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View Full Version : Are Republicans Fueling Ignorance about Taxes?



ljb5
07-12-2012, 10:23 PM
When I first became interested in politics, nearly thirty years ago, I heard someone explain how tax brackets work. They said that you look at the total amount of money you earn, then look up the tax rate for that bracket, multiply the two numbers together and that's how much tax you have to pay.

In that case, you could end up in a situation where earning one extra dollar (just enough to bump you into the next bracket) would actually result in you having less money overall.

I remember thinking, "Golly, that doesn't make any sense." And it didn't take me long to figure out that it doesn't make sense because that's not the way it works. I was eight years old.

Sadly, even today, this misunderstanding persists. Just last year, Paul Girourad made the same mistake. (http://forum.woodenboat.com/archive/index.php/t-134571.html)

Even USA Today had to correct a story because their reporter couldn't figure it out. (http://www.usaweekend.com/article/20110902/MONEY/309020007/Math-tips-rest-us)

Over the last 30 years, I have become accustomed to the fact that some people just don't seem to understand math as well as I do, so I'm no longer surprised to learn that some people don't understand how marginal tax rates work.

I am, however, surprised to find that Republicans seem to rely so heavily on the misunderstanding. It's one thing if the general public doesn't understand our tax system... but shouldn't the Republicans in Congress understand? Shouldn't they consider it their Patriotic duty to help people understand how it works?

Here's a disturbing story about Republicans using (and promoting) the ignorance to fuel their own agenda. Not only are they promoting confusion about marginal rates, but also about who pays which rates and the difference between revenue and profit, which is a very important distinction in taxes.

http://www.slate.com/articles/business/small_business/2012/07/small_business_tax_myths_most_firms_are_not_affect ed_by_obama_tax_proposals_.html

I'm particularly bothered by the smarmy approach. They're not saying that these are their ideas... but using the fig leaf of saying that they're just reporting what 'other people' are saying. That lets them print stuff that they know (or should know) isn't true... but avoid the responsibility of actually saying it themselves.


What’s striking about this whole debate is how the very business owners and politicians who seem certain that tax shifts will radically harm the economy are bizarrely uninformed about how the tax code actually works. In particular, they don’t appear to understand what marginal tax rates and tax brackets actually are.
The Republican majority on the House small business committee unveiled a small-businessopen mic site on Monday to reveal “what small business owners are saying about the president’s plan to raise taxes.” Some of what they’re saying is that they don’t know what they’re talking about.

I'm disturbed that Republicans claim to be the party of Serious Business People (not hippy-dippy liberals)... yet so many don't understand business basics.

I really hope someone helps these small business owners understand how the system works. It would be a real shame if they actually shrink their business in an attempt to lower their marginal rates. Pointless, detrimental and bad for everyone involved.

Sadly, Republicans think they get a political advantage from fueling the ignorance.

So how do you feel? If someone misunderstands something in a way that sorta helps your political agenda, would you correct them, or try to use their ignorance for your advantage?

C. Ross
07-12-2012, 10:42 PM
How do I feel? Great! What do I think? That the Slate article has errors. (Golly it's ironic when someone makes mistakes when trying to show how stupid someone else is, and how superior they are!)

Clearly the cited USA Today article (the link is broken) gets marginal taxes wrong, apparently. And one businessman (Piechota) is wrong. No evidence that Republican lawmakers or businesspeople are systematically misinformed or misleading.

But the Slate author is also wrong. For example:


Here, again, he’s missing the point that there’s no federal income tax levied on income that’s used to pay business expenses. Money that Parry spends on employee salaries, for example, isn’t his income—it’s his employees’ income—and they’ll pay taxes on it.

Um, when employer Parry spends on employee salaries he has to pay the FICA and Medicare and FUTA and SUTA on the employee's salaries. He does pay taxes on employee salaries.

Do marginal tax rate increases keep businesses from spending? Maybe. There's plenty of evidence that differentials between capital and expense taxes diverts business spending and investment, as does differences between states and nations. Are taxes the most important thing businesses should worry about? Usually not...it's a smaller component of expense than other stuff. But if you are in a mature business with narrow margins and external, maybe offshore, competitive pressures do taxes affect whether you invest, expand, contract or even stay in business or not? Hell yes.

