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Old 08-03-2008, 09:21 AM   #61
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Originally Posted by free4now View Post
To see how the tax code is becoming less and less progressive, compare the middle class (not those in poverty) versus the rich. The middle class has seen their tax rates stay largely unchanged through the Bush era, and they are getting squeezed with AMT starting to hit them. But the rich have seen significant decreases in ordinary income rates, and huge decreases in cap and div rates.
Life is good for the rich.
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Old 08-03-2008, 09:24 AM   #62
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Originally Posted by Caroline View Post
Interesting thread -- lots of sources quoted and charts and graphs going around.

.... I tend to ignore all that and try to simplify such questions whenever possible.
Agree - I don't think the graphs and numbers really inform us of very much. One big problem I have with most of them, is they look at income tax *filings*. So that automatically pulls out the people who don't need to file, and that throws any meaning right out the window AFAIAC.

I'm looking for a simpler metric. Maybe add up total fed, state, and local taxes collected divided by the population, and/or divided by the 'able to work' population? Then maybe compare that to various income brackets?

I'm not sure what to make of the numbers I have seen. I am actually supportive of progressive taxes, but that IRS chart shows that 4.4% of filers (those w/AGI> $200,000) pay over half the Federal Income tax. Throw in non-filers, and that must say that they are 'paying the way' for much more than half the population, right? Five earners paying the way for another 50 (or more)? That is a factor of 10X. When I look at it that way, I think it leads to " Thank you high AGI taxpayers, for paying so much for so many", rather than " Hey - those 'rich' guys should pay more!".

But again, I don't know that those are the right numbers or the right way to look at it.

And I don't know what to make of Ladelfina's graph of the top 1% wage earners. For instance, we don't know how many of those are the *same* 1% from year to year. A business owner could certainly make a lot in one year, and have many dry years ( or maybe only one real good year his/her entire life). If that is a significant portion of that 1%, it means the 'wealth' is being spread across many more people over time. But all we see is 'the 1% rich'.

Quote:
Stipulated: I get taxed a lot on my 6-figure income, while other folks get taxed a lot less, percentage-wise, on their $20-30K per year incomes.

Question: Would I trade my life for theirs?

Answer: No, I would not.

Next question.
Like I said, I support progressive taxes. So the 'next question' is - at what point do they become 'unfair', and cause resentment or other problems? What if the feds asked for 40% of your 6 figures, or 50%, or 75% ( total, not 'marginal rates)? At 75%, a $100,000 would still keep $25,000, which would be better off than the person who earned $20,000. So this is OK? Or not?

My biggest problem is the complexity of the tax code. All this stuff is based on filings and AGI - what if some super-rich are using loopholes to get around this. There is no way for me to know that, and it could turn everything on it's ear.

-ERD50
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Old 08-03-2008, 09:53 AM   #63
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Originally Posted by free4now View Post
To see how the tax code is becoming less and less progressive, compare the middle class (not those in poverty) versus the rich. The middle class has seen their tax rates stay largely unchanged through the Bush era, and they are getting squeezed with AMT starting to hit them. But the rich have seen significant decreases in ordinary income rates, and huge decreases in cap and div rates.
If I am reading these correctly (big *if*), the IRS figures do not seem to bear this out. Do you have better numbers?

http://www.irs.gov/pub/irs-soi/98in11si.xls

http://www.irs.gov/pub/irs-soi/06in11si.xls

Here is what I did - I looked at the percent of fed taxes paid by the 'under $50K group' in 1998 an 2006.

In 1998 the 'under $50K group' paid 17.1% of the fed income taxes.

In 2006 the 'under $50K group' paid 8.4% of the fed income taxes.

Since when is 8.4 > 17.1?

I can only do a course inflation adjustment, as the next gradation is $75K which overstates inflation in that time. CPI went from 163 to 202, a 1.24 ratio. That would make $50K in 1998 seem like $62K in 2006. Still, the wage earners all the way up to $75K in 2006 paid only 17.6% of the fed income tax.

Either I am reading these tables wrong, or maybe you are making generalizations from marginal tax rates and brackets, AMT discussions and so forth, rather than looking at actual collections. Whatever the case, we come to opposite conclusions.

I'm only on my second cup of coffee, please show me any errors.

