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House Votes to Partially Extends Bush Tax Cuts

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The House of Representatives passed a bill that would extend the Bush tax cuts for individuals making less than $200,000 and married couples making less than $250,000, the plan that Democrats and President Obama have favored. The vote was 234 to 188 with votes on mostly party lines. 20 Democrats voted against the bill and 3 Republicans voted for it (the remainder, of course, voting along party lines). The next step is for the issue to be voted on in the Senate, and if a bill is passed, the two much be reconciled, and then signed by the President. While that may be unlikely, at least looking at it now, this is the first tangible action towards settling the issue of what to do with the Bush tax cuts.

It’s interesting to hear politicians talk about this vote because everyone tries to spin it in their favor. A month ago, Republicans were talking about fiscal responsibility and how we are spending beyond our means with a soaring deficit and national debt. Now, Republicans are focused on how this is a tax hike for “small businesses and families” earning more than $250,000. They’re not wrong, it’s just that the spotlight has moved.

On the flip side, we’ve passed all this stimulus and pushed all this liquidity around, it seems foolish to raise taxes on anyone, rich or poor. I don’t know how consumption changes as income increases (do people earning over $250,000 a year spend more? or do they invest more?) but an increase in taxes will certainly have a negative effect on consumption, it can’t possibly have a positive effect.

One thing is clear, if you “decouple” the tax debate between the middle class and the upper class at the $250,000 line, it becomes much harder to argue that those earning over $250,000 need a tax break. How are you going to convince Americans, the majority of which earn less than $200,000/$250,000, that we should also give high earners a tax break? It’d be suicide.

As I pay more and more attention to politics, it’s clear that it’s not any different than any other competitive sport. The difference is that the rules and the teams are constantly shifting. :)

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28 Responses to “House Votes to Partially Extends Bush Tax Cuts”

  1. berkshire40 says:

    Why exactly should the rich pay more? I guess I just don’t understand how people consider that fair? Fair to me means everyone pays the same amount and that is already so far skewed its not even funny. 50% of people pay no taxes at all, are you kidding me? All this does is further polarize the electorate and create class warfare.

    • Jeff Liang says:

      Berkshire: Let’s say you tax 30(total tax)% across the board. The family that is struggling to survive on 30K a year will have a more difficult time paying those taxes than the family surviving on 200K a year. My family is in the 200K bracket and I’m all for paying a little more tax so struggling families can buy milk.

      What I’m not for is welfare. Paying less tax is fine but it steams me that people receive money because they fail to make enough to support their families. Temporary unemployment aside, there are too many families that depend on welfare even in an strong top of the bubble economy.

    • freeby50 says:

      “fair”

      There are a lot of ways to cut the “fair” equation.

      Is it “fair” that someone making $10,000 gives nearly 7% of their income to social security while someone making $1,000,000 only gives 0.7%?

      “everyone pays the same amount”

      OK our federal government spent $3.5 trillion. That comes out to around $11,000 each for every single person in the country.

      So a married couple living on a $2k / month social security check should give $22,000 to the federal government in order to cover their “fair” share. A family of four making $50,000 would owe $44,000 to the government. Thats “fair” right?

  2. Jim, they are wrong. This is NOT a tax increase. Not in any sense of the word.

    It is merely allowing a TEMPORARY tax tut to expire. As was intended when the cut was passed originally.

  3. Bey says:

    I make $70K which is very comfortable in the midwest. I doubt I could live as well on a quarter of a million if my home were in the L.A. area. This $250K figure is arbitrary, and its purchasing power is relative. Why can’t liberals, who want to level life’s playing field, support rules that apply to everyone? Flat tax now! No more progressive taxation!

    • freeby50 says:

      What bout the people making $70k in San Francisco and the people making $250k in Wichita Kansas?

      I don’t see any real connection between a flat tax and cost of living.

      How do you think that the cost of living should impact taxation? If the cost of living is low in the midwest and high in a city like San Francisco then do you think that they shouldn’t they give tax cuts to people in San Francisco?

