Pascrell, Capuano Propose Adding New Tax Brackets

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With the Bush tax cuts expiring, there have been several proposals out there suggesting what we do. We’ve looked at the three major solutions to the expiring Bush tax cuts as well as one less well known alternative, but there’s a new one on the table that seems to make a lot of common sense (just not political sense).

Representative Bill Pascrell (D-NJ) and Representative Michael Capuano (D-MA) suggest the introduction of a new tax bracket starting at $500,000, an idea (known as the Pascrell Compromise) they floated before the mid-term elections. It also includes a five year extension on current middle class tax rates (individuals < $200,000 and families < $250,000) and long term capital gains and qualified dividends. It also includes a one year extension on tax rates for filers making under $500,000 annually (effectively creating a $500,000 tax bracket). This effective "decouples" the tax brackets at the $500,000 income level and political experts are claiming that this will not get Republican support. Once you decouple the higher tax brackets, it'd be political suicide to vote against continuing the middle class (income under $200,000 and $250,000) tax cuts. The interesting part will be to see if all the voters to voiced their opinion about the national deficit and debt will do the same about continuing huge tax cuts for everyone, including themselves. 🙂 In case you were wondering, Bargaineering readers weighed in on the subject just recently.

{ 15 comments, please add your thoughts now! }

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15 Responses to “Pascrell, Capuano Propose Adding New Tax Brackets”

  1. Texas Wahoo says:

    I would like to see us decouple the highest tax bracket for single and married filers. Why is 250k the same for a family as it is for a single person?

  2. zapeta says:

    I’d like to see the highest bracket decoupled. No way the “fiscal conservatives” are going to let that happen. The rich and industries paid a lot of money to get their people elected to keep this kind of thing from happening.

  3. uclalien says:

    Two comments regarding Texas Wahoo and zapeta’s posts:

    @Texas Wahoo- The highest tax bracket is not @250k; it’s $373,650. It hasn’t been $250k since 1994. More info can be found here:

    @zapeta- Texas Wahoo’s suggestion to keep the methodology of the tax brackets consistent would increase the married filing jointly maximum tax bracket to $747,300. I have a hunch that the rich wouldn’t have a problem with this. I think you got confused in the midst of your rant.

  4. uclalien says:

    From a historical perspective, raising taxes probably won’t make a lick of difference with regard to the budget since the US is (and has been) experiencing a spending problem, not a revenue problem.

    Four interesting facts about taxes, spending, and the federal budget:

    1) Between 1980 and 2008, the federal government’s inflation adjusted revenues increased by 115%, yet it still managed to increase it’s spending by 122%.

    2) Since 1920, the US government ran a budget surplus of greater than $100B (inflation adjusted 2005$) only 3 times, while running a budget deficits of greater than $100B (2005$) 35 times. Keep in mind that this ignores the current multi-trillion dollar deficits it’s currently running.

    3) Since 1920, the US government has run a budget surplus of greater than $10B (2005$) only 12 times, while running budget deficits of greater than $10B (2005$) 61 times.

    4) Despite having a top income tax bracket greater than or equal to 70% from 1936-1981 (>90% from 1944-1963), a budget surplus was only achieved 9 times in those 46 years. And the cumulative deficit over that period was $3.5 trillion (2005$).

    Simple summary: No matter how much the government collects in taxes, it is as good as spent.

    • live green says:

      This is exactly how I feel. I don’t mind paying taxes as all, but it’s frustrating to see that we are spending so much money and there is just so much waste going on. If we actually took the time to eliminate waste and spend the money where we really need it, we could actually start getting surpluses.

    • cubiclegeoff says:

      It’s true there is a spending problem, but as bad as Congress is at keeping spending reasonable, the public is just as bad at demanding programs and projects that they want but don’t want to have to pay for.

  5. Under the Weather says:

    Hmm, didn’t the income tax start as just a tax for the wealthy and eventually extended down to everyone else?

    I imagine once the national debt continue to rise (re: uclalien), they’ll decide that everyone needs to do “their part” and pay higher taxes. Everyone, except for Congress who will continue to spend our money as fast as we send it in.

    • Jim says:

      That’s probably a myth. Either way, almost half of US households don’t pay federal income taxes. So say what you will about who we should “tax,” the reality is that half of the households don’t pay it at all. That’s why whenever people say “tax XYZ income group” because they don’t pay their fair share, I point to that statistic. Anyone who pays a tax is certainly doing more than average!

      I don’t know what a “fair” amount should be but 47% of households pay zero and I know that isn’t.

      • freeby50 says:

        The original income tax in 1913 had a $3000 or $4000 exemption. At the time $621 a year was the average wage. So taxes started at about 5x the average wage. That would be like taxing the top 1-10% only.

        The majority of those people paying $0 federal income tax make less than $20k. A large % of them those are senior citizens on fixed incomes or college students with part time jobs.

        • freeby50 says:

          The 2nd paragraph in my last reply was supposed to be about the 47% of people not paying income taxes today. It wasn’t clear originally and might have come across about people in 1913 rather than 2010.

  6. billsnider says:

    Lets face it, there is no such thing as a fair tax. One or more groups will pay proportionately more than the next. The problem really is on the spending side. get this down and this subject slowly slips away.

    Bill snider

  7. Tim says:

    we should go to a 15% VAT and take 20% out of everyone’s pay for those making over $40k (inflation adjusted) gross. abolish tips and force service industry to pay employees. we should also stop treating $250k for married couples or $200k as some sort of threshold, b/c that is how AMT got all messed up. Also, I cannot stand the notion that an indiv can make $200k but a married couple can only make $250k.

    all companies in all flavors would have to pay 10% flat tax. get rid of EIC and child tax credits. flat 15% on capital gains, inheritance, and gift.

  8. Valerie says:

    I don’t see why voting for decoupling the top tax bracket means you can’t vote for middle class tax breaks. Seriously– the whole POINT of a progressive tax system is that taxes are higher the more you make, so adding a new tax bracket and leaving tax breaks on the middle are both perfectly in sync on that, particularly since rich folks actually don’t pay as much as we might think (i.e. social security tax is only on first $100k, so you only pay that tax on part of their income; capital gains are income, and make up a LOT of the income of the very welathy, but are taxed at a much lower rate; etc).

    • Jim says:

      You can vote for middle class tax breaks while still decoupling the top tax brackets, the problem is that Republicans tend to favor tax cuts for the higher tax brackets as well (wealthier people tend to be Republican). Once you decouple middle and high brackets, it becomes harder for Republicans to defend their support of cutting taxes for higher tax brackets. It’s harder to say “I want to cut taxes for those making over $500,000.”

      It’s easier to say I want to cut taxes for those over $250,000 because I support small business (and high earners).

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