Thanks - ERD50
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Old 08-03-2008, 11:46 AM   #64
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IMO one problem with these numbers is that while a couple with 2 kids may have file a tax return the tax liability would be 0 on about $40,000 of taxable income. So that is a check under "filed" and a check mark under "0 tax liability" and, I assume, that tends to skew the percentages and the charts and graphs. The $40,000 level has risen over the years and will continue to each year by a rounded number loosely based on the CPI. Another thing that may tend to skew the numbers, charts and graphs is the EITC (Earned Income Tax Credit) where someone may have to file a return but actually get a refund and have net "0" taxable income. There are almost as much manipulation on the lower end than there is on the upper end. We have turned what should be a simple, straight forward and fair system into an artful science of confusion.
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Old 08-03-2008, 01:20 PM   #65
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Originally Posted by ERD50 View Post

I'm not sure what to make of the numbers I have seen. I am actually supportive of progressive taxes, but that IRS chart shows that 4.4% of filers (those w/AGI> $200,000) pay over half the Federal Income tax. Throw in non-filers, and that must say that they are 'paying the way' for much more than half the population, right? Five earners paying the way for another 50 (or more)? That is a factor of 10X. When I look at it that way, I think it leads to " Thank you high AGI taxpayers, for paying so much for so many", rather than " Hey - those 'rich' guys should pay more!".

-ERD50
I agree with your comment on complexity. Regarding "progressive", I'll also agree that it's hard to determine where the "best" point is.

I also think that when I see a line like "the top __% of tapayers pay __% of the individual income tax", then I also want to see a line like "and that __% of taxpayers also received __% of the total income". It seems that I need both income and taxes to make sense out of this. Note that the SOI tables you linked to had both individual income taxe and AGI. I understand that AGI isn't perfect, but it's a start.
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Old 08-03-2008, 01:41 PM   #66
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I also think that when I see a line like "the top __% of tapayers pay __% of the individual income tax", then I also want to see a line like "and that __% of taxpayers also received earned __% of the total income".
Whether he toiled in a trench, taught in a university, or put his cash at risk so that others could use it, that individual earned the money he "received." A minor point, but one that is at the philosophical heart of this discussion of tax fairness.

Confusing, and opaque--that's our present tax code.

WARNING: Veering into the SOAPBOX area:

We need something understandable and transparent. Best options:
- National Retail Sales Tax (with "prebate" on expenses up to the poverty line to produce a progressive tax rate).
- A flat(er) tax that covers virtually all income (almost no deductions) and provides a healthy standard deduction.
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Old 08-03-2008, 07:32 PM   #67
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Whether he toiled in a trench, taught in a university, or put his cash at risk so that others could use it, that individual earned the money he "received." A minor point, but one that is at the philosophical heart of this discussion of tax fairness.
I knew that word would get me in trouble. I think there is a different level of "effort" involved in working for your money as compared to putting your money into a passive investment. Maybe "recieved" is too weak. Economists have a non-judgemental "labor income" and "capital income". A couple posters here seemed to think that ladelfina's table had only "labor income", I wanted to make the point that I was talking about both.

In terms of tax policy, I think there are people who believe we should only tax labor income and let capital income go untaxed (or that we should tax labor income at a much higher rate). I disagree with that idea.
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Old 08-03-2008, 08:44 PM   #68
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Like I said, I support progressive taxes. So the 'next question' is - at what point do they become 'unfair', and cause resentment or other problems? What if the feds asked for 40% of your 6 figures, or 50%, or 75% ( total, not 'marginal rates)? At 75%, a $100,000 would still keep $25,000, which would be better off than the person who earned $20,000. So this is OK? Or not?
I think that's a really good question. But it's less about pure numbers and more about quality of life.

I have a nice house, a new car, access to healthcare, money for international travel every year, a very small pension and a 401(k) that are coming close to being "enough" and allowing me to bail at / before 55 yrs old. Yes, I could complain that the poor or the rich (take your pick) don't pay enough. But why?

There's an Aesop's fable about a dog with a bone in his mouth crossing a bridge over a river. He looks down into the water and sees a dog with what appears to be a BIGGER bone looking back at him. He grabs for the other dog's bone, letting his go in the process, and ends up with nothing -- the "other dog" was only his reflection.

If I made $100K, they took $75, and the remainder was enough to meet my needs and wants then what, at the end of my life, would be the difference?

I cannot figure out why some people who are so BLESSED cannot be happy without spending precious and all-too-limited life energy fretting about the other guy getting more. Me, I'd rather go hiking.
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Old 08-03-2008, 09:44 PM   #69
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Originally Posted by ERD50 View Post
If I am reading these correctly (big *if*), the IRS figures do not seem to bear this out. Do you have better numbers?

http://www.irs.gov/pub/irs-soi/98in11si.xls

http://www.irs.gov/pub/irs-soi/06in11si.xls

Here is what I did - I looked at the percent of fed taxes paid by the 'under $50K group' in 1998 an 2006.