Ok, that's the big kid thinking. You can play, or make fun of Republicans if it'll make you feel better. Hint: there are many things Democrats have said about taxes that are a lotta fun, too.

ljb5
07-12-2012, 11:21 PM
Wow, Cris, you really messed that one up.

The quote you pulled specifically mentions federal income tax (and the issue is marginal tax rates paid by individuals). That does not include FICA, Medicare, FUTA or SUTA, which are payroll taxes, not income taxes. Those taxes are not affected by marginal income tax rates, so they are irrelevant to the discussion.

You really seem to be missing the point that there is a difference between the company's operating expenses and profits vs. the salaries paid to the employees.

Raising the tax rates that employees pay on their salaries does not have any effect on the company's decision to invest or expand, etc.

In my case, (like pretty much everyone else), my employer neither knows nor cares what tax rate I pay on my salary. My personal tax rate depends on my salary, my wife's salary, certain investments, deductions, credits, etc. None of this is of any concern to how my company conducts business, buys capital equipment, hires more people or goes out of business.

On any given year, my tax rate might go up or down depending on many factors unrelated to my employer. This is my business and does not concern my employer. In fact, I never even tell them how much money I have coming in from other sources or how much tax I pay. I can assure you, they have never ever checked with me to find out what my personal income tax rate is prior to making business decisions!

That's a very important point: marginal tax rates on salaries are of no concern to businesses. Once the salary is paid to the employee, it is no longer relevant to the business.

The entire discussion is about Obama's proposal to increase marginal tax rates for top brackets on personal salaries. Anyone who says this has anything to do with payroll taxes or corporate operations is totally wrong.

I really thought you were smarter than this.

C. Ross
07-13-2012, 06:53 AM
Oh, OK, you and the Slate author want this to be about whether increased marginal tax rates on individual salaries have an effect on business profitability. You are right - however employees are taxed, all else held equal, has no effeect on employer profitability.

The problem is that the article is a mess. None of the people quoted seem to be talking about individual tax rates, they are talking about taxes on businesses or taxes on themselves as business owners where profits are taxes as personal income, as in an LLC or S Corp.

I'm not a big fan of sloppily constructed arguments or badly written articles to make a polemic point. Some people are.

So perhaps Republicans are "fueling ignorance about taxes". But there's no proof of it in the Slate article. Fueling ignorance in election years is a time tested, well-honed, multi-sided blade. We can compare Republican and Democratic hyperbole on taxes and the economy if you'd like.

Paul Pless
07-13-2012, 06:57 AM
I'm particularly bothered by the smarmy approach. tehe. . .

Mrleft8
07-13-2012, 07:31 AM
33.3% (+-)

ljb5
07-13-2012, 07:55 AM
You are right - however employees are taxed, all else held equal, has no effeect on employer profitability.

You always get there eventually. Sometimes, I have to explain it to you a few times to bring you arond.


The problem is that the article is a mess.

The article isn't a mess. The article is reporting on the Republicans' talking points, which are a mess. Check 'em: http://smallbusiness.house.gov/News/DocumentSingle.aspx?DocumentID=302377


None of the people quoted seem to be talking about individual tax rates, they are talking about taxes on businesses or taxes on themselves as business owners where profits are taxes as personal income, as in an LLC or S Corp.

Yes... that definitely is part of the problem. The Republicans are quoting people who are not talking about the issue at hand.

The president's proposal is to raise marginal rates on the top brackets for personal income. The Republicans respond with a whole bunch of comments from people talking about something else entirely. Kinda like what you did when you started talking about payroll taxes and other issues unrelated to the President's proposal.

ljb5
07-13-2012, 08:28 AM
Since you're so well equipped with math skills, tell us....if a tax rate is reduced from 15% to 10%, what size cut is that, in percent?


33.3% (+-)


You da man!

Sorry, you're both wrong.

Because we use marginal tax rates, it depends on where you sit in the tax bracket.

