Monday, February 2, 2009

A Response to Morning Joe on Taxes

I usually start my morning listening to the entertaining banter on Morning Joe, an MSNBC program with host former Republican Congressman Joe Scarborough. I was forced today, however, to turn off the TV in disgust because the hosts were derisvely mocking Barack Obama's "make work pay" tax cut, because it was tax relief to "people who don't pay taxes." I can't let this argument go unanswered. So, I have decided to articulate my point with the story of two individuals: All of this data is based on the HR Block Tax Calcuator Website. For the second case, I itemized a ton of deductions to bring down my imaginary friend's taxable income, but I probably am underestimating what a good tax attorney can do.

Individual One, let's call him Hardworking Taxpayer or HT for short, comes from a modest background, worked his way through college on student loans, and now earns a respectable 40,000 a year in manufacturing. He works long hours, toiling through physically excruciating work. He is a deeply religious man, who is devoted to his wife and child. Because of our progressive income tax system, HT will have a very low federal tax burden, because he receives a child tax credit. However, HT lives in an expensive area, meaning he pays high rent. His job is miles away, so he has to pay for gas to get to work. He also has to pay for childcare for his kid, since his state does not provide free early childhood education. He is worried about his own retirement, as well as his child's dream of going to college, because his house has lost all of its value. He is paying huge interest on credit cards just to pay the monthly bills. He hasn't been able to make any non-essential purchases in a year because his budget is so tight. As if he wasn't squeezed enough, he paid about 2,500 in Social Security Taxes, and 600 in Medicare taxes, meaning he has paid Uncle Sam over 3000 this year. He's also had to pay state taxes, sales taxes, and what's more, his landlord has been hit financially as well, and has raised the Rent to cover property taxes by about 100 per month. This means that HT has spent about 10% of his income paying taxes.

Now, let's turn to D-Bag McGee (DBM). D-Bag McGee has a plum job bundling mortages at a firm in New York City. He makes approxmitaely 500,000 per year, but doesn't actually work that much, because he gets tons of vacation time, and he gets to come home right away when work ends (how much trading can you possibly do in a day?) He doesn't even have to stand up, because he can do all of his work at the comfort of his desk. He also has a kid and wife. He has hired a tax accountant who cooked the books, sheltered his income offshore and lowered his tax obligation to the Federal Government to 20,000 per year. That leaves him with about 480,000 of extra income. He enjoys luxury purchases, owns an expensive home, plays golf weekly, eats out every night, and still has lots of money to save and invest. His total social security taxes, thankfully for him, are capped at 100000, meaning he only owes the Feds 6000, barely a dent in his hefty income. He owes about 1500 in Medicare taxes. But no worries, this leaves his net income still well above 400,000. Because of the work of his brilliant tax attorney, DBM pays about 5% of his income in taxes, and uses the rest for his own pleasure.

Who do you think would benefit most from a $500 check from the federal government? Person 1, who did NOT pay any federal income taxes? Or person 2, who did?

Who deserves and NEEDS tax relief most?

Who would spend a tax rebate more urgently, and thus pump money into the economy?

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