In 1998 the 'under $50K group' paid 17.1% of the fed income taxes.

In 2006 the 'under $50K group' paid 8.4% of the fed income taxes.

My analysis is simple:

Tax brackets in 1999 were 28/31/36/39.6
Tax brackets in 2007 were 25/28/33/35
Subtracting the two: 3 / 3/ 3/4.6

4.6 > 3 therefore the rich are getting a better deal.


Another source that says the inequality between the rich and middle class is widening is:


New CBO Data Show Income Inequality Continues To Widen: After-Tax-Income for Top 1 Percent Rose by $146,000 in 2004, 1/23/07


Which says:


Quote:

Since 1979 the first year for which the CBO date are available income gains among high-income households have dwarfed those of middle- and low-income households. Over this 25-year period:
  • The average after-tax income of the top one percent of the population nearly tripled, rising from $314,000 to nearly $868,000 for a total increase of $554,000, or 176 percent. (Figures throughout this paper were adjusted by CBO for inflation and are presented in 2004 dollars.)
  • By contrast, the average after-tax income of the middle fifth of the population rose a relatively modest 21 percent, or $8,500, reaching $48,400 in 2004.
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Old 08-03-2008, 11:17 PM   #70
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Best options:
- National Retail Sales Tax (with "prebate" on expenses up to the poverty line to produce a progressive tax rate).
I would support this if the constitution were amended to never allow any kind of income tax.

I'll be dead long before this even gets mentioned.

Ha
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Old 08-03-2008, 11:23 PM   #71
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If I made $100K, they took $75, and the remainder was enough to meet my needs and wants then what, at the end of my life, would be the difference?
But, why did you work all those extra days needed to earn $100K if 75K was "enough"? Why, today, don't you give everything above 75K to a charity of your choice? Do you not believe that you are capable of finding a better (more benevolent, capable of bringing more joy, etc) use for that money than the government does? If not, please drop me a PM and I think I can help you find lots of great uses for that money. Even if you just give it to me!
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Old 08-04-2008, 05:09 AM   #72
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sam, a good question.. BUT is it possible to run a modern society w/o taxes of any kind? I don't think so. So the minute you institute a tax of even a penny, under whatever regime, you open up discussions of fairness. To some minds, working even one extra day is too much, so where is the appropriate cutoff in your mind? 5%, 10%, 20%, 25%, 30%??

Is a poll tax fair? (everyone pays $Xk/year) Probably not.
Is a sales tax fair? (people who make beyond what they need to spend will get that money tax-free, so that's not fair).
Is a flat tax fair? (everyone pays x%) Maybe, but only if you eliminate all other taxes that are regressive -- remember the conceit above of how the lower-end regressive taxes and the higher-end progressive income tax complement each other.

Whichever way you institute a tax will seem unfair to someone. What gets me is how high earners are still complaining, even now that the tax climate is more favorable to them than in any time in living memory. There's not much perspective.

Because there's no single "right" or "fair" way to tax, a plethora of different taxes crop up like weeds.. some are disguised as "fees", etc. And each one grows to sustain its own regime, from overpaid city workers to overpaid KBR mercenaries. We need more accountability over spending (although, even if spending were 1/2 or 1/4 of what it is, people would still argue over whether they are paying their appropriate slice of the spending pie). But I think if people had more direct input over budgeting they would be less angry about paying taxes in the first place.

I love Caroline's offering of the dog bone fable.
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Old 08-04-2008, 07:11 AM   #73
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Originally Posted by free4now View Post

My analysis is simple:

Tax brackets in 1999 were 28/31/36/39.6
Tax brackets in 2007 were 25/28/33/35
Subtracting the two: 3 / 3/ 3/4.6

4.6 > 3 therefore the rich are getting a better deal.


Another source that says the inequality between the rich and middle class is widening is:


New CBO Data Show Income Inequality Continues To Widen: After-Tax-Income for Top 1 Percent Rose by $146,000 in 2004, 1/23/07


Which says:


I'll need to read the article later, gotta run, but... just quoting tax brackets and rates is not, IMO, a good measure. It does not capture how deductions and AMT and a zillion other tax codes have impacted what people actually pay.

