95% of working families can expect a tax cut under Presidential candidate Barack Obama's tax plan. Obama has not been very specific about the mechanics.
In 2006, taxpayers in the 5% tax rate paid on average of $362 in taxes for the year. People in the 10% bracket paid on average of $519. These figures were derived from IRS statistics.
In 2006, taxpayers in the 5% tax rate paid on average of $362 in taxes for the year. People in the 10% bracket paid on average of $519. These figures were derived from IRS statistics.
If he cut these rates to zero, it would only save this group of taxpayers $362 and $519, respectively. My guess is instead of a cut in the tax rate, he will propose targeted tax credits. Which means Obama will really be advocating spending increases.
Form 1040, page 2, shows a series of non-refundable (lines 47-55) and refundable (lines 66a and 68) credits. These include child care, elderly, education, energy credits and others. A simplified explanation of tax calculation would be to sum your income, subtract your exemptions and deductions to arrive at taxable income. Apply the tax rate schedule to your taxable income to calculate your tax liability.
Tax liability is your total amount of tax. To determine, your refund or tax due subtract tax credits and taxes already paid (typically through withholding). Every dollar of tax credit reduces your tax due be a dollar.
If, however, instead of subtracting from taxes owed your amount of credits, you paid the full amount of taxes owed and at another time from a different bureaucratic agency (Department of Earned Income Credit?) received a check for the amount of the credit everyone would recognize it for what it is....welfare....disguised as a tax cut!
Reasonble people could certainly argue the benefit of any and all of these credits. However, these can't be argued to be tax cuts but increases in federal spending. And my guess is Barack Obama's plan won't result in any real tax cuts.
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