $70,000.

[shmike]

Shitty article, full of crybaby bullshit.

I'm not going to waste the time to refute his points.

I'm happy with the break on SS I'll get this year.

[Dave]

Originally Posted by shmike

Shitty article, full of crybaby bullshit.

I'm not going to waste the time to refute his points.

I'm happy with the break on SS I'll get this year.

I've never felt I should be forced to pay into SS. Esp since it likely won't exist when I come of age

[goof2]

Originally Posted by Dave

I've never felt I should be forced to pay into SS. Esp since it likely won't exist when I come of age

Without major changes it won't, but at this point you aren't paying in for yourself anyway. You, I, and everyone else who is paying has it going right out the back door to pay for the current crop of retirees. If they allowed us to opt out of the system those currently receiving payments would be opted out against their will.

[Dave]

Originally Posted by goof2

Without major changes it won't, but at this point you aren't paying in for yourself anyway. You, I, and everyone else who is paying has it going right out the back door to pay for the current crop of retirees. If they allowed us to opt out of the system those currently receiving payments would be opted out against their will.

I'm depressingly aware of this, trust me. Even more reason I shouldn't have to pay into the shit. Hell I can really depress myself if I think about what all the money they've (let's be honest) stolen from each check could have done in a good IRA. Prolly have close to a million put away by now

[goof2]

Originally Posted by Dave

I'm depressingly aware of this, trust me. Even more reason I shouldn't have to pay into the shit. Hell I can really depress myself if I think about what all the money they've (let's be honest) stolen from each check could have done in a good IRA. Prolly have close to a million put away by now

I hadn't thought of it like that but it is unfortunately true, one of the impediments in the way of providing a good retirement for oneself is the government's demand that they provide everyone with a crappy retirement.

[Papa_Complex]

Originally Posted by Dave

I'm depressingly aware of this, trust me. Even more reason I shouldn't have to pay into the shit. Hell I can really depress myself if I think about what all the money they've (let's be honest) stolen from each check could have done in a good IRA. Prolly have close to a million put away by now

If you want it to be there when you need it have more kids, or push for more immigration.

[101lifts2]

Originally Posted by Dave

I've never felt I should be forced to pay into SS. Esp since it likely won't exist when I come of age

IF you come of age. U R a crazy ass mofo.

[Captain Morgan]

I love all of the talk about SS going bankrupt if we don't fix the system, then the gov't chooses to lower the amount of money going into SS, even if it is only for 1 year. Fucking ridiculous. That's like me bitching that my bank account is decreasing in value, then choosing to slow down the amount of money going into my account. What the fuck is wrong with this government? Doesn't anyone think?

[goof2]

Originally Posted by Captain Morgan

I love all of the talk about SS going bankrupt if we don't fix the system, then the gov't chooses to lower the amount of money going into SS, even if it is only for 1 year. Fucking ridiculous. That's like me bitching that my bank account is decreasing in value, then choosing to slow down the amount of money going into my account. What the fuck is wrong with this government? Doesn't anyone think?

I see what you are saying but I think we disagree about the ultimate outcome. You think the system will be salvaged and lowering SS withholding makes that more difficult. I think the SS system is doomed to failure so less money going in to a system that will not be there when I'm supposed to collect is actually a good thing.

SS is called the third rail of politics for a reason. The lies and distortions that were perpetuated (and are still being perpetuated) about Bush's attempt to institute some reform and privatization of SS make the discussion of Obama's health care reform look tame in comparison. There was zero support for what Bush wanted to do because changing SS pisses off old people, even when those changes don't affect them, and old people vote a lot.

There is pretty much zero upside for a politician to reform SS and a ton of downside to it. There are really only five options available for reform; 1) cut the amount of benefit payments, 2) extend the age where people can start to collect, 3) increase the SS withholding amount, 4) make those with money at retirement ineligible for collecting SS, or 5) increase the return on SS investments so the system makes more.

None of those options are particularly popular except number 5, and that is really only when the Dow is doing well. When the market tanked around 2 years ago I heard a lot of "If Bush's plan had gone through a lot of seniors would be broke and eating cat food now!" nonsense. Even if Bush's plan had passed it wouldn't have affected anyone for another year and private investment would have only been allowed with a tiny portion of SS withholding (1% I believe), but none of that matters. It doesn't matter though, and anyone who had voted for that plan would have been crucified in this last election.

Politicians will run SS in to the ground because that is the best way for them to stay politicians.