Friday, July 29, 2011

Closing loopholes, code 4 - Let's screw the middle class, again

An older,  experienced Dentist makes about $300 K a year.  He's been in practice for awhile,  so he has some side investments in property and stocks that make him another $50 K.  With the help of a good financial planner,  our Dentist has set up a nice retirement vehicle that allows him to tuck away $75 K annually in retirement contributions.  So our Dentist has a taxable income of about $275 K.  ($300 + 50 - 75).

Our Dentist lives in a $800 K house with a $600 K mortgage,  so he's deducting about $25 K a year in interest expense.  His property taxes run another $10 K.  He also has a decent medical plan for his family.  His deductible contributions to that plan run about $15 K.  He lives in a state that taxes moderately at about 7% of his income so his state income taxes run around $20 K.  All in,  our dentist has about $70 K in these deductions he takes against his income.  These deductions reduce his taxable income down to about $205 K.

If this Dentist is like the average American with about $200 K to $1 M in taxable income,  he pays somewhere between 20 and 24% federal income taxes on his taxable income.  So our Dentist is paying between $40 and $50 K in federal income taxes.  Yes,  I know there are other considerations,  personal exemptions,  exclusions, AMT, et al.  But we are keeping this example simple,  yet it's still fairly accurate.

Where our Dentist stands now in terms of federal income taxes:

Income $275 K ($350 K less $75 K deductible retirement plan contributions)
Deductions $70 K
Taxable Income $205 K
Tax Rate 22%
Federal Income Taxes $45 K

What do Republicans want to do with our Dentist?  They are going to take a drill,  pen his sorry ass to the wall,  and drill the wallet out of his pocket,  via his nose.   That's what Republicans mean by "closing the loopholes".

Watch,  learn.  Republicans are going to take away his $70 K in deductions.  Yes,  they will lower the tax rate.  And that's how they'll sell this "closing the loopholes" proposal.  They'll tell all of us that they are not raising taxes.  This will be tax simplification.  They'll lower our dentist's tax rate to 18%,  beat their chests and claim that they are lowering taxes!

But this poor Dentist will wind up paying more taxes.

Taxable Income $275 K
Tax Rate 18%
Federal Income Tax $50 K

Our Dentist pays $5 K more a year in taxes.  But Republicans will claim he's paying lower taxes,  because they've lowered his tax rate,  and simplified the income tax code!   Bottom line - when you hear a Republican talk about "closing loopholes" ... that's just code for,  we're increasing your taxes.

It's worse though.   Those increases?  They will almost entirely fall on the shoulders of the middle class.   Think about it.   It does not matter whether you make $200 K,  or $384 Million (average annual income for the top 400 highest paid Americans),  with the exception of state income taxes,  the other closed loopholes will be about the same, no matter what your income level.  When our Dentist gets his "loopholes" taken away,  his taxable income increases by 25%.   Take those same "loopholes" away from a super wealthy person,  and you might push their taxable income up by 8 to 10%, tops.   But for every 1% tax rate decrease for the top 400 wealthiest, many millions get put in their pockets.  So this "closing the loopholes" Republican strategy is also code for - let's cut taxes on the wealthy,  again.

If you're middle class,  you can not win with the Republican party.  They are out to screw you.  And if you haven't figured that out by now,  you've got more important problems in your life.  You're just plain stupid.  And you're going to get what you deserve anyway.

Republicans don't give a crap about middle class America.  They demonstrate that in how they've structured the current tax code where the super wealthy pay lower rates than the middle class.  And they are going to demonstrate it further when they screw us again by "closing loopholes",  lowering rates ... but raising our taxes.   And the taxes paid by middle class Americans will increase far more in percentage terms than the taxes paid by the super wealthy.

Wake the hell up.

North Carolina deserves better than Republican Senator Richard Burr.

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