Tax Cuts

January 6, 2003 11:26 AM

How Bush's economic stimulus proposal may affect you. An easy to understand explanation of what we might expect from Bush's tax cut proposal to be announced on Tuesday.
posted by Ron (48 comments total)

Lost my job and home. This should turn things around for me.
posted by Postroad at 11:48 AM on January 6, 2003

a couple thoughts on it:

1. wall st is focusing on the dividend part of the plan. I think this is enormously unfair to middleclass-on-down stockholders who mostly own stocks in tax-deferred accounts. They already do not pay tax on the divs, but even after this plan, they will pay taxes on the total cap gains. Do not be mislead by the "50% of homes own stocks"; that may be correct but 50% do not own stocks in taxable accounts. Moreover, the IRA/401K folks will now be paying taxes on stuff that the other folks are not. (when they take their funds out)

2. Left out of the article is the effects this plan will have on the dollar, inflation etc. We cannot just flood more and more dollars into our system and expect the purchasing value of a dollar to remain constant. The tax of inflation will hurt everyone, but interestingly it will hurt most the prudent saver who has less debt.
posted by H. Roark at 11:49 AM on January 6, 2003

I won't pretend I know anything about economics, but I see where there will be no change for me and noticed how this savings comes so close to re election time. But maybe I'm just jaded. :(
posted by LouReedsSon at 11:55 AM on January 6, 2003

we cannot just flood more and more dollars into our system and expect the purchasing value of a dollar to remain constant

If I have more money, I will spend more money.
posted by squidman at 11:57 AM on January 6, 2003

squidman: And if your money buys less? (def. inflation)
posted by Witty at 12:00 PM on January 6, 2003

Postroad, sorry to hear it. You can have my job. I make 730 dollars a month.
posted by Ron at 12:01 PM on January 6, 2003

Let me get this straight: Under this new plan, by 2006, a person that is making $500k per annum will be saving $18k taxes over what they paid in 2002. I will be saving . . . zero dollars.

Okay, cool. Just checking.
posted by mikrophon at 12:02 PM on January 6, 2003

I can dig it, especially the increase in the writeoff for investment losses from $3,000 to $8,250. Even 8K is too low these days.

H. Roark, the elimination of the dividend tax is intended to juice stocks, and it's working. While you may not benefit as much as a guy who owns 10K shares of Philip Morris, you will still benefit somewhat.
posted by dack at 12:05 PM on January 6, 2003

70% of stocks are owned by 1% of investors, so this removal or relaxation of dividend taxes ought to be just the ticket...

...For me, millionaire industrialist H.E. Pennypacker! Hahaha!
posted by Hildago at 12:05 PM on January 6, 2003

Witty: Isn't more spending what makes the economy grow? Isn't that what we want?
posted by squidman at 12:05 PM on January 6, 2003

Do any of these measures have an immediate effect? 2006?

You'd think President Rove would want the economy roaring by Jan 04 for the election year.
posted by Argyle at 12:07 PM on January 6, 2003

My point is that I don't buy the "more dollars in the system" causing inflation. There are the same number of dollars in the system, we are not printing more money. Its just better allocated, to those whose spending affects the economy.
posted by squidman at 12:07 PM on January 6, 2003

Yes... it is. I'm just saying, will you "spend more money" if your money doesn't go as far as it used to? Not necessarily. That's all.
posted by Witty at 12:09 PM on January 6, 2003

"the elimination of the dividend tax is intended to juice stocks"

i would prefer my stock-juicing to come from corporate profits and a robust economy, not from policy.
posted by H. Roark at 12:09 PM on January 6, 2003

squidman, check out M3, money supply. the amount of dollars in the system is growing. and it is growing faster than it ever has before.

Link to a M3 chart
posted by H. Roark at 12:11 PM on January 6, 2003

"Income tax rates are scheduled to come down in 2004 and again in 2006 (see table). But instead of waiting those extra years, one or both of those cuts could be made effective for 2003.

