Sunday, August 8, 2010

The Bush Tax Cuts and You

A lot has been made about the Bush tax cuts. Paul Ryan, God love him, has been on just about every pundit show expressing and emphasizing the need to extend the Bush tax cuts. Although he has not said so lately, to my knowledge, Lacy Clay voted against making the Bush tax cuts permanent in April 2002 (107th Congress (2001 - 2002) H.R.586).

We all know that President Obama promised not to increase taxes for anyone making less than $250,00 a year. So I had to find, how do the Bush tax cuts effect MO 1st District.

Here are the parameters I set for this exercise. I assumed I am dealing with a family of 4, 2 adults and 2 children under 17 who make whatever the median household income is for the 1st district. I also assumed that they filed using the EZ form and did not take out advanced deductions.

To start, I had to find out what the average income was for all of the first district. For this, as I do not pay for the latest and greatest information, I referred to CQ Politics and their page on MO 1st. Their information was all based upon the 2000 census. Based upon their information, the median household income was $36,314. Assuming that the range would be the same, I adjusted for inflation and came to a 2010 median household income of $44,796.

Taking, that $44,796 I calculated the MO income tax using the MO Dept of Revenue page. Based upon the calculator, this family would pay $1,272 in income taxes each year.

Using this information, I plugged these figures into the calculator at and here is what I found. (CLICK THE PIC BELOW TO ENLARGE)

As you can see, a family making $44,796 would see them owe $2,000 in taxes , while they would pay nothing in and get a $93 return should the Bush tax cuts continue. The proposed Obama proposed budget would give this family a over $1,000 tax return. That said, the Obama proposed budget has not been passed, therefor it is truly difficult to assume that these figures would remain the same once put in place.

Focusing back on the difference between the expiring cuts and extending them, we are looking at some pretty substantial changes should these cuts not continue. This includes

  1. Tax Rates. The top tax rate will go from 35% to 39.6%. In addition, if nothing is done, it will mean higher taxes across the board. See the proposed 2011 tax rates for more information.
  2. Capital Gains. The 0% long term capital gains rate will go away. Capital gains rates will go up to 10% for lower tax brackets and from 15% to 20% for higher tax brackets.
  3. Dividends. Dividends will be taxed as ordinary income, with the new higher rates. Right now the dividend tax rates are 10% and 15%.
  4. Child Tax Credit. The child tax credit will return to $500 from the current $1,000 per child. In addition, it may not be refundable for some taxpayers.
  5. 529 Plans. 529 plan withdrawals will not be allowed tax free for computer or Internet access.
  6. Business Taxes. In addition, various business taxes will change including the payroll tax credit and section 179 expense deduction.
  7. Estate Taxes. Without any action, the estate tax (or death tax as some like to call it) exemption will go back to a $1 million exemption.
  8. Other Tax Credits. The tuition credits will be limited, as will the earned income tax credit.
  9. Mortgage Premiums. You will no longer be able to deduct mortgage insurance premiums after December 31, 2010.
  10. Return of the Marriage Penalty. Married couples filing jointly will no longer get equal tax breaks compared to non-married couples who file separately.

Based upon these facts, expiration of the Bush tax cuts will have a dramatic affect on many of the people in the first district. Looking at the 2000 census statistics alone, you see that 42.2% of those living in the first district will see an increase due to the return of the marriage penalty. Using those same numbers, 62% live in owner occupied housing. You would have to assume that at least 5% of that 62% (3.1%) pays some sort of mortgage insurance which would increase their tax burden. Additionally, 26% of the total population of the first district is under the age of 18. This means that a good chunk of the taxable population would lose the additional child tax credit. The amount of people is difficult to estimate due to not knowing how many children there are per household and whether or not those children have both parents living at home. That said, even if somehow every household had just 2 children per household, this would affect 91,109 households or 14.7% of the district.

The numbers I have put up here are staggering. In this day and age, $2,000 can still mean a lot of money. It can mean being able to afford sending your kids to private school or even homeschooling your children. It can mean being able to afford a home improvement. Or it could just mean padding your savings account for a rainy day.

Without a budget in place, it is imperative for the first district and the country that the Bush tax cuts continue.

Run the numbers for yourself using the calculator. It WILL scare you.

Now is the time to educate your friends and family. Don't trust that the Congress will do something. Get on the phone and demand to know what your representative is going to do. Demand to know if they are going to push to extend the tax cuts or what their plan is. Let them know that you WILL hold them accountable come November if they do not take care of you, their constituent.

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