      • Bey says:

        I wasn’t trying to connect a flat tax to the cost of living, I was trying promote a flat tax, period. Why shoudldn’t everyone in a free and capitalist society pay the same tax rate? Our tax laws have become too convoluted due to the tinkering that comes with trying to level the playing field. Where you live, whether you own property, whether you choose to marry and have children, how much you are able to earn, and whether you choose to save for your retirement, should not be debits and credits to the tax you should be paying. Make a buck, pay a percentage, the same rate for everyone — now that’s a level playing field.

  4. zapeta says:

    Unfortunately this has no chance of passing the Senate. I really think the upper brackets should be de-coupled.

  5. It is surprising there is so much outrage from the tax rates going up 3% or 4.6% if you earn more.

    The change would not impact me but that is not why I support letting the Bush tax breaks expire.

    I’ve already had a 5% cut in pay, that is my gross. There is talk of loosing another 2.5% in pay. If I have to take a 7.5% pay cut (a tax basically) I think those earning more can see an increase in there taxable income.

  6. pmulroy says:

    Jim,

    I don’t understand how the debate on raising taxes on “the rich” comes down to whether they “need” a tax break or not. The facts are “the rich” already pay the vast majority of federal income taxes. If you think we need to let the Bush tax cuts expire to raise more revenue, fine let all of them expire. Either we need the revenue or we don’t. You can’t argue how important it is for us to reduce deficits and then exempt the vast majority of the working population from contributing to reducing the deficit, it is ridiculous.

  7. Name: Mark says:

    They are talking about deficit reduction on the backs of the same people they just robbed. There is no way I will accept any compromise on anything from this administration until he starts accomplishing giving something to the people who voted for him. I’m sick of his bipartisan bull shit. There are stories all over out there that Obama is admitting he is a Blue Dog and a DLC NEW Democrat. I sure as hell didn’t vote for that, and that sure as hell isn’t how he ran.

  8. govenar says:

    The proposed plan seems especially stupid and unfair since once you hit $200,000 you pay higher taxes on all the money you earned, not just on the amount above $200,000. So a person earning $199,999 has no motivation to earn more; if he earns one more dollar, the amount he’ll end up with after taxes is less than if he just quit working the rest of the year in some cases. Encouraging people not to work seems like the opposite of what politicians were trying to do.

    • Ryan says:

      Govenar, that’s completely false. Tax rates are marginal, which means they apply only to the money in a certain bracket.

      Suppose the brackets were like this (simple math):

      $0-$10000: 10%
      $10001-$50000: 20%
      $50001+ : 40%

      If you made $40000, you’d pay 10% of the first $10000 ($1000), and 20% of the next $30000 ($6000), for a total of $7000, which is a net of $33000.

      If you made $50000, you’d pay $1000 of the first $10000, and $8000 of the next $40000 for $9000, net of $41000.

      If you got a raise of $500, the amount you paid on your first $50000 wouldn’t change – you’d owe 40% of that $500, or $200. So you’d net $41300 – you pay a higher percentage of taxes on that raise, but you still net more.

      • Texas Wahoo says:

        He’s probably talking about the tax they put in the health-care bill which forces people that make over 200k to pay over 2% for the health care bill.

      • govenar says:

        Ryan: yes, but if the tax cuts expire, the tax rate for each of those brackets would increase. At least, that’s my understanding of it based on the media.

        • govenar says:

          Hmm, looking at various blogs, including Jim’s, I see people writing that just the rates in the top couple tax brackets would change, rather than in all the brackets; i.e., even for people making $200,000, the tax cuts in the lower brackets would be extended. Anyone know what the actual proposal in the House/Senate says? Also, does this proposal keep the long term capital gains tax at 15%, or is everyone going to let that change to 20%?

  9. TomM says:

    Well said pmulroy and govenar. When the heck are we going to stop the class envy and do what’s right for this country? Cut government spending and keep taxes low for everyone. Anyone that thinks that this doesn’t work simply doesn’t get it.
    The other thing that kills me is the fact that politicians want to demonize the rich. What about demonizing the people on welfare that don’t deserve it and the millions of others cheating the many government assistance programs? I’ve seen this first hand.
    The productive members of society should be rewarded…..ie tax cuts. Do this, coupled with the government spending less than they take in, and you can sit back and watch our economy take off sprinting in the right direction.