Argyle, I think they are trying to get some of these proposals through as quick as possible.
posted by Ron at 12:12 PM on January 6, 2003

H. Roark: What does that have to do with the specifics of this discussion? All I'm saying is eliminating the tax dividend will not cause inflation. Other factors might.
posted by squidman at 12:15 PM on January 6, 2003

voodoo
posted by machaus at 12:15 PM on January 6, 2003

I am not an economist and obviously politicians on both sides institute policies to win elections. But its seems common sense to me that less taxes is a good thing and more money in my pocket (or my bank account) is good thing. How can you argue with that?
posted by squidman at 12:19 PM on January 6, 2003

squid, deficit spending results in more dollars in the system. It goes like this:

1. govt barrows money, issues tbills or bonds
2. central banks buy those bonds, (without having the money to do so)
3. govt spends the money
4. bank (ala JP Morgan) now has the tbill as an asset, can make loans against that.
5. say JPM bought 1million in bonds, they can make 9million in loans, as the mininum reserve is around 10%.

this is the magic of our federal reserve system, and why our lovely central banks push for deficit spending. Its known as the Mandrake mechanism.
posted by H. Roark at 12:28 PM on January 6, 2003

Just remember:

The "lucky duckies" don't pay enough tax.
Payroll taxes are good, wealthy don't pay them.
Sales tax is NOT "double taxation", dividend tax is.
Any tax on income not earned by real work is very, very bad!

Those who disagree should get back to work because you don't get paid to browse weblogs! :-)

Are we trickling down yet?
If there is no demand for goods will more money to the wealthy really create jobs?
posted by nofundy at 12:38 PM on January 6, 2003

H. Roark: Deficit spending point taken.

But from a philosophical point of view I will always be anti-tax. Basically the way I look at it is there are four ways to spend money:

1. I spend my money on myself.
2. I spend my money on someone else
3. I spend someone elses money on me.
3. I spend someone elses money on someone else.

In option 1 there is the most incentive for thrift and quality.
In option 2 there is incentive for thrift but not quality.
In option 3 there is incentive for quality but not for thrift.
In option 4 there is no incentvie for thrift or quality.

Option 4 is what the government does and this is the more inefficent way to spend money. So in my book, the less money the government has to spend the better the economy can be.

So give me a politician who lowers taxes AND spending. (will never happen).
posted by squidman at 12:40 PM on January 6, 2003

Well, if the nofundy loving middle classes would kick up the campaign contributions, the Hill might take a liken' to you!


Additionally, I feel very, very bad for the Christians still voting for Bush, when they are being robbed blind behind the wool of ideology.
posted by The Jesse Helms at 12:56 PM on January 6, 2003

Squidman: And of course if option 4 could be avoided, it would be. Unfortunately, not everyone is an altruist, or even sensibly co-operative in benefitial situations.
posted by ODiV at 1:00 PM on January 6, 2003

Dear ron: I was only hyping things to make a point. Actually, I make more than 750 a month and do not work. We had a system at one time that may not soon be available called Social Security.

Check out what the Dems plan to offer, though it will not be accepted, for those who are out of work and would be in the situation I concocted....
Like many others I can not speak much on economics, though I can note too that those who claim to know economics are oftenat varience with each other. But from the little I have heard, many lost retirements money (I know a number of such people) because they got involved in the market, and it is the market that "needs fixing" so that the sucikers will once again be drawn back to it. Why is gold sky high these days?
posted by Postroad at 1:09 PM on January 6, 2003

Trickle down give me the business
Trickle down supposed to give us the goods
Cups held out to catch a bit of the bounty
Trickle down everywhere trickle down blood

lyrics from an unreleased song by Bruce Cockburn with Andy Milne
posted by madamjujujive at 1:11 PM on January 6, 2003

Do you know what's way overtaxed? Pancakes.
posted by mkultra at 1:25 PM on January 6, 2003

ODiV: Thats just it, a free market economy assumes that people are selfish. A socialistic economy (are we somewhere in between?) ignores that fact.
posted by squidman at 1:33 PM on January 6, 2003

Postroad:
Gold prices are not controlled by US Gov Almighty. Many world factors are involved including, but not limited to:
Fiscal crisis in Japan
War fears
Limited pancake production facilities
World wide economic slowdown (US, EU, Asian Bloc)
posted by blogRot at 1:39 PM on January 6, 2003

h.roark - you forgot #6
The govt has to pay those bonds back. With interest. Which makes it so that the current regime is making the children of tomorrow (like 30 years in the future) pay for the excesses of today.

