With both
parties talking about tax cuts for middle income taxpayers I thought they were
talking about me. Perhaps you did
too. I took a look at the definitions
and was amazed to discover that "middle income" is very close to
$50,000 annual HOUSEHOLD income.
Now it appears to me that Obama
wants to increase taxes on the "rich" taxpayers (that's you and me)
and cut taxes on the "middle income" taxpayers. Romney wants to keep taxes at the same rate on
"rich" taxpayers and cut taxes on "Middle income"
taxpayers. Now this is a major issue so
I wanted to know what it meant in the real world. How much income tax is the "middle
income" taxpayer paying now? That's
the real surprise - nothing at all!
Here's how it works: Assume you
are a married taxpayer with three children and you earned $50k in 2011. If you are married filing jointly you
subtract $11,600 from your income for standard deduction assuming you have no
mortgage or other deductions available.
That leaves $38,400 to pay taxes on.
Then you subtract $3700 for each person in the household, 5 in our case
or a total of $18,500. That leaves
$19,900 to pay tax on. Using the 2011
tables we pay 10% of the first $17000 or $1700 tax. Then we pay 15% on the remaining $2900 or
$435 for a total tax liability of $2135. Theoretically we have paid some withholding
tax during the year so we don't actually owe any more, but wait. You get Child Tax Credit of $1000 for each
child you have under 17 so that's $3000
free money from the government. Now
instead of owing $2135 taxes you get $865 in free money.
Notice we haven't mentioned Earned
Income Credit. Our hypothetical
"taxpayer" made $922 too much
to qualify. If he had managed to get
laid off the last month of the year he would have probably wound up with more
net income to spend because of the additional free money from the government.
Just to be fair, if the above case
only had two children and no additional dependents or deductions he could owe
up to $690 income tax that I suppose we could cut. In other words, we are paying people who
can't afford it to have children, in this case $1555 for the third child EVERY
YEAR. Over the 17 years of eligibility a
child is worth $26435 in direct government subsidies.
Median income is now $50,054. Half of American households make less than
that and half make more. The top 10% of
US households make $143,611 or more.
The top 5% make $186000 or more. Now
do you understand what they mean by "middle income?" I'm sure I don't.
