aceventura3

You emphasized the word "reality", so for the record I offer the following for consideration.

A family of 4 (two adults and two children) making $40,000 (in the bottom 60%) would have a standard deduction of $10,700 (using 2007 tax laws), personal exemptions of $13,200 ($3,300 x 4). The taxable income would be $16,454. The tax would be $1,629. But then they would have the Child tax Credit of $2,000, reducing their tax to $0 and allowing a net payment from the government of $371. And then they qualify for the earned Income Tax credit, of $4,470. They pay no tax and actually get a check for $4,841.

O.k., but let's look a another scenario for a person in the bottom 40%.

A family of 4 (two adults and two children) making $66,354 (in the bottom 60%) would have a standard deduction of $10,700 (using 2007 tax laws), personal exemptions of $13,200 ($3,300 x 4). The taxable income would be $42,454. The tax would be $5,589. They would have the Child tax Credit of $2,000, reducing their tax to $3,589. Unfortunately they don't qualify for the Earned Income Tax credit. So they actually pay the $3,589. Obama's plan to save them over $1,000 is good for this family, but is actually a savings of 27%. The Post did not show how they calculated the savings they came up with. so we don't really have "reality" until they show us, and given the complexity of the tax code two families in the same "category could see dramatically different amounts under either plan.

But there is a bigger picture - marginal tax rates. Using the two cases above. The one family paid $3,589 in taxes the other paid nothing and got a check for $4,841 - the difference is $8,430. Wow! The difference in income was $26,354. So if the first family hit good times (new job, raise, spouse entering the work force, whatever) and earned what the second family earns, their marginal tax rate would be - ***32%***. That is pretty close to the highest marginal tax rate available, the one for the "rich".

So, the bottom line is that people who have the potential to earn more money over time should favor tax simplification and generally low marginal tax rates. Also note we were just looking at federal income taxes, not FICA, state and possibly local taxes. Imagine being near poverty, getting an opportunity to make more and having to give half of that additional income, ouch!

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