Let's say you're in the 33% tax bracket, which means you make somewhere between $178,651 and $388,350. Most of your income is taxed at the lower tax rates.

The first $8,700 is taxed at 10%, the next $26,650 is at 15%, the next $50,300 is at 25%, the next $93,000 is at 28%.

That means your total tax burden is $43,482.50 plus 33% of whatever you make over $178,650.

If you are at the lower end of the bracket, making $178,651, your taxes are $43,482.83 and your total tax rate is 24.3%.

If you are at the upper end of the bracket, making $388,350, your taxes are 43482.5+(388350-178650)*.33=$112,683.50 and your total tax rate is 29%.

Now, let's look at what happens if we decrease the rate on your bracket from 33% to 30%. Some would say this is a 10% reduction in your tax rate. Others might say it's a 3 point reduction in your tax rate. The truth is a bit more complicated.

If you make $178,651, your taxes just dropped three cents because that rate only applies to the last dollar you earned. So you're still at 24.3% overall taxes. (Your actual tax rate dropped by 2 one hundred thousandths of one percent).

If you make $388,350, your taxes dropped $6291, so you're at 27.4% overall taxes.

Paul Pless
07-13-2012, 08:35 AM
Sorry, you're both wrong.classic

Paul Pless
07-13-2012, 08:39 AM
ROFL!

Dr. Scientist Genius Dude


Little Man Tate

C. Ross
07-13-2012, 08:47 AM
I needed a good laugh today. Can you find one quote in the Slate article or Republican talking points you cite that are about the effect of individual income tax increases having an effect on business? Answer: there are none. But hey, don't let it get in the way of a good polemic screed.

I'm done.

ljb5
07-13-2012, 08:54 AM
ROFL!

Dr. Scientist Genius Dude, our LOWEST marginal rate was 15%.

It was lowered to 10%.

Now try again, and with a straight face this time, what was the size of that cut, in percent....or feel free to use a fraction, if there's a single honest bone in your body.

ROFL!

I'm not sure why you're intent on restricting the discussion to only talking about people who make less than $8,700 per year. That is a very small (and unfortunate) part of our population.

It's also irrelevant to the president's proposal to increase marginal rates on income above $250,000.

If you want to talk about tax rates and the president's proposal, you're going to have to open your mind up to more than just the few people at the very bottom. The math is a little more complicated, but the discussion is more relevant.

ljb5
07-13-2012, 09:01 AM
Can you find one quote in the Slate article or Republican talking points you cite that are about the effect of individual income tax increases having an effect on business? Answer: there are none. But hey, don't let it get in the way of a good polemic screed.

This is what it says on the Republicans' webpage:
President Obama today called for increasing taxes on income above $250,000, which would harm many small businesses. In response to this proposal, American small business owners shared their opinion through the Committee’s interactive website

The Republicans are attacking the President's proposal by trotting out a bunch of quotes from people who are complaining about ..... something entirely unrelated.

It's as if they're trying to create and promote confusion about the issue.


I'm done.

You certainly are.

ccmanuals
07-13-2012, 09:51 AM
On one hand they say this,


President Obama today called for increasing taxes on income above $250,000, which would harm many small businesses. In response to this proposal, American small business owners shared their opinion through the Committee’s interactive website

But on the other hand they do this, yesterday.


Senate Republicans made good on their threat to filibuster a Democratic small-business tax cut bill today, ensuring the bill fell seven votes short of what it needed to move forward.

The Senate voted 53-44 to limit debate on the bill and move to final passage, but 60 votes were needed to overcome the filibuster.
Before the bill was filibustered, the Senate killed, 57-41, a proposal by Sen. Mary Landrieu (http://forum.woodenboat.com/members/213.html) (D-La.) that would extend a raft of tax cuts to small business, including expanded expensing for certain capital investments. Sixty votes were needed to move it forward. The chamber also tabled, 73-24, a House small-business tax break bill. Democrats have criticized the House bill because they say wealthy individuals, such as Paris Hilton, could also take a tax break.