-ERD50
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Old 08-04-2008, 10:07 AM   #74
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Because there's no single "right" or "fair" way to tax, a plethora of different taxes crop up like weeds.. some are disguised as "fees", etc. And each one grows to sustain its own regime, from overpaid city workers to overpaid KBR mercenaries. We need more accountability over spending (although, even if spending were 1/2 or 1/4 of what it is, people would still argue over whether they are paying their appropriate slice of the spending pie). But I think if people had more direct input over budgeting they would be less angry about paying taxes in the first place.
I agree, especially with this line: "But I think if people had more direct input over budgeting they would be less angry about paying taxes in the first place."
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Old 08-04-2008, 11:43 AM   #75
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sam, a good question.. BUT is it possible to run a modern society w/o taxes of any kind? I don't think so. So the minute you institute a tax of even a penny, under whatever regime, you open up discussions of fairness. To some minds, working even one extra day is too much, so where is the appropriate cutoff in your mind? 5%, 10%, 20%, 25%, 30%??

Is a poll tax fair? (everyone pays $Xk/year) Probably not.
Is a sales tax fair? (people who make beyond what they need to spend will get that money tax-free, so that's not fair).
Is a flat tax fair? (everyone pays x%) Maybe, but only if you eliminate all other taxes that are regressive -- remember the conceit above of how the lower-end regressive taxes and the higher-end progressive income tax complement each other.

Whichever way you institute a tax will seem unfair to someone. What gets me is how high earners are still complaining, even now that the tax climate is more favorable to them than in any time in living memory. There's not much perspective.

Because there's no single "right" or "fair" way to tax, a plethora of different taxes crop up like weeds.. some are disguised as "fees", etc. And each one grows to sustain its own regime, from overpaid city workers to overpaid KBR mercenaries. We need more accountability over spending (although, even if spending were 1/2 or 1/4 of what it is, people would still argue over whether they are paying their appropriate slice of the spending pie). But I think if people had more direct input over budgeting they would be less angry about paying taxes in the first place.

I love Caroline's offering of the dog bone fable.

I remember reading an cover story in a Reader's Digest years ago... it was a poll taken on what is the appropriate level of taxes... I can not remember if the poll results were 20% or 25%.... (this would be the TOTAL tax burden... income, sales, excise etc.)

BUT... the main surprise was that no matter which subgroup you looked it was almost the same... no difference between Repubs and Dems... ethnicity did not matter... age did not matter...

Maybe someone can spend the time looking for this article
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Old 08-04-2008, 12:26 PM   #76
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I remember reading an cover story in a Reader's Digest years ago... it was a poll taken on what is the appropriate level of taxes... I can not remember if the poll results were 20% or 25%.... (this would be the TOTAL tax burden... income, sales, excise etc.)

BUT... the main surprise was that no matter which subgroup you looked it was almost the same... no difference between Repubs and Dems... ethnicity did not matter... age did not matter...
I can believe this. But if the question went further and asked HOW the taxes should be levied and who has to pay a disproportionate share, *that* is where the disputes will begin.
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Old 08-04-2008, 01:12 PM   #77
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We pay a large percentage of our income in taxes (top 5-10% AGI, no kids, few deductions) and while I sometimes get angry at the amount of taxes we pay and how that money is being squandered by inept politicians, I also remember that it could be a lot worse. We still have relatively low income tax rates (compared to other countries) and the government leaves us enough to feel like our hard labor is paying off. In some countries the tax rates are so high that the value of work is slowly eroding. Why become a doctor or an engineer, if, after taxes, you end up with an income barely superior to that of a mechanic who, in addition to paying low taxes, receives a ton of government handouts?

As a side note, I do get why Europe adopted progressive tax codes: the rich pay for the poor and that is very consistent with a socialist ideology. But I think that a progressive tax code has no place in the US, a country proud of its capitalistic culture. I think we can find a better way.
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Old 08-04-2008, 04:02 PM   #78
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sam, a good question.. BUT is it possible to run a modern society w/o taxes of any kind? I don't think so. So the minute you institute a tax of even a penny, under whatever regime, you open up discussions of fairness. To some minds, working even one extra day is too much, so where is the appropriate cutoff in your mind? 5%, 10%, 20%, 25%, 30%??
It depends on what your government is "running." Just because you can't imagine how a minimalist government would operate does not make it impossible. I can imagine how it would be run, and people would pay for the services that they require. I don't want to derail the thread too much, but assuming that the status quo is the only way to operate is pretty closeminded. I dare to dream.

