On the July 9, 2012 Your World, Neil Cavuto and Charles Payne – each also part of the Fox Business Network – felt the pain of the “middle class” whose taxes will rise under President Obama’s plan to let the Bush tax cuts expire for those earning more than $250,000 a year. The only problem? $250,000 a year is not middle class no matter how you parse it. Yet the two business "experts" insisted otherwise.
"It is weird, huh?" Neil Cavuto said, opening up the discussion about Obama’s plan.
Payne agreed. He said, “Probably the part of it that really gets me the most” is that “$250,000 is all of a sudden rich.” He added that “even Nancy Pelosi” thinks “250 grand, Mr. President, ain't really rich.”
Payne noted that both Pelosi and Senator Charles Schumer wanted to make the cutoff $1 million. “These are people I rarely ever agree with, but it would make sense," Payne said. “At least, that being a starting point.”
Cavuto chimed in. "Twenty million dollar and over crowd, they can take an increase, but that's a big, big swing from the $250,000 and over crowd. We lose sight of that."
"We do,” Payne concurred. “A husband and wife who have a plumbing operation, have a moving operation, own a couple of laundromats, you know people who’ve done OK, or they worked their way up through corporate America – these aren’t Warren Buffet people. These are people with kids, mortgages, colleges, they have the same fears as someone making 50, a household making 50 grand, they really do - particularly if they live in a place like New York or Los Angeles." He claimed that’s why Pelosi or Schumer “kind of gets it this time.”
In an excellent article in Slate, author Daniel Gross demolishes the “$250,000 is middle class argument. He writes:
A household that's making $250,000 today is making about five times the median. In fact, as this chart shows, only 2.476 million U.S. households, the top 2.1 percent, had income greater than $250,000 in 2008… And even if you look at the wealthiest metropolitan areas—Washington ($85,236), San Francisco ($76,068), Boston ($70,334), and New York ($63,957)—a quarter of a million dollars a year dwarfs the median income.
Gross goes on to say that $250,000 may not feel like a lot of money if you live in a super-posh neighborhood – but that does not negate the fact that anyone earning that amount is well off. He concludes: Tell me all about how insanely expensive housing is in any area with good public schools. Tell me about how many seemingly undeserving neighbors make so much more than you do. Tell me about how you want an income tax system that accounts for geographic differences in the cost of living (the Alternative Yuppie Tax?). Just don't tell me you're not rich.
You got that, Neil and Charles?
I live in Alabama (I’ll accept your condolences for that) and this state’s highest tax bracket of 5% begins at $3000. No. I didn’t leave off a zero. THREE THOUSAND dollars. That’s for individuals. For married couples, it’s $6000. A two-parent family of four starts paying income tax on as little as $12,600. Even when you file your actual state tax returns, if you have TAXABLE income of as little as $50—that means what you have left after taking out all possible exemptions and deductions, and REGARDLESS of filing status—you owe money; $1 for $50-100. The major deductions and exemptions include a personal exemption (for individuals and married filing separately, it’s $1500; for married filing jointly and head of household, it’s $3000) and a standard deduction which varies based on income (it used to be the lower of 20% of your gross income or $2000/4000—the $2000/4000 depended on filing status but you couldn’t take more than that dollar figure; it’s actually better now, but only if your income is less than $30,000 a year—$15,000 for “married filing separate”). We’re also allowed to take a deduction for Federal taxes—not what’s withheld but the actual amount from the Federal tax tables; the flip side, of course, is if you receive a refund from the Feds, that’s treated as taxable income (IOW, if the Federal tax table says the tax on your income is $5000, that’s your deduction, regardless of whether you had $4500 or $5500 withheld from your paychecks; of course, you’d benefit if your employer/s didn’t withhold enough, getting an “extra” $500 tax break, but if your employer/s withheld too much, when you get your Federal tax refund, you’ll have to pay tax on it which could put you in a slightly higher tax bracket when filing your taxes).
Once upon a time, these absurdly low rates didn’t really affect most Alabamans—these rates were first set in 1935 and haven’t really been changed too much since. There weren’t too many people in this state who earned $300 a year in 1935, much less $3000.