The Senate small-business bill would provide tax breaks for business that add to their payrolls, either through new hires or increased pay, and would allow businesses to accelerate the way in which they deduct business expenses.

Senate Majority Leader Harry Reid (http://forum.woodenboat.com/members/337.html) (D-Nev.) argued Republicans would typically support the small-business bill save for their desire to deny the president a political victory ahead of the November elections. “There is no reason for them to oppose this bill other than to hurt President Obama,” Reid said today.

Kaa
07-13-2012, 10:00 AM
I'm not sure why you're intent on restricting the discussion to only talking about people who make less than $8,700 per year.

If you're single and you've made less than $9,500 in 2011 you do not pay any federal income taxes. In fact, you do not have to file at all.

Try again...

Kaa

Bob Adams
07-13-2012, 10:39 AM
If you're single and you've made less than $9,500 in 2011 you do not pay any federal income taxes. In fact, you do not have to file at all.

Try again...

Kaa

Illjay dances pretty well doesn't he?

ljb5
07-13-2012, 10:48 AM
Setting aside your problems with math, you guys sure are trying hard to divert discussion from the topic.

It's really pretty simple: The Republicans wanted to attack Obama's tax proposal, so they set up a web page with a bunch of comments from other people talking about different issues that aren't related... some of them poorly thought out.

There's actually a comment from a woman who says she's going to try to get their income under $250,000. Is that a good idea?

Should Republicans use faulty arguments like that to support their agenda... or should they help their constitutuents understand how our system works?

Kaa
07-13-2012, 10:50 AM
Illjay dances pretty well doesn't he?

Actually, no, he is kinda awkward, stumbles regularly, and does a fairly spectacular faceplant once in a while. If we are talking about technical skill, SamF dances a lot better :-D

Kaa

ljb5
07-13-2012, 11:08 AM
If you're single and you've made less than $9,500 in 2011 you do not pay any federal income taxes. In fact, you do not have to file at all.

That's a different, unrelated issue.

The federal income tax rate on income for a single person making between $0 and $8,700 is 10%.

The Judge just pointed this out back in post #11. You want to argue? Take it up with him.

There may be certain other reasons why this tax rate is not implemented... but that's not really relevant to the question of the existance of the tax bracket --- and certainly very irrelevant to Mr. Obama's proposal to increase marginal rates on people making over $250,000.

Phillip Allen
07-13-2012, 11:10 AM
Actually, no, he is kinda awkward, stumbles regularly, and does a fairly spectacular faceplant once in a while. If we are talking about technical skill, SamF dances a lot better :-D

Kaa

now THAT'S funny

Durnik
07-13-2012, 11:18 AM
Keeping it simple - Are Republicans Fueling Ignorance..



...

I'm particularly bothered by the smarmy approach. They're not saying that these are their ideas... but using the fig leaf of saying that they're just reporting what 'other people' are saying. That lets them print stuff that they know (or should know) isn't true... but avoid the responsibility of actually saying it themselves.

...

The first thing to come to mind was this whopper -

"The British government has learned that Saddam Hussein recently sought significant quantities of uranium from Africa"

And we are surprised? Past actions are indicative of future actions. Anyone expecting honesty from the Party of No Responsibility is deluding themselves.

enjoy
bobby

Kaa
07-13-2012, 11:45 AM
The first thing to come to mind was this whopper -

"The British government has learned that Saddam Hussein recently sought significant quantities of uranium from Africa"

And we are surprised? Past actions are indicative of future actions. Anyone expecting honesty from the Party of No Responsibility is deluding themselves.

Yes! I don't think we should elect the British government to be the US President this time around :-D

Kaa

ljb5
07-13-2012, 11:50 AM
This is incorrect, and grossly so. It would seem that you don't understand the basics of our Federal income tax. Do the terms, personal exemption, standard deduction, and taxable income ring any bells? Have you ever done your own taxes, or do you farm them out to a professional?

I was, of course, talking about taxable income. I thought that was obvious in any discussion about taxes on income. :D

There are many sources that report that the lowest income bracket is taxed at 10%. You are one of them.