Quote:
Is a poll tax fair? (everyone pays $Xk/year) Probably not.
Paying for access to democratic process seems unfair, I agree. Having a voice in the system is something that most Americans can agree with. However, the way that elections are set up now (with large campaign costs offset by donations), there is a certain amount of pay-to-play potential for abuse. While everyone can vote, only the candidates with money can afford to get their message out. Having one of the 2 political party affiliations also is a huge advantage when running for office.
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Is a sales tax fair? (people who make beyond what they need to spend will get that money tax-free, so that's not fair).
I'm not following your logic. Why is it unfair that some money is not immediately taxed?

Besides, all money is eventually taxed under a consumption/sales tax. All money is eventually spent, if you look at a long enough time frame. The time frame needed is shorter if you include an estate tax in conjunction with a sales tax, as all money is taxable over the course of one's life. This seems fair to me, as people are taxed on their lifestyle (lavish living costs more), instead of their productivity. This encourages savings, which is something the people of the US do little of.
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Is a flat tax fair? (everyone pays x%) Maybe, but only if you eliminate all other taxes that are regressive -- remember the conceit above of how the lower-end regressive taxes and the higher-end progressive income tax complement each other.
I think that's reasonable all around. I think a flat consumption tax above a certain spending level seems fair. Check out Americans For Fair Taxation: Frequently Asked Questions Answers for how this could work. This is much to brilliant of a taxation platform for this to be implemented in my lifetime, but it would be amazing living under it.
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Whichever way you institute a tax will seem unfair to someone. What gets me is how high earners are still complaining, even now that the tax climate is more favorable to them than in any time in living memory. There's not much perspective.
When you work at your job for XX hours a week, whose money are you earning? This is the crux of the argument, and it is not restrained to the highest income earners. The steady climb in government spending, and the expansion of entitlement attitudes from both government officials and beneficiaries are drivers behind some of the discontentment.

This country was founded on ideals of freedom from government coercion. What were the main issues behind the colonies seceding from England? Do you realize how high the tea tax was (look it up; the number may shock you) that led to the Boston Tea Party (see edit)? Where's your perspective? Somehow, in the last 90 years, it has become accepted by most Americans that the government has the RIGHT to take however much of your income that they deem necessary. They say 90%, it becomes 90%. They say they want to pay for a war, it happens. There is no war, well, there are other programs that need to be paid for. They'll even make it the law to take it directly from your paycheck. No one had to agree to give up the right to their income; the government just took it during WWI and never gave it back. Now, I think it's reasonable for people to try to take it back from the government, within the democratic process. I applaud these people. And when you think about all the taxes we pay (income tax, sales tax, property tax, capital gains tax, estate tax, transfer tax, SS tax, payroll taxes, city wage tax, gas tax, cigarette tax), the number comes out to a lot higher than 25%. Only by bringing in the tax from so many sources makes it even possible for the government to get away with such high overall tax rates.

I find it sad that many people are willing to simply accept any policy under the rationale "It's been worse" or "Other countries are worse." Well what do you want it to be?

I'm nowhere near the top 1% of wage-earners; I just think people should be able to keep the money they earn. Crazy, I know. I don't have a problem with people getting rich in lawful ways by providing goods and services. In fact, I expect them to be deeply compensated for their ingenuity, risk-taking, and productivity.

EDIT: I looked for the tea tax rate, to verify the 3% that I thought. It's not that cut-and-dry. See here for a discussion: http://www.philaahzophy.com/2007/12/...ton-tea-party/
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Old 08-04-2008, 11:51 PM   #79
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Originally Posted by free4now View Post

My analysis is simple:

Tax brackets in 1999 were 28/31/36/39.6
Tax brackets in 2007 were 25/28/33/35
Subtracting the two: 3 / 3/ 3/4.6

4.6 > 3 therefore the rich are getting a better deal.


If you aren't going to make simplistic comparisons at least use the proper data

Tax brackets in 2000 (same as 99) 15/28/31/36/39.6
Tax rates in 2007/2008 10/15/25/28/33/35
Differences 5/13/6/8 and between 1 and 4.6% for people at the top brackets. So your analysis the poor got a better deal, since 5 and 13 > 1 and 4.6,

For a couple with an AGI of 45K and 65K (which I believe is ~20% of all couples) their marginal tax rate dropped by from 28% to 15% which means tax cut of up to $2600 pretty significant.
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Old 08-05-2008, 12:44 AM   #80
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It depends on what your government is "running." Just because you can't imagine how a minimalist government would operate does not make it impossible. I can imagine how it would be run, and people would pay for the services that they require. I don't want to derail the thread too much, but assuming that the status quo is the only way to operate is pretty closeminded. I dare to dream.
I would love to opt out of the Iraq war; tell me where I can sign up for that. I don't feel that I "require" it.
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