Now, I don’t really know what New York’s state tax rates and tax brackets are like but if there are really enough people in NY whose income is $250K and they’re just “middle-class” (and I have no doubt there are people in NYC who earn $100-200K a year and are “scraping by”; I find it a bit less credible that people in other parts of the state have it quite as rough as NYCers), then it’s really up to STATE officials to fix the STATE tax rates—perhaps even allowing tax deductions or a credit for their Federal taxes.
The way our current progressive income tax works is this:
Let’s posit that your annual taxable income is $200,000 and you’re single (this means all exemptions and deductions have come out already). Now, that amount puts you in the NOMINAL 33% tax bracket, meaning you’d expect to pay $66,000 in taxes. But, there’s a bit more to the rates than just the “flat” number.
First off, there are a number of “lower” tax brackets that you have to factor in.
We start with the lowest bracket—the 10% bracket for income between $0 and $8700. Then we move up the brackets: 15% for income between $8700 and $35,350; 25% for income between $35,350 and $85,650; 28% for income between $85,650 and $178,650; and finally, 33% for income between $178,650 and 388,350.
Now, the numbers crunch out like this:
You’ll owe $870 for the 10% bracket. (That’s $8700 – 0 = $8700; $8700 × .10 = $870.)
You’ll then owe $3998 for the 15% bracket. (That’s $35,350 – 8700 = $26,650; $26,650 × .15 = $3998. That’s rounding up from $3997.50 since the Feds now prefer you round to whole dollars; it’s not mandatory but for this case, I’m going to do it. Round up for .50 and higher; round down for .49 and lower.)
You’ll then owe $12,575 for the 25%. (That’s $85,650 – $35,350 = $50,300; $50,300 × .25 = $12,575.)
You’ll then owe $26,040 for the 28%. (That’s $178,650 – $85,650 = $93,000; $93,000 × .28 = $26,040.)
And finally, you’ll owe $7046 for the 33%. (That’s your income of $200,000 – $178,650 = $21,350; $21,350 × .33 = $7046.)
Adding up all those figures, we get $870 + $3998 + $12,575 + $26,040 + $7046 = $50,529. Now, I noted earlier, the “flat” 33% would mean you owe $66,000, but with the progressive system, you only owe $50,529. IOW, you saved (or cheated, depending on how you look at it) more than $15,000. But if you listen to all the right-wing BS, you’d think that someone earning $200K, in the “33% tax bracket,” will pay $66,000.
And this applies to ALL levels of income. The next—and final—tax bracket is 35% for single taxpayers with income over $388,350. Basically, a single person with taxable income of $1,000,000 will only pay 35% on $611,650 (or a little over $214,000). Adding the rest of the tax bracket amounts, that person’s actual tax will come to $326,762 (not $350,000 which would be a “flat” 35%—“saving” $23,238). If this single person were to have a taxable income of $2,000,000, his actual tax would come to $676,762 (this would be a bit more than double his tax burden for “just” $1,000,000 but, interestingly, would be EXACTLY the same difference of “savings” from the “flat” 35% rate). And on and on—even at $10,000,000, a single taxpayer would end up paying only $3,476,762 (again, his “savings” from a “flat” 35% would be $23,238).
Obviously, the tax brackets differ depending on your filing status (the only real difference being the 35% rate—it’s $388,350 for “single,” “married, filing jointly,” and “head of household” but it’s half that for “married, filing separately”; there are also minor differences in the actual dollar amounts for the other rates—those with “married, filing jointly” tend to have dollar figures at twice the figures for “single” and “head of household” tend to be about midway between “single” and “married filing jointly). Tax brackets and dollar amounts can be found at ”http://www.moneychimp.com/features/tax_brackets.htm">http://www.moneychimp.com/features/tax_brackets.htm which also has a calculator for you to figure out your own numbers and status (it also gives you your tax bracket and your tax as a percentage of your income).
One WOULD think that people on a BUSINESS network would know things like this. But then again, we’re talking about a Fox network that doesn’t offer programs DESIGNED for “entertainment.”
If these people cared about small business they would be championing Obamacare which will result in bigger tax savings for small business, (but none for big business) So their ‘concern’ for the little guy is a load of b.s.
Well, Grampa McCain DID say back in 2008 that anybody who made less than $5 million/year was “middle class”.
{Then again, he couldn’t tell how many properties he owned when asked . . .}
.