Economics

Tax Relief Is Here

Yesterday, the new withholding rates on federal taxes took effect meaning millions of workers will see a few extra dollars in their paychecks as the Bush tax cut reduces marginal rates on all tax brackets.

The law extended the 10 percent tax rate to cover the first $7,000 of taxable income for single persons (up from $6,000 — an annual savings of $50 right there). It’s extended to $14,000 for married couples. That helps all taxpayers.

There’s also "marriage-penalty" relief: The standard deduction for married couples is going up to $9,500 (that makes it exactly twice the standard deduction for singles) and the 15 percent tax rate will be extended to $56,800 (from $46,450) of taxable income.

In addition, each tax bracket above 15 percent has been cut by 2 percentage points except the highest rate, which fell from 38.6 percent to 35 percent.

"The savings are going to be pretty nice, especially for married couples," said David Mellem, a partner in Ashwaubenon Tax Professionals in Green Bay, Wis.

According to the center-left Brookings Institution, the average savings for a suburban family making $50,000/year will be around $1,133. That’s hardly chump change. Even the single members of the lower tax brackets will see about $53 returned to them thanks to the lowered tax rates. As the article points out, married couples will see some of the biggest returns as the marriage penalty is phased out. Even a few extra dollars can make a difference, and the new tax rates ensure that more American workers get to keep more of what they’ve earned.

9 thoughts on “Tax Relief Is Here

  1. And as a final result of the instant gratification of that check in the mail, taxpayers will get the opportunity to pay the government every penny back with hefty interest payments. As you pointed out yesterday, there’s no such thing as a free lunch…or a check in the mail that comes without strings attached. Even those who expect the tax cuts to initiate short-term increases to their disposable income may be disappointed when Bush steals their overtime pay as he plans to beginning September 1.

  2. The amount being returned to the productive economy is a pittance compared to the amount of money spend by the government on fraud, waste, and abuse. It’s like berating as being fiscally irresponsible someone for dropping a dollar into a Salvation Army bucket at Christmas when that person is lighting a cigar with a $20 bill.

    Tax cuts propel economic growth by returning money to the productive economy rather than more funding more government waste and abuse.

  3. Tax cuts propel economic growth by returning money to the productive economy rather than more funding more government waste and abuse.

    Oh? Is that what happened the last time we cut taxes?

    If government waste is the problem, why not cut the waste?

  4. Unfortunately cutting government waste isn’t easy – for every inefficient and wasteful government program there’s at least one interest group that will scream bloody murder if that program is touched. Government programs are notoriously difficult to reform, which is why it’s in the national interest to have as few of them as necessary.

  5. You appear to have sidestepped the question of the effacacy of tax cuts in terms of promoting economic growth. So, again, is that what happened the last time we cut taxes?

  6. The 2001 tax cut isn’t a good example because September 11 erased any gains that would have been made through the tax cuts at the time. However, when both Kennedy and Reagan cut marginal tax rates in 1961 and 1983 government revenues actually increased. Had both been able to keep a cap on spending (a trap Bush is falling rapidly falling into) the economic growth would have been greater.

    Tax cuts engineer economic growth, which is the only way that debt can be recovered. If the economy is not growing, all that money going to government coffers isn’t worth squat.

    For example, I could quit drinking coffee every morning and put that money into paying off my credit card debt. Sounds smart, right?

    Except in the end, the amount I’d be putting in wouldn’t make enough difference in the long term, especially if I’m still using that card every day to buy more and more (as the government spends more and more). Moreover, because I haven’t gotten my morning coffee I spend the day cranky and irritable and my overall productivity goes down. In the end, I’d be better off spending a little extra money in the short term to make things better in the long term. Granted, that isn’t the greatest analogy, but in the case of tax cuts and economic growth the effect is much the same.

  7. Another mischaracterization is the idea that these tax cuts are being "paid for on credit". Mark acts like the evil mean Republicans are going to down to the Treasury and personally writing themselves checks. That simply isn’t the way tax cuts work.

    Tax cuts are simply reductions in the rates of taxation. (Well, duh.) That means that if the population and rate of economic growth were flat the government would get slighly less revenue from taxation this year. However, the economy tends to grow at a rate of about 5% per year, plus or minus depending on economic conditions. Furthermore, there are more people entering the job market through immigration and age. You also have people who move to a high tax brackets also contributing more in overall income.

    All things being equal, tax cuts would decrease federal revenue. However, all things are not equal – and lower taxes can help induce people to change their behavior. For example, lowing the dividend tax rates not only helps those who have dividends get more money, but it encourages companies to offer dividends to investors and investors to invest in companies that offer dividends. Because you’ve created this positive stimulus you have a wider tax base and you’re actually making money out of the deal.

    The Democrats preach fiscal responsibility when it comes to tax cuts, then propose more and more budget-busting entitlement programs that would reduce economic growth and saddle the country with even more onerous burdens of government. The notion that tax-and-spend liberals have suddenly become budget hawks is laughable – this isn’t about the federal debt, it’s about diverting funds toward Democrat-controlled federal programs that act as giant political patronage systems for Democratic activists. The only way this country will remain the economic powerhouse that it is now is by cutting dependence on government and maintaining personal economic freedom and freedom of choice.

  8. It never ceases to be hilarious how conservatives who talk about how self-correcting the market is and how irrelevant non-monetary government policy is in providing positive stimulus effects on the economy can they can then go full circle and say that the only way economies can grow is with tax cuts. That contradicts your entire premise of the infallibility of market forces and falsely insinuates the fluctuative nature of the market. Beyond that, even when the market is on an upswing and economic growth exceeds historical averages as it did in 1998 and 1999, Republicans still support an endless stream of tax cuts to “give the surplus back to the taxpayers.”

    Your arguments to justify tax cuts undergo a chameleon-like metamorphosis depending on the current economic conditions making your current pleas for more and more and more and more tax cuts as means of economic stimulus less than believable. Three years ago, the justification was refunding the surplus to oppressed taxpayers. On September 12, 2001, the justification was showing the terrorists “they didn’t win” by strengthening our industrial pillars with more money. Next year, tax cuts will likely be advertised as the cure for continental drift if Bush thinks it may win him a few more votes.

    Lastly, your theory that tax cuts always increase revenue and have zero consequences to anybody except robust economic growth is one that lawmakers should really test the limits of. They should pass a trillion dollar tax cut on the hour every hour and just wait for them extra revenues to come flooding in. Cutting taxes every month as the GOP is doing simply isn’t cutting it. We must shift to a policy of hourly 13-figure tax cuts. That’ll really put your dynamic scoring fantasy to the test and see if the theory either holds up or bankrupts the country in a matter of days.

  9. To be fair, I don’t think anyone’s arguing that we need more taxes to stimulate economic growth. Quite frankly I don’t see that taxes have anything to do with the recession. It’s just a smokescreen to avoid the real problem – American companies outshoring jobs to India or replacing American workers with H1-B workers who they can pay less.

    Less income tax isn’t going to help the guy who’s been out of work for two years. He doesn’t have any income!

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