Todd D
07-13-2012, 11:53 AM
A lot of the proliferation of the ignorance comes from the fact that so few people do their own taxes. For example, anyone who does his/her own taxes would know that the standard deduction for 2011 was $5,800 for a single person and the personal exemption was $3,700 for a person. Since you subtract both of those from your earnings ZBEFORE you calculate your tax, it is absolutely clear that a single person pays zero tax on the first $5,800 + $3,700 = $9,500 of income IF said person is under 65 and not legally blind. The standard deduction and personal exemption are both higher for 2012, so a single person under 65 who is not legally blind pays no tax on the first $9,750 of income. Hiring an accountant to do your books and taxes also explains the poor understanding of taxation by many small business owners.

Durnik
07-13-2012, 12:41 PM
Yes! I don't think we should elect the British government to be the US President this time around :-D

Kaa

Perhaps you don't remember (those who fail to remember history are doomed to repeat it), but Bush, the younger, made the statement (to bolster support for Cheney & Rumsfeld's planned invasion of Iraq) in that manner as the CIA had stated the info was known to be false.. Simply a classic case of Republicans 'twisting' info to create the illusion of a 'fact' - IE, nothing new..

If, OTOH, you were making a funny.. Ha, Ha. ;-)

tho, the conservative British being mostly to the left of Republicans - NTM, far less insanely partisan & dogmatic, I'd probably take them over Romney & our republican legislators any day.

enjoy
bobby

Phillip Allen
07-13-2012, 01:01 PM
I was, of course, talking about taxable income. I thought that was obvious in any discussion about taxes on income. :D

There are many sources that report that the lowest income bracket is taxed at 10%. You are one of them.

no... you were not...

wardd
07-13-2012, 01:17 PM
now THAT'S funny

you guys remind me of the fox news talking heads making fun of nouriel roubini just before the crash

John Smith
07-13-2012, 01:28 PM
I'm still trying to convince people we have to pay taxes to finance the government so it can have a military or provide a public education.

Seems a lot of folks believe, if the government does it, it doesn't cost any money.

I'm working from an aging memory here, but my rate was cut by 50% from 15% to10%. It really didn't amount to much extra spending money, as it only came out to not a lot of dollars a year.

Meanwhile, the top rates were cut from 39% to 35% or about 10% Of course the folks in that upper bracket also have money earned in my part of the brackets and for that they got the same cut I got.

However, That 4% difference on incomes in the millions of dollars is a lot of money per household.

I haven't noticed a response to my question of whether today's tax rates would have made the moon shots or the interstate highways possible.

Kaa
07-13-2012, 02:03 PM
you guys remind me of the fox news talking heads making fun of nouriel roubini just before the crash

I *still* make fun of Nouriel Roubini :-P

Kaa

wardd
07-13-2012, 04:03 PM
I *still* make fun of Nouriel Roubini :-P

Kaa

i bet he is wealthier than you are

Kaa
07-13-2012, 08:12 PM
i bet he is wealthier than you are

Oh, my! Such a horrible faux pas on my part -- making fun of someone who's probably wealthier than I am. That's just not proper, is it? I should go and learn respect for my betters as measured in $...

Kaa

hokiefan
07-13-2012, 11:24 PM
Setting aside your problems with math, you guys sure are trying hard to divert discussion from the topic.

It's really pretty simple: The Republicans wanted to attack Obama's tax proposal, so they set up a web page with a bunch of comments from other people talking about different issues that aren't related... some of them poorly thought out.

There's actually a comment from a woman who says she's going to try to get their income under $250,000. Is that a good idea?

Should Republicans use faulty arguments like that to support their agenda... or should they help their constitutuents understand how our system works?

You are the one who started out picking nits with C Ross, and are now having to squirm and wriggle out of your own lack of clarity. Have fun with that :-)

Cheers,

Bobby

Phillip Allen
07-14-2012, 08:30 AM
You are the one who started out picking nits with C Ross, and are now having to squirm and wriggle out of your own lack of clarity. Have fun with that :-)

Cheers,

Bobby

he is very good at getting out of accountability for his own ... ah ... misinformation