Pixsurguy,
I think the comparison regarding waste was meant to be between government and private industry, not different levels of government. Can you agree that private industry has less waste than government?
Part of the tax bill increases the child credit from $600 to $1,000. I think that will have an immediate effect on a large segment of the population. But to the "weathly" another $400 isn't going to mean much. But taxpayers with 3 kids and say $40,000 of income, $1,200 bucks is a lot of groceries.
I'm not justifying this bill, just pointing out a few things. Personally I think it's the wrong time for an income tax cut.

 

How Taxes Work....

This is a VERY simple way to understand the tax laws. Read on - it does make you think!!

Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this.

The first four men-the poorest-would pay nothing; the fifth would pay $1, the sixth would pay $3, the seventh $7, the eighth $12, the ninth $18,and the tenth man-the richest-would pay $59.

That's what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement -- until one day, the owner threw them a curve (in tax language a tax cut).

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20." So now dinner for the ten only cost $80.00.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But what about the other six-the paying customers? How could they divvy up the $20 windfall so that everyone would get his "fair share?"

The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would end up being PAID to eat their meal. So the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same proportion, and he proceeded to work out the amounts each should pay.

And so the fifth man paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man(the richest) with a bill of $52 instead of his earlier $59.

Each of the six was better off than before. And the first four continued to eat for free.

But once outside the restaurant, the men began to compare their savings. "I only got a dollar out of the $20," declared the sixth man, "But he got $7!" he said, pointing to the tenth. . "Yeah, that's right," exclaimed the fifth man, "I only saved a dollar, too, ........It's unfair that he got seven times more than me!". That's true!" shouted the seventh man, why should he get $7 back when I got only $2? The wealthy get all the breaks!" Wait a minute" yelled the first four men in unison, "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up. The next night he didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered, a little late what was very important. They were FIFTY-TWO DOLLARS short of paying the bill!

Imagine that!

And that, boys and girls, journalists and college instructors, is how the tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore.

Where would that leave the rest? Unfortunately, most taxing authorities anywhere cannot seem to grasp this rather straight-forward logic!

T. Davies Professor of Accounting & Chair, Division of Accounting and Business Law The University of South Dakota

 

Except that it's illegal to not show up for dinner

 

Then on the other hand, there's the concept that only entrees that cost over $25 get price cuts - and since the less well-off people are only purchasing the $3.99 grilled cheese, you can see how they're not helped much.

Sure, I agree that a 5% tax cut across the board gives the richer folks a bigger cut in terms of dollar amount, that's pretty obvious, but I'm still suspicious that a certain proposed plan doesn't actually work in that manner.

 

Here is a quick analysis of the distribution of dividend income based on IRS data (Statistics of Income) for 1999 (the most recent available).

I calculated the number of returns and the total $ amount declared from dividends by income class as a percentage of total returns declaring dividend income and total dividend income. I did the same thing for capital gains as well. See table below. You can see that dividend income and capital gains are largely for the affluent. The distribution is highly skewed towards the upper income groups. Note that while the number of returns in the $1,000,000+ income category declaring dividend income comprised 0.5% of total returns declaring dividend income, the dividend income earned by that income class comprised 15.9% of total dividend income! For capital gains, it is just as bad with 1% returns comprising nearly 25% of the capital gains income.

A separate calculation that I did indicates that 24% of the returns in the $25k-$30k income group declared a dividend income; 50% of the returns in the $75k-$100k group declared dividend income; while 96% of the $1,000k class declared dividend income.

I could go on but you get the picture.



Dividends
Number of Amount
returns
(9) (10)

Under $5,000..................... 0.5% 0.0%
$5,000 under $10,000......... 1.1% 0.1%
$10,000 under $15,000........ 2.1% 0.3%
$15,000 under $20,000........ 3.0% 0.6%
$20,000 under $25,000........ 3.7% 0.9%
$25,000 under $30,000........ 4.3% 1.2%
$30,000 under $35,000........ 5.0% 1.7%
$35,000 under $40,000........ 5.5% 2.1%
$40,000 under $45,000........ 5.4% 2.4%
$45,000 under $50,000........ 5.3% 2.6%
$50,000 under $55,000........ 5.8% 3.2%
$55,000 under $60,000........ 5.5% 3.3%
$60,000 under $75,000........ 15.4% 10.8%
$75,000 under $100,000...... 15.8% 14.2%
$100,000 under $200,000.... 16.0% 22.1%
$200,000 under $500,000.... 4.4% 13.1%
$500,000 under $1,000,000. 0.8% 5.5%
$1,000,000 or more............. 0.5% 15.9%

In terms of the package and the impact, here is my opinion:

Eliminating the double taxation of dividend income is a good thing. It would put dividend income on more of an equal footing with capital gains income (total elimination would give the advantage to dividend income) It would eliminate the current bias against debt finance so that fewer firms would go belly-up during a downturn.

The impact of the package on the economy in the short run will be negligible. No empirical link has been established between gains in dividend income and consumer spending, especially in the uncertain environment of today. In the medium to the long run, the impact will depend upon how much interest rates rise in response to the growing budget deficit.

Since the middle to the upper income groups pay the majority of taxes, by definition a tax cut will favor that group the most.

Chris, that analogy is excellent.