The interest that the US pays on its deficit takes up a significant portion of the total budget.
posted by bshort at 1:43 PM on January 6, 2003

I am not an economist and obviously politicians on both sides institute policies to win elections. But its seems common sense to me that less taxes is a good thing and more money in my pocket (or my bank account) is good thing. How can you argue with that?

What you are arguing for is the classic of the voodoo economist. By leaving more money (in the form of less taxes) in the hands of the people there will be more money spent which leads to more jobs which leads to a better economy.

This is a pleasing thought for the average person and it may work if the MAJORITY of the people saw the MAJORITY of the tax cuts. These plans often come with the majority of the tax cuts benefiting a minority of tax payers. In the case of both the previous tax cut scheme 2 years ago which it should be noted has so far done very little to stimulate the economy and the current proposal. An overwhelming minority will see the greatest benefit.

Here's the real question. How much might we have benefited now and in the future if we had applied all of Bush's tax cut to paying down/off the national debt? Who knows I might have even seen some of my Social Security when it came time...
posted by aaronscool at 2:05 PM on January 6, 2003

From what I read on the table in the article, everyone except the lowest two teirs of the tax bracket are headed for tax cuts. I myself am on the lowest gutter of the bottom feeding tax bracket and won't see any cuts. But I guess I'm lucky in that I get almost all the taxes I paid back so it's like getting two paychecks in one month. And if I can get by decently with 700 a month, just imagine what it's like with 1400 a month. Hog heaven folks. Hog heaven.

What would be interesting to know (maybe I should look it up and post a link?) is how many Americans fall into the bottom two brackets.
posted by Ron at 2:14 PM on January 6, 2003

U.S. Census Bureau income distribution in 1999 of houseolds and families.
posted by Ron at 2:38 PM on January 6, 2003

If you give tax cuts to the rich, they'll spend money on new jobs by investing it. Or they'll buy a boat. Which one do you think is more likely to happen. *cough* Enron WorldCom GlobalCrossing Erpenbeck Homes Tyco *cough*
posted by benjh at 2:41 PM on January 6, 2003

Well now the link doesn't seem to be working. I'll just cut and paste what I found.

INCOME IN 1999

Households................105,539,122....100.0

Less than $10,000........10,067,027.......9.5
$10,000 to $14,999........6,657,228.......6.3
$15,000 to $24,999......13,536,965......12.8
$25,000 to $34,999......13,519,242......12.8
$35,000 to $49,999......17,446,272......16.5
$50,000 to $74,999......20,540,604......19.5
$75,000 to $99,999......10,799,245......10.2
$100,000 to $149,999....8,147,826........7.7
$150,000 to $199,999....2,322,038........2.2
$200,000 or more..........2,502,675........2.4
posted by Ron at 3:06 PM on January 6, 2003

bshort: the current regime is making the children of tomorrow pay for the excesses of today.

The feds are retiring debt with double digit coupons and replacing it with debt at half of those rates. Not really that big of a deal. In fact, historically low interest rates (especially low short term rates) are screwing the savers, and people who would trade yield for liquidity. Especially retired people. Considering today's youth are leveraged to the hilt, there could be worse things.

All i'm trying to say is that at least the government is borrowing inexpensively. And if it is borrowing cheaply on the backs of savers who get way more out of Social Security than they ever put in, at least there is a little bit of justice.
posted by trharlan at 3:07 PM on January 6, 2003

benjh: doesn't buying the boat support the boatmaker's employees and/or get more boatmakers hired? and the marina where it's stored. and the boat crew. and the fuel and supplies the boat consumes.
posted by turbodog at 3:12 PM on January 6, 2003

All i'm trying to say is that at least the government is borrowing inexpensively.

Actually the Bush administration is doing exactly the wrong thing by refinancing the debt with short term bonds -- 5 and 10 years -- and eliminating the 30 year bond. This is the sorry equivalent of taking out an adjustable rate mortgage instead of a 30 year loan when rates are low. When those short term bonds come due they likely will have to be refinanced at higher rates which will be a big problem -- just not for Bush. Their reason for doing this is the same reason someone might get an ARM -- because they get a slightly lower rate for a while which makes their budget look temporarily better. But we're going to get screwed in the long run and they don't care.
posted by JackFlash at 4:15 PM on January 6, 2003

I'll tell you what is hurting me, property taxes increases. It's not that I don't want to pay it. It's with the lower interest rates my neighboring land is being bought up at a 70 to 80 % increase to what I paid 1 1/2 half years earlier.