  10. Shirley says:

    I see no reason to charge higher earners with a larger tax burden. That is punishment for being successful.

    • SoonerNATX says:

      Jim,

      i would have to say that people earning more money.. spend more money (on a numerical basis). a person earning $250k will spend more than one earning $25k.

      However, I would venture to say that the PERCENTAGE of income spent/invested could quite possibly be the same for any level of income assuming both people have the same priorities/mindset on how to use their money.

      at first glance i would love for the “rich” to pay more taxes b/c it would be easy to reduce the deficit/debt… but that doesnt make it right. It might be a stretch to say this but i dont believe its too far off… it almost seems borderline hate to raise taxes on them just b/c they have more than we “non-rich” have. disclosure: i am well below the “rich” line

    • cubiclegeoff says:

      Success often comes through a greater use of government services or help, since one’s success rarely doesn’t need basic infrastructure (roads, water, wastewater, airports, seaports, etc.), tax breaks or incentives, or other help. I think it could be argued that those that make more use just as much, if not more services, than those that make a lot less.

  11. Rupert says:

    I would disagree with the assumption that increase in taxes necessarily reduce the ability to spend – it is more a matter of what happens with the additional funds going into the tax bucket. If they are used to fund another bank bailout, maybe the effect will not be very tangible. However: if they are being used to fund a program that increases spending (unemployment benefits for example?) it actually should support the economy.

    The underlying math is fairly simple: with a growing income you will reach a point of saturation in regards to what you can spend (how many big screen TVs does one need after all?) and you will put your money into your savings account or some other form of investment (stocks, etc.) At that point, this money is out of ‘everyday circulation’ – hence it will not be used for consumption, which will be detrimental to the general economy. However: if you lost your job and have to get by with unemployment benefits, you will spend most of that money – simply because it’s not a lot – so it remains in circulation and creates new demand.

    Robert Reich’s book “Aftershock: The Next Economy and America’s Future” explores this in a lot of detail – worth a read.

    • Texas Wahoo says:

      Although yearly income is not a particularly good predictor of whether people are close to their saturation point. It would make a lot more sense to use people’s net worth in determining whether they are likely to spend more of their income.

    • Shirley says:

      Whether they are at their saturation point or not, the higher earners still have to buy the same everyday things that you and I do. Plus they employ people which creates (or keeps) jobs. Certainly they must pay more than I do in sales tax because they spend more. They pay more in income tax because they make more.

      I think the tax cuts should be either extended for all or expire for all. Personally, I hope they are extended.

  12. Heather says:

    I don’t understand either the reason why people with higher income should be exempt from cutting taxes. If there are some proposals for possible tax reform than they should be equal for all classes.

  13. Guy In San Antonio says:

    Class envy is a regular trick of our government. I fall in the group under $250k a year, however, i would like to be in the group that is above $250k a year. Hearing congress and our president asking to raise taxes on anyone does not sit well with me. After all, I want to be in the group that makes more than $250k a year! Don’t you? When I go to the movie theater, they don’t give me a discount because i earn less than the guy behind me. My electric bill doesn’t come with a 10% discount because the guy in the next block earns 2x what i do.

  14. Joe east coast says:

    Since Dumocrats always want higher taxes, tax Dumocrats!

  15. Vincent says:

    I agree that people with higher salaries should pay more taxes based on the marginal system that we have. However, I have a problem with high earners being the only contributors to a particular tax. If most of society is using a service then most of society should be contributing to that service. Keep in mind that higher earners are not eligible for multiple tax credits/deductions because of their income and then top it off with additional taxes that the majority do not contribute to. That is not logical.

  16. Jay Banks says:

    Analysts supposes that the factual problem is that the alternate minimum tax provisions for your 2010 taxes have not been varied. Middle class folks will soon find out that they do not qualify for the child credit, that some of their deductions may be seriously limited, and their current tax bill will go up $ 500 – 1500. Anyone who thinks we can tax ourselves to prosperity is too economically uneducated to be trusted with a checkbook. Unfortunately, that would probably characterize more than 70% of the American public.


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