Then my city says we have to raise your property value to match their cost. Smiling saying, Thom look what your land is worth now. That's fine but I didn't plan on paying that much more in taxes so soon. Plus more than half are for school taxes, and I'm single with no dependents.

Rich folks can afford higher interest rates, so now they are really reaping the reward in lower interest rates. As they are the ones with cash to buy and can afford that tax bracket.

So in a bad economy this has to be hurting the middle man by squeezing him out of the neighborhood.

Am I off here or not?
posted by thomcatspike at 4:38 PM on January 6, 2003

You're partly right. Every one or two years in most jurisdictions the value of your property is adjusted to reflect the most recent sales in your area. This becomes the new basis for your property tax. But that is only half the story. The other factor is the levy rate. If all property in your state/county doubles in value, presumably the levy rate is reduced by half so that you pay about the same amount of property tax and the state/county collects the same revenue.

Where this gets out of balance is if the values in only some neighborhoods go up and others stay the same or go down. Then some of the burden shifts from the less fortunate neighborhoods to the more fortunate neighborhoods.

Taxes eventually go up, the same as salaries tend to go up to cover the rate of inflation. For example with 3% inflation you would expect your property taxes to increase about 34% over 10 years from that cause alone.
posted by JackFlash at 5:08 PM on January 6, 2003

benjh: doesn't buying the boat support the boatmaker's employees and/or get more boatmakers hired? and the marina where it's stored. and the boat crew. and the fuel and supplies the boat consumes.

Sure, as long as the boat is built in the US and not in another country where they can pay the boat workers 12 cents an hour.
posted by benjh at 5:29 PM on January 6, 2003

turbodog-
so basically, this policy aims to engineer a situation in which some people own really expensive boats, and the rest of us maintain those boats? got it.
posted by Ignatius J. Reilly at 5:41 PM on January 6, 2003

Jackflash, I hope & pray you're right on...thanks, as I may be over-reacting to an initial situation.
posted by thomcatspike at 7:18 PM on January 6, 2003

Gosh. As a single, lower middle class person with no children, I get nada. Zero, zilch, zip.

I love being penalized for not being rich, married, or a parent.
posted by moonbiter at 9:32 PM on January 6, 2003

Option 4 is what the government does and this is the more inefficient way to spend money. So in my book, the less money the government has to spend the better the economy can be.

Yes, but option 4 has built a significant network of roads, airports, libraries, sports stadiums, courthouses, police and fire departments, among many other things that the economy could not function without. And let's not overlook the immense cost of the military, paid for almost exclusively by option 4 in your example.

Your 4 Spending Scenarios are very thought provoking, squidman, but if you spent all the money, you would have the nicest house and the nicest cars, but no roads to drive on and no fire department to call when that pesky kitchen fire gets out of hand.
posted by samuelad at 10:00 PM on January 6, 2003

benjh: doesn't buying the boat support the boatmaker's employees and/or get more boatmakers hired? and the marina where it's stored. and the boat crew. and the fuel and supplies the boat consumes.

Sure, as long as the boat is built in the US and not in another country where they can pay the boat workers 12 cents an hour.

The boat is being made this very minute in the Cayman Islands, the same place where all this money for the wealthy will go.

Old Texas saying: "Don't piss on my boots and tell me it's raining."

Are we getting trickled down on yet? It didn't work with Raygun, it didn't work 2 years ago and it won't work this year. Call it what it is, a gift to the trust fund babies.
posted by nofundy at 5:26 AM on January 7, 2003

Speaking of offshore money flight and the new tax bill, how can corporations that pay no taxes (offshore mailbox corps) be "double taxed" on dividends?
posted by nofundy at 5:39 AM on January 7, 2003

The boat is being made this very minute in the Cayman Islands, the same place where all this money for the wealthy will go.
You never know, they could be like the Rigas family of Adelphia Communications and spend the money locally, on things like a hockey team purchased with company funds.
posted by Kellydamnit at 10:14 AM on January 8, 2003